Welcome To The Canadian Institute Of Financial Planners

Welcome To The Canadian Institute Of Financial Planners Cover Your Assets: Insuring Your Practice With Insurance Mark A. Smigel, CFP Senior Marketing Representative Western Region AIG Life of Canada

Insurance, The New Standard? • Of 11 brokerages surveyed, 70% of all investment advisors were insurance licenced. Among the other designations held. . 24% - CFP 43% - PFPC 20% - CIM 18% - FSCI Aileen Corr, “Insurance, The New Standard”, Investment Executive, May 2004, p. C 6

Reasons To Avoid Insurance? • Apathy? • “My clients are looking for financial planning services, not insurance products. . . ” • Service? • “Too time consuming. . . ” • “I’m an investment specialist. . ” • Knowledge? • “It’s too techie” • “Insurance agents are sales shmo’s”

Three Reasons We Cannot Avoid It? • Fiduciary Responsibility • Preserves Livelihoods • Augments Cashflow

Reason #1 - Fiduciary Responsibility

Fiduciary Responsibility • FPSC Code Of Ethics? • Insurance Council Code Of Conduct? • Supreme Court Rulings (Klym et al vs Bank of Montreal, 2005 BCSC 420 Date: 20050322)

What Is The Standard For Malpractice? “One who holds himself out to the public as an financial planner is required to have the degree of skill and knowledge requisite to the calling. If he neglects to procure the insurance or if the policy is materially deficient or does not provide the coverage he undertook to supply, because of his failure to exercise the requisite skill or diligence, he becomes liable to his principal for the loss sustained thereby. ” Ryder v. Lynch, 42 N. J. 465, 476 (1964)

What It Means If I’m A CFP? Principal 3 – Competence A CFP professional shall offer advice only in those areas which the CFP designee has competence. In areas where the CFP professional is not professionally competent, the CFP designee shall seek the counsel of a qualified person and/or refer clients to such parties.

What It Means If I’m A CFP? Principle 7 – Diligence Enter a client engagement only after securing sufficient info to be satisfied that: - the relationship is warranted by individuals needs/objectives; - The CFP professional has the ability to either provide requisite competent service or to involve other professionals who can provide such

What If I’m Not A CFP? Duty Of Care You have an obligation, before conducting a transaction, to conduct sufficient fact-finding and needs analysis to properly assess a client’s circumstances, goals and needs Insurance Council Of British Columbia, Code Of Conduct For Insurance Salespersons and Adjusters, June 1999, p. 16

Reason #2 – Preserves Livelihoods

Let’s Look At Your Books Account Breakdown % 2003 2004 AUM/Client <$50, 000 18 23 AUM/Client $50, 000 to $1 Million 75 67 AUM/Client > $1 Million 10 9

Let’s Look At Your Books Product Mix % In House Managed Product 3 rd Party Managed Product Equities 28 Fixed Income 28 Income Trusts n/a Cash 2004 2003 8 29 9 31 27 23 9 5 5

Let’s Look At Your Books Compensation Mix % 2004 2003 Fee-Based Asset-Based 20 Transaction Based 62 Deal Based 6 15 25 61 9 4

What Are The Trends? • Client account mix reflects their focus on wealthier clients. • Average brokers book is 280 clients, a drop from 307 a year ago. • Push towards asset based comp and fee for service and away from transactions. • Cash holdings are stable at 5%, with equities dropping to 27% from 28% and fixed income holdings falling to 23% from 28% last year. • Insurance is said to account for 2% of assets. James Langdon, “Brokers older, More experienced, and Wealthier”, Investment Executive, May 2004, p. C 4

So What The Problem? “~!2*!? ” Happens!!

Let’s Look At Your Book!! • 300 clients • Newly weds; 2 nd generation (25 -30) • Few business clients • Ma/Pa investors (50 s-60 s) • Our elders (70 s+) • Only 25% of the book!

Our Younger/Business Clients (25 - 45) Income Replacement/Corporate Markets Term Insurance

Match the Product to the Market • • Mortgage Market Debt protection Little disposal income Combination with life insurance is better • Need affordable coverage • Convertible Later

What About Within The Corporate Market? • Life insuring your debt instead of buying creditor insurance via lender • More flexibility • Cost effective • Use of CDA credit

What About The Corporate Market? Bank Product • Loan Amt $250, 000 • Loan Amt After Death Benefit $0 • Credit To CDA $0 • Future Tax Savings From CDA (32%) $0 Corporate Collateral • Loan Amt $250, 000 • Loan Amt After Death Benefit $0 • Credit To CDA $250, 000 • Future Tax Savings From CDA (32%) $80, 000

Our Product Line - Term Life

Preferred Term 10. . . Better than Ever! Term Life AIG Preferred Term 10 plan rates have improved significantly, especially for ages under 40. The issue limits have also changed with the introduction of the Easy. Term 10 plan. AIG’s old Preferred Term 10 rates $36. 27 $55. 35 $128. 07 For ages 18 to 50, the minimum Preferred Term sum insured is now $250, 001. For ages 51 to 75, the minimum sum insured remains at $100, 000.

Our Elder Clients (50+) Estate Preservation Market Universal Life

What’s The Impact of Estate Shrinkage? Gross Estate Settlement Cost Net Estate % Shrinkage Nat “King” Cole $1, 876, 648 $1, 577, 740 $298, 908 84% 17, 121, 482 11, 893, 691 5, 227, 791 J. D. Rockefeller 26, 905, 182 17, 124, 988 9, 780, 194 69% 64% 105, 782, 217 93, 288, 483 24, 965, 954 135, 632, 630 134, 000 4, 866, 000 J. P. Morgan Conrad Hilton 199, 070, 700 J. D. Rockefeller 160, 598, 584 Jr. Yul Brenner 5, 000 53% 16% 3%

Deemed Disposition of Property For example. . . FMV $800, 000 Original Cost Capital Gain TCG UCC Recapture $120, 000 TOTAL Land Building Total $200, 000 $600, 000 $ 80, 000 $120, 000 $60, 000 n/a $400, 000 $200, 000 $100, 000 $480, 000 $320, 000 $160, 000 $280, 000 n/a $120, 000 $280, 000

“The trick to it is to try not to see it as ‘your’ money. . . ”

Why Should I Use AIG To Solve Problem?

Click here to view Illustration

Our Product Line – Universal Life

45 0% MER Investment Options

Our Elder Clients (50+) Our Boomer Markets Critical Illness Coverage

Many Financial Consequences There are many financial consequences to surviving a critical illness. Here are just a few consideration. . . • Absence from work • Cost of home care during illness and recovery • Treatment outside of Canada – There is a financial Impact!

Common types of covered conditions Heart Attack Stroke Cancer Coronary Bypass Surgery Multiple Sclerosis Kidney Failure Alzheimer’s Disease Parkinson’s Disease Major Organ Transplant - Benign Brain Tumour Deafness Occupational HIV Motor Neuron Disease - (surgery or waiting list) Paralysis Blindness Loss of Speech Loss of Limbs Coma Severe Burns (Lou Gerhig’s Disease/ALS) LOSS OF INDEPENDENCE

Medical procedures costs outside of Canada

Medical care costs in Canada HOME CARE Health care with light housekeeping - $100/day Registered Practical Nurse - $175/day Registered Nurse - $200/day MEDICAL EQUIPMENT Wheel Chair - $2, 500 Walker - Chair Lift - $2, 000 Vehicle modification - $7, 500 - $10, 000 $500

Medical care costs in Canada HOME CARE Health care with light housekeeping - $100/day Registered Practical Nurse - $175/day Registered Nurse - $200/day Nurse Visits $175/day x 3 days = $525/week x 45 weeks = $23, 725/year x 5 yrs = $118, 625 Where do you get $118, 625 after tax dollars? ? ?

Where does it come from? Equity in my real estate. . - forced sale when market is poor? intentions of reverse mortgage in the future? realtor fees and relocation costs? emotional affects of forced sale?

Where does it come from? Surplus capital in my corporation. . - expansion capital for R&D ? cashflow needs for operation? lender comfort given critical illness?

Where does it come from? Cash from investment accounts. . - Liquidity risk on term deposits? DSC charges on funds? Time value of money calculations?

Where does it come from? Cash from investment accounts. . 300 clients 1/3 – 1/4 suffer a critical illness 100 clients affected? 33 clients needs to access capital • 33 x $200, 000 = $6, 600, 000. 00 • $6, 600, 000 x 1% Trailer = $66, 000 / year!! • Plus no new contribution to these accounts!

Why Should I Use AIG To Solve Problem?

Our Product Line – Critical Illness

Six New Covered Conditions Critical Illness A total of 25 covered conditions on all Living Benefit plans, including: • Early Discovery Benefit (Advances 10% up to $25, 000 for Early Prostate, Ductal Breast Cancer, Coronary Angioplasty and Superficial Malignant Melanoma); • Loss of Independence; • Heart Valve Replacement; • Aortic Surgery; Introducing Two New Conditions to the Canadian Critical Illness Market. . . • Aplastic Anaemia; and • Bacterial Meningitis

Contract Changes Critical Illness Cancer discovered in the first 90 days will not terminate the critical illness policy • Cancer will be excluded from the definition and coverage will be allowed to continue. New Heart Attack definition to include bio-chemical markers • Heart Attack (Myocardial Infarction) is defined as the death of a portion of heart muscle as a result of inadequate blood supply as evidenced by a) new electrocardiographic (ECG) changes indicative of a myocardial infarction, and by b) the elevation of cardiac biochemical markers to levels considered diagnostic for infarction. Heart attack during coronary angioplasty is covered provided that there are diagnostic changes of new Q wave infarction on the ECG in addition to elevation of cardiac markers. Age restriction removed on Alzheimer’s, Parkinson’s and Motor Neuron Disease • Reductions in the Critical Illness Benefit after age 75 have been removed.

Other “What’s New” Features Critical Illness Return of Premium on Death now available as a rider on all Living Benefit plans • Having ROP on Death as a rider allows those can keep costs low by allowing more choice. New rates now calculated on an “Age Nearest” basis • Change in age calculation is keeping in line with all of AIG’s other insurance products and eliminates confusion of age between the other plans. New lower minimum $25, 000 coverage available with all plans • Reduction in minimum for Living Benefit 75 and Living Benefit 100 to allow more financial options for more clients.

What’s New Critical Illness Best Doctors Inc. services extended to a Life Insured’s immediate family member in AIG’s Critical Care Assist Benefit A one-time use of Best Doctors, Inc. service is now also available at no charge to an immediate family member (spouse or dependent children) for the illnesses covered under the base Critical Illness plan. This one- time free usage for immediate family members can be elected at any time while the policy is in force. The Life Insured always has access to the Best Doctors’ service even if a family member elects to use their free access. There is a 12 -month pre-existing condition clause for the immediate family members, but not for the Life Insured. Immediate family members would be excluded for critical care assistance on any pre-existing illness.

Competitive Rates / Low Cost Protection. . . Critical Illness Male, Non-smoker, $100, 000 of T 10 CI coverage Company Pure Protection Age 30 Age 35 Age 40 Age 45 Age 50 Age 55 AIG Life $35. 01 $42. 21 $53. 37 $71. 73 $106. 74 $174. 78 Canada Life $30. 19 $37. 33 $52. 12 $83. 18 $127. 03 $177. 31 Industrial Alliance $33. 75 $40. 50 $52. 92 $75. 51 $106. 56 $173. 16 Manulife Financial $32. 13 $39. 51 $53. 73 $75. 96 $113. 85 $183. 24 All monthly premiums are based on March 2005 Life. Guide.

Male, Non-smoker, $100, 000 of T 20 CI coverage Critical Illness Company Pure Protection Age 30 Age 35 Age 40 $37. 26 $49. 68 Canada Life n/a Industrial Alliance Manulife Financial AIG Life Age 45 Age 50 Age 55 $70. 83 $106. 83 $163. 53 $251. 55 n/a n/a n/a $40. 14 $49. 95 $71. 73 $104. 58 $158. 13 n/a All monthly premiums are based on March 2005 Life. Guide.

New ROP on Surrender Options Critical Illness Living Benefit 75 • Return of Premium on Surrender Benefit Rider available that will pay 100% ROP at age 75; and • An early ROP options starting from the later of age 50 or the 10 th policy anniversary at 50% and grading equally to 100% by age 75.

New ROP on Surrender Options Critical Illness Living Benefit 100 • Starting after 10 years, the percentage of the Annual Base Premium returned is 50% and increases 10% each year to 100% after 15 years. • Living Benefit 100 will pay the inforce face amount, if no claim is made, on the anniversary age nearest the Life Insured’s 100 birthday. . . with or without the ROPS rider!

Reason #3 – Augment Your Cashflow With Insurance Business!!

Let’s Look At Your Book!! • 300 clients • Newly weds; 2 nd generation (25 -30) • Few business clients • Ma/Pa investors (50 s-60 s) • Our elders (70 s+) • Only 25% of the book!

Insurance Compensation – 25% of 300 Clients Term Product (Creditor/Mark ets) Universal Life (Estate Preservation) LB 75 With ROP (RRSP Protection) LB 20 (Mortgage Market) $250, 000. $200, 000. $50, 000. 00 $100, 000. 00 00 00 40 m n/s & 35 f 60 m n/s & 55 f 47 m n/s 30 f n/s n/s $364. 80/ca $2, 700/cas $1, 042/cas $708/case se e e 15 cases 20 cases 5 cases 15 cases Term Total UL Total LB 75 Total LB 20 Total

Why Do We Avoid Insurance? • Apathy? • Service? • Knowledge?

Why Do We Avoid Insurance? • Apathy? • Service? • Knowledge?

• Vancouver Office: • #1001 -543 Granville Street • Vancouver, BC V 6 C 1 X 8 • 604 682 -4157 • Calgary Office: #500 – 11012 Mac. Leod Trail South Calgary, Alta T 2 H 2 K 6 403 265 -7030 The Producer Is The Customer!!