Welcome To The Canadian Institute

Of Financial Planners

Mark A. Smigel, CFPMark A. Smigel, CFP

Senior Marketing RepresentativeSenior Marketing Representative

Western RegionWestern Region

AIG Life of CanadaAIG Life of Canada

Cover Your Assets: Insuring Your Practice With

Insurance

Insurance, The New Standard?

• Of 11 brokerages surveyedOf 11 brokerages surveyed, , 70%70% of all investment advisors were insurance of all investment advisors were insurance licenced. licenced.

Among the other designations held . . . . Among the other designations held . . . .

24% - CFP24% - CFP

43% - PFPC43% - PFPC

20% - CIM20% - CIM

18% - FSCI 18% - FSCI

Aileen Corr, “Insurance, The New Standard”,Aileen Corr, “Insurance, The New Standard”, Investment Executive Investment Executive, May 2004, p. C6, May 2004, p. C6

Reasons To Avoid Insurance?

• Apathy?Apathy?• ““My clients are looking for financial planning services, not insurance My clients are looking for financial planning services, not insurance

products. . .”products. . .” • Service?Service?

• ““Too time consuming . . . ”Too time consuming . . . ”• ““I’m an investment specialist . . ”I’m an investment specialist . . ”

• Knowledge?Knowledge?• ““It’s too techie”It’s too techie”• ““Insurance agents are sales shmo’s”Insurance agents are sales shmo’s”

Three Reasons We Cannot Avoid It?

• Fiduciary ResponsibilityFiduciary Responsibility• Preserves Livelihoods Preserves Livelihoods • Augments Cashflow Augments Cashflow

Reason #1 - Fiduciary Responsibility

Fiduciary Responsibility

• FPSC Code Of Ethics?FPSC Code Of Ethics?• Insurance Council Code Insurance Council Code

Of Conduct?Of Conduct?• Supreme Court Rulings Supreme Court Rulings

(Klym et al vs Bank of (Klym et al vs Bank of Montreal, 2005 Montreal, 2005 BCSC BCSC 420 Date: 20050322420 Date: 20050322))

What Is The Standard For Malpractice?

““One who holds himself out to the public as an One who holds himself out to the public as an financial planner is required to have the degree of financial planner is required to have the degree of skill and knowledge requisite to the calling. If he skill and knowledge requisite to the calling. If he neglects to procure the insurance or if the policy is neglects to procure the insurance or if the policy is materially deficient or does not provide the materially deficient or does not provide the coverage he undertook to supply, because of his coverage he undertook to supply, because of his failure to exercise the requisite skill or diligence, he failure to exercise the requisite skill or diligence, he becomes liable to his principal for the loss sustained becomes liable to his principal for the loss sustained thereby.”thereby.”

Ryder v. Lynch, 42 N.J. 465, 476 (1964)Ryder v. Lynch, 42 N.J. 465, 476 (1964)

What It Means If I’m A CFP?

Principal 3 – Competence Principal 3 – Competence

A CFP professional shall offer A CFP professional shall offer advice only in advice only in those areas which the CFP designee has those areas which the CFP designee has competence.competence. In areas where the CFP In areas where the CFP professional is not professionally competent, professional is not professionally competent, the CFP designee shall the CFP designee shall seek the counsel of a seek the counsel of a qualified personqualified person and/or refer clients to such and/or refer clients to such parties.parties.

What It Means If I’m A CFP?

Principle 7 – DiligencePrinciple 7 – Diligence Enter a client engagement only after securing Enter a client engagement only after securing

sufficient info to be satisfied that:sufficient info to be satisfied that:- the relationship is warranted by individuals the relationship is warranted by individuals

needs/objectives;needs/objectives;- The CFP professional has the ability to either The CFP professional has the ability to either

provide requisite competent serviceprovide requisite competent service or to or to involve other professionalsinvolve other professionals who can provide who can provide such services.such services.

What If I’m Not A CFP?

Duty Of Care Duty Of Care

You have an obligation,You have an obligation, before conducting a transaction, to before conducting a transaction, to

conduct sufficient fact-finding and conduct sufficient fact-finding and needs analysis to properly assess a client’s needs analysis to properly assess a client’s circumstances, goals and needscircumstances, goals and needs

Insurance Council Of British Columbia, Insurance Council Of British Columbia, Code Of Conduct For Insurance Code Of Conduct For Insurance Salespersons and AdjustersSalespersons and Adjusters, June 1999, p. 16, June 1999, p. 16

Reason #2 – Preserves Livelihoods

Let’s Look At Your Books

Account Breakdown %Account Breakdown % 20042004 20032003

AUM/Client <$50,000AUM/Client <$50,000 18 18 2323

AUM/Client $50,000 AUM/Client $50,000 to $1 Million to $1 Million 75 75 6767

AUM/Client > $1 MillionAUM/Client > $1 Million 9 10 9 10

Source:Source: Investment ExecutiveInvestment Executive, “Brokerage Report Card”, May 2004, p. C5, “Brokerage Report Card”, May 2004, p. C5

Let’s Look At Your Books

Product Mix %Product Mix % 20042004 20032003

In House Managed ProductIn House Managed Product 88 9933rdrd Party Managed Product Party Managed Product 2929 3131EquitiesEquities 2727 2828Fixed IncomeFixed Income 2323 2828Income TrustsIncome Trusts 99 n/an/aCashCash 55 55

Investment ExecutiveInvestment Executive, “Brokerage Report Card”, May 2004, p. C5, “Brokerage Report Card”, May 2004, p. C5

Let’s Look At Your Books

Compensation Mix %Compensation Mix % 20042004 20032003

Fee-BasedFee-Based 66 1515

Asset-BasedAsset-Based 2525 2020

Transaction BasedTransaction Based 6161 6262

Deal BasedDeal Based 99 44

Investment ExecutiveInvestment Executive, “Brokerage Report Card”, May 2004, p. C5, “Brokerage Report Card”, May 2004, p. C5

What Are The Trends?

• Client account mix reflects their focus on wealthier clients.Client account mix reflects their focus on wealthier clients.• Average brokers book is 280 clients, a drop from 307 a year Average brokers book is 280 clients, a drop from 307 a year

ago.ago.• Push towards asset based comp and fee for service and Push towards asset based comp and fee for service and

away from transactions.away from transactions.• Cash holdings are stable at 5%, with equities dropping to Cash holdings are stable at 5%, with equities dropping to

27% from 28% and fixed income holdings falling to 23% from 27% from 28% and fixed income holdings falling to 23% from 28% last year. 28% last year.

• Insurance is said to account for 2% of assets.Insurance is said to account for 2% of assets.

James Langdon, “Brokers older, More experienced, and Wealthier”, James Langdon, “Brokers older, More experienced, and Wealthier”, Investment ExecutiveInvestment Executive, , May 2004, p. C4May 2004, p. C4

So What The Problem?

““~!2*!?” Happens!!~!2*!?” Happens!!

Let’s Look At Your Book!!

• 300 clients300 clients• Newly weds; 2Newly weds; 2ndnd

generation (25-30) generation (25-30) • Few business clientsFew business clients• Ma/Pa investors (50s-Ma/Pa investors (50s-

60s)60s)• Our elders (70s+)Our elders (70s+)

• Only 25% of the book!Only 25% of the book!

Our Younger/Business Clients (25 - 45)

Income Replacement/Corporate MarketsIncome Replacement/Corporate MarketsTerm InsuranceTerm Insurance

• Mortgage MarketMortgage Market• Debt protection Debt protection • Little disposal incomeLittle disposal income• Combination with life Combination with life

insurance is betterinsurance is better• Need affordable coverageNeed affordable coverage• Convertible LaterConvertible Later

Match the Product to the Market

What About Within The Corporate Market?

• Life insuring your debt Life insuring your debt instead of buying creditor instead of buying creditor insurance via lenderinsurance via lender

• More flexibilityMore flexibility• Cost effectiveCost effective• Use of CDA creditUse of CDA credit

What About The Corporate Market?

Bank ProductBank Product • Loan AmtLoan Amt

$250,000$250,000• Loan Amt After Loan Amt After

Death BenefitDeath Benefit $0$0• Credit To CDACredit To CDA $0$0• Future Tax Savings Future Tax Savings

From CDA (32%)From CDA (32%) $$00

Corporate CollateralCorporate Collateral• Loan AmtLoan Amt

$250,000$250,000• Loan Amt After Loan Amt After

Death Benefit $0Death Benefit $0• Credit To CDA $250,000Credit To CDA $250,000• Future Tax Savings Future Tax Savings

From CDA (32%)From CDA (32%) $80,000$80,000

Our Product Line - Term LifeOur Product Line - Term Life

                                                   

TermLife

Preferred Term 10...Better than Ever!

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 EasyTerm 10 plan.

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.

AIG’s old Preferred Term 10 rates $36.27 $55.35 $128.07

Our Elder Clients (50+)

Estate Preservation MarketEstate Preservation MarketUniversal LifeUniversal Life

What’s The Impact of Estate Shrinkage?

Gross EstateGross Estate Settlement Settlement CostCost

Net Net EstateEstate

% % ShrinkageShrinkage

Nat “King” ColeNat “King” Cole $1,876,648$1,876,648 $1,577,740$1,577,740 $298,908$298,908 84%84%J.P. MorganJ.P. Morgan 17,121,48217,121,482 11,893,69111,893,691 5,227,7915,227,791 69%69%J.D. RockefellerJ.D. Rockefeller 26,905,18226,905,182 17,124,98817,124,988 9,780,1949,780,194 64%64%Conrad HiltonConrad Hilton 199,070,700199,070,700 105,782,217105,782,217 93,288,48393,288,483 53%53%J.D. Rockefeller Jr.J.D. Rockefeller Jr. 160,598,584160,598,584 24,965,95424,965,954 135,632,630135,632,630 16%16%

Yul BrennerYul Brenner 5,000,0005,000,000 134,000134,000 4,866,0004,866,000 3%3%

For example ...For example ... LandLand BuildingBuilding TotalTotal

FMV FMV $200,000 $200,000 $600,000 $600,000 $800,000 $800,000Original Cost Original Cost $ 80,000$ 80,000 $400,000$400,000 $480,000$480,000Capital GainCapital Gain $120,000$120,000 $200,000$200,000 $320,000$320,000TCGTCG $60,000 $60,000 $100,000$100,000 $160,000$160,000

UCCUCC n/a n/a $280,000 $280,000 $280,000$280,000RecaptureRecapture n/a n/a $120,000$120,000 $120,000$120,000TOTALTOTAL $280,000 $280,000

Deemed Disposition of Property

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

Why Should I Use AIG To Solve Problem?

Click here to view IllustrationClick here to view Illustration

Our Product Line – Universal LifeOur Product Line – Universal Life

45 0% MER Investment Options

Our Elder Clients (50+)

Our Boomer MarketsOur Boomer MarketsCritical Illness CoverageCritical Illness Coverage

There are many financial consequences to surviving There are many financial consequences to surviving a critical illness. Here are just a few consideration...a critical illness. Here are just a few consideration...

• Absence from workAbsence from work

• Cost of home care during illness and recoveryCost of home care during illness and recovery

• Treatment outside of CanadaTreatment outside of Canada

– There is a financial Impact!There is a financial Impact!

Many Financial Consequences

Heart Attack Major Organ Transplant - Stroke (surgery or waiting list) Cancer ParalysisCoronary Bypass Surgery BlindnessMultiple Sclerosis Loss of SpeechKidney Failure Loss of LimbsAlzheimer’s Disease ComaParkinson’s Disease Severe Burns Benign Brain Tumour Motor Neuron Disease - Deafness (Lou Gerhig’s Disease/ALS) Occupational HIV LOSS OF INDEPENDENCE

Common types of covered conditions

Medical procedures costs outside of CanadaPROCEDURE & RELATED CRITICAL ILLNESS PRICE

(in US funds)

Heart Transplant $316,481Liver Transplant $203,336Lung Transplant $165,362Bone Marrow Transplant $125,784Cardiac Valve & other Major Cardiothoracic Procedures $117,764Coronary Bypass with PTCA $117,319Coronary Bypass with cardiac catheterization $100,470Kidney Transplant $99,093Craniotomy for Multiple Significant Trauma $85,658Craniotomy (non-trauma related) $58,682Acute Leukemia without O.R procedure, age > 17 $48,044Chemotherapy w/ acute leukemia as secondary diagnosis $47,769Lymphoma & Leukemia w/ major operating room procedures $44,539Uterine & Adnexa procedure for ovarian or adnexal malignancy $44,251Lymphoma & Non-Acute Leukemia w/ other O.R. proceudres w/ complications $43,236Rectal Rsection with complications $40,775Acute Leukemia without O.R procedure, age 0-17 $35,359Uterine Adnexa procedure for non-ovarian adnexal malignancies w/ complications $29,771Lymphoma & Non-Acute leukemia w/ complications $24,515Malignancy of Hepatobiliary System or Pancreas $23,947Total Mastecomty for Malignancy w/ complications $23,836Kidney & Urinary Tract Neoplasms w/ complications $20,935Prostatectomy w/ complications $20,834

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 - $500

Chair Lift - $2,000

Vehicle modification - $7,500 - $10,000

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

$525/week x 45 weeks = $23,725/year

$23,725/year x 5 yrs = $118,625

Where do you get $118,625 after tax dollars???

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 clients1/3 – 1/4 suffer a critical illness100 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!

Where does it come from?

Why Should I Use AIG To Solve Problem?

Our Product Line – Critical IllnessOur Product Line – Critical Illness

CriticalIllness

Six New Covered Conditions

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

CriticalIllness

Contract Changes

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.

CriticalIllness

Other “What’s New” Features

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.

CriticalIllness

What’s New

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.

CriticalIllness

All monthly premiums are based on March 2005 LifeGuide.

Competitive Rates / Low Cost Protection...

Male, Non-smoker, $100,000 of T10 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

CriticalIllness

Male, Non-smoker, $100,000 of T20 CI coverage

Company Pure Protection

Age 30 Age 35 Age 40 Age 45 Age 50 Age 55

AIG Life $37.26 $49.68 $70.83 $106.83 $163.53 $251.55

Canada Life n/a n/a n/a n/a n/a n/a

Industrial Alliance n/a n/a n/a n/a n/a n/a

Manulife Financial $40.14 $49.95 $71.73 $104.58 $158.13 n/a

All monthly premiums are based on March 2005 LifeGuide.

CriticalIllness

New ROP on Surrender Options

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 10th policy anniversary at 50% and grading equally to 100% by age 75.

CriticalIllness

New ROP on Surrender Options

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 clients300 clients• Newly weds; 2Newly weds; 2ndnd

generation (25-30) generation (25-30) • Few business clientsFew business clients• Ma/Pa investors (50s-Ma/Pa investors (50s-

60s)60s)• Our elders (70s+)Our elders (70s+)

• Only 25% of the book!Only 25% of the book!

Insurance Compensation – 25% of 300 Clients

Term ProductTerm Product(Creditor/Markets)(Creditor/Markets)

Universal Life Universal Life (Estate (Estate

Preservation)Preservation)

LB 75 With ROP LB 75 With ROP (RRSP Protection)(RRSP Protection)

LB 20 (Mortgage LB 20 (Mortgage Market)Market)

$250,000.00$250,000.00 $200,000.00$200,000.00 $50,000.00$50,000.00 $100,000.00$100,000.0040 m n/s & 35 f n/s40 m n/s & 35 f n/s 60 m n/s & 55 f n/s60 m n/s & 55 f n/s 47 m n/s47 m n/s 30 f n/s30 f n/s$364.80/case$364.80/case $2,700/case$2,700/case $1,042/case$1,042/case $708/case$708/case

15 cases 15 cases 20 cases20 cases 5 cases5 cases 15 cases15 cases

Term TotalTerm Total UL TotalUL Total LB 75 TotalLB 75 Total LB 20 TotalLB 20 Total$5,460.00$5,460.00 $54,000.00$54,000.00 $5,210.00$5,210.00 $10,620.00$10,620.00

FYC + 100% FYC + 100% BonusBonus

GRAND TOTALGRAND TOTAL $75,290.00$75,290.00

Why Do We Avoid Insurance?

• Apathy?Apathy?• Service?Service?• Knowledge?Knowledge?

Why Do We Avoid Insurance?

• AApathy?pathy?• SService?ervice?• KKnowledge?nowledge?

The Producer Is The Customer!!

• Vancouver Office:Vancouver Office:• #1001-543 Granville Street#1001-543 Granville Street• Vancouver, BC V6C 1X8Vancouver, BC V6C 1X8• 604 682-4157604 682-4157

• Calgary Office:Calgary Office: #500 –11012 MacLeod Trail South#500 –11012 MacLeod Trail SouthCalgary, Alta T2H 2K6Calgary, Alta T2H 2K6403 265-7030403 265-7030