Needs Analysis
Needs analysis for seg funds starts with know-your-client information: objectives, risk tolerance, time horizon, liquidity needs, income, tax position, estate goals, creditor concerns, existing insurance, and capacity for loss. The guarantee is a feature, not a substitute for suitability. A long maturity date may not fit a short horizon; emergency funds and near-term expenses belong in liquid, stable products. Identify whether the client needs growth, income, estate preservation, or creditor protection, and whether a seg fund is better than a mutual fund, GIC, or insurance solution. Document the rationale.
Traps: clients often focus on the guarantee and ignore fees, resets, and liquidity. A 75% guarantee still leaves 25% at risk. A 10-year maturity is unsuitable for money needed in three years. Over-concentration in one fund or one insurer is a suitability issue. Assumed creditor protection is not guaranteed.
Rule of thumb: match the maturity date to the client’s time horizon and keep near-term needs outside the contract. Example: a client needs $50,000 for a home purchase in two years and has a five-year seg fund maturity guarantee. The seg fund is unsuitable for that money; use a short-term GIC or savings account, and consider seg funds only for long-term capital.