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!

Investment Executive - - NEWS -

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

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