1. GIS 600: Flexible Investment

2. Flexible Investment Plan
Single Premium
Invest directly into investment account,
or phase in
Bundling of associated policies
5 year term, then open-ended
Investment Account
Investment account grows with portfolio performance
Additional premiums allowed
One advance allowed after first year
Option Date
Unlimited access to money e.g. advances
Money received tax-free in policyholders hands
Leave money to grow

3. Flexible Investment Plan
Disciplined investment plan
Save a certain amount
As a lump sum
For a specific period or goal
Two options with this plan:

4. Flexible Investment Plan (Sinking Fund)
No lives assured
Policy can continue indefinitely
Ideal for business entities and trusts

5. Flexible Investment Plan
This is for sophisticated investors who:
Have a minimum investment amount of R
Have an investment time horizon of at least 5 years
Want to address specific financial goals
Want to access money for unexpected events

6. Marketing Low upfront charges Flexibility
Based on size of single premium (net of IAF)
Tiered management fee
Unique guarantees
Performance guarantees
Death benefit
Flexibility
Different policies for different financial goals
Endowment: different lives assured/beneficiaries per policy
Unforeseen events
Access
Low cost impact
Different portfolios/guarantees
Additional premiums

7. Flexible Investment Plan or Flexible Investment Plan (Sinking Fund)
Product Features
Flexible Investment Plan or
Flexible Investment Plan (Sinking Fund)
Charges and Fees
No early termination charges
Upfront contribution charge can reduce to nil
Tiered management fees
Switches free of charge
Portfolios
Phase into portfolios
Professionally managed portfolios
Local and offshore portfolios
Select up to 7 portfolios per policy
Ability to switch between portfolios
Guarantees =
peace of mind
Ad hoc payments
into investments

8. Product Details Minimum allowed:
Maximum of 10 policies per bundle
Maximum of 7 portfolios per policy
Advances can be repaid
Absolute and collateral cessions available on each policy
Minimum allowed:
Initial consideration per bundle: R
Per policy: R50 000
Additional premium: R per policy
Per portfolio: R10 000
Lives assured:
Maximum of 5 lives assured for endowment
No lives assured for Flexible Investment Plan (Sinking Fund)
Additional premiums are allowed at any time, subject to Section 54 of the Long Term Insurance Act. To avoid starting a new 5 year restriction period additional premiums are limited to 20% of the greater of the premiums paid in the previous two years. Multiple additional premiums are allowed in the first year. The minimum additional premium is R Additional premiums may also be phased in.
Collateral and absolute cessions are available on each underlying policy.
In the case of an absolute cession, the policy is removed from the bundle and is no longer included as an associated policy. As a result it will not enjoy any of the lower effective management fees associated with bundling. The remaining policies may also have a higher effective management fee as the total investment value will have reduced as a result of the cession. The ceded policy will become a stand-alone policy.
Effectively 8 policies are available with the addition of a money market fund for phasing in.
Ask how many policies/portfolios are available for the minimum initial consideration?

9. Bundling Up to 10 policies One policy document
Separate schedule per policy
Each policy independent:
Initial consideration
Upfront Advisory fees
Ongoing Commission
Portfolios
Lives assured/beneficiaries
Servicing requests
Cessions
Surrenders/Advances
Bundled policies are not regarded as being separate for case count i.e. PCRs

10. Flexible Investment Plan
Bundling Example
Policy 1 R50 000
Policy 2 R75 000
Policy 3
R80 000
Policy 4 R90 000
Flexible Investment Plan

11. Advances and Surrenders
During initial 5-year term:
One full surrender allowed and one advance after first policy year
May not exceed the premium + 5% p.a. compound interest (Section 54)
Maximum of 90% of investment value
No advances in first year
No early termination charge

12. Example: Advances * All policies start with R150 000 Policy
Investment value after 2 years
Section 54 Restricted Value
Maximum advance allowed
Advance taken
Investment value after advance 1 R R R
R50 000 R 2 R
R25 000 3 R
R75 000 4 R0
* All policies start with R

13. Investment value after advance
Repayment of Advances
Policy
Investment value
Advance taken
Investment value after advance
Repayment of advance
Amount not repaid 1 R
R50 000 R R0 2 R
R25 000 3 R
R75 000 4
Consider Henry in the example earlier where he took advances from the first 3 of his 4 policies. He later elects to repay the advance as follows:
Policy 1 - R
Policy 2 - R
Policy 3 - R
This affects the underlying policies as shown in the slide.

14. How Advances Work
What would happen if Henry wanted to take the full R advance from policies 1 and 3 as illustrated?
Policy
Investment value after 2 years
Maximum advance allowed (S54 and Practice)
Advance taken
Investment value after advance 1 R R
R (Surrender)
R9 625
(Remains to Term) 2 R0 3 R
R40 375 4

15. On Death: Flexible Investment Plan
Lives assured and beneficiaries defined per policy and not bundle
Higher of:
Total initial consideration of the policy less any advances taken (including any advisory fees after 5th policy anniversary)
Investment value of underlying policy at date of death
Sinking fund does not offer a death benefit

16. Q R412 000 What will Sara’s beneficiaries receive?
Client pays initial consideration of R R3 000 ongoing advisory fee deducted. Client will receive R if s/he passed away the next day. Effectively the initial consideration, not the single premium, is paid in first 5 years (plus any growth). If the client died after the initial 5 year period, s/he would get paid out R plus any growth less any advisory fees negotiated by the FA. In other words if the policy grew to R and the advisory fee for the next 5 years is R4 000, if the client passed away this amount would be deducted and R paid out.

17. Guarantee Option Capital Preserve your investment value
Receive original amount invested (less withdrawals) at guaranteed date

18. Comparison Capital (C) What does this option offer?
The minimum guarantee = the amount invested
Suitable for whom?
Investors that want the protection of a minimum guarantee at the lowest possible cost
How do the guarantees differ?
The guarantee charges differ by portfolio
When will the guarantee apply?
Net investment
return < 0%

19. Guarantee Charges: Capital (C)
Risk Profile
Portfolio
Charge p.a.
Guarantee
Conservative
Excelsior Conservative
Excelsior Multi-Manager
0.50%
ROC
Moderately Conservative
Excelsior Moderately Conservative
Excelsior Multi-Manager Moderately
0.75%
Moderate
Excelsior CPI Plus
Excelsior Multi-Manager CPI Plus
Excelsior Property
Excelsior Moderate
Excelsior Multi-Manager Moderate
1.00%
1.25%
1.5%
Moderately Aggressive
Excelsior Managed
Excelsior Moderately Aggressive
Aggressive
1.75%
2.00%
Excelsior Aggressive
Excelsior Multi-Manager Aggressive
2.75%

20. Guarantees over investment life span
Characteristics
Guarantees over investment life span
First five years:
The investment guarantee is based on the original amount invested
After first five years:
The investment guarantee is based on the value of the investment at the start of the new five year period (less any advisory fees)
At the end of the initial period, and any five year guarantee periods thereafter you will receive an investment guarantee top-up, if the investment performed below the guaranteed minimum return
You must remain invested for at least 5 years to benefit from the selected guarantee.
Selected guarantees apply on the fifth policy anniversary and every five years thereafter.
Investments with expected high returns = high risk.
Why choose a guarantee?
Cyclical nature of economy and financial markets creates uncertainty
Investments with expected high returns = high risk
Protection against down side risk, with exposure to possible uncapped upside performance
Should markets hit a low, proverbial “safety net” in place

21. Capital Guarantee Option: (C)
* Guarantee restarts at 5-year intervals

22. Portfolio Switches Allowed
From guaranteed portfolio to another guaranteed portfolio in same guarantee group
From Capital to Capital
From non-guaranteed to guaranteed (only every 5 years)
From guaranteed to non-guaranteed (any time)
From local to another local portfolio
Offshore to offshore portfolio
Offshore to local portfolio
No charge for switching except buy/sell spread if applicable

23. Upfront Charges Upfront contribution charge: Initial advisory fee
Net amount invested (after Contribution charge
initial advisory fee deducted)
R0 – R %
R %
Initial advisory fee
Deducted from initial consideration

24. Upfront Charges Ongoing management fee:
Total Investment Value Management Fee per annum
Within band
1 policy policies
R0 – R % %
R – R % %
R – R % %
R % %

25. Ongoing Charges Additional contributions: Early termination charges
As for upfront contribution charge
Early termination charges
No early termination charges
Underlying Asset Management Fee and Buy/Sell Spreads:
Levied by the asset manager
Available on the portfolio grid
Guarantee charge
Charged as a % of Investment Value
Unique to each portfolio
Available on portfolio grid
Ongoing commission fee:
Deducted from investment value

26. Management Fee - Example
If the investment value is R for one policy, then the management fee in that month is:
1.20%/12 will be charged on R
1.10%/12 will be charged on R , plus
1.00%/12 on the remaining R
Should the policy holder have two or more policies on the bundle, the management fee on R in that month will be:
(1.20% %)/12 = 1.30%/12 will be charged on R
(1.10% %)/12 = 1.20%/12 will be charged on R , plus
(1.00% %)/12 = 1.10% on the remaining R

27. Comparison Growth Investment Series Investment Plan
Growth Investment Series Flexible Investment Plan
Bundling: No
Yes
Minimum initial consideration
R (per policy)
R (Per bundle)
R (per policy)
Minimum amount per portfolio
R2 500
R10 000
Minimum additional premium per policy
R per policy

28. Flexible Investment Plan
Activity
Policy 1 R
Policy 2 R75 000
Policy 3
R80 000
Frank decides to invest R in a Growth Investment Series Flexible Investment Plan
He sets up 3 policies with premiums of:
Policy 1 – R
Policy 2 - R75 000
Policy 3 - R80 000
Flexible Investment Plan

29. Flexible Investment Plan
Activity
Policy 1 R
Policy 2 R75 000
Policy 3
R80 000
Does Frank meet the minimum premium requirements per policy?
Does Frank meet the minimum premium requirements per bundle?
What is the initial contribution charge based on?
Flexible Investment Plan

30. Flexible Investment Plan
Activity
Policy 1 R
Policy 2 R75 000
Policy 3
R80 000
Does Frank meet the minimum premium requirements per policy?
Yes – R50 000
Does Frank meet the minimum premium requirements per bundle?
Yes – R
What is the initial contribution charge based on?
Single premium of
R  
Flexible Investment Plan
Additional questions:
How many portfolio can Frank select for policy 1: 5
How many portfolio can Frank select for policy 4: R per policy, limited to a maximum of 7 per policy.
Frank wishes to take an advance of R from policy 4. Can he do this?
Yes, but as it exceeds 90% of the value (R67 500), Frank will either have to reduce the amount accordingly, split the advance over more than one policy or surrender policy 4.
Frank wants to know why the new guarantee is going to cost him more that the guarantees he has currently?
Guarantees in existence prior to October 2008, cost less because the guaranteed amount is based on the initial consideration whereas the new guarantees are based on the increased amount in the investment account at the time of the guarantee. This is effectively a larger guarantee as it is based on a larger amount and so incurs greater costs.
Frank cedes his third policy absolutely. Can he do this? Does this have any impact on his charges?
Absolute cessions are allowed at policy level. The charges will increase as policy three is detached from the bundle, reducing its overall value and increasing the charges.
What happens if the overall bundle is reduced to below R ? Nothing – this is a new business requirement only.
Why is the first policy’s number used as a reference number for any other policies within the bundle?
Without the first policy’s number as a reference Compass has no way of attaching any of the other policies within the bundle, and the money will get lost within the system.

31. Flexible Investment Plan
Activity
Policy 1 R
Policy 2 R75 000
Policy 3
R80 000
What are the ongoing management fees based on?
How often are the ongoing management fees re-calculated?
Can Frank cede his third policy absolutely?
Flexible Investment Plan

32. Flexible Investment Plan
Activity
Policy 1 R
Policy 2 R75 000
Policy 3
R80 000
What are the ongoing management fees based on?
The total investment value
How often are the ongoing management fees re-calculated?
Monthly
Can Frank cede his third policy absolutely?
Yes
Flexible Investment Plan

33. Summary Each policy independent: Charges and fees:
Initial consideration
Advisory fees/commission
Portfolio choice
Lives assured/beneficiaries
Servicing requests
Cessions
Surrenders/advances
Charges and fees:
Tiered management fee
Competitive upfront charges
No early termination charges
Additional Benefits:
Tax benefits for high net worth clients
“Higher of” death benefit on endowments

34. Questions?