The New World of Advice Challenging the convention “Insurance is sold and not bought” March 2015 RI Advice

Agenda Market conflicts What is our role? Principles of risk management Quantification methodology Case study Important Information: The information contained in this presentation is general information only, and is not intended to be legal, taxation or financial advice. TAL Life, its subsidiaries and its representatives have not taken into consideration any individual’s personal circumstances, financial needs or objectives. If any persons are intending to act on the information contained in this presentation, consideration should be given to the appropriateness of this general information in the light of their own objectives, financial situation or needs before acting on this information. Persons acting on any matter covered in this presentation should seek independent professional advice on the application of the matter to their individual circumstances. In relation to any financial product referred to in this presentation, a copy of the product disclosure statement should be obtained and read prior to making any decision regarding the acquisition of a financial product. Presentation name2

The reality of the world we live in! Couper Case Study Case involved an adviser switching a client’s existing policy Advice given was defective and constituted false or misleading conduct Court noted the Adviser’s selling motivation - the Switch yielded a commission, status quo maintenance yielded no commission Courts/community now emphasise duty of care requirements. Identifying points of vulnerability and formulating mitigation strategies discharges this duty; unlike pure selling. Presentation name3

Conflicts in the market Presentation name4

The advent of consumerism Presentation name5 Retail is dying If you just want to buy a product, you can compare to online solutions Customers will pay for advice. They won’t pay to be sold a product… We need to change how we see our role.

What is our role? It’s about how we define our role to clients Presentation name6 “If we take the premise that our role is that of a Risk Management Professional then our processes and analytics need to reflect the same.”

Principals of Risk Management Presentation name7 “Coordinated activities to direct and control outcomes with regard to risk. At its most effective, risk management is fully integrated into the planning and management of an organisation across all levels…” What do we consider as an organisation? In our specialised area of Risk Management - who do our collectives of people include?

Academic risk management process Presentation name8 DiagnosticIdentifying risks Quantifying the Financial Impact of the Risks Mitigation strategyImplementationFacilitationAudit

What are the risks? Presentation name9 The Family Organisation Family Cash flow Maintenance of Children Education costs Debt Mortgage debt replacement of a non-working spouse The Incorporated Organisation Cash Flow Equity Debt Key person The SMSF Liquidity Debt

Quantifying the financial exposure The process of breaking down the financial impact of each aspect of the Risk. Near Enough isn't good enough anymore. ASIC surveillance is beginning to focus on how sum insured recommendations are being made and Best Interest requirements WHY ? Presentation name10

Case study

Paul and Christina have 3 children 2, 5 and 7 They have a mortgage on their primary residence of $350,000 and an investment loan of $200,000 on a holiday home on the Gold Coast valued at $320,000 The youngest child is in day care and the 2 other children attend a private school in their local area. Presentation name12

Case study Christine is a stay at home mum primarily (Qualified Accountant) and occasionally assists Paul with the book work in his import / export business After add backs and net profit he contributes $150,000 per annum to the family income. They have $100k in Super and $50k Death and TPD cover in that fund They have no other Risk Mitigation Strategy. In the event of financial distress the holiday unit would be sold, however, it is preferred to keep this for the children Presentation name13

Family organisation risk analysis Presentation name14

Strategy formulation “Paul and Christina” Presentation name15

Strategy formulation “Paul and Christina” Presentation name16

Risk transfer solution Presentation name17

Cost benefit analysis of risk transfer Total exposure VS cost of transfer In Paul and Christina’s case Christina is paying $3.03 per day to manage $311, of risk in that same day. Cost/benefit ratio of 1:102,891. Paul is paying $11.75 per day to manage $1,130, of risk in that same day. Cost/Benefit ratio of 1:96,235. Presentation name18

Thank you Presentation name19