The Financial Plan Advantage

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The Financial Plan Advantage

• How to improve revenues and add
• real value to your practice

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The Impact of New Technologies

• New technologies never live up to their promise
  in the early stages.
• Growth and change DO NOT occur in a linear
  fashion.
• New technologies move very slowly into niche
  markets.
• Once the technology hits critical mass of 10 of
  potential consumers, it explodes into the
  mainstream at an accelerated rate.

Harry S. Dent Jr. - The Roaring 2000s
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The S-curve in Cars
Installment financing
90 urban adoption
Cars only for the rich
Model T design
Assembly line
Harry S. Dent Jr. - The Roaring 2000s
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The S-curve in Financial Planning
Only 16 of advisors have plans in place for 80
or more of their clients
Portfolio Analyst
FPS 2000
FP Solutions
Advisor Impact Practice Update 2004
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The Future of Financial Services
Total in-branch sales force for investment
products at the major Canadian banks are
approximately 48,000. Investor Economics, Toronto
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The Future of Financial Services
"If they're not careful, many independent
advisors could be crushed as at least a couple of
the banks ramp up their operations even further.
This time it's not just about GIC rates." Julie
Littlechild, President Advisor Impact
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The Future of Financial Services
"If there's one mistake advisors make again and
again, it's assuming that by managing their
clients' investments well, they'll build truly
successful businesses. John Bowen, CEO of CEG
Worldwide
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The Future of Financial Services
"Every client relationship needs to be
profitable. We can no longer afford to serve the
many on the backs of the few. John Malyk,
Managing Partner PIP
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The Future of Financial Services
Maintaining a successful independent financial
practice in the future, will depend on
developing, and implementing, a unique financial
planning process that separates you from the
product competition.
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Financial Planning Process

• Establish the Engagement
• Gather Client Data
• Analyze the Clients Financial Information
• Develop and Present the Financial Plan
• Implementation of the Financial Plan
• Review the Financial Plan

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Financial Planning Process

• Two types of financial planners
• Advisors that use financial planning as a sales
  tool.
• Advisors that embrace financial planning as a
  business model.

Business Succession
Estate Liquidity
RRIF Insurance
Corporate Life Insurance
Investment leverage
Income Splitting
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Financial Planning Process

• Advisors that embraced financial planning as a
  business model tend to have three things in
  common
• They get all of their clients business.
• They experience better client satisfaction
  resulting in improved client retention.
• They have a dramatic increase in the number and
  size of insurance related needs that clients are
  willing to discuss.

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The Financial Plan Advantage

• What is it?
• The Financial Plan Advantage is the product of
  adopting financial planning as a business model.

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The Financial Plan Advantage

• What will it do for you?
• The Financial Plan Advantage will increase your
  income and simplify your life.

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Analyzing Your Practice

• Before you can measure the impact financial
  planning can have on your practice, you will need
  to find out where you're headed if nothing
  changes.

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Analyzing Your Practice

• Commission Split with Dealer/Firm
• Investment Assets Under Management
• Annual Sales and Client Retention
• Client Demographics
• Allocation of Assets Under Management
• Index Assumptions
• Insurance Related Sales

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Analyzing Your Practice

• Commission Split with Dealer/Firm
• What arrangement do you have?
• Flat fee arrangement
• Set percentage
• Progressive grid

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Analyzing Your Practice

• Investment Assets Under Management
• How is your book structured?
• Total Assets
• Number of clients
• Revenue model
• Base salary
• Business expenses

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Analyzing Your Practice

• Annual Sales and Client Retention
• Is your business growing?
• Annual investment sales
• Number of new clients
• Client retention
• Inheritance retention

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Analyzing Your Practice

• Client Demographics
• Who is your typical client?
• Financial plans
• Wallet size
• Age grouping
• Asset grouping

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Analyzing Your Practice

• Allocation of Assets Under Management
• How are clients allocated?
• Equity investments
• Fixed income cash
• Tax sheltered
• Non-registered
• Marginal rate of tax

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Analyzing Your Practice

• Index Assumptions
• What assumptions do you make?
• Equity investment
• Fixed income investments
• Rate of inflation
• Withdrawal rates

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Analyzing Your Practice

• Insurance Related Sales
• Are You Insurance Licensed?
• Policies in force
• Client retention
• Annual sales
• Average first year commission
• Average renewal/service fee

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Analyzing Your Practice

• Case Study
• Fred Attwood
• Attwood Financial Services
• Project future income and assets under management
  to create a benchmark set of projections.

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Case StudyAttwood Financial Services

• Fred Attwood has been selling financial products
  for just over 14 years.
• He shares an office and assistant with another
  advisor.
• He is Mutual Funds licensed with a large national
  MFDA firm.
• He is also insurance licensed through a small
  local MGA.
• He feels that preparing a financial plan is a lot
  of work for no pay cheque.

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Case StudyDealer Commission Split

• Freds dealer offers the following progressive
  commission structure.
• 60 on first 50,000
• 65 on next 50,000 (up to 100,000)
• 70 on next 50,000 (up to 150,000)
• 75 on next 100,000 (up to 250,000)
• 80 on next 250,000 (up to 500,000)
• 85 above 500,000

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Case StudyInvestment Assets

• AUM 20,000,000
• Clients Families 275
• Portion of Book DSC 95
• Expenses 45,000
• Annual New Sales 2,000,000
• New Clients/Year 35
• Client Retention 93
• Redemptions 3

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Case StudyClient Demographics

• Percentage of Clients by Age Group
• Under 35 26
• 35 to 44 25
• 45 to 54 19
• 55 to 64 12
• 65 and older 18

• Percentage of Assets by Age Group
• Under 35 9
• 35 to 44 21
• 45 to 54 27
• 55 to 64 20
• 65 and older 23

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Case StudyAllocation of Assets
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Case StudyIndex Assumptions

• Rate of Inflation 3.0
• Return on Equity Investments 8.0
• Return on Fixed Income Investments 5.0
• Investment Growth Withdrawn in
  Retirement 75

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Case StudyInsurance Activity

• Number of in-force policies 200
• Investment Clients with Ins. 20
• Annual Retention 93
• New Sales / Year 30
• First Year Commissions 36,000
• Renewal Commissions 15,000
• Expenses 9,500

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Case StudyYear 1 Net Income Before Taxes
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Case StudyNext 20 Years
Net income Before Taxes
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Case StudyNext 20 Years
Assets Under Management
Millions
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Case StudyNext 20 Years (Real Dollars)
Net income Before Taxes
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Case StudyNext 20 Years (Real Dollars)
Assets Under Management
Millions
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The Seven Advantage Elements

• By implementing a unique financial planning
  process within your practice, you will be able to
  take advantage of a number of elements that work
  together to increase your future revenue
  potential.

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The Seven Advantage Elements

• Annual Client Retention
• Percentage of Assets Managed
• Performance Enhancement
• Estate Retention
• New Plan Insurance Closing Ratio
• Review Plan Insurance Closing Ratio
• Average Insurance Need

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The Seven Advantage Elements

• 1 Annual Client Retention
• Financial Planning will
• Shift focus from product to advice
• Create tangible value
• Manage investment expectations
• Result in better client retention

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The Seven Advantage Elements

• 2 Percentage of Assets Managed
• Financial Planning will
• Consolidate client assets
• Maximize client resources
• Find new sources of capital
• Increase the assets youmanage for clients

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The Seven Advantage Elements

• 3 Performance Enhancement
• Financial Planning will
• Reduce future income taxes
• Maximize investment growth potential
• Enhance the long-term performance of investment
  assets.

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The Seven Advantage Elements

• 4 Estate Retention
• Financial Planning will
• Create new relationships
• Fund anticipated estate costs
• Keep assets invested for the security of a new
  generation.

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The Seven Advantage Elements

• 5 New Plan Insurance Closing Ratio
• Financial Planning will
• Address the need for
• Life Insurance
• Disability Insurance
• Critical Illness
• Long Term Care
• Result in higher closing ratios

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The Seven Advantage Elements

• 6 Review Plan Insurance Closing Ratio
• Financial Plan Reviews will
• Revisit recommendations for insurance not acted
  on initially
• Uncover additional needs
• Result in higher closing ratios

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The Seven Advantage Elements

• 7 Average Insurance Need
• Financial Planning will
• Uncover larger needs
• Demonstrate the financial risks of not having
  adequate insurance protection
• Increase the average size of insurance needs

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The Seven Advantage Elements

• Case Study
• Fred Attwood
• Attwood Financial Services
• Make adjustment to simulate the systematic
  implementation of a unique financial planning
  process.

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Case StudyAttwood Financial Services

• To analyze the impact that Financial Planning can
  have on his practice we will assume that Fred
  will provide financial plans to 90 of his client
  base over time.
• He will prepare a maximum of only 35 new
  financial plans each year.
• We will also assume that Fred will incur an
  additional 10,000/year of expenses related to
  preparing the financial plans.

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Case StudyAssumptions
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Case StudyNext 20 Years (Real Dollars)
Net income Before Taxes
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Case StudyReturn on Investment

• The cumulative increase in Real net income
  before taxes realized over the next 10 years by
  providing just 35 clients with a financial plan
  each year is 471,000.
• 5 Years 168,000
• 10 Years 471,000
• 20 Years 1,185,000
• 30 Years 2,041,000

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Case StudyNext 20 Years (Real Dollars)
Assets Under Management
Millions
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Asset-Based Compensation

• A method of compensation that is based on the
  assets managed or services supplied, that DOES
  NOT place any restrictions on the clients
  ability to make changes in the future.

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Asset-Based Compensation

• Advantages
• Improved financial stability
• Greater income potential
• Less conflicts
• No rebalancing restrictions
• Practice worth more
• Personal freedom

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Asset-Based Compensation

• Disadvantages
• You lose the rush of the big payday
• Careful planning is required
• Entire process can take many years
• No financial hold on clients

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Asset-Based Compensation

• Maintaining Profitability
• Existing Book
• Revenue positive transition
• New Business
• Revenue negative transition

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Asset-Based Compensation

• Case Study
• Fred Attwood
• Attwood Financial Services
• Systematically transition both existing assets
  under management and new money to asset-based
  compensation.

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Case StudyAttwood Financial Services

• Asset-based compensation will provide 0 upfront
  commissions with a 1 trailer.
• It will take a total of 5 years to transition the
  existing book of business.
• By the 5th year all new money acquired will
  provide asset-based compensation.

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Case StudyNext 20 Years (Real Dollars)
Net income Before Taxes
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Case StudyReturn on Investment

• The cumulative increase in Real net income
  before taxes realized over the next 20 years by
  transitioning to Asset-Based compensation is an
  additional 467,000.
• 5 Years (32,000)
• 10 Years 43,000
• 20 Years 467,000
• 30 Years 975,000

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Case StudyNext 20 Years (Real Dollars)
Assets Under Management
Millions
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Rule of Thumb
Assumes existing business transitioned over 5
years
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The Financial Plan Advantage
Preparing financial plans for clients should not
be viewed as unpaid service work it should be
viewed as an investment in your future, the best
performing investment you will ever make.