Why does investment cost matter so much this RRSP season?

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News reports are full of stories about rising prices compounded by supply chain challenges, and your clients are seeing costs go up in their daily lives – at the grocery store and the gas pump.

As a result, many investors have two pressing concerns. First, are their investment returns keeping pace with inflation? Second, how big a bite are fees taking out of their returns? At the same time, they are demanding more from their investment products – for example, requiring them to focus on sustainability and deliver excellent performance.

It can be challenging for advisors to meet all client needs at once, but today’s lower-cost insurance risk-managed solutions are one potential solution, suggests Michael Rogers, senior vice-president, brokerage distribution networks, at Beneva, the company created by the coming together of La Capitale and SSQ Insurance.

Interest-bearing investments can be risky, too

Some people have reacted to the stress of the pandemic and anxiety about market volatility by restricting their investments to interest-bearing fixed-income products. The good news is that these products tend to be associated with relatively low fees. However, in the current low-interest-rate environment, fixed-income investors are right to wonder if they’re gaining ground against inflation. And, as advisors know all too well, there’s another big risk as well.

“Clients who are sitting on the sidelines and using that as a risk-management tactic are not aware that that’s actually staving off one type of risk, but creating another type of risk: opportunity risk,” says Rogers. “We’re in what’s probably an excellent bull market. We’ll only know at the end, but it’s performing very, very well. And, by sitting on the sidelines in money markets or T-bills, clients are missing out on that growth.”

Unprotected mutual funds are vulnerable to volatility

On the other hand, clients who have remained in diversified mutual funds, with exposure to investment markets, are more likely to achieve returns that beat inflation – but they are also exposed to significant market risk. As Rogers puts it, “While mutual funds have great advantages of pooling the investments and portfolio management, they are subject to the same market or economic forces and, if a correction should happen, they could be caught off-guard.”

Protection from downside risk is essential, but in the past, the comfort and security of guarantees tended to come with a sizeable price tag – and today’s price-conscious investors want to avoid additional costs.

Insurance-based products can help balance client needs

“Advisors are in a unique position to think outside of the box by offering growth potential within insurance risk-managed solutions,” says Rogers. “That allows for the best of both worlds, and they are priced very, very competitively, which historically wasn’t the case . . . The risk pools have evolved for insurance companies, the performance has done well, and we’ve had a chance to adapt our positioning and find a sweet spot, if you will, where clients can get the benefits without the higher cost.”

Now, investors may not have to pay anything more for the peace of mind that comes with insurance protection – so they’re essentially getting extra value for free. Some insurers’ products also check off other items on investor wish lists, with a verified focus on sustainability and solid return history.

For investors concerned about rising prices and advisors looking to satisfy their clients’ needs, that’s a win on many levels, says Rogers.

Market returns plus guarantees at a reasonable price

Michael Rogers Senior vice-president, brokerage distribution networks, Beneva

¹ Offered by La Capitale Civil Service Insurer Inc. ² Offered by SSQ, Life Insurance Company Inc. ³ Available with a minimum bundled investment of $500,000. Some terms, conditions and exclusions may apply.