Key reasons why segregated funds can be a smart move for small business owners

This article was produced in partnership with Canada Life Investment Management

As an advisor working with small business owners, you understand the unique financial challenges they face. Segregated funds can be a powerful tool to help protect your clients’ personal investments while providing the potential for growth. Many small business owners overlook how segregated funds can shield their personal assets from creditors, a key concern as they build and grow their businesses.

By guiding your clients toward personal financial protection, especially during a time of economic uncertainty, you can help them avoid the risk of exposing their personal possessions, investments and even retirement plans, to potential threats.

1. Potential creditor protection

Consider the situation of a small business owner or sole proprietor whose business has begun to flourish. Having maximized contributions to both their RRSP and TFSA accounts, they find themselves looking for new avenues to grow their investments. Running a business can sometimes mean navigating risks such as lawsuits, business debts and other liabilities can expose owners to financial jeopardy. This raises concerns about protecting accumulated assets from potential liabilities or creditor claims.

This is where segregated funds become particularly valuable. Not only do they offer an opportunity for continued growth, but they also provide a layer of protection that traditional investment vehicles cannot offer. For advisors working with clients in this position, recommending segregated funds can be an effective strategy to safeguard personal investments against future creditor claims.

2. Guaranteed investment protection

Market swings are inevitable. Segregated fund policies act as a financial buffer, offering protection for capital when the market takes a hit. With guarantees1 on 75% to 100% of the total contribution, these policies provide stability and protection from the downside, while still allowing participation in market growth. It’s like having a safety net without sitting on the sidelines.

The advantages of segregated funds extend beyond just protection; they also share key benefits with mutual funds. Both are professionally managed, giving clients access to a diverse portfolio without having to do the heavy lifting.

With the day-to-day demands of running a business, the last thing owners need is to worry about managing investments. Segregated funds are professionally managed by experts, allowing business owners to focus on growing their company. With experienced professionals monitoring the markets and making informed decisions, these investments are in capable hands.

3. Privacy in succession planning, tax and estate benefits

Unlike mutual funds, segregate funds can flow-through and allocate capital gains or losses to policy owners each year, offering a tax benefit. Unused capital losses can be carried back three years or forward to offset capital gains.

As business owners look to the future, succession planning often seems complex. Segregated funds policies can ease the transition with a simple and straightforward way for estate planning. Policy owners can designate specific beneficiaries, ensuring that when they die, the policy’s funds are transferred swiftly and efficiently, bypassing the estate process entirely. This not only saves time but also avoids the delays and costs associated with probate.

In summary, advisors looking to enhance their clients’ financial strategies should consider the key benefits of segregated funds for business owners:

1. Potential creditor protection
2. Guaranteed investment protection
3. Privacy
4. Tax and estate benefits
5. Diverse portfolio

Whether it’s protection against liabilities or creating a streamlined estate plan, these policies offer tailored solutions for your clients.

Choosing the right partner for your clients’ segregated fund investments is important. Canada Life’s segregated funds ranked number one in 2023 for earning the most FundGrade A+ awards. You and your clients deserve the best. We’re here to deliver just that. At Canada Life, we’re driven to provide best-in-class investment options from one of the strongest selections of segregated funds in the industry.² Discover why we’re the right choice.  

_Disclaimers:   

_{¹Guarantees only apply at death and maturity. That guarantees are reduced proportionally by any withdrawal/redemption must be mentioned.}

_{²FundGrade A+® is used with permission from Fundata Canada Inc., all rights reserved. The annual FundGrade A+® Awards are presented by Fundata Canada Inc. to recognize the “best of the best” among Canadian investment funds. The FundGrade A+® calculation is supplemental to the monthly FundGrade ratings and is calculated at the end of each calendar year. The FundGrade rating system evaluates funds based on their risk-adjusted performance, measured by Sharpe Ratio, Sortino Ratio, and Information Ratio. The score for each ratio is calculated individually, covering all time periods from 2 to 10 years. The scores are then weighted equally in calculating a monthly FundGrade. The top 10% of funds earn an A Grade; the next 20% of funds earn a B Grade; the next 40% of funds earn a C Grade; the next 20% of funds receive a D Grade; and the lowest 10% of funds receive an E Grade. To be eligible, a fund must have received a FundGrade rating every month in the previous year. The FundGrade A+® uses a GPA-style calculation,www.FundGradeAwards.com. Although Fundata makes every effort to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Fundata.} 

_{The content of this article (including facts, views, opinions, recommendations, descriptions of or references to products) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any product cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.}  

_{This should not be construed as legal, tax or accounting advice. This material has been prepared for information purposes only. The tax information provided in this document is general in nature and each client should consult with their own tax advisor, accountant and lawyer before pursuing any strategy described herein as each client’s individual circumstances are unique. We have endeavored to ensure the accuracy of the information provided at the time that it was written, however, should the information in this document be incorrect or incomplete or should the law or its interpretation change after the date of this document, the advice provided may be incorrect or inappropriate. There should be no expectation that the information will be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise. We are not responsible for errors contained in this document or to anyone who relies on the information contained in this document. Please consult your own legal and tax advisor.}

_{Creditor protection depends on court decisions and applicable legislation, which can be subject to change and can vary from each province; it can never be guaranteed. Your client should talk to their lawyer to find out more about the potential for creditor protection for their specific situation.}

_{The funds are available through a segregated funds policy issued by The Canada Life Assurance Company. A description of the key features of the segregated fund policy is contained in the information folder. Any amount allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.} 

_{Canada Life and design are trademarks of The Canada Life Assurance Company.}