When it comes to Immediate Financing Arrangements, choose your bank carefully
How to borrow 100% of CSV, secure a line of credit for 10 years and structure an IFA for as little as $300,000!
High net worth clients expect a great deal from advisors. And advisors, in turn, expect exceptional knowledge and uncompromising service from the specialists who support their practice. Unfortunately, most bankers do not understand Cash Surrender Value (CSV) lending. So it’s in your interest to work with a bank which has cultivated a deep knowledge of insurance lending and a longstanding reputation for effectively structuring Immediate Financing Arrangements (IFAs).
Why 100% CSV lending on IFAs with whole life policies is better for clients In general, there are 2 different types of IFAs: 1) client borrows only against CSV and 2) client provides additional collateral security and borrows back the entire premium. One of Manulife Bank’s approved life insurance carriers ran a sample illustration for a 60-year-old male, non-smoker, initial death benefit of $2.5 million, premiums of $250,000 per year for 10 years. The table on the next page shows the benefits of 100% Loan to Value (LTV) on CSV for type 2, where the IFA funds back a client’s entire premium payment each year. If LTV is100% (blue shaded area), additional security peaks at $190,673 and reduces to zero by year 8. If LTV is limited to 90% (green shaded area), additional security peaks at $265,722 and is required until year 13. 100% CSV reduces total additional security required and eliminates the need for additional security years earlier. Manulife Bank will lend up to 100% of CSV in an IFA, secured by a whole life policy. (See list of approved insurance carriers in the far right column.)
It is possible to secure a 10-year commitment on IFAs Most banks will commit to only 2 or, at the most, 3 years of lending on an IFA. This is a fundamental disconnect because an IFA is typically in place for at least 10 years and potentially right up until the death of the life insured. Isn’t it a little unsettling for
“I work with Manulife Bank on IFAs because of their expertise and comfort with the structure. But it sure helps that their product is better as well. For example, Manulife Bank offers 100% Loan to Value on CSV right out of the gate vs. 90% everywhere else. This is very helpful as the client is required to come up with less outside collateral. It can make the difference between closing a deal, and not. That’s why they get a sizable amount of my work. LAURA KLAEHN President, Vision Financial Partners
a client when a bank is only willing to commit for 3 years? Banks have been known to enter the IFA lending market for a period, then withdraw. The last thing you want is for a bank to withdraw from the structure after 3 years. Manulife Bank’s Commitment Letter and loan agreement provides a 10-year commitment, subject to an annual review prior to each draw.
A minimum loan size of $1.0 or $2.0 million limits your potential IFA business Since 1995, when Manulife Bank began offering IFAs, we have seen the average size of IFAs gradually decline. However, most banks require a minimum IFA loan size of $1.0 million or even $2.0 million before they are willing to devote the time and resources to approve an IFA. Our IFA borrowing amounts start at $300,000 (or $30,000 per year for 10 years). We recognize the market is expanding and we’re here to help.
Probably the single most important reason to fund an IFA with Manulife Bank Top-end advisors like you experience intense competition. You don’t want to be worrying that your banking colleague or institution may actually be in competition with you. However, traditional banks are designed to refer high net worth clients and professionals to centres of expertise which look after a client’s entire banking, wealth management, insurance, financial planning and estate needs. In other words, a traditional bank is organized to compete fiercely to offer the kind of business solutions you provide. Manulife Bank is structured to support and not to compete with advisor wealth management or insurance business. We work closely with advisors and advisory firms to fulfill the banking (and only the banking) side of an advisor’s business. We know how hard you work to earn and maintain the respect, trust and loyalty of your clients. Our first rule is to never put that at risk.
“Over the past several years the staff at Manulife Bank have demonstrated significant understanding of the insurance element of the IFA. This plays a vital role in setting up the loan side of the structure. Many competitors lack in insurance product knowledge and this often presents issues to deal with. In addition to this, their expertise in dealing with corporate and self-employed clients has proven to be extremely valuable. Their ability to understand financial statements and corporate structures is a significant help.” DAVID COHEN President, David Cohen & Associates