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Understanding segregated fund fees

Learn more about the costs and what they cover.

Segregated fund products have unique features and guarantees that distinguish them from other investment products. Like mutual funds, they are a professionally managed, pooled investment product with the potential for long-term growth, and they can be held in a non-registered account or a tax-advantaged registered plan. But segregated fund contracts offer additional features. This article will help you understand what the costs of these features are and the value you receive in return.

What does a segregated fund contract offer?

Segregated fund contracts have an insurance component and, therefore, are regulated and sold as individual variable insurance contracts in Canada. The insurance component means they carry important additional features, such as estate-planning and wealth-transfer advantages and potential creditor protection. Segregated fund contracts also include a maturity guarantee and a death benefit guarantee. 

The maturity guarantee means your deposits (typically 75 or 100 per cent, depending on the contract), less any withdrawals, are returned to you when the contract matures, even if markets decline during the period. The death benefit guarantee can be up to 100 per cent, depending on the type of contract selected and the age of the annuitant when the product is purchased. Like the maturity guarantee, the death benefit guarantee is also reduced proportionally by withdrawals. In the event of death, your beneficiary, who can be anyone – a family member, a friend or a charity – receives the benefit. 

These are key factors to consider If you’re looking for a way to quickly and cost-effectively transfer wealth to loved ones, protect your wealth from creditors and help build a measure of protection against market fluctuations. Your advisor can help you understand more about these features and how they could benefit you. Each of these features is accounted for in a segregated fund’s management expense ratio (MER). 

A closer look at fees, costs and the MER

All investment funds have an MER, which represents the cost of managing and operating an individual investment fund calculated as a percentage of its net assets. They are calculated and paid by the fund as a percentage of its total value. The contract owner pays the MER indirectly – fees and costs are withdrawn from the fund’s assets. 

The amount of the MER will vary, depending on the segregated fund contract and specific fund you choose. Here’s a breakdown of the typical costs that come with investing in segregated funds. 

Management feesOperating costsInsurance fee
  • The fund company’s oversight of the fund
  • Ongoing investment management advice and decisions by a portfolio manager 
  • Hiring other companies to assist in the administration of the fund
  • Sales and trailer commissions (if applicable)
  • Basic guarantee fees
  • Accounting, marketing and administrative costs
  • Maintenance of security commission filings
  • Legal, audit and custodian fees
  • Applicable federal and provincial taxes
  • The insurance (principal protection) fee varies depending on the guarantee level (75% or 100%) and the fund you choose. The guarantee levels are designed to protect your investment in case of market downturns.
  • Where applicable, insurance fees are clearly stated and are usually paid by redeeming units from your investments.

Read the information folder and contract information carefully, as additional fees could apply to fund withdrawals and/or transfers between investment options. 

What you get:

  • Experienced portfolio managers who actively research, analyze and track the fund while managing risk
  • An advisor who can add value by encouraging disciplined saving and investment behaviour (studies have shown that people who receive financial advice save more of their income)[1]
  • The features and benefits that are built into your segregated fund contract

For your own knowledge and protection, ask your advisor for an itemized list of the fees that apply to segregated fund contracts or any other investment product. 

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© 2020 Manulife. The persons and situations depicted are fictional and their resemblance to anyone living or dead is purely coincidental. This media is for information purposes only and is not intended to provide specific financial, tax, legal, accounting or other advice and should not be relied upon in that regard. Many of the issues discussed will vary by province. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. E & O E. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts as well as the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value. 

[1] Pedro Antunes, Alicia Macdonald and Matthew Stewart, Boosting Retirement Readiness and the Economy through Financial Advice (Ottawa: The Conference Board of Canada, 2014).


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