I came accross this old article about me that illustrates so well why my fight regarding protecting the guarantee of segragated funds. I remember advisors after advisors thanking me for addressing the situation.
Speaking at The Insurance and Investments Convention held in Montreal Nov. 7, Richard Proteau, regional marketing director, independent advisor channel, told the audience of financial advisors that the investment industry seems to be divided into two opposing camps – mutual funds versus segregated funds. The choice that advisors are making when they decide to sell one product instead of the other is the choice between an investment that is insured and one that is not insured. “The fundamental difference is in risk management,” he explained.
“Many people decide that seg funds are too expensive” but they have to understand “insurance is not free,” he added.
When a client buys a segregated fund, the risk is on the insurer’s side, whereas it is on the client’s side for mutual funds. “The difference is between being insured and self-insured.”
Mr. Proteau takes issue with the common argument that the probability is low that seg funds will lose money over a ten-year period and the guarantee will not be used. “That’s not an argument!” he told the crowd.
PRECISION ON MY PART: If you buy insurance on the probability that it pays in the next 10 years, nobody would buy insurance because people buy insurance in the hope that they won’t have to claim. This is the basis of insurance…
The fees are minimal in comparison to the value of the guarantees provided, he contended. It is a question of risk management, the need for which is increasing due to both market volatility and the changing financial needs of aging boomers who are preparing for retirement.
Mr. Proteau believes the market volatility is not going to calm down soon. He figures the next 10 years will be defined by volatility. In this environment, the question for advisors will be “how will you manage your clients’ risk?” he says.