Segregated funds, and when the guarantee is worth the cost

Segregated funds are investment products offered by insurance companies. They look like mutual funds in the daily conversation (a pool, a manager, a mix of equities and bonds) and they are different in three ways that actually matter.

First, most contracts guarantee a percentage of your deposits at maturity or at death. You pay for that guarantee in fees. Whether it is worth it depends on your age, your need to take risk, and whether the guarantee lets you stay invested instead of hiding in cash. Second, the assets are held in trust, which can offer creditor-protection features that some business owners and professionals care about. Third, a named beneficiary can receive the death benefit outside of probate, a quiet but real advantage in estate planning in this province.

They are not automatically better than a well-built TFSA or RRSP of ordinary funds. They are a fit when a client wants a guarantee, a potential creditor-protection story, or a clean beneficiary designation, and is willing to pay the cost. We put the fee and the guarantee on the same page so the trade is visible.

If a previous advisor put you entirely in segregated funds and you have never seen a comparison, that is a fair agenda for a review.