Welcome To The Canadian Institute Of Financial Planners

1
Welcome To The Canadian Institute Of Financial
Planners

Cover Your Assets Insuring Your Practice With
Insurance
Mark A. Smigel, CFP Senior Marketing
Representative Western Region AIG Life of Canada
2
Insurance, The New Standard?

• Of 11 brokerages surveyed, 70 of all investment
  advisors were insurance licenced.
• Among the other designations held . . . .
• 24 - CFP
• 43 - PFPC
• 20 - CIM
• 18 - FSCI
• Aileen Corr, Insurance, The New Standard,
  Investment Executive, May 2004, p. C6

3
Reasons To Avoid Insurance?

• Apathy?
• My clients are looking for financial planning
  services, not insurance products. . .
• Service?
• Too time consuming . . .
• Im an investment specialist . .
• Knowledge?
• Its too techie
• Insurance agents are sales shmos

4
Three Reasons We Cannot Avoid It?

• Fiduciary Responsibility
• Preserves Livelihoods
• Augments Cashflow

5
Reason 1 - Fiduciary Responsibility
6
Fiduciary Responsibility

• FPSC Code Of Ethics?
• Insurance Council Code Of Conduct?
• Supreme Court Rulings (Klym et al vs Bank of
  Montreal, 2005 BCSC 420 Date 20050322)

7
What Is The Standard For Malpractice?

• One who holds himself out to the public as an
  financial planner is required to have the degree
  of skill and knowledge requisite to the calling.
  If he neglects to procure the insurance or if the
  policy is materially deficient or does not
  provide the coverage he undertook to supply,
  because of his failure to exercise the requisite
  skill or diligence, he becomes liable to his
  principal for the loss sustained thereby.
• Ryder v. Lynch, 42 N.J. 465, 476 (1964)

8
What It Means If Im A CFP?

• Principal 3 Competence
• A CFP professional shall offer advice only in
  those areas which the CFP designee has
  competence. In areas where the CFP professional
  is not professionally competent, the CFP designee
  shall seek the counsel of a qualified person
  and/or refer clients to such parties.

9
What It Means If Im A CFP?

• Principle 7 Diligence
• Enter a client engagement only after securing
  sufficient info to be satisfied that
• the relationship is warranted by individuals
  needs/objectives
• The CFP professional has the ability to either
  provide requisite competent service or to involve
  other professionals who can provide such services.

10
What If Im Not A CFP?

• Duty Of Care
• You have an obligation,
• before conducting a transaction,
  to conduct sufficient fact-finding
  and needs analysis to
  properly assess a clients circumstances, goals
  and needs
• Insurance Council Of British Columbia, Code Of
  Conduct For Insurance Salespersons and Adjusters,
  June 1999, p. 16

11
Reason 2 Preserves Livelihoods
12
Lets Look At Your Books

• Account Breakdown 2004 2003
• AUM/Client lt50,000 18 23
• AUM/Client 50,000
• to 1 Million 75 67
• AUM/Client gt 1 Million 9
  10
• Source Investment Executive, Brokerage Report
  Card, May 2004, p. C5

13
Lets Look At Your Books

• Product Mix 2004 2003
• In House Managed Product 8 9
• 3rd Party Managed Product 29 31
• Equities 27 28
• Fixed Income 23 28
• Income Trusts 9 n/a
• Cash 5 5
• Investment Executive, Brokerage Report Card,
  May 2004, p. C5

14
Lets Look At Your Books

• Compensation Mix 2004 2003
• Fee-Based 6 15
• Asset-Based 25 20
• Transaction Based 61 62
• Deal Based 9 4
• Investment Executive, Brokerage Report Card,
  May 2004, p. C5

15
What Are The Trends?

• Client account mix reflects their focus on
  wealthier clients.
• Average brokers book is 280 clients, a drop from
  307 a year ago.
• Push towards asset based comp and fee for service
  and away from transactions.
• Cash holdings are stable at 5, with equities
  dropping to 27 from 28 and fixed income
  holdings falling to 23 from 28 last year.
• Insurance is said to account for 2 of assets.
• James Langdon, Brokers older, More experienced,
  and Wealthier, Investment Executive, May 2004,
  p. C4

16
So What The Problem?

• !2!? Happens!!

17
(No Transcript)
18
(No Transcript)
19
(No Transcript)
20
Lets Look At Your Book!!

• 300 clients
• Newly weds 2nd generation (25-30)
• Few business clients
• Ma/Pa investors (50s-60s)
• Our elders (70s)
• Only 25 of the book!

21
Our Younger/Business Clients (25 - 45)

• Income Replacement/Corporate Markets
• Term Insurance

22
Match the Product to the Market

• Mortgage Market
• Debt protection
• Little disposal income
• Combination with life insurance is better
• Need affordable coverage
• Convertible Later

23
What About Within The Corporate Market?

• Life insuring your debt instead of buying
  creditor insurance via lender
• More flexibility
• Cost effective
• Use of CDA credit

24
What About The Corporate Market?

• Bank Product
• Loan Amt 250,000
• Loan Amt After Death Benefit 0
• Credit To CDA 0
• Future Tax Savings From CDA (32) 0

• Corporate Collateral
• Loan Amt 250,000
• Loan Amt After Death Benefit
  0
• Credit To CDA 250,000
• Future Tax Savings From CDA (32)
  80,000

25
Our Product Line - Term Life

26
Preferred Term 10...Better than Ever!
Term Life
AIG Preferred Term 10 plan rates have improved
significantly, especially for ages under 40. The
issue limits have also changed with the
introduction of the EasyTerm 10
plan. For ages 18 to 50, the
minimum Preferred Term sum insured is now
250,001. For ages 51 to 75, the minimum sum
insured remains at 100,000.
AIGs old Preferred Term 10 rates 36.27
55.35 128.07
27
(No Transcript)
28
Term Life
Tired of clients going through BLOOD, SWEAT and
TEARS just to get affordable term coverage?
29
Introducing EasyTerm 10
Term Life
EasyTerm 10 is available for ages 18 to 50 for
amounts of 100,000 up to 250,000 and the
medical requirements are really simplethere are
none! All you and your client have to do is
complete AIGs regular Life Insurance application
(Form 126) EasyTerm 10 is a renewable and
convertible 10 year term plan with guaranteed
rates. The plan is renewable up to age 85 and
convertible up to age 70 to our industry leading
Universal Life plans or Term 100 Platinum
plan. EasyTerm 10 is also available on a Joint
First-to-Die basis. Now this affordable coverage
is even more affordable with two lives, including
the Joint Survivor Option and the Double Benefit
built into the plan.
30
Our Elder Clients (50)

• Estate Preservation Market
• Universal Life

31
Whats The Impact of Estate Shrinkage?
Gross Estate Settlement Cost Net Estate Shrinkage
Nat King Cole 1,876,648 1,577,740 298,908 84
J.P. Morgan 17,121,482 11,893,691 5,227,791 69
J.D. Rockefeller 26,905,182 17,124,988 9,780,194 64
Conrad Hilton 199,070,700 105,782,217 93,288,483 53
J.D. Rockefeller Jr. 160,598,584 24,965,954 135,632,630 16
Yul Brenner 5,000,000 134,000 4,866,000 3


32
Deemed Disposition of Property

• For example ...
• Land Building Total
• FMV 200,000 600,000 800,000
• Original Cost 80,000 400,000 480,000
• Capital Gain 120,000 200,000 320,000
• TCG 60,000 100,000 160,000
• UCC n/a 280,000 280,000
• Recapture n/a 120,000 120,000
• TOTAL 280,000

33

• The trick to it is to try not to see it as
  your money...

34
Why Should I Use AIG To Solve Problem?
35
(No Transcript)
36
(No Transcript)
37
(No Transcript)
38
(No Transcript)
39
(No Transcript)
40
Click here to view Illustration
41
(No Transcript)
42
(No Transcript)
43
(No Transcript)
44
Our Product Line Universal Life
45
45 0 MER Investment Options
46
Unified Investment Bonus Structure

• Year 1 1.5 on GIA Accounts 3.5
  Minimum guarantee
• Indexed and Managed accounts
• Year 6 1.5
• 1.5 starting year 6 on indexed account values,
  including Maximizer - Guaranteed for the life of
  the contract

47
Our Elder Clients (50)

• Our Boomer Markets
• Critical Illness Coverage

48
Many Financial Consequences

• There are many financial consequences to
  surviving a critical illness. Here are just a few
  consideration...
• Absence from work
• Cost of home care during illness and recovery
• Treatment outside of Canada
• There is a financial Impact!

49
Common types of covered conditions
Heart Attack Major Organ Transplant -
Stroke (surgery or waiting list)
Cancer Paralysis Coronary Bypass
Surgery Blindness Multiple Sclerosis Loss of
Speech Kidney Failure Loss of
Limbs Alzheimers Disease Coma Parkinsons
Disease Severe Burns Benign Brain Tumour
Motor Neuron Disease - Deafness (Lou
Gerhigs Disease/ALS) Occupational HIV
LOSS OF INDEPENDENCE
50
Medical procedures costs outside of Canada
51
Medical care costs in Canada
HOME CARE Health care with light housekeeping -
100/day Registered Practical Nurse -
175/day Registered Nurse - 200/day
MEDICAL EQUIPMENT Wheel Chair -
2,500 Walker - 500 Chair Lift -
2,000 Vehicle modification - 7,500 - 10,000
52
Medical care costs in Canada
HOME CARE Health care with light housekeeping -
100/day Registered Practical Nurse -
175/day Registered Nurse - 200/day
Nurse Visits 175/day x 3 days
525/week 525/week x 45 weeks 23,725/year
23,725/year x 5 yrs 118,625 Where do you
get 118,625 after tax dollars???
53
Where does it come from?
Equity in my real estate . . . . - forced sale
when market is poor? - intentions of reverse
mortgage in the future? - realtor fees and
relocation costs? - emotional affects of forced
sale?
54
Where does it come from?
Surplus capital in my corporation . . .
. - expansion capital for RD ? - cashflow
needs for operation? - lender comfort given
critical illness?
55
Where does it come from?
Cash from investment accounts . . .
. - Liquidity risk on term deposits? - DSC
charges on funds? - Time value of money
calculations?
56
Where does it come from?

• Cash from investment accounts . . . .
• 300 clients
• 1/3 1/4 suffer a critical illness
• 100 clients affected?
• 33 clients needs to access capital
• 33 x 200,000 6,600,000.00
• 6,600,000 x 1 Trailer 66,000 / year!!
• Plus no new contribution to these accounts!

57
Why Should I Use AIG To Solve Problem?
58
Our Product Line Critical Illness
59
(No Transcript)
60
Six New Covered Conditions
Critical Illness

• A total of 25 covered conditions on all Living
  Benefit plans, including
• Early Discovery Benefit (Advances 10 up to
  25,000 for Early Prostate, Ductal Breast Cancer,
  Coronary Angioplasty and Superficial Malignant
  Melanoma)
• Loss of Independence
• Heart Valve Replacement
• Aortic Surgery
• Introducing Two New Conditions to the Canadian
  Critical Illness Market...
• Aplastic Anaemia and
• Bacterial Meningitis

61
Contract Changes
Critical Illness

• Cancer discovered in the first 90 days will not
  terminate the critical illness policy
• Cancer will be excluded from the definition and
  coverage will be allowed to continue.
• New Heart Attack definition to include
  bio-chemical markers
• Heart Attack (Myocardial Infarction) is defined
  as the death of a portion of heart muscle as a
  result of inadequate blood supply as evidenced by
  
• a) new electrocardiographic (ECG) changes
  indicative of a myocardial infarction, and by
• b) the elevation of cardiac biochemical markers
  to levels considered diagnostic for infarction.
  
• Heart attack during coronary angioplasty is
  covered provided that there are diagnostic
  changes of new Q wave infarction on the ECG in
  addition to elevation of cardiac markers.
• Age restriction removed on Alzheimers,
  Parkinsons and Motor Neuron Disease
• Reductions in the Critical Illness Benefit after
  age 75 have been removed.

62
Other Whats New Features
Critical Illness

• Return of Premium on Death now available as a
  rider on all Living Benefit plans
• Having ROP on Death as a rider allows those can
  keep costs low by allowing more choice.
• New rates now calculated on an Age Nearest
  basis
• Change in age calculation is keeping in line with
  all of AIGs other insurance products and
  eliminates confusion of age between the other
  plans.
• New lower minimum 25,000 coverage available with
  all plans
• Reduction in minimum for Living Benefit 75 and
  Living Benefit 100 to allow more financial
  options for more clients.

63
Whats New
Critical Illness
Best Doctors Inc. services extended to a Life
Insureds immediate family member in AIGs
Critical Care Assist Benefit A one-time use of
Best Doctors, Inc. service is now also available
at no charge to an immediate family member
(spouse or dependent children) for the illnesses
covered under the base Critical Illness plan.
This one- time free usage for immediate family
members can be elected at any time while the
policy is in force. The Life Insured always has
access to the Best Doctors service even if a
family member elects to use their free access.
There is a 12-month pre-existing condition
clause for the immediate family members, but not
for the Life Insured. Immediate family members
would be excluded for critical care assistance on
any pre-existing illness.
64
Competitive Rates / Low Cost Protection...
Critical Illness
Male, Non-smoker, 100,000 of T10 CI coverage
All monthly premiums are based on March 2005
LifeGuide.
65
Male, Non-smoker, 100,000 of T20 CI coverage
Critical Illness
All monthly premiums are based on March 2005
LifeGuide.
66
New ROP on Surrender Options
Critical Illness

• Living Benefit 75
• Return of Premium on Surrender Benefit Rider
  available that will pay 100 ROP at age 75 and
• An early ROP options starting from the later of
  age 50 or the 10th policy anniversary at 50 and
  grading equally to 100 by age 75.

67
New ROP on Surrender Options
Critical Illness

• Living Benefit 100
• Starting after 10 years, the percentage of the
  Annual Base Premium returned is 50 and increases
  10 each year to 100 after 15 years.
• Living Benefit 100 will pay the inforce face
  amount, if no claim is made, on the anniversary
  age nearest the Life Insureds 100
  birthday...with or without the ROPS rider!

68
Reason 3 Augment Your Cashflow With Insurance
Business!!
69
Lets Look At Your Book!!

• 300 clients
• Newly weds 2nd generation (25-30)
• Few business clients
• Ma/Pa investors (50s-60s)
• Our elders (70s)
• Only 25 of the book!

70
Insurance Compensation 25 of 300 Clients
Term Product (Creditor/Markets) Universal Life (Estate Preservation) LB 75 With ROP (RRSP Protection) LB 20 (Mortgage Market)
250,000.00 200,000.00 50,000.00 100,000.00
40 m n/s 35 f n/s 60 m n/s 55 f n/s 47 m n/s 30 f n/s
364.80/case 2,700/case 1,042/case 708/case
15 cases 20 cases 5 cases 15 cases

Term Total UL Total LB 75 Total LB 20 Total
5,460.00 54,000.00 5,210.00 10,620.00

FYC 100 Bonus GRAND TOTAL 75,290.00
71
Why Do We Avoid Insurance?

• Apathy?
• Service?
• Knowledge?

72
Why Do We Avoid Insurance?

• Apathy?
• Service?
• Knowledge?

73
The Producer Is The Customer!!

• Vancouver Office
• 1001-543 Granville Street
• Vancouver, BC V6C 1X8
• 604 682-4157
• Calgary Office
• 500 11012 MacLeod Trail South
• Calgary, Alta T2H 2K6
• 403 265-7030