Economic uncertainty boosts interest in segregated funds

John Yanchus, John Yanchus

John Yanchus is a tax and estate planning consultant, sales enablement team, with Canada Life. Prior to joining Canada Life in 2011, Yanchus held tax and accounting roles with Ernst & Young and KPMG. He is a graduate of the University of Windsor, and holds Chartered Professional Accountant (CPA), Chartered Accountant (CA) and Trust and Estate Practitioner (TEP) designations. He has completed the Canadian Institute of Chartered Accountants In-depth Tax course and has taught Advanced Corporate Tax at Western University’s Richard Ivey School of Business. In his current role, Yanchus is responsible for sales strategy development and supports all individual wealth strategies by creating tax and planning articles, communicating changes in tax legislation and providing expertise on product solutions.

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The need for a safe haven in troubled times has led to increased interest in segregated funds, says John Yanchus, director of estate and tax planning at Canada Life.

Net flows into seg funds tripled in 2021 to $4.6 billion from $1.5 billion the previous year.

“I think the general state of the economy is behind this resurgence,” Yanchus said on the latest episode of the Soundbites podcast. “There is a lot of uncertainty with the market these days and I think the rise in interest rates tends to allow people to explore more guaranteed-type investments.”

He said segregated funds offer a number of features that boost their appeal, including maturity guarantees of either 75% or 100% — an especially attractive feature in recent down markets.

With the bulk of their capital protected, investors are able to continue participating in the stock markets, he said, to capture gains where they can be found, enjoy dividend income and realize capital gains that are taxed at lower rates.

“Segregated funds give you the freedom to invest, while offering insurance protection to preserve your savings,” he said. “They provide very similar investment options as mutual funds provide. And they are also included within managed solutions.”

Yanchus said segregated funds also offer utility when it comes to the “estate side of the conversation,” with provisions that ensure control over death benefits, creditor protection and simple tax reporting.

The death benefit of a seg fund goes to a named beneficiary directly, thus keeping those details out of the public sphere. By comparison, a will becomes a public document during the probate process.

“A segregated fund policy is a contract between the owner and the insurance company,” he said. “No other parties are privy to the contents of that policy.”

Yanchus described segregated funds as a flexible investment tool that makes sense in a wide range of situations.

“I’m a true believer that we have the ability to plan whatever [estate resolution] we desire. We just have to figure out how to achieve that,” he said. “In many cases, a segregated fund can accomplish our goals and desires.”

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