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Intergenerational Advice Don McAllister

Intergenerational Advice Don McAllister. Facts. In Australia within the next 15 years, the expected Intergenerational Transfer of Wealth will be around $500 billion. Facts. Most Australians STILL do not have any Personal Protection, and of those that do, 75% are insufficiently covered.

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Intergenerational Advice Don McAllister

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  1. Intergenerational Advice Don McAllister

  2. Facts In Australia within the next 15 years, the expected Intergenerational Transfer of Wealth will be around $500 billion

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

  4. 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

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

  6. Facts The number of advisers selling risk products has decreased by 75% in the past 15 years

  7. 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

  8. 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

  9. 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 ??????????

  10. Threats In Australia within the next 15 years, the expected Intergenerational Transfer of Wealth will be around $500 billion

  11. ADVISERS AGE + 50 • CLIENTS AGES + 45 pre retirees • WEALTH ACCUMULATION • INSURANCE UNAFORDABLE NOT WANTED

  12. BUSINESS INCOME • INSURANCE INCOME ………DOWN • SUPER & INVESTMENTS …..UP • RETIREMENT ? • THEN WHAT ?

  13. 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

  14. Strategies for Client ‘A’ Mr. & Mrs. A - Age 60

  15. 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 $$$

  16. $1mil WITH A PLANNER COST TO SET UP YOUR PLAN 1% YEARLY SERVICE FEE 1% WHAT IS YOUR PLANNER DOING TO EARN $10,000P/A

  17. TO SET UP THE PLAN SELECT THE INVESTMENT STRATEGY HOW MUCH INCOME DO YOU WANT ? WHAT ELSE ?

  18. Threats CLIENT HAS A SON 35 AND DAUGHTER 29 SON MARRIED 2 KIDS WORKS IN SYDNEY HAS HIS OWN HOME DOING WELL QUESTION?

  19. Threats - WHAT DO YOU KNOW ABOUT HIS FINANCIAL POSSITION SON HAS A ACCIDENT HE HAS NO INSURANCE DISABLED LOSSES JOB

  20. 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

  21. Common View of the Client Mr & Mrs A Age 60 $1.0+ mill invest-able assets High Value Clients $100k invest-able assets Low Value Clients Mr & Mrs B Age 35

  22. Intergenerational View of the Client Mrs K Age 85 Mr & Mrs A Age 60 Siblings & Families Siblings & Families Mr & Mrs B Age 35 Mr & Mrs C Age 33 Mr & Mrs D Age 29 C Jnr Age12 B Jnr Age 17

  23. 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?

  24. Cycle of Client Wealth Creation $ 25 40 55 70 85

  25. Intergenerational Cycle of Wealth $ Gen 1 Gen 2 Gen 3

  26. Mr. & Mrs. A - Age 60 Strategies Capital $ Lifestyle graph INSTEAD OF HERE ENDED UP HERE Age O = Retirement Upper Confidence Level X = Life Expectancy Expected Median Outcome Lower Confidence Level

  27. Mr. & Mrs. A - Age 60 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.

  28. Strategies for Client ‘B’ Mr. & Mrs. B - Age 35

  29. Strategies As we have seen, a key strategy to protect the wealth of clientA, involves Clients B. The provision of adequate Insurance. Others include • Government co-contributions • Salary sacrifice • Gearing • Long Term Insurance Planning • Mortgages • Cash flow planning

  30. Strategies 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. Mr. & Mrs. B - Age 35 GOAL! Easy! No Way! 45 25 65

  31. 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 32% 22% 16% 53% 19% 11% 6% 7% 6% 15% * 5% 1% 5% 2% Strategies

  32. Critical Illness & TPD Claims: Examples of Trauma/TPD Claims: Based on Personal Risk Claims data from CommInsure, June 2004 Source: MLC Critical Illness Claims Data 2005

  33. Where’s The Protection Policy When It’s Needed? 25% Age at Entry Claims Experience 20% Ave Age at Entry Expected Ave Age at Lapse 15% 10% 5% 0% 20-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 65< Sources: 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

  34. Sales

  35. Revenue Generated by Yr1 Ongoing Investment $? $? Risk $? $? Debt $? $? TOTAL $? $?

  36. Does it work the other way? Mrs K Age 85 Mr & Mrs A Age 60 Siblings & Families Siblings & Families Mr & Mrs B Age 35 Mr & Mrs C Age 33 Mr & Mrs D Age 29 C Jnr Age12 B Jnr Age 17

  37. 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 Commissionstructure is a very attractive income stream to purchase.

  38. Intergenerational Advice Mrs K Age 85 Mr & Mrs A Age 60 Siblings & Families Siblings & Families Mr & Mrs B Age 35 Mr & Mrs C Age 33 Mr & Mrs D Age 29 C Jnr Age12 B Jnr Age 17

  39. Intergenerational Advice

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