Financial Broker A Guide to Developing Business Strategy for Financial Brokers · 2020-01-23 · A Guide to Developing Business Strategy for Financial Brokers Page 01 Financial Broker

A Guide to Developing Business Strategy for Financial Brokers

Page 01

Financial Broker

Creating your success through Financial Planning

Financial Planning & Guidance

A Guide to Financial Planning Recommendations and Statements of Suitability


One - Unified Voice

Page 01

A Guide to Developing Business Strategy for Financial BrokersFinancial Broker




One - Unified Voice



Page 01

Financial Broker


About the Authors 02

Introduction 03

Life Cover Calculator and Statement of Suitability 04

Serious Illness Calculator and Statement of Suitability 08

Income Protection Calculator and Statement of Suitability 12

Retirement Calculator and Statement of Suitability 16

Investment Calculator and Statement of Suitability 22

Savings Calculator and Statement of Suitability 27

Contents

September 2013Version 1.1


Page 02

Financial Broker


Bryan Johnston QFA FLIA

Bryan is a very well-known trainer, consultant and coach

particularly within Financial Services. His background is in

Life Assurance where he started as a very successful broker

consultant and his career to date includes roles as Sales

Manager, Sales Training Manager and other senior manager

roles with Irish Progressive. Bryan left Irish Permanent in

2001 and started his own training consultancy Business

and Training Ltd .

He has worked with most of the major banks, insurance

companies, credit unions, educational bodies and

Government agencies providing a variety of technical and

interpersonal skills courses including:-

• Sales Coaching programmes for Banks and insurance companies • UsingFactFindsandhowdifferentpersonalitiesreact to risk • Providing all the QFA modules for the Institute of Bankers • Developing and delivering webinars for the Institute of Bankers• Developing and delivering in house and public CPD programmes • Dealing with arrears and the MARP process• Acting as mediator and facilitator for brainstorming and group sessions

He has always been closely involved with education and

was a Board member of the LIA (Life Association of Ireland)

for many years and was President of the LIA in 2001.

Bryan is still actively involved with the LIA as an editor of its

magazine The Professional.

He is also member of the Professional Speakers Association

and a frequent visitor abroad, particularly to India and Sri

Lanka where he has spoken at the Sub Continents version

of MDRT a record four times.

Noel Kehoe QFA FLIA MIMI

Noel Kehoe is Managing Director of GetDigital.ie,

a Marketing Solutions company that specialises in

connecting on-line marketing solutions to all other sales

and business activities.

Their services include coaching, training and delivery of

best practise for Website Design, SEO, AdWords, Email

Marketing, LinkedIn, FaceBook, Twitter and YouTube and

matching these to what’s important for your business.

GetDigital.ie has considerable experience in digital

marketing and social media and has worked with

companies like Yahoo! Search Advertising, Buy4Now,

and Confused.com plus many other small and medium

businesses at both a local and national level.

As an SME themselves, GetDigital.ie understands the need

to see a return on investment when money is invested in

marketing and they always make sure that on-line activity

can be measured, analysed, managed and tracked back to

premium income and improving the bottom line result.

About the Authors


Page 03

Financial Broker


We frequently get requests for template Statements of

Suitability. As you know, these must be personalised for

each client but we have been working with QFA trainer and

Financial Broker Bryan Johnston to develop a core template

which can give you guidance as to how to form relevant

and compliant Statements of Suitability for clients. These

guidance notes are set out for the six core life and pensions

products, namely:

• Life Cover

• Serious Illness Cover

• Income Protection

• Savings

• Pensions

• Investments.

Each guidance note has three sections

1) Amethodforcalculatingthefinancialneed

2) A structure for the Statement of Suitability

3) A sample Statement of Suitability.

We would stress that the sample statement is for guidance

only and is not meant as an exhaustive list of the factors

you must note that are relevant to your client. Alongside

these guidance notes, Noel Kehoe, an IT specialist, has

helped us with calculators* that quantify the relevant need.

These are designed as ‘ready reckoners’ and perhaps can

be part of an interactive discussion with clients before

formal quotations. In tests of these calculators, some

Financial Brokers reported that they helped to highlight the

financialneedmoreclearlytoclients.

It should be noted that these methods calculate the

ideal cover or relevant contribution to fulfil a financial

need. The crucial role of the Financial Broker is to

work with the client’s budget and priorities to design

a practical and workable solution for the client. It may

be prudent to note the recommended idealistic cover/

contribution alongside the client’s choices in the

Statement of Suitability.

Wehopeyoufindthisguidanceusefulandwouldwelcome

your feedback. As is customary with generic guidance we

mustspecificallylimitourliability:

IMPORTANT NOTICE: This document is an informal guide and is for information purposes only. This document does not purport to represent or offer professional financial or legal advice. This document should not be relied upon to properly satisfy one’s regulatory or legal obligations as a professional service provider, or to fully meet one’s legal responsibilities or professional duties of care to consumers. If you have any queries or would like further information relating to any of the matters contained in this guide, please refer to your usual professional or legal adviser.

* TheexcelcalculatorsdonotcontainsufficientinformationtobeusedforKnowingtheConsumerrequirements.Pleasenotethatyoushouldusea full Knowing the Consumer document for this purpose. A copy can be found in the compliance section of the PIBA website.

Introduction


Page 04

Financial Broker


The idea of this calculator is to help establish how

much life cover a person needs.

These Statements of Suitability are intended

for guidance purposes only. Each Statement

of Suitability should be specific to your client’s

own personal circumstances and should reflect

the Knowing the Consumer and suitability

requirements; and therefore must not be generic.

Step 1

Calculate a person’s at risk income.

1. Identify annual earned income that will be lost on

death.

2. Identify any other regular income that will stop on

death.

Step 2

Identify any annual income replacement including:

1. Widow’s / widower’s or surviving civil partner’s pension

a. Maximum €193.50 per week and €29.50 for each

dependent child

2. Savings in mortgage or other loan repayments covered

by insurance

3. Any annual pension schemes paid to survivor

4. Consider savings in domestic and living expenses.

Deduct Step 2 from Step 1 and this will identify the

annual at risk income.

Step 3

Consider how long the at risk income needs to be

replaced for.

This is done by multiplying the annual income by the

number of replacement years.

This will give a capital sum

• Couldbedependentonyoungestchild

• Couldbeasetformuladependingonage

• Couldbeforasetnumberofyears.

Step 4

Add any existing loans not covered by insurance

• Addanyloansnotcovered

• Funeralexpenses-€6,500recommended.

Step 5

Deduct any existing life cover

Emergency Fund

This is a fund that is readily realisable and ideally

should be a minimum of three months’ salary.

The Central Bank recommendsthatfirmsrefer

to the need for an emergency fund, to ensure that

customershaveaccesstosufficientdisposablefunds

in the event of a requirement for future healthcare

needs or other potential unforeseen events.

Life Cover Calculator and Statement of Suitability


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Financial Broker


Example of how to use calculator:

Life Insurance Need Calculation

Step 1 - Total Annual Income Name Life 1 Name Life 2

Name of Lives to insured

The Income Loss on Death Calculations Life 1 Calculations Life 2

Salary €70,000 €50,000

Other Income / Savings in living expenses €0 €0

Total Annual Income for Life 1 & Life 2 equals €70,000 €50,000

Step 2 - Total Income Gained Income Gained Life 1 Income Gained Life 2

State Benefit

Widow/er Pension

Children Benefits

€13,000 €13,000

Annual Pensions €0 €0

Other Income / Savings in living expenses €4,000 €4,000

Mortgage (Income saved if mortgage protection in place) €12,000 €12,000

Other Loans (Income saved if loans insured)* €0 €0

Total Annual Income Gain for Life 1 & Life 2 equals - €29,000 €29,000

Total Annual Income Risk for Life 1 & Life 2 equals - €41,000 €21,000

Step 3 - Total Income Risk Calculate the number of years the Income is at Risk Total Years at Risk Life 1 Total Years at Risk Life 2

Could be dependent on age/s of both spouse/ partner?

Could be dependent on age of youngest child?

Could be required for a specific known number of years?

20 20

Annual Income to be protected by Life Cover for Life 1 and Life 2 equals -

€820,000 €420,000

Step 4 - Additional Cover Needs Income Needs Life 1 Income Needs Life 2

Add any loans not insured* €60,000 €0

After funeral expenses €6,500 €6,500

Total Income plus unsecured loans and funeral expenses that need to be protected equals -

€886,500 €426,500

Step 5 - Deduct Existing Life Cover Existing Cover Life 1 Existing Cover Life 2

Existing Life Cover for Life 1 and Life 2 equals - €250,000 €100,000

Step 6 - Total Life Cover Recommended for Life 1 and Life 2equals

Life 1 Life 2

€636,500 €326,500

Funeral Expenses

€6,500Amount recommended in Irish Times article November 2012

http://www.irishtimes.com/blogs/pricewatch/2010/04/26/funeral-costs-survive-recessions-deflationary-grip/#.UJeiEIUXUUA.email

* Be aware loans can be for needs which will recur (e.g. car loan).

Please note: Analysis assumes return on funds invested equals required rate of increase in income needs.


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Financial Broker


Structure of Statement of Suitability

Important Notice – Statement of SuitabilityThis is an important document which sets out the reasons why the product(s) or service(s) offered or recommended is/are considered suitable, or the most suitable, for your particular needs, objectives and circumstances.

Dear Client

1. Our meeting

1.1 Your Personal Circumstances

• Personal to client

1.2 Your Needs and Objectives


1.3 Your Financial Situation


2. Product or service recommended

• Life cover family

• Life cover mortgage loan

• Unit linked

• Temporary

3. Product options

• Indexation

• Conversion

• Incomebenefit

4. Our recommended product

• Various companies

• Reasons

5. Risk profile of this product and your attitude to

risk

• N/A

6. Guarantees and limitations

• Guarantees

• Limitations

• Restrictions

7. Any other oral explanations

Sample of Statement of Suitability


Dear Client

Many thanks for meeting with me on Thursday 15th

September.

After analysing your personal circumstances from the

informationyouprovidedmewithandthefactfindwe

completed, the following are my recommendations.

1. Our meeting


• You are married to X with X young children, X and X.

• You are XX next birthday.

• You are in good health.

• You have no life cover except for one policy for

€100,000.


• You would like to protect your family’s income in

the event of your premature death.

• You would like this cover to last until X reaches 21

and to review this on a regular basis.

• You would like your cover to be index linked every

year.


• Your salary is €XXXXX and your employment is

secure.

• You have an emergency fund of two months’ net

pay.

Wehavecapturedallthisandmoreinthefactfind

completed on 15/09/2012, copy enclosed.


Page 07

Financial Broker



• From the information you have given us

werecommendthatyoueffectalifeinsurance

protection product that will last for at least 20

years and potentially longer.

• We recommend a 20 year convertible term

assurancepolicyforasuminsuredof€610,000.

• This is in line with your personal circumstances

and suits your requirements.

• We recommend that this is reviewed every year.

3. Product options

• Yourpremiumof€65permonthisguaranteedfor

the next 20 years.

• You can opt to index link your premium and cover

every year.

• You can extend your cover beyond the 20 years

without any evidence of health; you can do this

even if your health deteriorates in the meantime.


• We are authorised to advise on x life

companiesandrecommendthatyoueffectthe

20 year convertible policy with X company as

being the most suitable.

• Theirpremiumof€65isthemostcompetitiveon

the market.

• They allow full indexation on their policy at no extra

charge.

• They are an AA rated insurance company.

5. Risk profile of this product and your attitude

to risk

• N/A


• Thepremiumisguaranteedfor20yearsat€65

per month.


• N/A

Summary of recommendations

X…… taking into account our recent meeting and your

current needs I recommend the XYZ product as being the

most suitable for you.

It provides

• Xx life cover in the event of your premature death

• The premium is very competitive

• The premium is guaranteed for ….years

• X company is AA rated.

Please read guarantees and limitations section

The enclosed Key Features document explains how the

policy will work in more detail.

Please read this carefully.

Yours sincerely

I confirm that I/we have read and understand this Statement of Suitability and I/we wish to proceed with this recommendation.

Name: ………………………………………………………………………………………….

Date: ………………………….......................................................................


Page 08

Financial Broker



much serious illness cover a person needs.

These Statements of Suitability are intended for guidance purposes only. Each Statement of Suitability should be specific to your client’s own personal circumstances and should reflect the Knowing the Consumer and suitability requirements; and therefore must not be generic.

Medical Underwriting!Important Questions to raise with Clients.Do you or your immediate family (parents, brothers and sisters) have any medical history or needs relevant to an application for serious illness cover?

A full disclosure of your personal circumstances (including age, health, family health history, etc.) is essential to the re-assessment at underwriter stage of the suitability of recommended products to your personal circumstances and to an assessment of their cost to you.

Step 1

Calculate a person’s at risk earned income.

1. Identify person’s annual earned income.

2. Identify annual amount if any of PHI cover.

3. Identifyannualsocialwelfaresicknessbenefitif

any.

4. Calculate annual income at risk after PHI and social

welfare.

5. Identify for how many years income should be

replaced.

6. Multiplynumberofyearstimesatriskannual

income.

Step 2

Identify lump sum needed in event of serious illness

including

1. Outstanding mortgage

2. Other debts

3. Modificationstohouse

4. Sum needed for recuperation

5. Other lump sums needed

6. TotalStep2,i.e.alllumpsums

7. Add to annual at risk income.

Step 3

Deduct existing cover.

1. Deduct any existing serious illness cover

2. Determine total amount recommended cover.

Emergency Fund





customershaveaccesstosufficientdisposable

funds in the event of a requirement for future health

care needs or other potential unforeseen events.

Serious Illness Calculator and Statement of Suitability


Page 09

Financial Broker



Serious Illness Need Calculation

Step 1 Calculate Total Income Replacement Needed Name Name

Names of Lives to be Insured

Income Loss if Serious Illness Calculations Life 1 Calculations Life 2

Annual Income to be replaced €70,000 €50,000

Less Income Protection €30,000 €0

Less Social welfare payments if any entitlements €12,000 €12,000

Annual Income amount to be replaced €28,000 €38,000

Number of years Income Replacement required (input figures only) 5 5

Total of Annual Income to be replaced equals €140,000 €190,000

Step 2 Calculate Total Lump Sums Needed

Pay part of outstanding mortgage balance or clear in full €100,000 €100,000

Other debts that need to paid €0 €0

Modifications to house because of any disability €20,000 €20,000

Sum needed for recuperation €20,000 €20,000

Other lump sums needed €0 €0

Total Lump Sums Needed equals €140,000 €140,000

Step 3 Calculate Total Critical Illness Needed

Step 1 - Total Annual Income + Step 2 - Total Lump Sums Needed €280,000 €330,000

Minus any existing Critical Illness Cover €0 €0

Total Critical Illness Cover Recommended €280,000 €330,000


Page 10

Financial Broker




Dear Client

1. Our meeting








3. Product options



• Reasons


risk

• N/A


• Guarantees

• Limitations

• Restrictions




Dear Client


September.


information you provided me with and the fact find we


1. Our meeting


• You are married to XX with two young children,

XX and XX.



• You have no serious illness cover.


• You would like to protect your income in

the event of developing a serious illness* as

discussed.

• You would like to receive a lump sum in the

event of you contracting a serious illness.*

• You would like this cover to last for xx years or to

age xx.

• You would like your cover to be index linked

every year.

* see full list of illnesses and criteria enclosed

(Attach full list from the Provider)


• Your income is €XXXX.

• Your spouse’s / partner’s income is €XXXX.

• You are self-employed and taxed under

schedule D.

• You are not entitled to any social welfare illness

benefits.


Page 11

Financial Broker


• You are employed and your employer will pay

you full pay for ……. and pay €XX for …..

• You have an emergency fund of two months’

net pay.

We have captured all this and more in the fact find



• We recommend a serious illness / specified

illness policy.

• We recommend cover of €xxx for xx years.

• This will pay out a lump sum should you contract

any of the xx illnesses as specified in the

enclosed booklet.

• The serious illness / specified illness policy will

increase at xxx pa to keep in line with inflation.

• This is in line with your requirements as outlined

in the fact find.

3. Product options

• Your premium of €XX per month is guaranteed

for the next XX years.

• Your premium is reviewable and will be reviewed

in …...

• You can opt to index link your premium and

cover every year.

• You can opt to have your benefit escalate each

year.

• You can add a daily hospital payment benefit.

• You can add broken bones payment to your

policy.

• You can add surgery payment to your policy.

• Your children aged up to 18, or 21 if in full time

education, will be covered at no extra cost for a

benefit of €XXX.


• We are authorised to advise on x life companies

and recommend that you effect the serious

illness / specified illness policy with xxxx.

• Their premium of X is the most competitive on

the market.

• They offer the following benefits as standard....

• They allow full indexation on their policy at no

extra charge.



risk

• N/A


• The premium is guaranteed for ……...

• The policy will only pay out after confirmed

diagnosis of one of the illnesses specified in the

enclosed document.


• N/A


Client…… taking into account our recent meeting and

your current needs I recommend the XYZ product as

being the most suitable for you.

It provides

• Xx cover should you contract one of the listed

serious illnesses







Yours sincerely


Name: ………………………………………………………………………………………….

Date: ………………………….......................................................................


Page 12

Financial Broker



much income protection cover a person needs.







Medical Underwriting!Important Questions to raise with Clients.

Do you or your immediate family (parents, brothers and sisters) have any medical history or needs relevant to an application for income protection cover?

A full disclosure of your personal circumstances (including age, health, family health history, etc.) is essential to the re-assessment at underwriter stage of the suitability of recommended products to your personal circumstances and to an assessment of their cost to you.

Calculate person’s at risk income

1. Identify annual income that will be lost due to

inability to work after an accident / Illness

2. Identify how long income will continue for - weeks

/ months

3. Identify any employer sick payments and social

welfare payments

4. Identify deferred period.

Step 1

Calculate a person’s at risk earned income

1. Identify person’s annual earned income

2. Identify annual earned income that should ideally

be replaced, subject to Underwriter’s limits.

Step 2

Identify any existing income replacement including:

1. Employer payments and for how long

2. Social welfare payments if applicable

a. Maximum €188 per week for an individual

b. This may be increased for a qualifying adult, e.g.

spouse, to a maximum of another €124.80 per

week, children €29.80 per child (half if spouse

working with income over €310)

c. Note qualifying PRSI stamps must be paid/

credited in the year of claim; or conditions can

be met in recent years

d.Disabilitybenefitcanbeforoneyearor

twoyears(>260stamps)andismeanstested

thereafter, unless you are permanently disabled

and qualify for invalidity pension.

Deduct Step 2 from Step 1 This will identify the at risk income and the duration of existing replacement income.

Income Protection Calculator and Statementof Suitability


Page 13

Financial Broker


Step 3

Consider how much income needs to be replaced

1. Determine how much income should be replaced

byputtingfiguresintothecalculatorasper

example

2. Determine the deferred period (4 weeks, 8 weeks

etc.)

3. Determine premium depending on occupation.

Emergency Fund



The Central Bank recommendsthatfirms

refer to the need for an emergency fund, to

ensurethatcustomershaveaccesstosufficient

disposable funds in the event of a requirement

for future healthcare needs or other potential

unforeseen events.


Income Protection Need Calculation

Name

Information Calculations

Weekly Gross Income €1,350

% income to be replaced 66%

Weekly Income to be replaced €891

Employer payments €0

How long will these payments last? 0

Final Weekly income to be replaced €891

Social welfare €248

Total weekly income to be replaced €643

Deferred Period 13

Monthly Premium Based on Quotation



Dear Client

1. Our meeting









3. Product options

• Indexation

• Conversion

• Waiver of premium



• Reasons


risk


• Guarantees

• Limitations

• Restrictions



Page 14

Financial Broker




Dear Client


September.


information you provided me with and the fact find we


1. Our meeting


• You are married to X with X young children, X and X.



• You have no disability cover.


• You would like to protect your income in the event

of becoming ill or being involved in an accident

and unable to work as a …...

• You would like this cover to last until your normal

retirement age of …. or until you are able to return

to work.

• You would like your cover to be index linked every

year.

• You need cover to start X weeks after becoming ill

or being involved in an accident.


• Your income is €.

• You are self-employed and taxed under

schedule D.

• You are not entitled to any social welfare illness

benefits.

• You are employed and your employer will pay you

full pay for ……. and pay € for …..

• You have an emergency fund of two months’

net pay.




• We recommend a permanent health / disability /

incomecontinuancepolicywithanannualbenefit

of€/weeklybenefitof€.

• The policy will commence after ? weeks of being ill

or being involved in an accident and being unable

to work.

• YouareclassifiedasaClass?occupation.

• Intheeventofaclaimthiswillnotaffectyour

premium.

• This is in line with your personal circumstances and

suits your requirements.

• We recommend that this is reviewed every year.

3. Product options

• Your premium of € per month is guaranteed for

the next … years.

• Your premium is reviewable and will be reviewed in

…...

• You can opt to index link your premium and cover

every year.

• Youcanopttohaveyourbenefitescalateeach

year.

• You can insure this premium should you become

ill / involved in an accident for an additional

premium (waiver of premium).

• Thispremiumqualifiesforfulltaxreliefatyour

highest rate of tax within certain limits.



andrecommendthatyoueffecttheincome

protection policy with xxxx.

• Their premium of € is the most competitive on the

market.

• They are the only company that will accept your

occupation.

• Theyofferapartialbenefitwhichmeansthatifyou

go back to work part time you will receive a pro

rata payment.


charge.


Page 15

Financial Broker


• IfyousufferarelapseofthesameillnesswithinX

months there is no waiting (deferred) period.



risk

• N/A


• The premium is guaranteed for ……...

• Thepolicywillprovidethebenefitafteryoubeing

ill or involved in an accident and being unable

to work, but only after a period of X weeks has

elapsed.

• You will have to provide evidence of your income

intheeventofaclaim.Youmusthavesufficient

relevant earnings at the time of any claim to qualify

forthebenefitorthefullbenefit.

• There is no guarantee that tax relief will continue in

the future.

• Any income from this policy is liable to tax, PRSI

and USC deductions.

• Themaximumbenefitof€includesanyother

payments such as social welfare payments.

• If you change your occupation you must inform

theinsurancecompanyandthismayaffectyour

premium and cover.


• N/A


Client…… taking into account our recent meeting and

your current needs I recommend the XYZ product as

being the most suitable for you.

It provides

• Xx income replacement in the event of you

becoming ill or being involved in an accident

and subject to normal claims verification


• The premium is guaranteed for …. years






Yours sincerely


Name: ………………………………………………………………………………………….

Date: ………………………….......................................................................


Page 16

Financial Broker


The idea of this calculator is to help establish the

retirement funding needs of a person.







Retirement cover calculator

Step 1

Current income and replacement

1. Input current income and age (the system will

calculate the years to retirement).

2. Select retirement age.

3. Identify salary growth expectation.

4. Input the % of income to be replaced (system

calculates income requirement in retirement).

5. The system calculates total projected income at

retirement and required income in retirement.

Step 2

Existing Provision

1. Input retirement income from other sources

(rents, company pension etc.) This should be

stated in future terms i.e. expected other income

in retirement.

2. Identify current State pension (if applicable).

3. Identify expected % increase if any.

4. Identify age at which client is eligible for the state

Pension

5. The system calculates estimated state pension at

retirement.

6. Inputexistingpensionfund*(currentvalue).

Step 3

Total fund needed

1. The system calculates current pension income and

shortfall.

2. Identify annuity rate (depending on options – joint,

escalation, age).

3. The system calculates total fund needed.

4. The system also allows for level annual premium

and indexed annual premium.

Step 4

Monthly contribution needed

1. Calculate monthly contribution needed to make

up shortfall.

2. Growth rate, charges (RIY) and escalation rate can

be varied.

Emergency Fund





customershaveaccesstosufficientdisposablefunds

in the event of a requirement for future healthcare

needs or other potential unforeseen events.

* NB system does not calculate state pension deficit of cover if NRA is before state pension age.

Retirement Calculator and Statement of Suitability


Page 17

Financial Broker



Retirement Need Calculation

Step 1 Current Income & Projected Retirement Income Details

Current Income Age Next Birthday

Normal Retirement Age NRA

Number of Years

until NRA

Income Growth Projected Income at

Retirement

% Income required in Retirement

Actual Income

Required in Retirement

Retirement Income

Available from other

sources

€75,000 45 65 20 2.00% €111,446 66% €73,554 €5,000

Step 2 Calculate Total Income Replacement Needed

Current State Old

AgePension

% Growth in State

Pen-sion

Age for payments

of State Pension

Number of Years to

StatePension

StatePension

Entitlementsat

Retirement Age

Total Pension Income Shortfall

Annuity Rate

Pension Fund Shortfall

Minus Any ExistingPension Fund/s

Existing Pension Fund

Projected Value at NRA

using Net Growth Rate

Existing Pension Fund Value at NRA

Final Pension

Fund Shortfall

Pension Fund Shortfall

minusExisting

Pension Fund Value at NRA

€22,703 1.00% 67 22 €28,259 €40,296 3.00% €1,304,065 €50,000 5.00% €132,665 €1,171,400

Step 3 Level Premium required to fund Pension Shortfall – Tax Relief not shown

Years Available to Fund Shortfall

Growth Rate

Reduction In Yield

Indexation Net Growth

Rate

Fund Required Level Annual Premium Level Monthly Premium

20 8.00% 3.00% 0.00% 5.00% €1,171,400 €33,739.21 €2,875.18

Step 4 Indexed Premium to fund Shortfall – Tax Relief not shown

Years Available to Fund Shortfall

Growth Rate

Reduction in Yield Net Growth

Rate

Fund Required Indexation Rate

Indexed Annual

Premium Year 1”

Indexed Monthly Premium Year 1

20 8.00% 3.00% 5.00% €1,171,400 3.00% €26,337.04 €2,244.39


Page 18

Financial Broker




Dear Client

1. Our meeting









3. Product options



• Reasons


to risk

• Linked to your investment / risk document


• Guarantees

• Limitations

• Restrictions




Dear X


September.




1. Our meeting


• You are ………..


• You are self-employed and taxable under

schedule D.

• You are a Director of ….

• You are employed by XXX.



• You will have an income shortfall at retirement.

• You wish to provide an income of €xxx at age …..

• You have a lump sum of €xxxx to contribute

towards your pension.

• You need an income of €xxx from this pension

investment.

• You would like to supplement your income in

retirement.

• Youarelookingforareturninexcessofinflation.

• You want to maximise the tax reliefs that are

available.

• You are investing to meet a target fund of €x in

x years.

• You are not willing to take any risk with the capital

element of your retirement plan.


Page 19

Financial Broker


• You are happy to take some risk with your

retirement plan in order to get a better potential

return than deposits.

• You are prepared to risk xx% of your retirement

plan to get a better return than deposits.

• You are happy with your situation in relation to

- Life cover

- Serious illness cover

- Income protection

- Medical expenses insurance.

• You would like to review at a later date

- Life cover


- Income protection



• Your salary is €xxxx and your employment is

secure.

• You are a higher income taxpayer.

• You pay tax at the standard rate.

• You have a surplus of €xxx each month.

• You have other retirement plans worth €xxxx.

• You are currently making contributions to other

plans of €xxxx per month.

• You don’t have an emergency fund but are

currently ….

• You are going to put €xxx into a deposit fund as an

emergency fund.

• You have an emergency fund of three months’

net pay.




Personal Pensions

• From the information you have given us we

recommendthatyoueffectapersonalpension

plan of € x.

• This plan allows you to invest in one or more

investment funds with exposure to a mix of

equities …property … bonds … cash … other ….

• These plans are not guaranteed but over the long

term may produce a return in excess of deposits.

• Werecommendthatyoueffectashortterm

deposit account savings plan to ensure you have

an adequate emergency fund.

• This plan grows free of tax. From age XX you may

take 25% as a tax free lump sum. The balance can

be used to provide a pension for life by purchasing

an annuity. Alternatively you can invest the

balance into an Approved Retirement Fund which

you can draw on subject to taking a minimum of

5%eachyear.Currentlyyoumustputthefirst

€63,500ofyourfundintoanApprovedMinimum

Retirement Fund (AMRF) whereby you cannot

access this capital until 75; this is scheduled to

increaseto€119,800in2016.



• This plan allows you to add life cover / income

protection.

• We recommend that this retirement plan is

reviewed at least every year.

PRSA


recommendthatyoueffectaPRSAplanof€x.



equities … property … bonds … cash … other ….




deposit account savings plan to ensure you have

an adequate emergency fund.
















Company Pension Plan


recommendthatyoueffectacompanypension

planof€x,forthebenefitof…..


Page 20

Financial Broker




equities … property … bonds… cash … other ….














• This plan grows free of tax. From age xx you may

takeupto150%ofyourfinalremuneration

depending on how many years’ service you have.

From the information you have provided me with

and assuming your circumstances do not change

you could take up to xx% free of tax. The balance

of your fund must be used to purchase an annuity.

• Currently the maximum tax free lump sum that can

be taken is €200,000 and includes any payments

since 2005.





• This plan allows you to add life cover / income

protection.

3. Product options

• This plan allows you to index link your retirement

savings each year.

• This plan is designed as a long term retirement

product and generally you will not have access to

this fund until at least age xx.

• These plans allow you to save in unit linked,

unitisedwithprofittypeaccountsthatmay

produce a better return than a deposit account but

are not guaranteed to do so.

• This retirement plan allows you to add additional

lump sums to it

• This retirement plan allows you to switch between

differentfundsatno/xxcost.

• This plan allows you add xxx amount of life cover.


• We are authorised to advise on x pension

companiesandrecommendthatyoueffecta

retirement plan with xxxxx company.

• Thisretirementplanoffersthemostcompetitive

charging structure of xxxx.

• The charges applied to the plan are as follows:

• Thiscompanyoffersthefollowingfundchoices

- Unit linked

- Deposit

- Withprofit

- Guaranteed

- Passive / Active fund

- External fund managers.

• You can spread your contributions over a number

of these funds.

• This company allows you to switch between funds

at no extra cost.

• We recommend this product as it matches your

needs and objectives as stated above.



to risk

Important!

• You have read and we have discussed the

document on investment entitled “Addressing

Investment Risk – a guide to approaching

investment risk for use by Financial Brokers and

their clients”.

• Weconductedriskprofilingexercisesandyou

agreedyourriskprofilewasmedium/high/very

high.

• Youunderstandthetrade-offbetweenriskand

return and are prepared to accept some risk for

higher expected return.

• Your investment does not provide any capital

guarantee.

• The fund has a current risk rating of 5 on the ESMA

1-7 rating (7 being the highest volatility rating).

• It has a maximum drawdown (peak to trough fall)

rateof49%sufferedin2007/2008.


• The investment is not guaranteed to return your

capital or achieve any rate of return.

• There is no guarantee that the return on this

pensionpolicywillmatchorbeatinflation.


Page 21

Financial Broker


• The guarantee on this investment is provided by

X bank. Y life company does not undertake to pay

your fund in the event of default by X bank. X bank

hasthefollowingfinancialstatus-.Ylifecompany

hasthefollowingfinancialstrengthstatus–.

• There is no guarantee that this investment plan will

provide enough to pay any particular income in

retirement.

• Taxreliefandbenefitoptionscanbesubjectto

amendment by governments.

• You will not have access to this retirement plan

until aged XX unless you are seriously ill.

• There is no guarantee that you will get back what

you pay in.

• You may have to wait for up to six months to en-

cash your investment in the property fund.

• This plan is recommended for a minimum of xx

years.

• Encashment penalties will apply if the policy is

surrendered/encashedbeforefiveyears.These

are year 1-3, 5% of the fund, year 4-5, 3% of the

fund.


• N/A


Client…… taking into account our recent meeting and your



You are planning to retire in xx years.

It provides

• Access to xxx funds

• Tax relief as outlined

• Yourchosenfundisinlinewithyourriskprofile

• You can switch out of this fund at any time






Yours sincerely


Name: ………………………………………………………………………………………….

Date: ………………………….......................................................................


Page 22

Financial Broker



investment needs of a person.







Investment Need

Financial Brokers are referred to the documents:

• Addressing Investment Risk – A Guide for

Financial Brokers

• Addressing Investment Risk – A guide to

approaching investment risk for use by Financial

Brokers and their clients

A guide to investment recommendations and reviews will

be published in September 2013.

Step 1

Client assessment

(1) Assessriskcapacitybyfactfind

(2) Assessriskpreferencebyprofiletool

(3) Customer discussion structured by document.

From these steps, the Financial Broker will have assessed

theriskprofileoftheclient(s)andtheclient(s)willbeaware

oftherisk-rewardtradeoffandthegeneralnatureof

investment risk.

Step 2

Investment recommendation

By this stage, the Financial Broker will have gathered data

ontheclient’soverallinvestmentsandmayhaveidentified

a need to invest certain funds.

The Financial Broker will know:

• The objective for the invested funds

• The target rate of return

• The client’s capacity and preference for risk

• The importance of capital security to the client

• The amount to be invested

• The term of the investment

• Whether any regular income is needed

• Whether access to the fund is needed during

the term.

Items to consider and document:

• Combineassetsfordiversification/correlation(0

= independence, 1 implies returns move in lock

step).

• Take a holistic client view – what assets does the

client have in their pension, company, personal

property etc.

• Theriskandreturnprofileoftheportfoliomust

be consistent with the client’s expectations and

needs.

• Thetaxprofileoftheclientandtaxstructureforthe

product may be relevant to the most appropriate

investment recommendation.

• Istheinvestmentaoneofforisthereaseriesof

investments? Regular contribution funds can

benefitfromvolatilitywhereasdrawdownfunds

(ARFs) can accentuate the negative impact of

volatility.

Investment Calculator and Statement of Suitability


Page 23

Financial Broker


• Definethescopeofinvestiblefundsyouoffere.g.

fundsofferedbylifecompaniesinIreland.

Asset and fund selection - consider:

• The appropriate asset mix.

• Therisk/returnprofile.

• The liquidity of the portfolio.

• Counterparty risk.

• Active v. passive funds.

• Single v. multi asset funds.

• The credentials of the fund provider.

• The credentials of the fund manager.

• Charges.

• Fund size.

• Return data.

• Risk data (volatility/ maximum drawdown).

• Structured fund issues (trackers) – the basket,

thepayoffconditionsandcapitalprotection

offered.

• Absolute return issues – return and risk

data, correlation with other assets, charges

and investment process.

Document the process and agree a review schedule with

the client.

Emergency Fund



The Central Bank recommendsthatfirms

refer to the need for an emergency fund, to

ensurethatcustomershaveaccesstosufficient

disposable funds in the event of a requirement

for future health care needs or other potential

unforeseen events.

Example of Calculation of growth:

Single Premium Investments

Name

Calculating Single Premium Investments at Maturity

Investment Fund Available €50,000

Investment Term 10

Investment Growth (Net) 5.0%

Investment at Maturity €81,445



Dear Client

1. Our meeting








3. Product options



• Reasons


to risk

• Howtheriskprofileoftheproductisaligned

with the client’s attitude to risk.

• How the nature, extent and limitations of any

guarantee attached to the product is aligned with

the customer’s attitude to risk.


• Guarantees

• Limitations

• Restrictions



Page 24

Financial Broker




Dear Client


September.




1. Our meeting


• You are …..




• You have a lump sum of €xxxx.

• You need an income of €xxx from this investment.

• You would like to supplement your income in

retirement.

• Your minimum investment term is xx years.

• Youarelookingforareturninexcessofinflation.

• You would like to provide school fees of €xxxx.

• You are investing to meet a target fund of €x in x

years.

• We have discussed the nature of investment risk.

You understand that capital security comes at

the expense of lower expected returns and are

prepared to take a risk with your invested funds to

generate higher expected returns.

• Wehaveprofiledyourriskpreferenceaslow,

medium, high, very high.

• We have assessed your capacity to bear risk as

moderate/high given your other assets and

relatively young age.

• In the event of your death you would like the

investment to go to …….


- Life Cover


- Income Protection



- Life Cover


- Income Protection




secure.

• You are retired and on an income of €xxx.


currently ….

• You are going to put €xxx into a deposit fund as an

emergency fund.


net pay.




• From the information you have given us including:

- The recent meeting we had and the information

you provided me with (copy attached)

- Theriskprofilewecompleted(copyattached)

- Other…..

• We recommend an investment plan in a unit linked

plan of €x that will allow you to accumulate a lump

sum that can be used towards school fees of €x in

x years.



equities … property … bonds … cash … other ….



• You expect to be able to invest this money for a

minimum of x years; however it is recommended

that this investment is made for a minimum of Y

years.

• Taxwillbedeductedfromanyprofityougain

on encashment. After eight years a deemed

encashment will take place.

• This investment can be organised on a single life

basis.


Page 25

Financial Broker


• This investment can be organised on a joint life

basis; this means that should you predecease your

spouse she / he will automatically take ownership

of the investment.



• This plan has €xxx life cover.

• We recommend that this investment plan is


3. Product options

• This plan is designed as a long term investment

product.

• These plans allow you to invest in unit linked,



is not guaranteed to do so.

• This investment allows you to add additional lump

sums to it.

• This investment allows you to switch between

differentfundsatnocost.

• This plan allows you to make automatic partial

withdrawals. The maximum rate of withdrawal is

……..


• This plan allows you to make lump sum additions.

• You can get access to your funds within x days.


We are authorised to advise on x life companies and

recommendthatyoueffecttheinvestmentpolicywith

xxxxx for the following reasons:

• Thisplanoffersthemostcompetitivecharging

structure of xxxx.


- Unit linked

- Deposit

- Withprofit

- Guaranteed

- Passive / Active fund

- External Fund Managers.


at no extra cost.

• We recommend this product as it matches your

needs and objectives as stated above.

• Their fund performance for the last xx years is

attached.

• Pleasefindtheattachedinformationaboutthe

resources of this company.



to risk

Important!





their clients”.



high.

• Youunderstandthetradeoffbetweenriskand




guarantee.








• There is no guarantee that the return on this policy

willmatchorbeatinflation.

• The guarantee on this investment is provided by

X bank. Y life company does not undertake to pay

your fund in the event of default by X bank. X bank

hasthefollowingfinancialstatus-.Ylifecompany

hasthefollowingfinancialstrengthstatus–.


provide enough to pay …..


you pay in.

• You may have to wait for up to six months to

encash your investment in the property fund.


years.



are year 1-3, 5% of the fund, year 4-5, 3% of the

fund).


• N/A


Page 26

Financial Broker





most suitable for you and your investment.

It provides









Yours sincerely


Name: ………………………………………………………………………………………….

Date: ………………………….......................................................................


Page 28

Financial Broker



savings need of a person.







Method 1 Target Fund

What is your target fund amount? €

In how many years?

Have you a lump sum to start? €

Recommended Monthly savings €

Method 2 Target Saving

Decide how much you wish to save €

Ideally how long would you like to save for?

Have you any objectives you wish to save for?

Emergency Fund





customershaveaccesstosufficientdisposable

funds in the event of a requirement for future

health care needs or other potential unforeseen

events.

Example

Regular Savings. Regular Premium Calculations & Lump Sum Target Calculations

Name

Regular Premium Calculation Change the Target Lump Sum, Saving Term or Saving Growth Rate to calculate the Annual and Monthly premium.

Lump Sum Target CalculationChange the Annual Premium, Saving Growth Rate or Saving Term to show the Savings Lump Sum Target and the Monthly Premium.

Target Lump Sum €10,000 Annual Premium €1,000

Saving Term 10 Monthly Premium €85.22

Saving Growth Rates 5.0% Saving Growth Rates 5.0%

Monthly Premium €64.53 Saving Term 10

Annual Premium €757 Savings Lump Sum Target €13,207

Savings Calculator andStatement of Suitability


Page 29

Financial Broker




Dear Client

1. Our meeting








• Short term savings

• Medium term savings

• Long term savings

• Target savings

• School fees

3. Product options

• Indexation

• Fund choice

• Switching



• Reasons


to risk

• Howtheriskprofileoftheproductisalignedwith

the client’s attitude to risk.

• How the nature, extent and limitations of any

guarantee attached to the product is aligned with

the customer’s attitude to risk.


• Guarantees

• Limitations

• Restrictions




Dear Client


September.




1. Our meeting


• You are married to XX with two young children, XX

and XX.



• You have a surplus of €XXX per month and wish to

save for ….. in x years.


• You would like to save € per month.

• You have a surplus of € per month.

• You would like to provide school fees of €XXX.

• You are saving to meet a target fund of €x in

x years.

• You would like your savings to be index linked

every year.

• You are happy to take some risk with your

investment in order to get a better potential return

than deposits.


Page 30

Financial Broker



- Life cover


- Income protection



- Life cover


- Income protection


1.3 Your Financial situation


secure.


currently ….


net pay.





recommendthatyoueffectalongtermunitlinked

savings plan of €x.

• We recommend a savings plan of €x that will allow

you to accumulate a lump sum that can be used

towards school fees of €x in x years.


deposit account savings plan.

• You expect to be able to save for a minimum of x

years.

• Taxwillbedeductedfromanyprofityougain

on encashment. After eight years a deemed

encashment will take place.



• This plan has €xxx life cover.

• We recommend that this savings plan is reviewed

every year.

3. Product options

• This plan allows you to index link your savings each

year.

• This plan is designed as a long term savings

product.

• These plans allow you to save in unit linked,



are not guaranteed to do so.

• Thisisaflexibleplanandallowsyoutovaryyour

contributions.


• This plan allows you to make lump sum additions.



andrecommendthatyoueffectthesavingspolicy

with X.

• Thisplanoffersthemostcompetitivecharging

structure.


- Unit linked

- Deposit

- Withprofit

- Guaranteed

- Passive / active fund.


charge.


at no extra cost.



to risk

Important!





their clients”.



high.

• Youunderstandthetrade-offbetweenriskand




guarantee.






Page 31

Financial Broker





• There is no guarantee that the return on this policy

willmatchorbeatinflation.


provide enough to fund ....


you pay in.

• You may have to wait for up to six months to

encash your investment in the property fund.


years.



are ....


• N/A





It provides









Yours sincerely


Name: ………………………………………………………………………………………….

Date: ………………………….......................................................................

A Guide to Developing Business Strategy for Financial Brokers

Page 01

Financial Broker



Financial Broker a PIBA initiative for all Financial Brokers

Unit 14B, Cashel Business Centre, Cashel Road, Crumlin, Dublin 12.T: +353 (0)1 492 2202 F: +353 (0)1 499 1569

www.financialbroker.ie


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Financial Broker A Guide to Developing Business Strategy for Financial Brokers · 2020-01-23 · A Guide to Developing Business Strategy for Financial Brokers Page 01 Financial Broker