Insurance industry leader drills down into the factors driving increased interest and changes in the space
While segregated funds have tended to be a smaller component of Canadians’ portfolios, the products are getting increased attention as consumers gain a better appreciation of the benefits that go beyond investments, according to one insurance industry leader.
“When I look at the gross sales – not just from our own product suite, but from an industry overall – we've seen seg fund sales really increase over the last two years,” says Selene Soo, Director, Wealth Products at RBC Insurance. “Investor Economics reported that in 2021, seg fund sales were at their highest level that they’ve been in 12 years, which is quite a feat.”
According to Soo, RBC Insurance saw a 30% year-over-year increase in sales of its segregated funds in 2021. That increase can be attributed, at least in part, to the unique benefits seg funds have compared to other investment product types. For investors and advisors who want liquidity and the potential for growth, as well as downside protection in case of market volatility, she says guaranteed investment funds can be a good fit.
“We've seen so much market volatility over the past two years, and the uncertainty tied to COVID-19,” Soo says. “Investors are looking for safety for their money. And that's where seg funds come in – the benefits have become more apparent from that unfortunate event.”
Soo also sees broad trends in the investment space taking hold for segregated funds. While she says ESG seg-fund products saw only modest sales growth prior to 2020, industry-level sales into that segment has grown considerably stronger over the course of 2021 and up until now. Based on data from Investor Economics, she said seg-fund assets expanded by nearly 50%, mirroring developments in the mutual fund and ETF spaces.
In November last year, RBC Insurance launched two socially responsible investing (SRI) funds in its seg-fund lineup. Soo says the two products – the RBC Vision Balanced GIF and the RBC Vision Canadian Equity GIF, which both exclude companies based on specific factors – have seen a significant uptrend in sales.
“The adoption of responsible investing principle is just gaining more ground among investors globally …. A lot of us are beginning to think about changing the way we live and the way we invest,” she says. “We’ve become more aware of environmental and social issues, which is manifesting as people look for companies to disclose more details about worker safety, employee health benefits, and social factors that were just brought out into the open during the pandemic.”
As improved transparency into the expenses of other financial products make investors more cost-sensitive, Soo also sees some downward pressure on segregated fund fees. While GIFs naturally tend to cost more because of the unique and protective features embedded in them, she says seg-fund fees have been decreasing industry-wide over the last few years, with the most substantial reductions happening in the 75/75 guarantee structure. Meanwhile, “regulators are looking for the industry to provide fuller cost disclosures in an effort to help clients better understand what they’re paying for in seg-fund products,” Soo says.
