Real estate – an advisory perspective Kevin Knight District Vice President Manulife Bank

Accelerate your practice – manage all assets 2  Agenda  Control the cash flow, control the plan  Activating real estate in retirement  The conversation  Recap

Traditional advice process: Our product offering Deposit ProductsLoan Products Advantage Account Business Advantage Account Tax-Free Advantage Account Registered Advantage Account $US Advantage Account GICs Investment Savings Account Access Line of Credit Cash Surrender Vendor Lending Immediate Financing Arrangements Insured Retirement Program Line of Credit Investment Loans RRSP Loans Mortgage Products Other Manulife One Manulife Bank Select Manulife One for Business Alternative Mortgage Solutions Creditor Insurance Private Wealth & Private Banking Rewards credit card 3

Control the wallet and control the plan 4  It’s time to wake up sleeping equity!

Who owns the wallet today?  Clients self-manage their banking  The biggest beneficiary of the retirement assets you built … may be your client’s bank  Advisors are building wealth  But retirees are taking on debt 5

Who owns the wallet today?  Debt management & wealth preservation  Home equity could be key to solving retirement income shortfalls  Retirement saving = investment advisor  Retirement spending = cash flow advisor  influence switches from growth to preservation 6

Why is real estate important in your practice? 40% of most clients' net worth is real estate Equal to market investments and insurance combined! 7 January, 2014: Laura Cooper Economist: Statistics Canada/RBC Economics Research

Activated real estate … now and in retirement Clients can: 1. Accelerate debt repayment 2. Use cash/equity to boost savings 3. Make regular tax-free equity withdrawals 4. Slow depletion of investments 8 Debt Investment portfolio Pre-retirement Retirement

Today’s banking: Inefficient cash flow impacts financial plans $1,000 $8,000 $2,000 balance $3,000 balance $1,500 $4,000 Illustration purposes only Current monthly cash flow $8,000Income ($4,000)Expenses ($2,700)Mortgage & other debts ($1,000)Investments / Insurance $300Positive cash flow $5,000Idle cash $500 $200 $400 $100 $1,200 Consumer debt 9

ACCELERATE home ownership with Manulife One  Optimal cash flow & financial plan $8,000 Interest $1,000 $4,000 New monthly cash flow program $8,000 Income ($1,000)Interest ($4,000)Monthly expenses $3,000Debt reduction & financial planning 10 Illustration purposes only

… or BOOST financial plans 11  Use this new cash flow system to:  Boost TFSAs  Top up RRSPs  Improve estate and income protection  Create an emergency fund

Manulife Bank – Help manage the wallet and control the plan 12 Three key improvements our banking solutions will have on your business 1. Removes barriers to financial planning 2. Increases core business opportunities 3. Builds a new income stream

Activating real estate in retirement 13 Advisor Training modules 1. Tax Efficient Retirement Planning by Activating Real Estate – complete 2. Estate and Insurance Planning – coming soon 3. Retirement Bridging – coming soon 4. Managing Life Events – coming soon

Two Canadian facts: #1 “The country has been moving in this direction for years, but has now crossed a ‘magic line’” Doug Norris, chief demographer at Environics Analytics and a nearly 30-year veteran of Statscan We’re getting older 14

Two Canadian facts: #2:  By retirement, 77%* of Canadians will own a home  Is this asset part of the retirement plan?  Selling the family home is emotional 15 We love our homes Source: 77.1% own homes at age 64. CMHC HOUSING FOR OLDER CANADIANS: 01/06/15

Tax-efficient retirement planning by using real estate  Be fully diversified in retirement  Maximize tax efficiency  Extend the life of all assets  Achieve estate planning needs  Additional cash flow for life’s ups and downs  Help clients to stay in their home 16 Borrow to invest (mortgage) Tax-free equity withdrawal Debt (000s) Age

Advisor benefits of using real estate proactively in a retirement plan 17  Asset Under Management retention  Better risk management: More financial flexibility to adjust your plans  Reduce tax: lowers overall tax rate

Case Study … planning for retirement (illustration)  Meet Mr. and Mrs. Smith  Ages are 60 and 63  Want $100,000 annual income  Very good net worth  It will still be a challenge to fund their desired income to age 100 … 18 Case study used tax optimization in CCH software

Financial situation – today’s planning approach  Mr. & Mrs. Smith – Starting Age SummaryAssetsLiabilities Nonregistered/TFSAs$500,000 RRSPs/Pensions:$1,000,000 Real estate$1,300,000$0 Debt (loans, lines of credit, credit cards) $0 Personal net worth (assets – liabilities) $2,800,000 For illustration purposes only: Case study used tax optimization in CCH software

Retirement illustration – traditional planning method Traditional Cash Flow: $100,000 annual income from investments only 20 Age Managed Investments ($000s) Withdrawals ($000s) TotalRegisteredNon-registered 63$1,489$60$32 77$946$83$45 82$382$ $8$ For illustration purposes only: Case study utilized tax optimization in CCH software Assumptions: 6% average annual rate or return on investments. 2% average annual growth of real estate

Retirement illustration – traditional planning method with reverse mortgage to support client income 21 For illustration purposes only: Case study used tax optimization in CCH software Assumptions: 6% average annual rate or return on investments; 2% average annual growth of real estate YearAge Withdrawals ($000s) Mortgage ($000s) Real estate ($000s) RegisteredNon-registeredHELOCHome Equity 163$60$32$1, $83$45$1, $1800$1, $1990$2, Reverse mortgage needed. Investments fully depleted. $154$1, $1,197$1,066 Traditional Cash Flow: $100,000 income when investments are depleted

Manulife One for a fully diversified approach  With Manulilfe One, the Smiths:  Unlocked 50% of their home’s value  50% equity remains at sale of home  Enjoy access to low-cost borrowing  Always a competitive rate  Can remove home equity on a monthly basis or whenever needed  Can also repay debt at anytime  Incurred no cost to open account  Legal, appraisal and title costs covered 22

Retirement illustration – fully diversified approach 23 Diversified Cash Flow Approach: Investments and $1,000 per month home equity withdrawal (capitalized interest) Systematic home equity withdrawal – client still has investments/home equity room at age 90 Age Investments ($000s) Withdrawals ($000s) Line of credit ($000s) Home Equity ($000s) TotalReg. & Non Reg.Manulife OneHome value – debt 63$1,50279$13$1,313 71$1,47984$134$1,367 82$1,064119$384$1,420 84$915127$444$1,493 90$158$188$655$1,608 For illustration purposes only: Case study used tax optimization in CCH software Assumptions: 6% average annual rate or return on investments; 2% average annual growth of real estate

Case Study … planning for retirement recap  What happened by activating the real estate at age 65?  At age 90, client has:  $158,000 investments assets  $1.6 million net worth in their home  $700,00 net extra worth  You keep more investment assets under your management, longer-term 24

The conversation 25  How to create a dialogue with clients on activating real estate

Six questions to begin activating your client’s home real estate asset  Once retired, do you plan to:  Live where you are?  For how long?  Sell your family home and buy a smaller home? (downsize)  If so, how much equity do you want from your home when you downsize? 26

Six questions to begin activating your client’s home real estate asset  Would you be willing to use your home equity in order to preserve your savings and stay in your home longer?  When you eventually sell, how will you invest that money? 27

Discussing their current debt freedom plan  How much is left on your mortgage?  Do you know when you will be mortgage free?  Do you have other debts?  Do you currently have a line of credit for emergency purposes? 28

The referral – sample scripting  “Would you agree that a significant portion of your net worth is currently locked in the value of your home?”  “Are you comfortable in working with me to make it a part of your retirement plan?” 29

The referral – sample scripting  “In that case, I’m going to arrange a follow-up meeting between yourself and a home equity specialist our office uses.  “There is no cost to you and we can work together toward using your home asset now and in retirement.” 30

Recap  Own the wallet – own the client  40% of net worth is in real estate  Discuss retirement home ownership  Reduce your client’s financial stress now and in retirement  Lower your client’s tax bill 31

Recap  Tax-free home equity withdrawals in retirement can …  Keep assets under your management  Earn you more referrals  Profit from being a cash flow advisor 32 Debt Investment portfolio Pre-retirement Retirement

Important notes Borrowing to invest may not be appropriate for everyone. Your clients should be fully aware of the risks and benefits associated with leveraged borrowing 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. Clients should be aware that this strategy may have a higher risk as their home is offered as security for the loan and clients will be required to make payments regardless of the performance of their investment. The value of your clients’ investment will vary and is not guaranteed, however they must meet their loan and income tax obligations. 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. Borrowing to invest in an RRSP may not be appropriate for everyone. Your clients will need the financial means to meet their loan obligations. In addition, investments held in an RRSP may fluctuate in value. Your clients should be aware that, regardless of their performance or value of any investments held in their RRSP, the client will be required to meet their loan obligations in full. 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. Manulife, Manulife Bank, the Manulife Bank For Your Future logo, the Block Design, Manulife One and the One logo, the Four Cubes Design, and Strong Reliable Trustworthy Forward-thinking, are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license. Banking products are an essential part of a successful financial plan. That's why we offer our banking products through financial advisors. Since every client has unique financial needs, their advisor can introduce banking products to help them achieve their goals sooner. Manulife Bank is wholly owned by Manulife Financial, one of Canada's largest and most respected financial institutions. Our innovative products and great rates help Canadians make their money work harder and give them access to cash for their financial needs. 33

Thank you 34