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Intergenerational AdviceDon McAllister

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Facts

In Australia within the next 15 years, the expected Intergenerational

Transfer of Wealth will be around $500 billion

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Facts

Most Australians STILL do not have any Personal Protection, and of those that do, 75% are insufficiently covered

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Facts

The number of people aged 60+ will increase by 58% in the next 10 years.

These people will be using up their assets, rather than accumulating them

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Facts

The number of Home Loans distributed by Brokers doubled in the past 3 years and is approaching 40% of the market

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Facts

The number of advisers selling risk products has decreased by 75% in

the past 15 years

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Facts

“your chances of getting a financial plan rated as very good are less than 50 to 1.

I think it's quite clear that consumers cannot trust financial planners.”

Australian Consumers Association

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Questions• Do you view your business as an asset?

• What is the “life-span” of your business?

• What are the “growth” strategies for your business and are these supported by an effective retention strategy?

• Do these issues represent threats or opportunities?

• Do you value your business by renewal income alone . Eg. $100,000 revenue x number

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Factors in valuing a business

• Original client data • Segmented clients• Under 45’s• Ave net worth • Turnkey• Marketing • EBIT• No of products• Staff continuity

• Family unit ??????????

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Threats

In Australia within the next 15 years, the expected Intergenerational

Transfer of Wealth will be around $500 billion

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ADVISERS AGE + 50

• CLIENTS AGES + 45 pre retirees

• WEALTH ACCUMULATION

• INSURANCE UNAFORDABLE NOT WANTED

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BUSINESS INCOME

INSURANCE INCOME ………DOWN

SUPER & INVESTMENTS …..UP

RETIREMENT ?

THEN WHAT ?

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Threats

The number of people aged 60+ will increase by 58% in the next 10 years.

These people will be using up their assets, rather than accumulating them

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Strategies for Client ‘A’

Mr. & Mrs. A - Age 60

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WHAT ARE YOUR PLANS

• TRAVEL , FISHING ,GOLF, ECT

• ARE YOU INTERESTED IN MANAGING YOUR ASSETS ?

• WHAT ARE YOUR THREATS ?

• A - HEALTH B - RUN OUT OF $$$

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$1mil WITH A PLANNER

COST TO SET UP YOUR PLAN 1%YEARLY SERVICE FEE 1%

WHAT IS YOUR PLANNER DOING TO EARN $10,000 P/A

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TO SET UP THE PLAN

SELECT THE INVESTMENT STRATEGY

HOW MUCH INCOME DO YOU WANT ?WHAT ELSE ?

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Threats

CLIENT HAS A SON 35 AND DAUGHTER 29

SON MARRIED 2 KIDS WORKS IN SYDNEY HAS HIS OWN HOME

DOING WELL

QUESTION ?

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Threats - WHAT DO YOU KNOW ABOUT HIS FINANCIAL POSSITION

SON HAS A ACCIDENT

HE HAS NO INSURANCE

DISABLED

LOSSES JOB

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Opportunities • Leverage Existing relationships

• There are still huge gaps in the penetration of advice into the market.

• We can lower our business risk and diversifying Income streams by attacking these gaps.

• This will lead to an increase in our Business Value

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Common View of the Client

Mr & Mrs AAge 60

Mr & Mrs BAge 35

$1.0+ mill invest-able assets

High Value Clients

$100k invest-able assets

Low Value Clients

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Intergenerational View of the Client

Mr & Mrs AAge 60

Mr & Mrs BAge 35

Mr & Mrs DAge 29

Mr & Mrs CAge 33

Mrs KAge 85

B JnrAge 17

C JnrAge12

Siblings &Families

Siblings &Families

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Implications

• What if, for every client who was reducing FUA by drawing down on an Allocated Pension, I had an associated client who was increasing their FUA by 20% per year?

• What if I could increase my clients financial security, over and above that which I provide today?

• What if could protect my FUA by securing relationships with those to whom wealth will be passed?

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Cycle of Client Wealth Creation

25 40 55 70 85

$

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Intergenerational Cycle of Wealth

Gen 1 Gen 2 Gen 3

$

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Capital $

ENDED UP HERE

INSTEAD OF HERE

Strategies

Age

Upper Confidence LevelExpected Median OutcomeLower Confidence Level

O = RetirementX = Life Expectancy

Life

style

gr a

ph

Mr. & Mrs. A - Age 60

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Strategies

Estate Planning

• Ensuring your clients “legacy” that you have worked hard to help them build, is effectively and efficiently passed to the next generation

• Ensure that you or your business has an effective relationship with the clients that this wealth is passed on to.

Mr. & Mrs. A - Age 60

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Mr. & Mrs. B - Age 35

Strategies for Client ‘B’

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As we have seen, a key strategy to protect the wealth of clientA, involves Clients B. The provision of adequate Insurance.

Others include

Strategies

Government co-contributions

Long Term Insurance PlanningMortgagesCash flow planning

Salary sacrifice Gearing

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Accumulating wealth is like riding a bike up a hill. The earlier you start, the lower the gradient and the easier it is to achieve your goals.

25 6545

Easy!No Way!

Strategies

GOAL!

Mr. & Mrs. B - Age 35

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Strategies

Will not have suffered a critical illness

Will be diagnosed with cancer

Will suffer from other critical illnesses

Will have a heart attack

Will undergo bypass surgery

Will suffer a stroke

Will die from something other than a listed critical illness

Based on being 30 now*

53%

19%

15%

5%1%5%

2%

32%

22%

16%

11%

6%

7%

6%

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Examples of Trauma/TPD Claims:Based on Personal Risk Claims data from CommInsure, June 2004

Source: MLC Critical Illness Claims Data 2005

Critical Illness & TPD Claims:

Occupation Condition Age SexDate Risk

CommencedAmount Paid Benefit Type

Sales Representative Cancer 23 Male 8/01/1999 $117,330.00 Critical IllnessEngineer Cancer 27 Male 22/08/2002 $181,053.00 Critical IllnessUnemployed Cancer 32 Female 27/09/1993 $330,948 Critical IllnessCustomer Service Cancer 34 Female 17/08/2004 $90,000 Critical IllnessDentist Cardio-Vascular 35 Female 5/05/1992 $266,480.00 Critical IllnessSales Representative Cerebrovascular Accident/Stroke 37 Male 13/05/1996 $315,956 Critical IllnessPlumber Cancer 39 Male 17/06/2002 $207,367 Critical IllnessManager Cancer 40 Male 14/02/1995 $200,847 Critical IllnessConsultant Back Pain 27 Male 1/10/1992 $245,880 TPDNurse Multiple Sclerosis 30 Female 1/11/1996 $125,313 TPDSales Manager Bi-Polar Affective Disorder 35 Male 1/11/1995 $65,094.00 TPDAccountant Depression 44 Male 17/03/2001 $547,424 TPD

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Age at Entry

Claims Experience

Ave Age at Entry

Expected Ave Age at Lapse

Where’s The Protection Policy When It’s Needed?

1. Age at entry by policy for inforce business as at 31 March 2004

2. Claim Statistics Analysis Lump Sum Oct 03-March 04

3. Expected average age at lapse based on MLC assumptions

Sources:

0%

5%

10%

15%

20%

25%

20-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 65<

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2006 PPP % of New Sales by Age Band

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

10-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 66-70 71-75 76-80

Lump Sum Income Protection

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Sales

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Yr1 Ongoing

Investment $? $?

Risk $? $?Debt $? $?

TOTAL $? $?

Revenue Generated by

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Does it work the other way?

Mr & Mrs AAge 60

Mr & Mrs BAge 35

Mr & Mrs DAge 29

Mr & Mrs CAge 33

Mrs KAge 85

B JnrAge 17

C JnrAge12

Siblings &Families

Siblings &Families

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Advantages to Advisers

• By ensuring that the “family unit” is your client, any legacies left by your clients are automatically left to another of your clients!

• Not only do you increase your revenue with less prospecting, but you also increase your business value.

• Accumulator clients will be increasing their asset values, not decreasing

• Risk advice with a Level Premium/Hybrid Commission structure is a very attractive income stream to purchase.

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Intergenerational Advice

Mr & Mrs AAge 60

Mr & Mrs BAge 35

Mr & Mrs DAge 29

Mr & Mrs CAge 33

Mrs KAge 85

B JnrAge 17

C JnrAge12

Siblings &Families

Siblings &Families

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Intergenerational Advice