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Advisor SunLife

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How guarantees can reduce the fear of investing

In bumpy markets, investors can feel more secure with annuities and guaranteed investment funds


Date: May 25, 2016

Whoever coined the phrase “there are no guarantees in life” probably didn’t know much about protecting retirement portfolios.

While many investment products are subject to risk from market downturns and volatility, depending on the features, segregated fund products, also called guaranteed investment funds (GIFs), do offer a range of guarantees.

“Segregated fund products have been part of wealth portfolios for decades, and annuities, which are related, have been around for hundreds of years,” says Michael Banham, vice-president, wealth distribution, individual insurance and wealth, Sun Life Financial.

“As part of an overall retirement income plan, these products provide benefits, increase confidence, and can offer peace of mind in retirement, not only during volatile markets, but also in the current low-interest-rate environment.”

At different stages in clients’ lives and investing horizons, different factors become the focus.

“Segregated fund products may be a great solution for clients who are looking for protection over the long term,” says Andrea Thompson, senior financial planner with Coleman Wealth, Raymond James Ltd. in Toronto.

“Investment wise, they have similarities to mutual funds, but have various additional features. There is a variety of investment options to choose from, for conservative to aggressive investors.”

According to the 2015 Sun Life Canadian Unretirement Index, an overwhelming 98 per cent of Canadians say that they want at least some of their retirement income to be guaranteed.

That desire for security isn’t surprising – Canadians are living longer, which means more people need their money to last well into retirement. According to Statistics Canada, nearly half of today’s 65 year olds will live into their 90s, so for many, retirement income will need to last 30 years or more.

Another anxiety-inducing factor is volatile economic times. Experts are suggesting that the growth of the global economy combined with ever-faster technology means volatility could be a permanent phenomenon.

The Unretirement Index showed that many investors are more risk-averse than they have been in the past: Compared with their behaviour before the 2008 market crash, 38 per cent of investors said they are taking less risk with their portfolios now.

“Products with guarantees can help to counteract the normal reactions people have to the ups and downs of the stock markets,” says Sandra Foster, financial author and president of Headspring Consulting Inc.

Mr. Banham points out that guarantees can be a valuable part of investment planning.

“Advisors can reduce clients’ concerns by presenting a broad spectrum of wealth solutions that includes guarantees and potential growth to meet their needs,” Mr. Banham says.

“The guarantees and estate planning advantages in GIFs can reduce some of the anxieties that even affluent investors are feeling.”

There appears to be lots of room for client education. A survey by CANNEX/Greenwald & Associates of more than 1,000 people with investible assets of more than $100,000 found that only 26 per cent were familiar with segregated fund products. The survey also found that fewer than half of respondents (48 per cent) were familiar with income annuities.

“Advisors should have conversations with clients about segregated fund products, or GIFs, in the clients’ accumulation years. As they approach their retirement , they should discuss the income benefits of life annuities and GIFs,” Mr. Banham says.

Mr. Banham points to Sun GIF Solutions, which includes three series in one product to meet clients’ needs, based on the feedback from advisors.

The Investment Series is for clients who want to participate in the market, while protecting themselves with guarantees and insurance benefits. The Income Series is for clients ready to take income in retirement and want it guaranteed for life, and the Estate Series is for clients who want to leave a legacy and have control over how their estate will be distributed.

“Another option is the life annuity, the longest-standing retirement income product. But they’re often overlooked,” says Mr. Banham. He notes that annuities can work in tandem with other investment options to create a balanced investment plan that clients can feel comfortable with.

“A good place to start might be to allocate 25 per cent of retirement savings to a life annuity providing guaranteed lifetime income, to make sure basic expenses are covered,” he says. “The other 75 per cent could be invested in other products, such as segregated fund products and mutual funds, to provide potential growth.”

Advisor SunLife


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