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 $10,000 P/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 Mr & Mrs B Age 35 $1.0+ mill invest-able assets High Value Clients $100k invest-able assets Low Value Clients

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

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 Intergenerational Cycle of Wealth Gen 1Gen 2Gen 3 $

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

27 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. Mr. & Mrs. A - Age 60

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

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

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

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

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

33 Age at Entry Claims Experience Ave Age at Entry Expected Ave Age at Lapse Where’s The Protection Policy When It’s Needed? 1. Age at entry by policy for inforce business as at 31 March Claim Statistics Analysis Lump Sum Oct 03-March Expected average age at lapse based on MLC assumptions Sources: 0% 5% 10% 15% 20% 25% <

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35 Sales

36 Yr1Ongoing Investment $? $? Risk$? $? Debt$? $? TOTAL$? $? Revenue Generated by

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

38 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 Commission structure is a very attractive income stream to purchase.

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

40 Intergenerational Advice