Pooled funds vs mutual funds

Last week Ed from Qualicum dropped by asking about wrap accounts. Grant, he says in a loud voice, “Whats all this noise about wealth management and these programs? It seems to be the hot topic in investing today. Is it?” he asked.

Well Ed, knowing that you’re from Alberta originally, people dont usually go around saying their wealthy, but they have been able to accumulate savings over $250,000 in their working years and want to invest their hard earned money in a manner that is in alignment with their goals.

Ed fired back saying, do you mean to tell me that if I have a bunch of money that investment companies will treat me differently?

My reply was that pooled funds, also known as managed accounts or wrap accounts differ from traditional mutual funds. How so? he asked.

First of all, pooled funds have higher minimums to invest in so the larger investors can customize their account to their specific investment goals, risk tolerance and time horizon. It includes daily portfolio monitoring and rebalancing, strategic tax planning and the flexibility to offset capital gains and losses. An individual mutual fund is not as complex.

Ed leaned forward and asked the key question why isnt everyone doing this?

My reply was simple. They are doing it Ed, in fact most companies in Canada have programs, several programs in fact and minimums with some can be as low as $25,000 all the way up to 1 million or more. In the United States over $400 billion is invested this way. If you look at most mutual fund companies today, they have a wide array of offerings including pooled funds. Heck Ed you may be able to switch some of your existing funds into a customized program usually at no switch cost but it may trigger income tax.

Ed now understands the difference of pooled funds versus mutual funds.

Written by Grant Hicks

Grant Hicks, C.I.M., FCSI is a professional speaker, co-author and a Retirement Planning Specialist with Manulife Securities and Hicks Financial. A leader in the financial industry, Grant has been helping Vancouver Island residents plan and create their retirement lifestyles since 1989.

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