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presentation to the IFA masterclass at the 2011 Conference. Focus on income protection policies and understanding contract terms that matter, and comparing products using 3 examples.
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Risky Regulation
or
Regulation Rewards?
Risk Masterclass 2011
AGENDA: 2 distinct concepts;Risk IN Advice, &, Rewards FROM
RiskFit for Purpose?
Personal Responsibility
Third party research
Why is this appropriate?
Your analysis? Their needs?
Key checkpoints
New Rewards?Changing market demands
New opportunities
Manage client expectations
Best practice = $...but…
Have to think differently…
Risk IN Advice
FAA & Church case highlight responsibility issues
3rd Party research a defence? (Delmenico v Brannelly & Anor;
2008) (FOS Determination 18959; 2009) (Aust)
Key regulatory test: “why is this advice appropriate?”
Identifying client needs is importantPrioritizing client needs is essentialDetermining “most likely” right solution is the art
Working Example: some DI options
Scenario 1:
Salaried (PAYE) Manager earning $90,000 gross breaks his legs in a ski accident.He is unable to work at all for three months, then returns to work at one-third capacity (and pay) for a further 3 months, before returning to work in full capacity.Pre-disability Income $90,000ACC Benefits $72,000
Disclaimer!
Who Pays What Monthly Benefit? (with ACC Paying $6,000/mth)
Totally Disabled (first 3 months)
Fidelity Indemnity $5,625Fidelity Agreed Value $4,125AXA Indemnity $0AXA Agreed Value $0Asteron Indemnity $0Asteron Los of Earnings $0
WHY? Fidelity “Specific Injury Benefit”with no offset aims at this type of claim.
Partially Disabled
•Fidelity Indemnity $3,125•Asteron Indemnity $1,000•Asteron LOE $750•Fidelity Agreed Value $125•AXA Indemnity $0•AXA Agreed Value $0
WHY? Fidelity Indemnity has AV wording for first 6 mths of claim.
Change the scenario though…
Scenario 2:
The same Salaried (PAYE) Manager earning $90,000 gross had a heart attack.He is unable to work at all for three months, then returns to work at one-third capacity (and pay) for a further 3 months, before returning to work in full capacity.Pre-disability Income $90,000ACC Benefits $0
Who Pays What Monthly Benefit? (with NO ACC Payments, but $2,500/m personal earnings)
Totally Disabled (first 3 months)
AXA Indemnity $5,625Asteron Indemnity $5,625Asteron Loss of Earnings $5,625AXA Agreed Value $4,125Fidelity Indemnity $5,625Fidelity Agreed Value $4,125
WHY have AXA moved to top place?Specified Sickness turns it into a 6 month claim, regardless….
Partially Disabled
•AXA Indemnity $5,625•AXA Agreed Value $4,125•Asteron LOE $3,750•Asteron Indemnity $3,750•Fidelity Indemnity $3,125•Fidelity Agreed Value $1,625
Elimination, not “selection”
Client situationClient PrioritiesBiggest risks?Strategy – AV, Ind, LOE, Hybrid3rd Party researchSupplier analysis (subjective)Portfolio “fit”Policy Features
Key definitions:– Total disability– Partial disability– Advance/arrears
payment– Sabbaticals– Reinstatements– Other Income– Offsets– Insurable income– Tax position clause
A thought on Income Protection….
Agreed Value is not assessable/deductible?HISTORY: early 90’s companies sought Binding Rulings on specific products as they were new to NZ market. Rulings were product specific.BINDING RULINGS: are for a specified period, and only binding for that time. Those early binding rulings have all expired.Besides, a Binding Ruling can be withdrawn at any time.Understand that the current IRD treatment on Agreed Value is standing policy…not law, not binding, and subject to changeConclusion: it is easier for IRD to change the rules than for a client to change policies.Consequence: think A.V recommendations through carefully and review frequently. Be prepared to change positions.
Rewards FROM Risk
Consider a client engagement as a project with 3 distinct components:
1. Planning
2. Implementation
1. Monitoring & Servicing
How we work…
PLAN
PLAN IMPLEMENTATION
How we work…
PLAN IMPLEMENTATION MONITORING
How we work…
PLAN IMPLEMENTATION MONITORING
$(Fee)
How we work…
PLAN IMPLEMENTATION MONITORING
$(Fee)
The Client
can stop here
How we work…
PLAN IMPLEMENTATION MONITORING
$(Fee)
$Commission and/or
Fee Agreement
The Client
can stop here
How we work…
PLAN IMPLEMENTATION MONITORING
$(Fee)
The Client
can stop here
The Client
can stop here
How we work…
$Commission and/or
Fee Agreement
PLAN IMPLEMENTATION MONITORING
$(Fee)
$Renewal
Commission +/- ?
The Client
can stop here
The Client
can stop here
$Commission and/or
Fee Agreement
The Project with client choices
When implementing change….
EFFORT
little
late
TIMING
EFFORT huge
little
late
TIMING
EFFORT huge
little
late
early
TIMING
EFFORT huge
little
late
early
TIMING
Final Thought…“The Artistic Calling”
Professionala. Pertaining to a profession or calling; engaged in a
profession; engaged in an artistic calling as a means of livelihood
Professionalismn. The principles of professional persons
For further information or consultation: