Personal Finance

Manulife Investment Loan

  • Last Updated:
  • Jul 20th, 2020 9:59 pm
[OP]
Member
Feb 29, 2016
363 posts
88 upvotes
Mississauga

Manulife Investment Loan

Hey All,

I met an agent today and he told me about a scheme. Please throw some light on this with regards to what you think about it:

1. Get a $100,000 Investment Loan from Manulife at 3.2% interest (agent will charge $1000 as processing fee)
2. Use the $100,000 to buy Segregated Funds offered by Manulife
3. The rate of return for these funds is ~10-12%

So the calculation will look something like this.

Year1:
Interest Payments: $3200
Interest Earned: $10,000 (subject to market)

Year2:
Interest Payments: $3200
Interest Earned: $11,000 (subject to market)

Year3:
Interest Payments: $3200
Interest Earned: $12,100 (subject to market)

And so on..

He also mentioned that the yearly interest payments can be tax exempt (not sure how and would look to someone to confirm).

As per him, there is no monthly fee or hidden charges at all. Also, he showed me many of his customers account and they all seemed genuine.

Is this too good to be true? Or is it pretty regular?

I know Segregated Funds are subject to Market Risks but most good mutual funds have a CAGR of 10-15% over last decade so this looks like a fair deal.

Thoughts? Recommendations? Warnings?
15 replies
Sr. Member
Feb 9, 2018
597 posts
494 upvotes
rohan1985 wrote: Hey All,

I met an agent today and he told me about a scheme. Please throw some light on this with regards to what you think about it:

1. Get a $100,000 Investment Loan from Manulife at 3.2% interest (agent will charge $1000 as processing fee)
2. Use the $100,000 to buy Segregated Funds offered by Manulife
3. The rate of return for these funds is ~10-12%

So the calculation will look something like this.

Year1:
Interest Payments: $3200
Interest Earned: $10,000 (subject to market)

Year2:
Interest Payments: $3200
Interest Earned: $11,000 (subject to market)

Year3:
Interest Payments: $3200
Interest Earned: $12,100 (subject to market)

And so on..

He also mentioned that the yearly interest payments can be tax exempt (not sure how and would look to someone to confirm).

As per him, there is no monthly fee or hidden charges at all. Also, he showed me many of his customers account and they all seemed genuine.

Is this too good to be true? Or is it pretty regular?

I know Segregated Funds are subject to Market Risks but most good mutual funds have a CAGR of 10-15% over last decade so this looks like a fair deal.

Thoughts? Recommendations? Warnings?
Run
Deal Fanatic
Apr 5, 2016
5889 posts
4335 upvotes
Calgary/Vancouver
Investment loans are not new and lots of people take them. However, what's worrying is investing it to a seg fund. Seg funds are for a specific use for specific clients. It depends on your life stage, net worth, and financial goals. There many benefits to them, but to average people, it's often not worth the extra fees and insurance.

I generally trust manulife agents more than say MLM ones like WFG. But I do suggest reading over the seg fund cause I don't think there is truly no hidden fees. There should be a DSC in it unless its waived due to the investment loan being used. The management fee is also presented in a different way than MER.

If it was strictly for investment, disregarding life stage and tax status, I would put that investment loan into 100% equity. Can even write off the interest.
Jr. Member
Mar 12, 2006
197 posts
189 upvotes
Investing with a loan or on margin is fine as long as you understand the risks.

The issues that I see from what you wrote:
- looking at past performance to estimate future returns is a bad idea. Do you really expect 10-12% return in this environment?
- typically the segregated funds, while similar to mutual funds have higher costs due to the additional insurance features
- if an agent is recommending segregated funds, it is important to understand why - commissions, only licensed to sell segregated funds, etc.
- investing on margin increases the volatility of your portfolio (ups and downs), so you need to have a longer investment horizon (> 10 years) and high risk tolerance

I invest on margin (~ 35% margin) in a broadly diversified portfolio of low cost index funds (ETFs) with TD and the current margin rate is 2.75% (President's account).
I am in the highest tax bracket and have a long investment horizon (>15 years), defined benefit plan, stable government job, large portfolio of financial assets and a high risk tolerance.
After tax my margin cost is ~ 1% and I have over-performed a single asset-allocation fund like VGRO (my benchmark) with lower volatility and higher Sharpe ratio.

CRA expects that if you use borrowed money to invest that you will receive some sort of income from your investments.
The “income” includes interest and dividends, not capital gains. In order for investment loans to remain deductible, the interest or dividends must produce profit.
Keep a good track of which stocks were purchased with the borrowed funds to be able to deduct dividends/interest earned by these stocks.

To summarize if you are in a similar situation, then it could be a good idea, but you have to be aware of the risks and really know what you are doing.
Sr. Member
Dec 26, 2019
686 posts
1167 upvotes
I also am borrowing to invest, as I am a somewhat similar situation as the previous poster. I spent a lot of time investigating the risks, understanding the tax implications and running sensitivities and projections to ensure that I can afford what I’m doing even under poor market conditions or a rising interest rate environment. In my situation, my dividends cover interest payments and will be used to pay down my loan.

If you don’t know exactly what you’re doing and why, then I’d say stay away. 100k is a lot of money. If it sounds too good to be true, it likely is. I’ll leave you with a couple of comments

- 10-12% market gains not the norm. You may get some years where markets do that well but you’ll get others where markets drop 30%. Are you comfortable with that volatility?
- Seg funds are probably the most expensive investment product you can buy because of the insurance benefits and equity guarantees. Your Management Expense Ratio will likely be 2% or more.
- What happens if interest rates increase? Can you afford to pay 5-6% interest?
- I doubt this is eligible for a tax deduction. Do your research.
- If you truly want to borrow to invest, there are much better ways to do so.
Member
Oct 11, 2013
217 posts
61 upvotes
Almost American
I would walk away from this type of investment scheme... It's basically an overpriced margin. You can get much cheaper elsewhere from many brokerages including Interactive Brokers. Any fund symbols we can lookup?
[OP]
Member
Feb 29, 2016
363 posts
88 upvotes
Mississauga
reversi wrote: - If you truly want to borrow to invest, there are much better ways to do so.
Can you suggest some options? Please
[OP]
Member
Feb 29, 2016
363 posts
88 upvotes
Mississauga
bomber17 wrote: Investment loans are not new and lots of people take them. However, what's worrying is investing it to a seg fund. Seg funds are for a specific use for specific clients. It depends on your life stage, net worth, and financial goals. There many benefits to them, but to average people, it's often not worth the extra fees and insurance.

I generally trust manulife agents more than say MLM ones like WFG. But I do suggest reading over the seg fund cause I don't think there is truly no hidden fees. There should be a DSC in it unless its waived due to the investment loan being used. The management fee is also presented in a different way than MER.

If it was strictly for investment, disregarding life stage and tax status, I would put that investment loan into 100% equity. Can even write off the interest.
Which institutes give Investment Loan?
Deal Fanatic
Apr 5, 2016
5889 posts
4335 upvotes
Calgary/Vancouver
rohan1985 wrote: Which institutes give Investment Loan?
All the major banks do it. If they say no, it's because they don't want the hassle of securing the funds. I'm sure they'll do it for $100k+. One thing though is you have to get the investment through their bank so they can secure it.
Deal Fanatic
Jan 19, 2017
7218 posts
4222 upvotes
rohan1985 wrote: Hey All,

I met an agent today and he told me about a scheme. Please throw some light on this with regards to what you think about it:

1. Get a $100,000 Investment Loan from Manulife at 3.2% interest (agent will charge $1000 as processing fee)
2. Use the $100,000 to buy Segregated Funds offered by Manulife
3. The rate of return for these funds is ~10-12%

So the calculation will look something like this.

Year1:
Interest Payments: $3200
Interest Earned: $10,000 (subject to market)

Year2:
Interest Payments: $3200
Interest Earned: $11,000 (subject to market)

Year3:
Interest Payments: $3200
Interest Earned: $12,100 (subject to market)

And so on..

He also mentioned that the yearly interest payments can be tax exempt (not sure how and would look to someone to confirm).

As per him, there is no monthly fee or hidden charges at all. Also, he showed me many of his customers account and they all seemed genuine.

Is this too good to be true? Or is it pretty regular?

I know Segregated Funds are subject to Market Risks but most good mutual funds have a CAGR of 10-15% over last decade so this looks like a fair deal.

Thoughts? Recommendations? Warnings?
Is the agent working for Manulife? He is charging $1000 processing fee for the loan or buying the investment?
[OP]
Member
Feb 29, 2016
363 posts
88 upvotes
Mississauga
ml88888888 wrote: Is the agent working for Manulife? He is charging $1000 processing fee for the loan or buying the investment?
Processing fee for loan
[OP]
Member
Feb 29, 2016
363 posts
88 upvotes
Mississauga
bomber17 wrote: All the major banks do it. If they say no, it's because they don't want the hassle of securing the funds. I'm sure they'll do it for $100k+. One thing though is you have to get the investment through their bank so they can secure it.
I can’t see the option on RBC’s website. Is it called something else?
Jr. Member
Aug 2, 2018
173 posts
102 upvotes
Did it achieve 10-12% annualized in March/April 2020? If so you should borrow 1 million.
Deal Fanatic
Apr 5, 2016
5889 posts
4335 upvotes
Calgary/Vancouver
rohan1985 wrote: I can’t see the option on RBC’s website. Is it called something else?
It's just like a personal loan but with collateral. They don't advertise such products as they target these to specific clients but you can always go in branch and ask an advisor.
Member
User avatar
Jan 7, 2019
368 posts
373 upvotes
If this was the case, why wouldn't this agent just do this and get rich....oh wait....investments aren't guaranteed.

Run and block this person from your contact.
Remember to always Thumbs Up good responses! Spread positively.

Top