What are segregated funds?

You’ve made a smart decision to enroll in a Choices savings plan. But how much do you know about the segregated funds offered in your plan? How do the fees differ between segregated funds and mutual funds? And what’s the difference between a segregated fund and a mutual fund, anyway?

What’s the difference between segregated funds and mutual funds?

Almost all group plans offer investment products known as segregated funds. Segregated funds are similar to mutual funds – both pool assets from a large number of investors, and the assets are invested and controlled by a professional fund manager. But segregated funds are different for 2 main reasons:

• Mutual funds are purchased by individual investors and set up as trusts or corporations subject to securities law and the fund prospectus.
• Segregated fund contracts are only offered by life insurance companies and are classified as insurance contracts, which are exempt from some of the requirements of securities laws, including the requirements to provide a prospectus to investors.

What are some of the advantages of segregated funds?

Segregated funds offered under group plans typically carry lower fees than some other types of funds, making them a cost-effective way to invest your financial assets. See the section below, “Why do fund management fees matter?” for more details.

In certain cases, segregated funds may also offer creditor protection, meaning your segregated fund holdings may be protected from anyone bringing a legal claim against you for money you may owe.

Do I pay more for segregated funds or for mutual funds?

Generally speaking, segregated funds offered under group plans are less costly to the investor than funds bought as an individual. The investment management fees (IMFs) for these segregated funds are often low because group plans, such as the Sun Life Financial Choices plan, have substantial power to negotiate lower fees, making this type of fund an easy and cost-effective way to save and invest. If you compare the IMF for one of the funds you hold through your Choices plan with the IMF of a comparable mutual fund, you’ll see the difference in fees – and that difference can have a large impact on the growth of your savings.*

Choices funds are also “no-load” funds. Sun Life Financial buys directly from the investment/fund manager via wholesale arrangements, so there are no commissions or sales fees charged on the funds. When you invest in a “load” fund through a retail bank or other financial institution, sales and commissions fees are downloaded to you, the investor, which reduces your total return on investment.

How much do fund management fees really matter?

Even a small difference in the amount of the IMF can make a big difference over time – especially when markets are flat or down. The table below shows the difference in the total amount you would save under different IMFs, assuming you invest $4,000 each year and your group plan account earns 7% annually before the IMF reduction.

Over a 30-year career, a 0.5 percentage point difference in fees (1.5% vs. 2.0%) means an extra $26,635 for your long-term savings. And a 1.0 percentage point difference (1% vs. 2%) adds an extra $56,164.

Remember: As a group investor, you’re already a step ahead when it comes to fees. Your funds have been carefully chosen by Sun Life Financial to provide you with a wide range of investment options, and with fees that are already lower than those available to retail investors.

Why can’t I find my funds in the newspaper or other websites?

The funds offered through your Choices plan are pooled, segregated funds offered only within Sun Life Financial group savings plans. These funds are institutional funds and are not listed in daily newspapers or on other financial websites. The funds that are listed are mutual funds offered to the individual investor.

You can call us, or log onto sunlife.ca/choices anytime, anywhere to review the funds in your Choices plan and get information on values and rates of return. You’ll also find links to the fund managers’ quarterly investment reports.

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