“You have an aging cohort of investors with wealth transfer on their minds, and one of the things they don’t want to do is transfer that wealth in a time where you have market volatility,” Febbraro says. “Canadians need to find ways to create their own pension-like approach, and segregated funds can lend that support through unique protection and estate planning benefits. They’re highly relevant in today’s environment of economic uncertainty and longevity risks. I think Canadians value products that will make them feel more resilient.”
Febbraro highlights three areas of widespread client misconception around these funds. The first is a conflation with mutual funds, which he notes disregards the various insurance features in seg funds, such as guarantees on maturity and death. The second is the idea that these funds are only suitable for the most risk-averse clients. He argues, however, that allocations to seg funds allow for an element of downside protection which offers more space for market participation in the remainder of the portfolio.
The third area where Febbraro sees a common misconception is around fees. While acknowledging that seg funds tend to come with higher fees than mutual funds or ETFs, he notes that there is additional value baked into the structures in the form of their insurance guarantees. He argues that those additional features are worthy additions in the management of risk and estate plans.
“It simplifies estate planning,” Febbraro says. “Money goes directly to beneficiaries and it will bypass some of the expensive and time consuming estate settlement, all while keeping information as private as possible.”
Advisors, Febbraro notes, have their own misconceptions around these funds. He notes that many advisors believe seg funds to be niche products, despite what Abacus research found to be a broadly positive contribution to investor confidence. He notes, too, that many advisors and investors believe these funds to be unnecessarily complex. While the insurance elements of these funds add a degree of complexity, Febbraro believes that the utility of functions like probate bypass and creditor protection as such that advisors need to deepen their familiarity.