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1 VITALITY.CO.UK/LIFE Protecting your clients’ investments Wealth Protection – 2015.

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1 1 VITALITY.CO.UK/LIFE Protecting your clients’ investments Wealth Protection – 2015

2 2 AGENDA 1.How is risk defined? 2.…and the future 3.Conclusions Objectives:  To look at the wider implications of risk management, and its impact on lifestyle, goals and finances  Explore business opportunities from active risk management

3 VITALITY.CO.UK/LIFE 3 What are the challenges that you face?

4 VITALITY.CO.UK/LIFE 4 Adviser business model challenges

5 VITALITY.CO.UK/LIFE 5 FCA focus on advice processes – critical

6 VITALITY.CO.UK/LIFE Advised process

7 VITALITY.CO.UK/LIFE 7 Knowing your customer

8 VITALITY.CO.UK/LIFE 8 Identification of demands, needs and possible solutions - PIPSI

9 VITALITY.CO.UK/LIFE 9 Wealth management process Protection / wealth preservation

10 10 REGULATOR FOCUS ON STABILITY FCA Risk Outlook 2013 FSA Finalised Guidance - Assessing Suitability March 2011

11 VITALITY.CO.UK/LIFE 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

12 VITALITY.CO.UK/LIFE Understanding loss and the consequences Key risks for firms to consider In the FCA’s view, poor outcomes can occur if firms fail to assess a customer’s capability for loss. The FCA 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 FCA 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…” FCA Finalised Guidance: Assessing Suitability – March 2011

13 VITALITY.CO.UK/LIFE 13 Let’s look at what this means… Time £ Initial Investment Retirement Education / University Fees Holiday

14 VITALITY.CO.UK/LIFE 14 But what if...! Time £ Retirement Education/ University fees Holiday Loss of income X

15 VITALITY.CO.UK/LIFE 15 What if something happens to a client with no protection?

16 VITALITY.CO.UK/LIFE 16 What if something happens to a client’s assets with a financial underpin?

17 17 UNDERSTANDING RISK  Investment  Active or passive  Systemic/non-systemic risk  Risk ratings  Protection  Price or benefit  ‘Lifestyle’ risks  Severity risk

18 VITALITY.CO.UK/LIFE 18 Identify: a way to identify the protection needs in an existing investment fact find Prioritise: help prioritise death and serious illness / incapacity Wealth preservation - attitude to risk questionnaire

19 VITALITY.CO.UK/LIFE 19 Be clear where the greater risk lies Death and illness similarly impact affordability. But the risk of illness at younger ages is significantly higher

20 20 Market is focused on pre-retirement protection needs AGE Risk of death Risk of illness NORMAL RETIREMENT AGE PROTECTION MARKET PARADOX Indicative risk of illness and death only

21 21 Limited need for protection post retirement HISTORICAL PROTECTION NEEDS AGE Risk of death Risk of illness NORMAL RETIREMENT AGE Guaranteed pension Short life expectancy Mortgage Family 81% of all protection is in-force up to age 65 Source: Swiss re, 2014

22 22 We increasingly need more protection post retirement AGE Risk of death Risk of illness NORMAL RETIREMENT AGE Mortgage Family PROTECTION MARKET PARADOX Debt post retirement Defined Contribution pension Increased life expectancy Care needs Indicative risk of illness and death only

23 VITALITY.CO.UK/LIFE 23 Prioritise the risk, not the cost Misalignment of product sales to customer needs in the UK Customer risk Product sales

24 VITALITY.CO.UK/LIFE 24 …so protection against illnesses (and their impact) needs to evolve Indicative graph - not based on actual trends in medical conditions Bubonic Plague Smallpox Cancer 1300s1800s2000s Year

25 VITALITY.CO.UK/LIFE 25 Serious illnesses are becoming more common, but are becoming less advanced Rise in incidence rates Source: Cancer Research UK, 2011 European Age-Standardised Incidence Rates per 100,000 Population, by Sex, Great Britain Shows incidence rates for all cancers excluding non-melanoma skin cancers. 1 in 2 of us are expected to be diagnosed with cancer in our lifetimes Fall in death rates

26 VITALITY.CO.UK/LIFE 26 Earlier diagnosis and better treatment mean fewer illnesses progress to a critical status Understanding risk: illnesses are becoming less severe Cover should payout a lower amount earlier, reflecting earlier diagnosis and the lower impact of illnesses

27 VITALITY.CO.UK/LIFE Proactive Risk Management

28 VITALITY.CO.UK/LIFE 28 Other markets are changing....why not protection? By tracking your vehicle’s movement through GPS systems, insurance providers can assess your driving ability. The following may be taken in to consideration: Your location How long you’ve been driving for How rapid or measured your acceleration is How harsh or smooth your breaking is Your cornering All you need to do is have a telematics “black box” installed into your car

29 VITALITY.CO.UK/LIFE 29 Lifestyle is key to managing the risk of illness Understanding risk: diseases are becoming more lifestyle related Source: Oxford Health Alliance, 3four50.com, January 2014 We need to help people understand and improve their health to prevent the onset of lifestyle illnesses 3 controllable behaviours Poor nutrition, lack of exercise, smoking 4 chronic disease of lifestyle Cancer, diabetes, lung disease, Cardiovascular disease 50% of deaths worldwide

30 VITALITY.CO.UK/LIFE 30 Gap in consumer’s health awareness and knowledge 18 November 2014

31 31 Wellness can reduce the risk of later life conditions Healthy behaviours can reduce risk of Alzheimer's by up to 60% Inactivity has overtaken other risk factors: Years BEHAVIOR IS KEY TO REDUCING RISK “Sitting has become the smoking of our generation” Nilofer Merchant Smoking rates Obesity rates Source: HSCIC and Cardiff school of medicine, 2013

32 32 Being healthier is an antidote to costs of ageing 30% lower risk of dementia 35% lower risk of heart disease and stroke 50% lower risk of type 2 diabetes 68% lower risk of hip fracture 30% lower risk of falls (among older adults) A healthy lifestyle reduces the risk of later life illnesses… Source: NHS, 2014

33 VITALITY.CO.UK/LIFE Longer Lives - Greater Risks

34 34 As we increasingly survive physical illnesses the risk of degenerative conditions increases Relative incidence of conditions by age group: CHANGING NATURE OF RISK EMERGENCE OF OTHER ILLNESSES Source: HSCIC and ONS 2012

35 35 EFFECTS OF AGEING DEMENTIA IS ON THE RISEGROWING NEED FOR CARE Dementia was the leading cause of death for women in England and Wales in 2013 Dementia incidence is expected to increase 2.5 times in the next 35 years 6 out of 10 over 65’s will need care Source: ONS, CMS 2013 and Alzheimer's Society 2014

36 36 Care home costs include accommodation and food YEARS IN CARE Based on someone going into a London based care home Cumulative costs incurred after entering a care home INCREASING COST OF CARE Care home costs Nursing costs £’s Source: Based on VitalityLife analysis, 2014

37 37 Social care cap of £72,000 only caps nursing costs Based on someone going into a London based care home Cumulative costs incurred after entering a care home YEARS IN CARE WE CAN’T RELY ON THE STATE Care home costs Nursing costs £’s Source: Based on VitalityLife analysis, 2014

38 VITALITY.CO.UK/LIFE 38 Term Life CoverWhole of Life Critical/Serious Illness Cover Wellness Planning – Keeping Healthy Care Needs Providing solutions across the risk spectrum Age Risk/morbidity Flexibility Income Protection

39 39 MANAGING RISK AND ITS IMPACT

40 40 WHY ENGAGE?

41 41 HERE’S WHY YOU SHOULD CONSIDER WEALTH PRESERVATION: 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

42 42 VITALITY – SUPPORTING YOUR BUSINESS Attitude to risk questionnaires Online support tools (i.e. needs analysis) Wellness (Vitality programme) Severity (risk management) plans Lifetime care plan Mortgage Plus Please contact your local consultant or contact Greg Kittlety or

43 VITALITY.CO.UK/LIFE Thank you

44 VITALITY.CO.UK/LIFE More new business ideas

45 VITALITY.CO.UK/LIFE 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

46 VITALITY.CO.UK/LIFE 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

47 VITALITY.CO.UK/LIFE Opportunities Continued Wealth preservation planning Inheritance Tax planning at/or post retirement planning Vitality

48 VITALITY.CO.UK/LIFE A hierarchy of personal tax needs 1. Income tax/NIC 2. Capital gains tax 3. Inheritance tax But…..

49 VITALITY.CO.UK/LIFE Key factors in driving interest in estate planning 1. Age 2. Wealth 3. Family 4. Self -sufficiency 5. Rates/exemptions

50 VITALITY.CO.UK/LIFE Key target segments Older, wealthier families and property owners

51 VITALITY.CO.UK/LIFE 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”

52 VITALITY.CO.UK/LIFE 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

53 VITALITY.CO.UK/LIFE 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)

54 VITALITY.CO.UK/LIFE Trusts can help Control:Bare/discretionary Access:Loan trust/DGT

55 VITALITY.CO.UK/LIFE Life policy/trust combination: “a bargain” Allows you to: provide for IHT without you needing to change your life “contract out” of serious giving

56 VITALITY.CO.UK/LIFE Life policy/trust combination: “a bargain” Premiums Exempt Sum assured IHT free Trust Life policy Normal expenditure Annual exemption

57 VITALITY.CO.UK/LIFE Campaign ideas Providing for IHT without changing your life (Effectively) paying IHT in instalments Protecting your pension fund No probate delays

58 VITALITY.CO.UK/LIFE Providing for IHT without changing your life Home Business Investments Death Payout IHT Trust IHT paid Full owner access and control Premiums exempt Policy

59 VITALITY.CO.UK/LIFE Paying IHT in instalments Trust Policy Premiums Future sum assured Beneficiaries A good investment?

60 VITALITY.CO.UK/LIFE Underpinning Pension Drawdown

61 VITALITY.CO.UK/LIFE 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

62 VITALITY.CO.UK/LIFE Income drawdown underpin 1 st death 2 nd death Ceases Estate

63 VITALITY.CO.UK/LIFE 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

64 VITALITY.CO.UK/LIFE 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

65 VITALITY.CO.UK/LIFE Income drawdown underpin Cost as percentage of Income Withdrawal Fund (After PCLS) at outset Based on £300k IW Fund Age at Cost Commission Outset Fund (%) M55/F %pa £2,463 M60/F %pa £3,081 M65/F %pa £3,677 M70/F %pa £3,099 For illustrative purposes only

66 VITALITY.CO.UK/LIFE VitalityLife – providing in depth support

67 VITALITY.CO.UK/LIFE Advice process – support we can offer

68 VITALITY.CO.UK/LIFE 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

69 VITALITY.CO.UK/LIFE “My Plan” app

70 VITALITY.CO.UK/LIFE Vitality discounts and rewards All information correct as at December 2014

71 VITALITY.CO.UK/LIFE Vitality Plus With Vitality Plus it’s easier to get healthy with discounts on things like health screens and exercise devices, as well as the opportunity to reduce premiums each year All information correct as at December 2014

72 VITALITY.CO.UK/LIFE 72 Vitality: incentivising behavioural change Reward and discount partners Vitality Plus and Vitality Optimiser partners

73 VITALITY.CO.UK/LIFE 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 adviser visits

74 VITALITY.CO.UK/LIFE 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

75 VITALITY.CO.UK/LIFE Thank you for your time

76 VITALITY.CO.UK/LIFE Supporting and underpinning the wealth management proposition

77 VITALITY.CO.UK/LIFE 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

78 VITALITY.CO.UK/LIFE 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

79 VITALITY.CO.UK/LIFE 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.

80 VITALITY.CO.UK/LIFE 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 Adviser risk Client risk

81 VITALITY.CO.UK/LIFE Risk and loss…. How does this potential loss fit into your discussions with clients on: –Attitude to risk? –Aversion to loss?

82 VITALITY.CO.UK/LIFE Wealth preservation planning VitalityLife 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 VitalityLife 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 healthy rewards and discounts

83 VITALITY.CO.UK/LIFE Why VitalityLife? 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.

84 VITALITY.CO.UK/LIFE Underpinning the wealth management proposition Wealth Management Planning for future goals Wealth Preservation Contingency planning against unexpected Capital/Income needs VitalityLife Comprehensive, combined review strategy Integrated client proposition

85 VITALITY.CO.UK/LIFE Healthy discounts and reward- 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

86 VITALITY.CO.UK/LIFE Protecting your clients’ investments

87 VITALITY.CO.UK/LIFE Financial advice today Protection Wealth management Protection has become more transactional Wealth solutions continue to be advised Technology has made managing wealth easier Protection relatively onerous to purchase Segmentation

88 VITALITY.CO.UK/LIFE Understanding the advised process 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) Review investment holdings Review tax positions update client ATR Provide agreed client review Meet changing needs Meet goals

89 VITALITY.CO.UK/LIFE Understanding the advised process 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) Review investment holdings Review tax positions update client ATR Provide agreed client review Meet changing needs Meet goals Assist with relevant questions on fact find Wealth preservation ATR Needs Assessment Online tools/calculators Product descriptions/guides Guidance in underwriting process Standard paragraphs Corporate guide Review risks to capital Alter benefits to suit needs Vitality enhances review process and client proposition

90 VITALITY.CO.UK/LIFE Client proposition Investment proposition Attitude to risk Fact find Supporting the investment process

91 VITALITY.CO.UK/LIFE Business solutions for business risks Client retention - generational planning Compliance - identify shortfalls, risk Avoid litigation - cost, reputation, PI Differentiate - additional client services, rewards and discounts etc Increase business value - complaints, relationships

92 VITALITY.CO.UK/LIFE 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 Healthy discounts and rewards

93 VITALITY.CO.UK/LIFE Case study 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. What happens to your client – with and without protection * Assuming they can generate an income of 5% on their assets

94 VITALITY.CO.UK/LIFE Case study What happens to your client – with and without protection For illustrative purposes only

95 VITALITY.CO.UK/LIFE Case study 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. What happens to your client – with and without protection

96 VITALITY.CO.UK/LIFE Case study What happens to your client – with and without protection

97 VITALITY.CO.UK/LIFE Looking forward… If you would like more information or assistance on VitalityLife’s: –Wealth preservation proposition –Online tools –Wealth preservation ‘attitude to risk’ questionnaire –Extensive range of products Please either contact your local Business Consultant, visit vitality.co.uk/life or call

98 VITALITY.CO.UK/LIFE Example client - Neil Taylor Personal Details –Male aged 45, married to Yvonne (aged 41) –2 Children (son 14, daughter 8) both at private school –Owns a house valued at £525,000 (with a mortgage of £350,000) Occupation Details –Structural Architect –Partner with 3 others (25% each), and 2 staff –Drawing £70,000 salary and £30,000 bonus –Loan to Business of £80,000 Savings and Investments –Cash £15,000 –ISAs £75000 (contributes every year) –Contributes 5% income to Pension (current fund value £280,000) Life Assurance –Total £420,000 (to cover mortgage and loan)

99 VITALITY.CO.UK/LIFE Neil suffers a stroke There are 152,000 strokes in the UK every year (more than 1 every 5 minutes) Stroke is the leading cause of adult disability, with more than half of all stroke survivors dependant on others for everyday activities Stroke has a greater disability impact than other chronic diseases and is the largest cause of complex disability in adults Only 1 in 5 are fatal Approximately 25% of all strokes occur in people aged under 65 All information provided by the Stroke Association, 2013

100 VITALITY.CO.UK/LIFE What if Neil should die? How long could the families lifestyle be maintained? Life assurance pays out to cover capital debts (mortgage and business loan) Still has to fund school fees Has to decide what to do with share in business

101 VITALITY.CO.UK/LIFE What if Neil lives? How long could they maintain their lifestyle? Mortgage and Loan repayments still ongoing School fees ongoing Cost of treatment and/or disability (travel, hotels, modifications to home and/or work) Cannot contribute to pensions or future savings Needs to consider impact on business But suffers a disability and resume work for a minimum of five years

102 VITALITY.CO.UK/LIFE What about the impact to the business? Neil will no longer provide a source of income Can the business maintain any income? Do the other partners want the wife to have an input into the business? Would they prefer to pay off Neil and his wife?

103 VITALITY.CO.UK/LIFE What could a financial underpin provide? In the event of death or illness, or loss of income it could provide and alternative source of income, or capital Existing capital, or savings can be preserved to meet future needs and goals Meet additional income/capital needs due to disability Replace future income needs (ie pensions)

104 VITALITY.CO.UK/LIFE Opportunities – Business to Business Increase revenue now - fees Protect and increase future revenue - protect funds under management More income from existing clients - replace trail income Increase RI productivity Diversify - alternative income stream

105 VITALITY.CO.UK/LIFE 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


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