Business Assurance – an overview by FPC Corporate Solutions

1. Business Assurance – an overview by FPC Corporate Solutions Media Briefing Date: 28 June 2011 • March 2011

2. Introduction Somerset Morkel Wealth Management Consultant Industry experience • October 1982 – Financial Adviser with Trust Bank • June 1983 – Independent Financial Advisory practice • Sold Practice in 2005 – spent time in UK in financial services • Mar 2009 – Joined Alexander Forbes FPC Qualifications: BSc (Wits) HDipEd CFP

3. What is the purpose of Business Assurance? “Business Assurance aims to minimise, limit or extinguish visible or hidden risks that an Entrepreneur or his Business is directly or indirectly exposed to both now and in the future.”

4. Why is Alexander Forbes looking at the Entrepreneurial / SME space? • SMEs – the lifeblood of the SA economy • Over 500,000 businesses operating as SMEs • Approximately 2.5m people working on their own or with a partner • Accounts for about 30% of total GDP Source: Department of Trade and Industry, Annual Review of Small Business in South Africa, 2007 • FPC Corporate Solutions recognises the importance of this sector. Advice includes: • Exposing business risks / highlighting solutions • Separating business from personal needs • Understanding the relationship between the two • Success and continuity of the business will depend on the entrepreneur understanding the risks he/she faces

5. Psyche of the entrepreneur • Confident, focused and motivated • Very aware of costs • Needing “big-picture” solutions, but understands that “the devil is in the detail” • Usually a close relationship with their financial director, accountant or auditor – financial adviser must be able to speak same language • Protection of family essential to them: • Estate planning and family protection • Drafting of the last will and testament • Retirement planning outside the business

6. Business entities:

7. Parties to a contract

8. Matrix of business needs Owners Business Entity Employees Owners Business Continuity Business Overheads Cover Retention Incentives Capital Extraction Debtor’s Cover Retirement Provision Suretyship Protection Key-person Cover Income protection Loan Account Redemption Loan Account Protection Group Life Income Replacement Alternative Financing Medical Aid Asset Replacement Medical pre-funder Debt Consolidation Short-Term

9. Business Continuity, Keyperson and Suretyship Protection

10. Business continuity (Buy and Sell)

11. Business continuity policy structure Structure of Buy-and-Sell policies for a company with 5 shareholders • Owner: Owner A, B, C & D • Life Assured: Owner E • Premium Payer: Owner A, B, C & D • Usually the company pays the premium and allocates it to A, B, C and D’s loan accounts or debits it to their salaries. • NB: the owners MUST pay the premiums in proportion to their shareholdings.No premium must ever be paid by the life assured. • Beneficiary: Owner A, B, C & D (this is not usually stipulated, as the proceeds will be paid to the owners)

12. Keyperson cover • Who are the key individuals in the business? • What are the business owner’s options if a Keyperson should die or become disabled? • Associated cost of replacing a key individual • Recruitment agency fee (20% - 25% of annual salary) • Cost of training and up-skilling • Possible increase in salary/CTC • Course fees and other external costs • Cost of the golden carrot • Relocation allowance • Loss of income

13. Keyperson policy structure Important:Premiums deducted or not?Assurance payout taxable or untaxed Funding Structure via a Life Policy Owner: Business Entity Life Assured:Keyperson Premium Payer: Business Entity Beneficiary: Business Entity

14. Suretyship protection Many small company balance sheets are not sufficiently strong to satisfy an institution lending the company money The individual (or individuals) is requested to stand personal surety for the loan or funds borrowed by the business. What happens if the business cannot repay the loan? By extension, what happens if, on the death or disability of the person who stood surety, the business cannot repay the loan? Are the shareholders aware of the “benefit of excussion”? Is there an agreement in place and was a resolution passed?

15. Suretyship protection policy structure • Funding Structure via a Life Policy • Owner: Business Entity • Life Assured: Person who stood Surety • Premium Payer: Business Entity • Beneficiary: Business Entity • Cessionary: Bank/Financial Institution Important:Premiums deducted or not?Assurance payout taxable or untaxed

16. Deal with a team with the requisite specialist skills, but make certain there is sufficient backup to give ongoing peace of mind • Ideas must be rooted in methodical research, with the outcomes resulting from tried and tested implementation • Protection – there is always some implementation and product risk when setting up risk or investment plans. Make certain that the advisor you deal with carries significant professional indemnity cover What the entrepreneur should be looking for in a business solution • Make certain that the bar on compliance is raised to the highest level – the advice you get must be scrutinised and evaluated by legal and compliance teams

17. Thank you for the opportunity.Any questions?