Segregated Fund Investing: There's a fee for that? | Jan 9, 2017
A management expense ratio (MER) is the total* cost to invest in a standard series segregated fund policy. It’s important to note that you do not pay the MER directly; rather it’s paid by the fund itself, which reduces the value of your investment accordingly.
How your money gets split out in an MER
You invest $10,000 in a standard series 75/100 version of a typical Canadian balanced fund with an MER of 2.9 per cent. Through the fund you will pay a total of $290 in fees for the year, which may be broken out as follows:
- $157 for the management of the fund, fund operating expenses and the capital guarantee provided on your investment
- $33 for taxes
- $100 fund dealer commission for administration compliance and oversight provided by the fund dealer, of which a portion goes to financial security advisors for the services provided to clients, including financial advice and overhead expenses incurred by the firms providing those services
It is important to know what makes up an MER but it is also important to remember why you choose to invest in segregated funds and what benefits they offer.
When investing your money within an insurance company, you are provided with these:
- Bypassing of probate.
- Beneficiary designation on both registered AS WELL AS non-registered investments.
- Maturity and death benefit guarantees.
- Potential creditor protection.
For some clients, these features are important to them. Should you pass away, the individual you’ve selected to settle your affairs could be faced with a stressful situation. A segregated fund policy can help with this process because the death benefit will go straight to your named beneficiaries instead of going through your estate. In the end, this has the potential to make the process of passing on your wealth both seamless and relatively stress-free.