When You Thought it Was Safe -Segregated Funds

Manulife revealed that a  probe by the Ontario Securities Commission on whether Manulife provided appropriate disclosure on it guaranteed funds also also known as segregated funds and variable annuity guaranteed products has been initiated.

The probe has to do with whether Manulife provided full and continuous disclosure regarding market risk during last years stock market meltdown but I will take this one step further.

Point one is that even if full and continuous disclosure was provided most investors and one could argue many investment advisers did not and do not understand how these products work. A long-dated “guarantee” 10 years out gives small comfort to a 40% draw-down in the value of the  underlying funds held in some of these investment products.

Point two is that these products are very expensive both in terms of ongoing expenses, which are embedded in the fund itself so you do not see them and the commission paid to investment advisers to sell them which is large and I mean LARGE.

Point three is how tying up investment capital in these products severely limits your flexibility if you want to change your investment mix.

In the United States variable annuity products which lure investors in with the “illusion” of safety have been subject to strong criticism for all the above reasons noted.

Caveat Emptor!

This entry was posted on 20. June 2009 at 19:18 and is filed under Investment Industry. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.