The work of investment advisors became considerably more difficult after the financial crisis of 2008. Although Canada’s relatively strict regulations insulated our financial institutions from much of the recessionary fallout experienced in the U.S., equity markets in Canada and around the world declined amid the financial uncertainty that arose in the U.S. At that time, many investors began to increasingly view equity markets as too risky for their retirement savings. With equities a non-starter for many investors – even to this day – and with the fixed income asset class generating historically low levels of income, many Canadians are staying in cash and remain reluctant to invest for growth.
With Canadians living longer – and, in turn, their retirements lasting longer – individuals holding too much cash face the very real risk of outliving their retirement savings if they fall short during the accumulation phase. “Even clients who hate market volatility need to grow their savings to fund their retirement,” says Michael Banham, Vice President, Wealth Distribution, Individual Insurance and Wealth, Sun Life Financial. “It takes discipline to stay invested through market volatility, and one of the biggest challenges for an advisor is to keep clients from making emotional investment decisions that can negatively impact their long-term savings. Luckily, advisors have options for clients who are unduly risk averse.”
Give your clients the market exposure they need with the comfort of guarantees
For such risk-averse clients, investing in a segregated fund product may be the ideal strategy. Although segregated funds have been around in Canada since the 1960s, over a quarter of Canadians have never even heard of segregated fund products.1 However, since segregated funds are individual variable insurance contracts offering some guarantees, they can be attractive options for clients who have been driven into cash as a result of equity market volatility and low interest rates.
“Segregated fund products provide your clients with exposure to the equity and fixed income asset classes that can help grow their long-term savings,” says Banham. “And with the various guarantees that these products offer, your clients will be less likely to make short-term investment decisions based on fear.”
Offer guarantees in retirement as well
Beyond encouraging clients to be less conservative in the accumulation phase, advisors also face challenges with clients who are concerned about a lack of access to a steady flow of income when they reach their retirement years.
“Segregated fund products offer your risk-averse clients investment growth potential with insurance guarantees as they save for retirement,” said Banham. “Life annuities and some segregated fund products can also offer peace of mind to these clients while generating ongoing lifetime guaranteed income.”
For clients who are concerned with accumulating enough savings for retirement, consider incorporating segregated fund products into their portfolios as a way to create a better balance between growth and protection. Segregated fund contracts not only offer insurance guarantees and principal protection, but they are also useful for potential creditor protection and estate planning strategies such as bypassing probate. Segregated fund products can help diversify a portfolio and be a true complement to mutual funds, giving your risk-averse clients the confidence to stay invested over the long term in order to build the retirement savings they need.
Segregated funds can help diversify a portfolio and be a true complement to mutual funds, giving your risk-averse clients the confidence to stay invested over the long term in order to build the retirement savings they need.
1 CANNEX/Greenwald & Associates, Canadian Guaranteed Lifetime Income Study (GLIS), August 2015.