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Investment Loans Insert presenter’s name here Build your business with Manulife Bank.

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Presentation on theme: "Investment Loans Insert presenter’s name here Build your business with Manulife Bank."— Presentation transcript:

1 Investment Loans Insert presenter’s name here Build your business with Manulife Bank

2 When you succeed, we succeed  Who is Manulife Bank  Dedicated to providing banking solutions through financial advisors  Wholly-owned subsidiary of Manulife Financial  Canada’s 8th largest domestic bank – over $23 billion* in assets  Your clients remain your clients * As at September 2014.

3 Our mission  Banking products are an essential part of a successful financial plan.  We deliver products that enable advisors to build a complete financial services business.  Strengthen and expand your client relationships  Facilitate additional sales  Reduce competition for your clients financial business

4 Why sell Manulife Bank products?  Give clients access to premium banking products and demonstrate additional financial value  Build your business in three important ways:  Prospecting tool and conversation starter  Increase referrals from existing clients  Earn competitive compensation on all deposit products and mortgage referrals

5 It takes money to make money. Therefore… …the more money your clients have, the more money they could make.

6 Investment Loan basics  Your clients benefit from the earning power of a much larger pool of assets  Your clients borrow money  They invest the money  They pay interest  They sell the investment — Pay applicable taxes and fees, and repay the loan  They keep what’s left over

7 A classic investing strategy  Borrowing to invest is not new  Home owners borrow to invest in their own real estate  RRSP loans for borrowing to invest in retirement  Student loans are an investment  Alternative to saving and waiting…  Investment Loans provide the purchasing power clients need, today

8 The risk-return continuum Leveraged Investing, Options Stocks, Equity Funds Bonds, Fixed Income Funds Bank accounts, GICs, T-bills Leverage is simply borrowing to invest  A proven wealth-creation strategy  Appropriate for investors with a higher risk tolerance  Who want the opportunity to potentially earn a higher long- term return

9 Why do Investment Loans work?  Tax deductibility  If a loan funds an investment that is expected to produce income, the loan interest is generally deductible*  It reduces the cost of borrowing and reduces the rate of return needed to “break even” * Interest is generally tax deductible. Clients should consult their tax advisor.

10 Why do Investment Loans work?  Leverage and tax deductibility  After-tax break even – Example: — 100% interest deductibility — 40% marginal tax rate — $50,000 loan at 7.0% interest rate — After-tax return of 4.54% over 10 years to break even  Assumes taxable annual return of 33%; tax rate on income is 35%. Break-even return will differ slightly in Quebec.

11 Why do Investment Loans work?  Compound returns vs. DCA  With Dollar Cost Averaging — Only the first contribution works for the full investment period — The majority of contributions work for a shorter period of time (less time to grow)  With an investment loan — 100% of the investment amount is working for the full investment period

12 Performance of leverage vs. non-leverage over historical 10-year periods demonstrates that leverage works. Invest for the long-term Leverage vs. non-leverage Assumes 10-year return of TSX Total Return Index, the average interest rate of Prime +1.25% over each 10-year periods, 45% marginal tax rate

13 Why recommend leverage?  Benefits for your client  Achieve financial goals sooner — Compounding and tax deductibility may accelerate investment growth  Create a disciplined savings plan — Reduce the chance of an investment plan being derailed by other consumer needs  Build non-registered assets — Unlike RRSPs, non-registered plans do not require minimum withdrawals in retirement

14 Why recommend leverage?  Benefits for you  Remove the single biggest sales obstacle – access to funds  Increase assets under management now and in the future  Increase referral business — thanks to an innovative and powerful investment strategy

15 Who should borrow to invest?  An Investment Loan may be right for your client if…  They’ve maximized their RRSP contributions  They’re looking to build non-registered assets  They have a long-term investment horizon — At least 10 years

16 Who should borrow to invest? The right clients continued…  They have adequate disposable income to comfortably pay loan interest and applicable taxes  They have a reasonably high tolerance for investment risk  They understand how the borrow to invest strategy works, including the potential for increased gains or losses

17 Investment Loans for different stages in life  Leverage for newer investors  Secure rising income, long-term investment horizon, willing to accept higher investment risks.  May use an investment loan to: — Establish a disciplined savings routine. — Take advantage of a long-term horizon — Prepare now for an early retirement. — Build non-registered assets for future purchases

18 Investment Loans for different stages in life  Leverage for wealth builders  Higher earnings, lower debt, retirement still distant but planning is now a key financial goal.  May use an investment loan to: — Create a larger initial investment to maximize the years left until retirement — Develop a savings strategy for life events — Reduce taxable income by taking advantage of potential loan interest deductibility

19 Investment Loans for different stages in life  Leverage for retirement planners  Peak earning years, low debt, quickly approaching retirement.  May use an investment loan to: — Maximize savings for retirement with a large non-registered investment — Utilize high-income/low-debt situation to build a tax-advantaged estate — Establish a savings strategy that does not force withdrawals at any age I n v e s t m e n t L o a n s

20 Leveraging: important considerations  Leveraging increases risk  Leverage can accelerate gains but may also accelerate losses.  Regardless of the investment performance, the borrower is obligated to repay the loan.  Diversification is key  Leverage is one part to maintaining a diversified strategy. This will reduce the effects of a negative impact from any one part of a strategy.  Leveraging is a long-term strategy  Markets can be volatile in the short term.  Investment Loans are only appropriate for investors with a long-term focus.

21 Two unique leverage programs  Two distinct programs to meet the leverage needs of your clients  Manulife Bank Quick Loans  Manulife Bank Multiplier Loans

22 Manulife Bank Quick Loans  $10,000 to $100,000  No margin calls due to market fluctuations  Interest-only or Principal and Interest payments  Floating interest rate of prime %  100% financing  One-step application process  Limited underwriting

23 Manulife Bank Multiplier Loans  $10,000 to $1,000,000  No margin calls due to market fluctuations  Interest-only or Principal and Interest payments  Floating interest rate of Prime %  3:1, 2:1 and 1:1 financing

24 Important considerations  Leverage is a long-term strategy  Access to growth is limited while the loan is outstanding  Distributions from investments must remain in the account while the loan is outstanding  Applications for larger loans require more information on the client’s financial situation  Ensure the strategy is right for the client

25 Important note Borrowing to invest may be appropriate only for investors with higher risk tolerance. Your clients should be fully aware of the risks and benefits associated with investment loans since losses as well as gains may be magnified. Preferred candidates are those willing to invest for the long term and not averse to increased risk. The value of your client's investment will vary and is not guaranteed however they must meet their loan and income tax obligations and repay their loan in full. Please ensure clients read the terms of their loan agreement and the investment details for important information. Manulife Bank of Canada solely acts in the capacity of lender and loan administrator and does not provide investment advice of any nature to individuals or advisors. The dealer and advisor are responsible for determining the appropriateness of investments for their clients and informing them of the risks associated with borrowing to invest. Tax deductibility of loan interest depends on a number of factors, with the Income Tax Act providing the framework for determining tax deductibility Tax laws are subject to change and therefore, tax treatment of illustrated figures cannot be guaranteed. Results for Quebec residents may differ due to different deductibility rules. Clients should consult their own tax and legal advisors with respect to their particular circumstance.

26 Thank you


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