Investment options that offer easy access to cash in segregated fund portfolios.
Having one to two years of cash in a portfolio can help offset a sequence of poor returns when your clients begin drawing income in retirement. But what’s the best place to keep that cash? Bank account? Money market fund? Under the mattress?
Some guaranteed investment contracts let you combine Guaranteed Interest Accounts (GIA) or a Daily Interest Account (DIA) together with segregated funds in one contract. This means you can offer clients the simplicity of two types of investment options in one contract. Segregated funds offer a broad selection and access to the growth potential of the markets. GIAs and DIAs offer the security of guaranteed rates and the option to exercise early cashing privileges in case of emergency, or to take advantage of investment opportunities.
Another unique feature of using this strategy is that you can move your clients’ assets between the segregated fund portfolio and the GIA/DIA based on changing financial needs or during periods of volatility.
The simplicity of having a guaranteed rate option and a wide range of investment options in one contract helps mitigate a poor sequence of returns in the early retirement years and provides the flexibility to take advantage of market conditions or meet changing financial needs.
What is a GIA?
A GIA is an insurance contract that pays interest at a guaranteed rate, similar to a bank-issued guaranteed investment certificate (GIC). Various terms are available on our GIF Select InvestmentPlus or MPIP Segregated Fund contracts, including short-term (daily interest option, one-month term) and long-term (one-year to 10-year term) GIAs are available. You may also be able to choose a daily interest option. At maturity, investors can choose to reinvest their original investment plus the interest they have earned.
Importantly, the interest rate does not depend on the markets and does not fluctuate. On top of that, a GIA offers extras typically associated with insurance products, including tax and estate planning benefits, as well as potential creditor protection.
Tax planning benefits
Every dollar saved in tax is an extra dollar available to save or invest – and a GIA can provide tax savings in two ways when in investing in a non-registered account. First, investors can defer taxes on GIA interest for up to one year. Second, when investors are age 65 or older, GIA interest income may qualify for the pension income tax credit and for pension income splitting with a spouse.
Estate planning benefits
Most people want their assets to transfer quickly, cost-effectively and privately to their beneficiaries. Because a GIA is an insurance contract, naming a beneficiary helps ensure that the proceeds avoid the potential delays and costs associated with estate administration and probate, as well as public scrutiny in a probate court.
Potential creditor protection
Professionals and small business owners often worry about protecting their personal assets from creditors. If they’re sued or the business runs into financial difficulties, creditors may have the right to seize what they own personally.
GIAs have the potential to help with creditor protection during the investor’s lifetime, as well as after death when the death benefit passes directly to a named beneficiary outside the estate. It is very important to consult with a legal advisor to discuss the rules surrounding eligibility for creditor protection.
Using the GIA as the “cash wedge” in your clients’ segregated fund portfolios can make it easier for you to rebalance portfolios and ensure your clients have enough cash on hand for retirement goals. Interest payments from the GIA can be reallocated into the portions of the portfolio with market exposure, boosting future income potential. Choose between two types of investment option in the same contract. Learn more about the cash wedge strategy here.
Segregated funds offer a broad selection and access to the growth potential of the markets. Visit www.manulifeim.ca/SFProfiles for fund information
The Guaranteed Interest Accounts (GIAs) and a Daily Interest Account (DIA) offer the security of guaranteed rates. Visit Manulifeim.ca/giarates for rates details
Holding both options in one contract makes administration easier and allows for consolidated client reporting.[CS4]
 Subject to possible surrender charges.
 Withdrawals, fund switches, and/or transfers between investment options may be subject to fees and charges, result in tax consequences, and impact segregated fund guarantees.
 The probate process and fees do not apply in Quebec. There is a verification process for non-notarial wills but not for notarial wills. In Saskatchewan jointly held property and insurance policies with a named beneficiary are included on the application for probate but do not flow through the estate and are not subject to probate fees.
 In certain circumstances, you can protect your contract from unforeseen bankruptcy by designating a preferred class beneficiary. Since there are some circumstances where creditor protection may not apply, you should consult a legal advisor to find out if you’re eligible for this protection.
FOR ADVISOR USE ONLY.
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