Evolving seg funds catching the eye of affluent clients

Return guarantees, new fee options and a growing list of underlying investment opportunities have led to rising interest in segregated funds, especially among high-net-worth investors, says Paul-Simon Ghoche, director of private wealth with Canada Life.

Ghoche said as demand has risen, pricing has become more attractive, and new fee structures have “bridged the gap” between mutual funds and segs.

“Pricing has never been more competitive,” he said. “Over the last few years, insurance companies have introduced an array of fee options: tiered pricing, fee-based options, and embedded options with chargebacks. Those have all garnered interest from investors.”

He pointed out that the list of available underlying investments has also kept up with times.

“The landscape in the segregated funds space in general is constantly evolving,” he said. “Unique or alternative solutions like real assets funds, sustainable solutions, ETFs, and even more specific mandates like incorporating crypto and blockchain have virtually become commonplace.”

Ghoche said the return guarantees that come with seg funds provide clients with additional confidence to delve into these asset classes. Both the guarantee and the “reset” option that allows investors to guarantee returns at a higher value if the fund increases in value have proven valuable to clients amid geopolitics and macroeconomic uncertainty.

“We have definitely seen an uptick in demand for guarantees,” he said. “The increased level of unpredictability in both the equity and, more recently, the fixed-income markets has created a greater appetite for a level of certainty that only seg-fund guarantees can provide.”

Ghoche said estate planning and privacy remain a key attraction of seg funds.

“Many of the high-net-worth clients that we meet have found significant value in the fact that the settlement of their estate would be greatly simplified with a seg-fund offering, that their intended beneficiaries would be spared delays, avoid hefty probate and liquidator fees, and a potential erosion of their investment value,” he said.

Clients place great value on the fact that segregated funds do not flow to the will, and therefore remain private, he said.

“This seems to be of particular importance to the affluent, those with minors and those who have been divorced,” he said. “Knowing that with a seg-fund offering, post–estate settlement, no one will be able to know which son, daughter, nephew, niece, sibling or even charitable organization received what amount is also extremely invaluable to many of these high-net-worth individuals.”

He said affluent clients seem to be well aware of the potential for delays in getting an estate settled, and in some cases, with the final resolution taking several months.

“This brings with it not only additional costs but certainly undue stress,” he said. “So, relating to them the speed and efficiency with which segregated funds would be transferred to their intended beneficiaries — typically within seven to 10 business days — certainly resonates strongly with them.”

He said seg funds are a versatile planning solution, not only for retirees but for pre-retirees and younger clients who are risk conscious.

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.