IFA secrets that you should know

Good morning my fellow insurance dwellers,

For those who don’t know me (and have recently joined the list), I’ve met more than 1,000 business owners in my life insurance career working for a major insurance company and now for a large MGA. Along the way, I’ve learnt a lot in my meetings, which is what I use this newsletter to share. I also get a lot of opportunities that you can benefit from (more on that below).

Today we’re going to learn about a topic that’s near and dear to my heart: IFAs.

But first…

Last week, I had a job opportunity that got a lot of traction, and I want to thank all who reached out about it. I get a lot of opportunities thrown at me each week (probably because of this newsletter and my work on LinkedIn), so I’ll keep bringing you the relevant ones.

Some will fit and some will not. But, I want you to keep coming back to this well for nuggets and opportunities.

Now, I haven’t talked about this for a while, but it seems I’m getting more questions (and a bunch of folks that aren’t even at PPI, that in all reality should be based on what we can do on the IFA front here and many other advanced planning requests too!), so let’s delve about one of my favourite topics:

The trusty IFA.

People want to know all about it? How to position and illustrate it? How it all works!

Interestingly, this week I got to meet an Advisor out of Quebec who is writing a $6M of annual premium for IFA.

So, I thought I’d share with my loyal readers the inside scoop.

First off, here are 3 things you need to have for an IFA sale:

1. You need to have a client who has a need for insurance.

2. You need to have a client who is comfortable with leverage.

3. You need to realize that interest rates don’t matter. It doesn’t matter if you have to pay 7% when the client is getting 17%. By the way, 7% in a corp is really 3.5% net. Who wants to bet that your business owners are clearing 3.5% in their investments/portfolio? It’s all just opportunity cost.

And, just a note on interest rates for a second. I know some people are running the interest rate on these illustrations at the current rate. Now, that seems like a good idea. But, if you look at the historical data, dividend scales have always had a spread of about 200 basis points historically. In other words, if the long-term interest rates were 5%, you’d see long-term dividend scales around 7%.

Now, I know that’s not what it looks like today. But, if you do run an IFA calculation, make sure you run a few years at 7% and then drop it down to around 5% to account for this historical trend.

As well, it matters not what the client is earning. What matters is if the IFA IRR exceeds the net cost of debt. In other words, if the client is earning 17% on their real estate portfolio, but the net debt cost of the IFA is 4%, but the IRR of the IFA is 7%, so long as the DB IRR > Debt Cost, it will be net positive to the client.

If that’s confusing to you and you have a case, send me a message and I can explain in more detail.

Back to my story.

Here’s a situation that happened:

The business owner walked into the meeting and said, “So, you’re the guy who tells me you can get me $40M of life insurance and I don’t have to pay for it.”

No, that’s not how it works.

You must need and be able to pay the premium. You need the cash to write a cheque for $500,000.

Then, we can lend it back to you. If you can’t pay the premium, you aren’t a candidate for the policy.

Here’s the other issue with an IFA, it requires a massive amount of borrowing in most cases. This might impede the business owners’ ability to get other outside financing. Not in every case, but it needs to be addressed.

You’ll also want a tax accountant at your side throughout the process. That’s why you need to work with a team that has those resources. (Another shameless plug for the amazing PPI team here, but without your own team, you will get killed in these meetings, just so you know.)

Not only that, but you want the clients Accountant and Lawyer on board as well. Actually, you don’t want to even sell them the IFA without them in the room.

Here is how to position it:

“I can get you the insurance and have the bank pay all the premium. But, don’t take my word for it, ask YOUR accountant and lawyer to explain it to you.”

The real message being delivered here is you know I am trying to sell you something. Even if I try to take all the bias out of the discussion, they will still likely know you will benefit from this. But, if you have their OWN accountant and/or lawyer to explain it to them. We know there is no bias there. They are working for the client exclusively.

Now, I’m not saying you are going out there only for yourself. Don’t hear me say that. I know you care deeply for your clients. But, obviously, in their minds, they know you will benefit from it. So, there is some inherent bias, even if it is minimal.

In that case, why don’t we remove that and have their own team do the selling for us?

This way you don’t need to sell it, the accountant and lawyer will do it for you. And, if you have a tax lawyer with you, you’ll make sure that it is done right.

Some Advisors I know will build that in-house or put someone on retainer. But, of course, your distribution partner can also help in these situations.

This also leads to much easier and bigger sales.

Another thing, if the Accountant or Lawyer is busy, ask them to bill you for the time. Tell them to overbill you even, because you need them there. If you want to sell a $100K or $500K or $1M premium, it will be worth it. Trust me on this.

Always use the medical close: Don’t do any analysis until they pee into a cup.

If you like the idea, take this app and let’s see if you’re insurable.

People always want insurance when they can’t get it. Don’t waste your time or theirs. Tell them facts, not just dreams.

I’ve worked on many a deals that have gone multiple meetings and when we get to the application process, they are a decline. We could have saved everyone’s time by doing this at the front end, opposed to the back end.

The other thing: You want to have the banker there from day 1. Trust me on this one.

I’ve lost big IFA deals to the financing at the banks and then they try to scoop the insurance at the same time. But, if you get them on Day 1, they can get creative with financing. They can be a trusted partner.

Here’s another true maxim: The banks won’t lend money to your kids to pay your tax bill.

Don’t believe me, try it out and let me know how it works.

Here’s another line: “People who have 20x the wealth and 20x the tax bill are doing this, why aren’t you?”

And finally, one of my favorites: “You don’t have 2 kids, you have 42. 2 kids and 40 buildings. Which one of your kids should we toss when you die?”

There are so many things to consider when entering the IFA market, but there’s one truth: Get some good partners on the insurance, accounting, legal, and banking sides.

Build your team out because God knows you’ll need them.

The deals are out there in the traditional and non-traditional market. But, you need to surround yourself with the experts if you want to play in this market.

I know this probably leads to more questions than I’ve answered, so send them my way and I’ll do my best to answer them directly or be part of a future email.

Until next week my friends,
Andrew