Seg funds: Where advisors are screwing up

Seg funds: Where advisors are screwing up

Seg funds: Where advisors are screwing up A Toronto-area advisor and Wealth Professional Awards finalist explains why most people selling seg funds today don’t do a good job.

“They don’t understand the product,” says Manulife advisor Monica Weissmann. “Most of the advisors who sell seg funds are insurance advisors. You have to be licensed for insurance to sell seg funds.”

Recently, the big discussion in wealth management circles has been that some advisors will give up their mutual licenses opting to obtain an insurance license instead to avoid the impending CRM2 rules to be implemented at the end of 2015 (phase 2) and then the third and final phase in July 2016. 

It’s called regulatory arbitrage; it’s estimated that 5 per cent of advisors will partake in this end around the regulators.

The biggest problem with seg funds, however, isn’t what might happen post-CRM2 implementation. Rather, Weissmann believes the worst offence is not understanding what they do and how they are useful to the client.

“The insurance advisors are not very good in investments. They don’t really understand them,” says Weissmann. “Most of them once they’ve sold they don’t change them. I [Weissmann] follow the seg funds I’ve sold and move them around sometimes. They [most advisors] don’t do that because there is no pay for that. Except for the trailer fees they get any way.”

Seg funds can be especially powerful for seniors looking for income, Weissmann commented.

“Because I understand the investment part of the equation,” says Weissmann, “I think it’s a very powerful investment [seg funds].”
  • Galen Nuttall 2015-06-02 9:54:55 AM
    I'd be interested in knowing if the author thinks that some of the power of the investment is derived from the guarantees (death benefit, maturity, resets, Lifetime Income Benefit, etc). I find that when it comes to understanding seg funds, many advisors don't fully understand how these features work.
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  • Tony Battista 2015-06-02 10:29:57 AM
    Seg Funds should be sold by those that have a dual licence: Insurance and Mutual Funds. I have experienced in meetings some Insurance Agents not knowing what was more aggressive between an Equity and Income Fund.
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  • Julie Fearn Gallant 2015-06-02 11:10:10 AM
    Insurance advisors should not all be painted with the same brush. Our office is very proactive informing our clients on the benefits derived from seg funds as Galen noted above. We are very hands on making certain that applicable resets are exercised. Guarantees and resets along with proper asset allocation is where the power lies in seg funds.
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