Wealth Management and Protection
Master slide deck
Contents
•
•
Wealth preservation: 3 – 51
Supporting and Underpinning the Wealth Management Proposition 52 - 74
2
Wealth preservation
Agenda:
• Introduction- why should wealth advisers engage?
• The advised process
• Business ideas
• Support
• Conclusion
4
What are the challenges that
you face?
5
Adviser business model challenges
Systems and
controls
Research and
panels
FSCS
CPD &
qualifications
PBR’s
PI cover
Compliance
Technology
enhancements
Capital
adequacy
Risk
management
FOS
Regulatory
fees
6
Advice process - critical
Fact Find
Attitude to
Risk
Needs
Analysis
Suitability
7
Why should wealth advisers engage?
• RDR - strategy selection
• Economic and consumer necessity
• Outstanding revenue and profitability driver
• £10b investment – only 4% underpinned with appropriate protection
• FCA interest in “Risk” & “Capacity for Loss”
Every £100 spent on Investment - £4 spent on Protection
8
Here’s why:
•
•
•
•
•
•
•
Enhanced client proposition
Enhanced client security and peace of mind
Enhanced revenue per client
Enhanced cash-flow
Enhanced embedded value of your business
Reduced consumer risks within the business
No longer an “average” wealth adviser
Good for you, good for your clients
9
Advised process
Knowing your customer
Personal
• Basic information
• Family
• Employment
Financial
• Assets
• Liabilities
• Life assurance
and savings
• Pensions
• Monthly income
and expenditure
Planning
and
Objectives
• Existing
arrangements
• Financial
objectives
• Financial advisers
11
Identification of demands, needs and possible
solutions - PIPSI
Protection
Income
Protection
Pensions
Savings
Investments
12
Wealth management process
Client
proposition
Investment
proposition
Attitude to risk
Protection /
wealth
preservation
13
Risk and loss?
Key FSA findings
“Although most advisers and investment managers consider a customer’s
attitude to risk […] many fail to take appropriate account of their capacity
for loss.”
“By ‘capacity for loss’ [the FSA is] refer[ring] to the customer’s ability to
absorb falls in the value of their investment. If any loss of capital would
have a material detriment on their standard of living, this should be taken
into account when assessing the risk that they are able to take.”
FSA Finalised Guidance: Assessing Suitability – March 2011
14
Understanding loss and the consequences
Key risks for firms to consider
In the FSA’s view, poor outcomes can occur if firms fail to assess a
customer’s capability for loss. The FSA states that although most firms
consider a customer’s risk preferences or appetite for loss, they often do
not consider their capacity for loss…
An example of good practice cited by the FSA was a firm that used “one
process to assess the customer’s attitude to risk and a separate process to
assess their capacity for loss…”
FSA Finalised Guidance: Assessing Suitability – March 2011
15
What if something happens to a client with no protection?
Client
• Draw down investments to change
lifestyle/provide income
• Original investment goals may not be
achieved
• Lifestyle at risk if they run out of funds
Adviser
• Fees will decline as client withdraws
funds
• Difficult conversations with client if
didn’t consider these risks in planning
process
16
What if something happens to a client’s assets with a financial
underpin?
Client
• Original funds stay invested to meet
future goals
• Cash/income injection to meet current
needs until goals are met/health
restored
• Greater financial protection
Adviser
• Fees will increase with injection of
additional funds
• Additional fees earned to cover cost of
extra work
• Easier conversations with client as
financial needs met long and short term
17
Wealth preservation - risk
Translating attitude to risk to protection
Wealth management – investing for future goals
Low
cash
Med/low
Full cover
Medium
Med/high
High
specialist
equities
No cover
Wealth preservation – protecting
your goals and lifestyle against the
unexpected
18
More new business ideas
Opportunities – Business to Business
• Increase revenue now - commission
• Protect and increase future revenue - protect funds under management
• More income from existing clients - replace trail income
• Increase productivity per adviser
• Diversify - alternative income stream
20
Business solutions for business risks
• Client retention - generational planning
• Compliance - identify shortfalls, risk
• Avoid litigation - cost, reputation, PI
• Differentiate - additional client services, Vitality
• Increase business value - complaints, relationships
21
Opportunities Continued
Three to focus on
• Wealth preservation planning
• Inheritance Tax planning
• At/or post retirement planning
• Vitality
22
A hierarchy of personal tax needs
1. Income tax/NIC
2. Capital gains tax
3. Inheritance tax
But…..
23
Key factors in driving interest in estate planning
1.
Age
2.
Wealth
3.
Family
4.
Self -sufficiency
5.
Rates/exemptions
24
Key target segments
Older, wealthier families and property owners
25
What does the challenge look like?
IHT fundamentals: summary
•
Payable on death (for most)
•
Lifetime transfers can be taxable though
•
7 year “culmination”
•
Exemptions
•
Reliefs
•
The “nil rate band”
26
IHT planning: the golden rules
• The less you own on death the less IHT you pay
• So, lifetime planning can be effective – especially if you use the
exemptions/reliefs
• BUT
• Many need to “look after themselves first”
• AND
• To be effective (generally speaking) you should not benefit from
your gift
• SO
•
At least use the nil rate band
27
The main impediments to (effectively) giving
• The (would be) donor’s need for access to what is being given
•
Gift with reservation (GWR)
•
Pre-owned asset tax (POAT)
28
Trusts can help
Control:Bare/discretionary
Access:Loan trust/DGT
29
Life policy/trust combination: “a bargain”
Allows you to:
•
provide for IHT without you needing to change your life
•
“contract out” of serious giving
30
Life policy/trust combination: “a bargain”
Sum assured
Premiums
Life policy
IHT free
Exempt
Trust
Normal expenditure
Annual exemption
31
Campaign ideas
•
Providing for IHT without changing your life
•
(Effectively) paying IHT in instalments
•
Protecting your pension fund
•
No probate delays
32
Providing for IHT without changing your life
IHT paid
Trust
Home
Business
Investments
Full owner access
and control
Death
IHT
Payout
Policy
Premiums exempt
33
Paying IHT in instalments
Trust
Premiums
Policy
Future sum
assured
Beneficiaries
A good investment?
34
Underpinning Pension Drawdown
Client example
Client aged 55
Spouse 3 years younger
Pension Fund £400,000
PCLS £100,000
No income at outset
Age 60- £10k pa
Age 65- increased to £20k pa
Age 70- client dies
36
Income drawdown underpin
Drawdown death
benefits
1st death
Lump sum – 55%
tax
Dependents
Annuity
2nd death
Estate
Ceases
Dependents
Drawdown
Lump sum – 55%
dependents
annuity and
drawdown
37
Income drawdown underpin
Spouse aged 67 elects to take Income Drawdown
Designation £398,000
Continues to take Income Withdrawal of £20,000pa
Dies 8 years later aged 75
For illustrative purposes only
38
Income drawdown underpin
Spouse aged 67 elects to take income drawdown
Designation £398,000
Continues to take Income Withdrawal of £20,000pa
Dies 8 years later aged 75
Year 1 = 0.49%
Averaged = 0.64%
Year 1 = 0.49%
Averaged = 0.38%
For illustrative purposes only
39
Income drawdown underpin
Cost as percentage of Income Withdrawal Fund (After PCLS) at outset
Based on £300k IW Fund
Age at
Outset
Cost
Fund (%)
Commission
M55/F52
0.49%pa
£2,463
M60/F57
0.62%pa
£3,081
M65/F62
0.81%pa
£3,677
M70/F67
1.08%pa
£3,099
For illustrative purposes only
40
Support From PruProtect
PruProtect – providing in depth support
F2F support
Experienced
consultant with
wealth background
Specialist support
Training
HNW proposition
Advice led
proposition
Tools and support
pre/ at /post sale
Single Tie
Outsourced
solutions
42
Advice process – support we can offer
Protection
fact find
Attitude to risk
questionnaire
Needs Analysis
My Plan
Suitability
risk/report inputs
43
Wealth preservation - attitude to risk questionnaire
•
•
Identify: a way to identify the protection needs in an existing investment fact find
Prioritise: help prioritise death and serious illness / incapacity
44
PruProtect – “My Plan”
Needs analysis tool
45
The Vitality Programme
Our healthy living programme to help you get and stay healthy
Protection cover with benefits for everyone, not just those that claim
Created in conjunction with doctors, scientists and academics
We help you track your progress by awarding points for doing healthy
things
And to keep you motivated, we give you rewards for making positive
changes to help you get and stay healthy for less
46
Vitality Plus
Our plans come with Vitality which makes it easier to get healthy with discounts
on things like health screens and exercise devices, as well as the opportunity to
reduce premiums each year
Vitality Plus
For an extra premium of £4,
members can upgrade to Vitality
Plus which is even more rewarding
with a wider range of discounts from
holidays to mobile phones. Members
could save thousands of pounds
each year.
*Vitality is not available with Relevant Life policies
47
A selection of our Vitality Partners
Included
free
For £4
per
month
extra
48
Underwriting service and support
• Offer a pre-sale underwriting support via direct access to our underwriters
on a dedicated free phone number
• Experienced underwriting team in South Africa
UK office hours, ABI regulated etc
• UK team
training
third party relationships
IFA visits
49
Key points
• URE (Underwriting rules engine)
- Recent up-grade
- 60% straight through process
- Commitment to being market leader as demonstrated by recent hire of
industry expert
• Turnaround times
- Decisions made well within agree SLA’s (24 hrs for applications/48 hrs
for medical information)
• Flexibility to review
- Will review lifestyle related loadings if client’s health improves
• Medical providers
- Make use of Medicals Direct, Doctors Chambers and IQED in order to
receive medical reports as quickly as possible
50
Thank you for your time
Supporting and underpinning the wealth management proposition
Supporting your approach and meeting your clients
needs
• We understand you are creating long-term relationships with your clients through
the active management of their investments and pensions to meet their future
needs and goals
• We can support and enhance your offering through an integrated lifestyle support
proposition
53
Underpinning your client proposition and investment
strategy
• Typical client may have multiple income and capital needs
–
–
–
–
Retirement planning
School fees
Holidays
Business needs
Create specific investment
strategies for each goal based
on attitude to risk / aversion to
loss, timescale etc
54
Unexpected consequences
• What happens if something unexpected occurs during the investment term to
your client or his family?
– Death (IHT, funeral costs, investment planning)
– Serious illness
– Accident or disability
Time off work, loss of
income. Additional capital
required to pay medical
fees.
55
Unexpected consequences
• Likely that some of the invested capital would be required to meet immediate
needs
• Consequences
– Reduction/loss of future expectations
– Increase risk to make up shortfall
– Less FUM means lower fees
Client risk
Adviser risk
56
Risk and loss….
• How does this potential loss fit into your discussions with clients on:
– Attitude to risk?
– Aversion to loss?
57
Wealth preservation planning
• PruProtect has designed an extensive range of covers to meet your clients’
protection needs. They can help protect against the financial impact of illness,
injury, disability and death
• PruProtect offers three core covers; Life Cover, Serious Illness Cover and Income
Protection Cover
• Your clients also have the option to customise their cover. Your clients can decide
how long they want to be covered for and then decide if they want to add any
extra covers like Health Cover, Family Income Cover and Education Cover
• And remember, your clients also have access to Vitality, our healthy living
programme
58
Why PruProtect?
•
•
•
•
Our unique plans will help underpin your client proposition
Fitting in with your adopted service model/WRAP proposition
Allowing you to maximise your client interactions (and justify adviser income)
Discuss their needs, review their health and help reward them if their risk has
reduced
59
Underpinning the wealth management proposition
Pension
Cash
GIA
Wealth Management
Planning for future goals
ISA
Bond
Integrated client
proposition
Comprehensive, combined
review strategy
Life
Wealth Preservation
Contingency planning
against unexpected
Capital/Income needs
Family
Income
Serious
Illness
Healthcare
Income
Protection
PruProtect
60
Vitality - a unique style of planning
• Fits in with client proposition and annual review process
• Adds value to your service
• Increases adviser involvement in reviews
•
•
•
•
– Assess risk to investment plans
– Asses risks to changes/improvements in lifestyle and health
Alternative or additional income source
Reduces business risk
Improve client retention
Business diversification
– Non platform/investment
– Business clients
61
Protecting your clients’ investments
Financial advice today
Protection has become
more transactional
Protection
Protection relatively
onerous to purchase
Wealth solutions
continue to be advised
Segmentation
Wealth
management
Technology has made
managing wealth easier
63
Understanding the advised process
Pre sale
Point of
sale
•Initial client
communication
(SCDD)
•Fact find (hard and
soft facts)
•Attitude to risk
•Understand goals and
specific client needs
•Identify, discuss,
quantify and prioritise
demands and needs
•Provide suitability
report
•Convert ATR to
investment portfolio
(investment
Proposition)
•Match products to
goals
•Complete applications
(submit cheques, go
through Underwriting)
Post
sale
•Review investment
holdings
•Review tax positions
•update client ATR
•Provide agreed client
review
•Meet changing needs
•Meet goals
64
Understanding the advised process
•Assist with relevant
questions on fact find
•Wealth preservation ATR
•Needs Assessment
•Online tools/calculators
Pre sale
•Initial client
communication (SCDD)
•Fact find (hard and
soft facts)
•Attitude to risk
•Understand goals and
specific client needs
•Identify, discuss,
quantify and prioritise
demands and needs
•Product descriptions/guides
•Guidance in underwriting
process
•Standard paragraphs
•Corporate guide
Point of
sale
•Provide suitability
report
•Convert ATR to
investment portfolio
(investment
Proposition)
•Match products to
goals
•Complete applications
(submit cheques, go
through Underwriting)
•Review risks to capital
•Alter benefits to suit needs
•Vitality enhances review
process and client proposition
Post sale
•Review investment
holdings
•Review tax positions
•update client ATR
•Provide agreed client
review
•Meet changing needs
•Meet goals
65
Supporting the investment process
• Supplementary & relevant wealth
preservation questions
Client
proposition
Investment
proposition
Fact find
Attitude
To
risk
Attitude to
risk
Investment
proposition
Fact find
Client proposition
• Wealth preservation ATR
• Online tools and calculators
• Aid to explain risks of death and loss of
income, and impact on capital
• Explain potential impact on assets of
early disinvestment (sales guide)
• Wealth preservation guide
(underpinning your investment strategy)
• Review your clients’ health as well!
• Benefit from premium discounts and
partner rewards
66
New business ideas
Business solutions for business risks
•
Client retention - generational planning
•
Compliance - identify shortfalls, risk
•
Avoid litigation - cost, reputation, PI
•
Differentiate - additional client services, Vitality
•
Increase business value - complaints, relationships
68
Opportunities continued…
•
Business owners - business protection, individual
•
Existing Pensions - (EPP, SSAS), Relevant Life Policies
•
At or post retirement - drawdown/annuity protection
•
Inheritance tax - Whole of Life Cover, wealth products
•
Wealth preservation – Whole of Life Cover, term, new products
•
Vitality - differentiated, better client reviews, cost
69
Case study
What happens to your client – with and without protection
Your client Paul and his wife Jane are in their early 40’s. They are planning for their retirement in 20 years
time and have £250,000 to invest in UK equities and corporate bonds. They do not take out any protection.
Paul and Jane are expecting their investment to grow by 5% a year to £650,000 when they retire, providing
them with an income of £30,000* a year to live off.
8 years later, unfortunately Paul has a stroke. Assuming growth of 5% per annum, their original investment
has grown to over £350,000.
Your client is left with no option but to drawdown on their capital to replace the first year income of £70,000
and £30,000 to cover private medical treatment.
Your client has had to use £100,000 of their investment portfolio.
The value of your client’s investment portfolio is now worth £250,000. Value to you (assuming 0.5% fees p.a.)
is now £1,250 in year 9 instead of £1,750, almost 30% lower.
When Paul and Jane are due to retire in another 12 years, their investment is now only worth £430,000.
Unfortunately this means Paul and Jane have to carry on working past their planned retirement age as their
investments only provide £21,500 a year to live off.
* Assuming they can generate an income of 5% on their assets
70
Case study
What happens to your client – with and without protection
£900,000
£800,000
£700,000
£600,000
£500,000
£400,000
£300,000
£200,000
£100,000
£0
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year Year Year Year Year Year Year Year Year Year Year
10
11
12
13
14
15
16
17
18
19
20
For illustrative purposes only
71
Case study
What happens to your client – with and without protection
The outcome would have been different if Paul and Jane had underpinned their investment with £500,000
of WoL and SIC cover.
When Paul has a stroke, he would have received a 50% payout of £250,000.
Not only can Paul and Jane put £100,000 aside for income replacement and private medical treatment,
the remaining £150,000 can be invested back into their portfolio.
The value of your client’s investment portfolio is now worth £500,000. Value to you (assuming 0.5% fees
p.a.) is now £2,500 in year 9, that’s a 100% increase compared to no protection.
When Paul and Jane retire in another 12 years, their investment is now worth just over £850,000.
Meaning that Paul and Jane can enjoy an income of £42,500 which could mean extra luxury holidays
every year of their retirement, or even retiring early.
72
Case study
What happens to your client – with and without protection
£900,000
£800,000
£700,000
£600,000
£500,000
£400,000
£300,000
£200,000
£100,000
£0
Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
73
Looking forward…
•
If you would like more information or assistance on PruProtect’s:
–
–
–
–
•
Wealth preservation proposition
Online tools
Wealth preservation ‘attitude to risk’ questionnaire
Extensive range of products
Please either contact your local Business Consultant, visit pruprotect.co.uk/adviser or call
0808 234 3000
74