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Colonial First State Investments Name: Jason Jones First Choice Business Development Manager Boomers, accumulators and the future of your business.

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Presentation on theme: "Colonial First State Investments Name: Jason Jones First Choice Business Development Manager Boomers, accumulators and the future of your business."— Presentation transcript:

1 Colonial First State Investments Name: Jason Jones First Choice Business Development Manager Boomers, accumulators and the future of your business

2 This presentation is given by a representative of Colonial First State Investments Limited AFS Licence (Colonial First State). The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our Investor Service Centre on All products are issued by Colonial First State Investments Limited ABN Prospectuses or Product Disclosure Statements (PDSs) describing the products are available from Colonial First State. The relevant prospectus or PDS should be considered before making a decision about any product. This presentation does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Stocks mentioned should not be considered as recommendations. The information is taken from sources which are believed to be accurate but Colonial First State accepts no liability of any kind to any person who relies on the information contained in the presentation. This presentation cannot be used or copied in whole or part without our express written consent. This presentation is based on an understanding and of current and proposed laws as at February 2007 © Colonial First State Investments Limited Disclaimer

3 Contents  Where have all the boomers gone?  Demography and (your) destiny  Have you planned for your retirement?  Business succession planning  Wealth accumulators  Why you need them, how to get them  How Colonial can help  First Choice  Margin lending

4 What’s happening to your FUA?  Baby boomers retiring – the effect on asset prices  Will they sell down investments? Jeremy Siegel Wharton Finance Professor & stock market expert “…this is the granddaddy of all demographic shifts. We have never witnessed anything like this, and I am convinced it is going to be a determinant of asset prices going forward."

5 What’s happening to your FUA?  Will there be a net outflow of retirement assets? ‘Pension funds will become ‘net sellers of securities’ in , as the baby boomer demographic leaves the workforce.’ Paul Keating  Is the pool of assets you manage drying up? Photo from SMH: Steve Baccon

6 SKIERS Two out of every three adults “plan to enjoy life and not worry too much about leaving a legacy”. Source: Joseph Rowntree Foundation survey

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10 Number of working age population per retiree* Source: ABS *Projection from 2006 onward. Working age population is those between the ages of 15 and 64

11 Gen X&Y – bigger than the boomers Baby boomers Gen X and Gen Y Source: ABS Population projections, CFS Age # 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000, years years

12 Source: AMP.NATSEM Income and Wealth Report Issue 16. March 2007 Why you need accumulators  The generation following the baby boomers control 19% of the wealth - can you afford to ignore them?

13 Who are your clients?  Is your business too highly skewed towards older clients?  Who will your most valuable clients be in years?  What stage of your life will you be in at that time?  What does it all mean for your retirement?

14 The future of your business ‘The new generation of financial planners are business people first and foremost. Their primary job isn’t to give financial advice … it’s to build a valuable business from giving financial advice.’ Source: Jim Stackpool, SCAT

15 ‘As our market continues to mature, the future belongs to the owners of financial advice firms that focus on their ideal clients to whom they can add tremendous value.’ The future of your business (cont.) Source: Jim Stackpool, SCAT

16 Business profitability model

17 Investment Revenue InvestmentSavings Plan UpfrontOngoing Revenue $10,000$250$100$5 One Client With 1% upfront and 60 basis points ongoing

18 Insurance Revenue StandardHybridLevel 110%80%25% 10%25% Upfront$2200$1600$500 Trail$200$500 One Client The average premium across Life, D&TPD and Income is $2,000

19 Superannuation Revenue Super Balance Average Salary – 9% SG UpfrontOngoing Revenue $10000$4500$100$60 One Client With 1% upfront and 60 basis points ongoing Average Salary of $50,000*

20 Margin Lending Revenue Plus Borrowed Funds Borrowed Regular Savings Plan Initial Trail Revenue $5000$250$20 50% LVR Margin trail on borrowed funds 40 basis point Note: Investment revenue is also doubled - New investment revenue - $80 Total increase in revenue by margin lending = $100

21 Revenue – Per Client InitialOngoing Investment$50$30 Insurance$1,600$500 Superannuation$100$60 Margin$50$30 + $20 Total$1,800$640

22 Revenue – Client Base  1 Client Per Month?  Can you service them?  Compliance

23 Revenue – Client Base Client NumbersOngoing RevenueTotal Revenue 1 year12$9,812$21,600 5 years60$41,972$108, years120$82,172$216,000

24 How to get them Referrals & seminars  Do your existing clients have children or younger family members, friends, family etc?  Set up a reward system for referrals  Focus on niche markets  Employ a new adviser?

25 Strategy: employ a new planner Now: manage accumulators  Similar age  better able to connect with / understand accumulator clients  Low cost  Self funding Later: business succession  Grows with your business  Has an incentive to buy into your practice

26 Guide To Life Stages “Contiki”“ThemeParks”“DisneyWorld”“Trafalgar”“Winnebago”

27 Typical scenario  Let’s assume a household has an additional $250/month  Here are some of their options:  Spend it  Reduce debt  Pay off the credit card  Pay off the mortgage  Put in super  Invest in a managed fund/ direct shares  Use a gearing strategy

28 Option One: Pay off the home loan

29 Why pay off the home loan?  Reduce debt  Use the $250/month  Save on interest costs  Build more equity

30 Additional payments to the home loan  Assumptions – standard variable loan  Loan amount $290,000  Interest rate 7.50%  Loan term 25 year  Monthly repayment  An extra $250 per month Source: Infochoice

31 Home loan chart Time saved: 6 years Interest saved: $98,933 Source: Infochoice Years elapsed Amount owing

32 Looking at the first nine years Source: Infochoice Years elapsed Amount owing $37,425

33  Should your clients only pay off the mortgage?  Diversify  Look at market conditions  Interest rates  Investment returns Is it the best their money can do?

34 Option two: Invest in shares/ managed funds

35 The benefits of regular investing Value of $10,000 Past performance is no indication of future performance Value of $10,000 in the CFS Retail Imputation Fund Value of a $10,000 investment and $250 per month in the CFS Retail Imputation Fund $74,826 $28,257 Source: Colonial First State Retail Imputation Fund, after fees and charges. Data to 31 st August Note: All Fund performance figures are stated after fees. Performance has been calculated based on entry price to exit price. Distributions paid have been treated as being reinvested in the period of entitlement. Performance takes into account initial application fees of 4% and 4% for all ongoing applications.

36 Option three: Gearing

37 What is gearing?  Wealth creation strategy where your clients borrow money for investment  Potential to grow wealth at a faster rate  Increase the size of an investment portfolio  Help to diversify which may reduce investment risk  Access cash without selling investments  Can be tax effective as interest may be tax deductible

38  Using home equity to invest  Margin lending  Regular gearing  Internal gearing Types of gearing

39 What is margin lending?  Margin lending involves adding borrowed funds to an investors own money to increase the total amount they have to invest

40 Benefits of margin lending  Magnify investment returns  Flexible gearing level  Diversify easily  Unlock equity  Tax effective

41 Risks of margin lending  Margin lending will magnify any losses that are incurred  Liability for margin calls if investment value falls  Interest rates may rise  Gearing into geared share options

42 CFS Imputation Fund geared vs geared investment with regular gearing Value of a $10,000 invested + $10,000 margin loan and $250 per month in regular savings plan + $250 per month regular gearing $87,649 $34,975 Value of a $10,000 investment + $10,000 margin loan Value of $10,000 in the CFS Imputation Fund $28,257 Source: Colonial First State Retail Imputation Fund, after fees and charges. Data to 31 st August Note: All Fund performance figures are stated after fees. Performance has been calculated based on entry price to exit price. Distributions paid have been treated as being reinvested in the period of entitlement. Performance takes into account initial application fees of 4% and 4% for all ongoing applications. Margin loan based on 50% gearing ratio and borrowing rate of 8.55%. Before tax profit Past performance is no indication of future performance Value of $10,000

43 What are the risks?  Returns will be magnified with a margin loan, both positive and negative returns  Dividends from shares and distributions from managed funds may be low or zero  Interest rates may increase on variable interest rate loans increasing loan repayments  Margin calls may require you to sell investments quickly at unfavourable prices  Tax legislation may change

44 …the solution  First Choice platform – fits accumulators needs FlexibleEasy to invest, few forms Transparent Can see investment balances, fees charged, fund performance, etc Cheap Low fees Choice Easy access to a range of products Hassle free Seamless tailored reporting Self service Access to information online anytime, anywhere (without costing you money) All in one Bundles managed funds, a cash account and margin lending together

45 More FUA through Margin lending  Accumulators are not against debt!  Grow their portfolio size – fees for FUA as well as on the loan Colonial Margin lending – hassle free One PDS and streamlined application form One administration team and call centre One fully integrated website One consolidated confirmation letter and statement One simple LVR

46 Summary  Wealth accumulators – not to be overlooked  Business succession through a new planner?  The technology, administration and service solution all in one – Colonial’s wrap platform ‘First choice’  Maximize your revenue with Margin Lending


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