It has been said before, it costs money to make money. Nothing is for free, and that is not always a bad thing. In the case of some financial products, fees offer protection and peace of mind. Those expenses could be worth their weight in gold.
WHAT IS IT
Segregated Funds are the more traditional seg fund product that we offer. They mimic Mutual Funds but offer more protection. They are an insurance product that come with fees and expenses, known as Management Expense Ratios (MERs). These are made up of the investment management fee and operating expenses. There are also fees to support the operation of your segregated funds such as; legal, safekeeping brokerage, administration, taxes, and audit fees. These expenses vary from year to year and are slightly different depending on the type of fund and the sales charge option that is chosen.
There are four types of sales charges:
- Front-end Load or Initial Sales Charge (ISC) – Takes a fee (up to 5%) up front
- Back-end Load or Deferred Sales Charge (DSC) – Takes a fee (up to 6%) over seven years and decreases every year
- Low Load or Low Sales Charge (LSC) – Takes a fee (up to 3%) and holds the shares for a minimum of three years
- No Load – Does not charge a fee
Keep in mind, Segregated Fund fees and bank fees are not the same. Bank fees are transactional fees not guarantee fees. They do not provide insurance or protection.
HOW IT MAY HELP YOU
Depending on the agreement, the owner is guaranteed from 75% to 100% of the investment. The guarantee of capital applies, if the owner holds the contract until maturity (10 years or until age 90). Should the funds be withdrawn prior to the maturity date, the guarantee will not apply.
There are at least five advantages of Segregated Funds (and their fees):
- Principal guarantee – A percentage of your principal investment is guaranteed
- Guaranteed death benefit – The beneficiary is guaranteed to receive the tax-free death benefit, when the owner dies
- Potential creditor protection – Especially beneficial for business owners
- Bypass probate and estate taxes – Beneficial for more private individuals
- Advisor – Having an expert to manage, guide, and explain everything
CLIENT STORY
We had a client come to us about funds she wanted to secure and create a safe place to invest. Upon discussion, we discovered that she had these funds reserved for her future retirement. The funds were from a personal pension plan that she had had from a previous employer. She had her funds in a savings account with a Canadian bank in BC and wanted to have them transferred over to us for assistance.
We are stable and consistent with our investment philosophy, and she liked that about us.
We helped her complete the transfer forms, so that we could be the ones to help her with future decisions. The funds came with some large fees that required payment prior to moving the money. Our client paid, after we explained the fees associated with the new investment. She was no longer concerned by the fees, as that meant that she would always have the same advisor and a consistent explanation of her new account. We would be available at any time to assist her with understanding the costs associated to her account.
Have a question? Or need clarification?
Call to schedule an appointment with one of our advisors.
