New regulations governing how mutual funds are sold to Canadians have attracted a fair bit of attention this year. In a past column, I criticized those rules as falling well short of the protection Canadians need to ensure their interests always come before those of investment advisors and their firms.

Another set of new rules—these governing the sale of segregated funds by insurance companies—have generated less publicity but could have a major impact on the sale of these products.

Segregated funds are essentially mutual funds that are structured as insurance policies where either 75 or 100% of an investors’ capital is guaranteed, usually after they have owned the fund for 10 years. They are sold by licensed insurance advisors.

While dwarfed by the $1.5 trillion held in mutual funds, Canadians own more than $120 billion in segregated funds.

The new rules from insurance regulators will require life insurance companies to disclose much more information to clients about fees and fund performance. The rules are designed to bring seg fund disclosure up to the level now required for mutual funds.

Specifically, seg fund investors’ annual statements will have to disclose all charges and fees as well as changes in net asset value and total personal return, net of charges, for the last year, three years, five years, 10 years and since issue.

When seg fund investors get those new and improved statements, it risks to be a rude awakening. That’s because investors pay a high premium for a guarantee that they can get their capital back after 10 years (or upon their death), regardless of what the stock market does during that time.

The management expense ratio are typically .05% to 1% higher than the comparable mutual fund or, in many cases, in excess of 3%. That’s a lot of money to pay every year in exchange for protection against the stock market going down that turns out to be of dubious value.

In fact, that protection has been worthless for the Canadian stock market—the 10-year annualized return on the S&P/TSX has never been less than 2.8% since 1966.

We know that Canada has some of the most expensive mutual funds in the world and high fees contribute to the poor performance of these investments on average. Adding 1% more in fees hurts returns just that much more. Over the last 10 years, the TSX as returned 4.2% annually, so if you’d given away 3% a year in fees to an insurance company, you probably wouldn’t even have been keeping up with inflation.

Let’s hope when people see in black and white just how much they’re paying in fees for their underperforming funds, they’ll ask questions about the value of owning seg funds.

For the vast majority of retirement savers, there are investments that do a better job at a much lower cost. Combining these investments with a prudent risk management strategy is the best way to construct a portfolio that builds your wealth while allowing you to sleep soundly at night.