Presentation on theme: "Build your business with Manulife Bank"— Presentation transcript:
1 Build your business with Manulife Bank Note to presenter: Advisor use only - Not for client distributionWelcome to this session on building your business with Manulife Bank through using our market-leading Investment Loan program.Investment LoansInsert presenter’s name here
2 When you succeed, we succeed Who is Manulife BankDedicated to providing banking solutions through financial advisorsWholly-owned subsidiary of Manulife FinancialCanada’s 8th largest domestic bank – over $23 billion* in assetsYour clients remain your clients* As at September 2014.I’d like to start with a few words about who Manulife Bank is. While you may be familiar with Manulife Bank, it’s likely that many of your clients are not.While some banks sell through advisors when it’s convenient, cutting the advisor out of the loop by selling directly to the end consumer when they can, Manulife Bank is dedicated to marketing through financial advisors.Our sole purpose is to provide financial advisors with high-quality banking products, so that, together with other Manulife products, you are able to provide your clients with a full range of financial products.Manulife Bank is now over 16 years old, is a wholly owned subsidiary of Manulife Financial – one of Canada’s largest and most respected financial institutions. With over $17 billion in assets, we’re Canada’s 8th largest domestic bank and one of the fastest growing banks in the country.
3 Our missionBanking 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 relationshipsFacilitate additional salesReduce competition for your clients financial businessI mentioned that Manulife Bank’s goal is to help you deliver a full suite of financial products to your clients. By offering your clients banking products, you can achieve three very important goals.First, you can strengthen and expand your client relationships by providing advice and top-quality products for an even larger portion of their assets. You can help them make their money work harder and improve their financial situation.Second, you can facilitate additional sales. In addition to the bank product sales you’ll be making, many banking products can increase sales in other areas. For example, leverage loans facilitate fund sales. And by helping clients pay off their mortgage sooner, Manulife One can free up cash for investing purposes.Finally, you can reduce competition. Every financial institution has as a stated goal growth of their ‘share of wallet’ from existing clients. Since many of your clients have accounts with the your competition.– this means they’re going after your clients. By providing your clients with superior banking products from Manulife Bank, you can greatly reduce the likelihood they will be actively pursue by others for their business.
4 Why sell Manulife Bank products? Give clients access to premium banking products and demonstrate additional financial valueBuild your business in three important ways:Prospecting tool and conversation starterIncrease referrals from existing clientsEarn competitive compensation on all deposit products and mortgage referralsAnd reducing competition is just one reason to sell Manulife Bank products. Because Manulife Bank doesn’t have expensive branches to maintain, we’re able to pass along our savings to clients through better rates and products. This means that the Manulife Bank products you offer clients are, in most cases, superior to the products they currently receive from the big banks. Providing your clients with these superior products will demonstrate the value that you provide, and help to strengthen your client relationships.Manulife Bank products can also help you build your business in three important ways.First, since virtually everyone needs some kind of banking products, they can be a great door-opener. Simply show new prospects the superior rates and product features they can get through Manulife Bank products, and those prospects may quickly become clients.Second, when people are happy with a product or service, they like to talk about it. Because Manulife Bank’s products are so competitive, there’s a good chance your clients will tell their family and friends about them. This can mean more referrals, and more clients for you.Finally, by providing banking products to your existing clients, you can generate additional compensation from your existing block of business.
5 It takes money to make money. Therefore… …the more money your clients have, the more money they could make.Everybody has heard the phrase “it takes money to make money”. And if we carry that thought a bit further, it follows that the more money your clients have, the more money they could make. This is the premise behind investment leverage – earn money by using somebody else’s money. The wealthy have used this strategy for centuries – and with Manulife Bank’s Investment Loan programs – it’s now available to most of your clients as well.
6 Investment Loan basics Your clients benefit from the earning power of a much larger pool of assetsYour clients borrow moneyThey invest the moneyThey pay interestThey sell the investmentPay applicable taxes and fees, and repay the loanThey keep what’s left overThe premise behind investment leverage is actually quite simple:Your clients borrow money.They invest the money.They pay interest and applicable taxes.They sell the investment and repay the loan.They keep what’s left over.With a long-term vision and positive returns on investment choices, what’s left over could be substantially more than what they put into the program. Keep in mind that this is a long-term strategy. Historically leverage would have performed quite well compared to non-leverage over 10-year periods, and I’ll speak more about this in a few minutes. However it’s important to note that because markets are generally quite volatile in the short-term, the risk of leverage also increases as the client’s investment horizon decreases.
7 A classic investing strategy Borrowing to invest is not newHome owners borrow to invest in their own real estateRRSP loans for borrowing to invest in retirementStudent loans are an investmentAlternative to saving and waiting…Investment Loans provide the purchasing power clients need, todayBorrowing to invest is not a new strategy, and in fact whether or not they realize it, most of your clients already borrow to invest.If they have a mortgage on their home, they’ve borrowed to invest in the real estate market.If they have taken out an RRSP loan, they’ve borrowed to invest in their retirement.If they’ve taken out a student loan, they’ve borrowed to invest in their future. That is, they’ve invested in education with the hope that the increase in future earnings will more than offset what they spent to acquire the education.Once they understand how leverage has already been applied to other areas of their life, most clients are quite open to hearing how leverage can help with their non-registered investments. It’s a simple concept - rather than saving and waiting, Investment Loans provide your clients with the purchasing power they need, today.
8 Leverage is simply borrowing to invest A proven wealth-creation strategyAppropriate for investors with a higher risk toleranceWho want the opportunity to potentially earn a higher long-term returnThe risk-return continuumLeveraged Investing, OptionsStocks, Equity FundsPotential ReturnBonds, Fixed Income FundsOnce clients understand that leverage is used in many aspects of their life, you can show them how investment leverage fits along the traditional risk-return continuum. This helps to reduce some of the ‘fear’ surrounding leverage – and helps clients understand that this is simply another investment option. If clients are comfortable with a portfolio that is heavily weighted toward equities, they may also be comfortable moving further up the risk/reward continuum with leverage.Bank accounts, GICs, T-billsRisk
9 Why do Investment Loans work? Tax deductibilityIf 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”So why do Investment Loans work? There are two reasons. The first is tax deductibility. Interest payments that are made on an investment loan are generally tax-deductible. What this means is that the client’s ‘break-even’ return – the return beyond which leverage outperforms non-leverage, is actually lower than interest rate the client is paying.* Interest is generally tax deductible. Clients should consult their tax advisor.
10 Why do Investment Loans work? Leverage and tax deductibilityAfter-tax break even – Example:100% interest deductibility40% marginal tax rate$50,000 loan at 7.0% interest rateAfter-tax return of 4.54% over 10 years to break evenAssumes taxable annual return of 33%; tax rate on income is 35% Break-even return will differ slightly in Quebec.As a very simple example, for a client in a 40% income bracket who is paying 7.0% interest on a loan – their investment only needs to return more than 4.54% annually for leverage to make sense. Put another way, if this client’s long-term return is more than 4.54%, they will be further ahead financially by using leverage, than if they had simply invested the money they spent on interest payments.
11 Why do Investment Loans work? Compound returns vs. DCAWith Dollar Cost AveragingOnly the first contribution works for the full investment periodThe majority of contributions work for a shorter period of time (less time to grow)With an investment loan100% of the investment amount is working for the full investment periodThe second reason investment loans work is compounding. With a traditional dollar-cost averaging strategy, only the first contribution works for the full investment period. If you assume a 10 year investment period, the contribution you make 1 year from now only has 9 years to grow. The contribution you make 2 years from now only has 8 years to grow, and so on. With leverage, the full amount of the loan can compound for the full 10 years. And this can have a powerful impact on how much the account is worth at the end of 10 years.
12 Invest for the long-term Leverage vs. non-leverage Performance of leverage vs. non-leverage over historical 10-year periods demonstrates that leverage works.NOTE TO PRESENTER – DO NOT USE THIS SLIDE IF YOU ARE IN QUEBECA leveraged investing strategy offers the potential for an investment portfolio to grow more quickly than with a non-leveraged strategy, but also comes with the risk that the portfolio will perform worse than a non-leveraged portfolio. While nobody can predict which strategy will perform better over a 10-year period, understanding the historic performance of each strategy can help a leveraged investor put the potential risk and reward into perspective.Manulife Bank conducted some historical research to determine how often, over historical 10-year periods, a leverage strategy would have outperformed a non-leverage strategy. Between February 1956 and December 2007 there were 504 full-month 10-year returns for the TSX300/S&P TSX Index. For example, the first such period was February 1956 to January 1966, the second was March 1956 to February of 1966, and so on. During this period, the study assumed the investor earned the annualized return of the S&P/TSX Total Return index, and the investor paid an interest rate equal to the average rate of Prime +1.25% in effect over the 10-year period. The question to be answered was – how often would leverage have out-performed non-leverage.As the pie-chart shows, with a 45% marginal tax rate, leverage would have out-performed non-leverage about 85% of the time, and would have under-performed with a positive return an additional 9% of the time. Only 6% of the time would the investor have lost money over 10 years. Stated another way – a traditional investor would have out-performed a leveraged investor only 15% of the time.This is a compelling illustration demonstrating the value of leverage. This illustration is also available as a sales aid that you can discuss with your clients.<<Assumptions used: 45% marginal tax rate, 100% deductibility, 35% tax rate on investment income, 25% taxable portion of return. A version of the sales aid using a 35% marginal tax rate is also available>>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 clientAchieve financial goals soonerCompounding and tax deductibility may accelerate investment growthCreate a disciplined savings planReduce the chance of an investment plan being derailed by other consumer needsBuild non-registered assetsUnlike RRSPs, non-registered plans do not require minimum withdrawals in retirementInvestment leverage can have some important benefits for your clients.First, it can help them achieve their financial goals sooner. Assuming that the long-term upward trend of equity markets continues, investment leverage has the potential to help your client out-perform the market.Second, it can help them create a disciplined savings plan. If you have a client who has had difficulty sticking to a regular investment plan, a leverage program may help. Because a leverage program requires interest payments, clients will be much less likely to spend before they save.Finally, leverage can help a client build non-registered assets. While registered plans are important and have their place in a balanced financial plan, they lack flexibility in retirement because they require minimum withdrawals each year whether or not the income is required. With a non-registered plan, clients have greater flexibility for withdrawals as needed.
14 Why recommend leverage? Benefits for youRemove the single biggest sales obstacle – access to fundsIncrease assets under management now and in the futureIncrease referral businessthanks to an innovative and powerful investment strategyRecommending investment leverage to your clients can also have some important benefits for you.Remove the single biggest sales obstacle – access to funds.Increase assets under management now and in the future. The best thing about leverage is that it can be a win-win situation for you and your client. As their accounts grow more rapidly with leverage – so do your assets under management.Increase referral business by recommending this innovative and powerful investment strategy. Once your clients understand the power of this strategy – they’ll most likely talk to their friends and family about it.
15 Who should borrow to invest? An Investment Loan may be right for your client if…They’ve maximized their RRSP contributionsThey’re looking to build non-registered assetsThey have a long-term investment horizonAt least 10 yearsAlthough leverage can be a powerful investment strategy, it’s not for everyone. Here are some characteristics that suggests your client may be a candidate for leveraged investing:They’ve maximized their RRSP contributions and are looking to build non-registered assets.They have a long-term investment horizon of 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 taxesThey have a reasonably high tolerance for investment riskThey understand how the borrow to invest strategy works, including the potential for increased gains or lossesThey 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 losses.
17 Investment Loans for different stages in life Leverage for newer investorsSecure 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 horizonPrepare now for an early retirement.Build non-registered assets for future purchasesLeverage can be used for different purposes at different stages in life. When going through your book of business, there are some client groups that may be potential leverage candidates.The first I’ll discuss is new investors. These clients are generally just getting established in life. They’ve secured stable employment, have secure and rising income, and have a very long investment horizon. For these clients, leverage can help to achieve a few goals:Establish a disciplined savings routine. The required payments on a leverage loan can help establish a savings pattern that will serve clients well in the future.Take advantage of a long-term horizon to prepare now for an early retirement. Leverage works best as a long-term strategy. Since these clients have the longest investment horizon, they have the most to gain from leveraging.Build non-registered assets for future purchases such as a car, vacation or a home. While leverage is often used to build supplemental retirement savings, it can also be used for medium-term goals.
18 Investment Loans for different stages in life Leverage for wealth buildersHigher 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 retirementDevelop a savings strategy for life eventsReduce taxable income by taking advantage of potential loan interest deductibilityThe second group of clients to look for are the ‘Wealth Builders’. These are typically middle-aged clients with higher earnings and lower debt levels. For these clients, retirement is still distant, but planning for retirement is quickly becoming the primary goal. For these clients, leverage can be used to:Create a larger initial investment to maximize the years left until retirement. This can be particularly important for clients who have reached middle age without spending much time saving for retirement. For these clients, it’s important to make the most of the time they have left.Develop a savings strategy for life events, such as children’s education, large ticket purchases or leisure activities. Leverage can be used to accelerate the growth of investments for medium-term lifestyle purchases, or the upcoming need to fund a child’s education.Reduce taxable income by taking advantage of the potential deductibility of loan interest payments. For clients in high tax brackets, deductible interest payments can help them reduce taxable income and grow their investment portfolio at the same time.
19 Investment Loans for different stages in life Leverage for retirement plannersPeak earning years, low debt, quickly approaching retirement.May use an investment loan to:Maximize savings for retirement with a large non-registered investmentUtilize high-income/low-debt situation to build a tax-advantaged estateEstablish a savings strategy that does not force withdrawals at any ageYou may also consider retirement planners as potential leverage candidates. These are clients who are nearing retirement, have little or no debt, and are in their peak earning years. These clients may use leverage to:Inject retirement plan with a large non-registered investment to maximize savings for retirement. If a client anticipates retirement in 5-10 years, a leverage strategy may help give their retirement savings that extra boost needed to make retirement a bit more comfortable.Take advantage of unique high-income, low debt situation to build an estate on a tax-advantaged basis. With little debt and good income, these clients are in an ideal position to take on tax-deductible interest payments to reduce their taxable income and increase their investment growth.Establish a non-registered savings strategy that, unlike registered plans, does not force withdrawals at any age. A solid non-registered portfolio can provide substantial flexibility in retirement, as it allows the investor greater flexibility for withdrawals as needed.
20 Leveraging: important considerations Leveraging increases riskLeverage can accelerate gains but may also accelerate losses.Regardless of the investment performance, the borrower is obligated to repay the loan.Diversification is keyLeverage 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 strategyMarkets can be volatile in the short term.Investment Loans are only appropriate for investors with a long-term focus.As compelling as leverage can be as an investing strategy, it’s important to understand that this strategy may not be appropriate for all of your clients. When discussing leverage, it’s important to ensure that clients understand three important points:Leveraging increases riskLeverage can accelerate gains but may also accelerate losses.Regardless of the investment performance, the borrower is obligated to repay the loan.Diversification is keyAn investment loan can be an important part of an investment strategy, but maintaining a diversified strategy will reduce the impact of negative impact from any one part of a strategy.Leveraging is a long-term strategyMarkets can be volatile in the short term. An investment loan strategy is only appropriate for investors with a long-term focus.
21 Two unique leverage programs Two distinct programs to meet the leverage needs of your clientsManulife Bank Quick LoansManulife Bank Multiplier LoansManulife Bank has two investment loan programs to help you meet the unique needs of your leverage clients.Manulife Bank Quick LoansDesigned for clients new to investment loans or those wanting to borrow smaller amounts. With this program, we’ve taken the most popular features, such as no margin calls and interest-only payments, and made them standard on every loan. Quick Loans allow clients to borrow from $10,000 to $50,000.Manulife Bank Multiplier LoansDesigned for clients wishing to borrow larger amounts or desiring customized loan features. This program features a variety of options to meet the unique needs of financially sophisticated clients. Multiplier Loans allow clients to borrow $50,000 to $150,000.
22 Manulife Bank Quick Loans $10,000 to $100,000No margin calls due to market fluctuationsInterest-only or Principal and Interest paymentsFloating interest rate of prime %100% financingOne-step application processLimited underwritingWith all Quick Loans, the following features are standard:$10,000 to $100,000.No margin calls calls due to market fluctuationsInterest-only or Principal and interest paymentsFloating interest rate of prime +1.00%.100% financing.One-step application processLimited underwriting
23 Manulife Bank Multiplier Loans $10,000 to $1,000,000No margin calls due to market fluctuationsInterest-only or Principal and Interest paymentsFloating interest rate of Prime %3:1, 2:1 and 1:1 financingIf your clients are interested in borrowing larger amounts, or if they’d like to take out an Investment Loan in the name of their business, Manulife Bank offers the Multiplier Loan program.Personal loans greater than $10,000 to $1,000,000No margin calls due to market fluctuationsInterest-only or Principal and interest paymentsFloating interest rate of Prime %3:1, 2:1 and 1:1 financing
24 Important considerations Leverage is a long-term strategyAccess to growth is limited while the loan is outstandingDistributions from investments must remain in the account while the loan is outstandingApplications for larger loans require more information on the client’s financial situationEnsure the strategy is right for the clientBefore I let you go, I’d like to cover a few important points that occasionally cause headaches for advisors and for Manulife Bank.First, and I know I’ve already said this but it bears repeating, leverage should only be considered for your clients if they have a long-term investment horizon. We all know that markets can move up and down substantially in the short term, and the risk associated with this strategy increases greatly when you start looking at this as a short-term strategy.Second, access to growth from a leveraged investment is quite limited. Depending on the loan type and investment type, growth may or may not be accessible to the client. I won’t get into details here since they’re covered in the marketing guide. But the point I’m trying to make is, don’t sell this strategy with the assumption that growth can be withdrawn from the investment.Third, distributions from the fund must be left in the account. This means that the client won’t, for example, be able to use distributions from the Monthly High Income Fund to cover the interest costs.Finally, and I know that this won’t be an issue with anyone here, ensure that this strategy is right for the client. This can include ensuring they have their debt under control, have enough income to support the loan payments and fully understand how the strategy works.With these points in mind, I encourage you to discuss this investment leverage with your clients and, where appropriate, help them take advantage of this strategy.
25 Important noteBorrowing 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.