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The budget

The budget. Technical Marketing for CPD, March 2014. For Adviser use only. Retirement options. A third way. Source: PruProtect data, March 2014. Interim solutions. Annuity and Income Drawdown limits. +25% increase in income. Source: PruProtect data, March 2014.

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The budget

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  1. The budget Technical Marketing for CPD, March 2014 For Adviser use only

  2. Retirement options A third way Source: PruProtect data, March 2014

  3. Interim solutions Annuity and Income Drawdown limits +25% increase in income Source: PruProtect data, March 2014

  4. Targeting the mortgage market

  5. Objectives • Understand the implications of MMR • Understand the role of protection in a typical mortgage sale • Show mortgage brokers that protection is worth selling • Dispel the myths of DTA, and show brokers how to recommend LTA instead • Help brokers recommend SIC to customers with a new tool • Demonstrate the value of SIC to advisers with new sales aids

  6. Mortgage market update

  7. Mortgage market is on the up Source: Council of Mortgage Lending, March 2014

  8. 6 year high in mortgage lending Lending in Jan 2014 up 39% on Jan 2013 Source: Council of Mortgage Lending, Jan 2014

  9. Mortgage Market Review What does it mean? Assessment of affordability Sensitivity to changes in interest rates Live from 24th April

  10. What does it mean in practice? “We’ve been using the seven per cent rule for a long while to consider whether people can afford their mortgage if circumstances change. It’s important for us to be lending on a responsible basis….” - Natwest Source: This is Money, Jan 2014

  11. What will be assessed in the affordability tests? Santander and Nationwide amongst others have said the following will be included when assessing affordability: • Pension contributions • Student loan repayments • Life cover Two people with £50,000 income, good credit score, no children, 25yr mortgage: No pension No life cover No student loan £500,000 of cover Pension Life cover Student loan £444,918 of cover Vitality can help customers get protected and still enjoy life Source: Money Marketing, Mar 2014

  12. Mortgage Market Review What does it mean? Assessment of affordability Sensitivity to changes in interest rates Banks/ brokers need a better understanding of clients: More time spent per case Less mortgages approved? Less income for brokers? Live from 24th April Can advisers make the extra information and time spent cost effective?

  13. Objectives • Understand the implications of MMR • Understand the role of protection in a typical mortgage sale • Show mortgage brokers that protection is worth selling • Dispel the myths of DTA, and show brokers how to recommend LTA instead • Help brokers recommend SIC to customers with a new tool • Demonstrate the value of SIC to advisers with new sales aids

  14. Adviser remuneration today Mortgage Intelligence: Commission from banks: • 0.35%-0.4% of mortgage value Fees from clients: • Fixed fee (e.g. £500) or • 1% or mortgage value What do advisers earn from a mortgage sale?

  15. Case study – broker remuneration per client Mark and Jane live with their two children in Bristol They own a 4 bed detached house worth £330,000 They have been there a number of years now and are re-morgaging to £200,000 (about 60% loan-to-vale) Mark and Jane are both 35, and are non-smokers They have 2 children, aged 5 and 7. They also have a dog!! Mark and his family

  16. The value of a mortgage and protection sale Protection is seen as a peripheral sale • Mortgage sale • Commission (0.4%) £800.00 • Client fees £500.00 • Total per case £1,300.00 • Protection sale • Decreasing Life £21.88 premium p/m • Commission £418.56 Assume 4 cases a month, £50 a lead Total comp per annum £54,000 Total comp per annum £18,082

  17. The barriers to selling protection as well Customers come to me for a mortgage, not protection • Only requires a couple of extra questions to see if there is a need to be addressed Banks don’t clawback the mortgage fee • Vitality can help improve loyalty are reduce the chance of a customer lapsing. Protection takes too much time MMR means you will be spending more time on the sale – so why not get some value out of the extra time spent?

  18. Objectives • Understand the implications of MMR • Understand the role of protection in a typical mortgage sale • Show mortgage brokers that protection is worth selling • Dispel the myths of DTA, and show brokers how to recommend LTA instead • Help brokers recommend SIC to customers with a new tool • Demonstrate the value of SIC to advisers with new sales aids

  19. How do advisers maximise profit? Advisers sacrifice protection if the mortgage market improves Volume Mortgages and some protection Total revenue: £80,091 Value of sale

  20. How long does a mortgage sale take? 5 hours in total? Of this 1 hour on protection? First meeting Second meeting After meeting • 1 hour: • Fact find • IDD • View bank statements • Mention protection • 30 mins: • Send quotes • Get more info 1.5 hours: Go through mortgage and protection recommendation • 2 hours: • Prepare file • Applications etc Protection doesn’t add a lot more time if done with mortgage sale The timings show are an estimate only

  21. Scenario 1: Selling only mortgages An adviser could be worse off Mortgage and protection Mortgage only sale Total hours 240 240 Average time per sale Total sales 4 5 Total income £80,091 £75,000 Average hourly rate £334 £312.5

  22. Are there are bigger profits to be made Focus on selling more protection not less Mortgages only Mortgages and comprehensive protection Mortgages and some protection Volume More revenue? Value of sale

  23. Why do we sell so much life cover? Relative likelihood of a claim payout before age 65 . 7 times more likely to receive a claim payout Source: Hannover Re UK Life Branch, January 2013 | Expected claim likelihoods are based on best estimates, adjusted to be gender neutral and allowing for future trends, for lives that have been underwritten and accepted on standard rates.

  24. Scenario 2: Higher value cases Give customers better protection for the same premium, and increase commission Comprehensive Protection sale Typical Protection sale £21.88 pm £21.88 pm Level Life £23.84 Comprehensive SIC £56.96 OSICC £1.41 Vitality fee £6.00 Total premium £88.21 Monthly cinema trip (£40.00) BuyMobilePhones (£7.50) Holiday partners (£18.83) Net Premium £21.88 Decreasing Life £21.88 Joint plan with 25 year term £200,000 Life, £100,000 Comprehensive SIC With Vitality Optimiser and assume Silver status Assume spend £1807.68 on family holidays

  25. Challenge 1: More time? Mortgage and protection Mortgage only sale With comprehensive protection Total hours 240 240 240 Average time per sale 3.4 Total sales 4 5 £134,520 Total income £80,091 £75,000 Average hourly rate £566 £334 £312.5

  26. Before and after Protection moves from 23% to 56% of income £80,091 £134,520

  27. Objectives • Understand the implications of MMR • Understand the role of protection in a typical mortgage sale • Show mortgage brokers that protection is worth selling • Dispel the myths of DTA, and show brokers how to recommend LTA instead • Help brokers recommend SIC to customers with a new tool • Demonstrate the value of SIC to advisers with new sales aids

  28. Redefining mortgage protection advice It’s more than just the mortgage

  29. advice (ədˈvaɪs) noun recommendation as to appropriate choice of action; counsel Collins dictionary

  30. Just covering the mortgage = under insurance Protection gap = £2,400,000,000,000

  31. Why leave money on the table?Advisers need to take customers beyond the mortgage

  32. Increasing the value of advice in the mortgage market Breathing LIFE into mortgage protection

  33. Current lending Repayment mortgages dominate Source: FCA mortgage data Q4 2013

  34. Why do advisers sell decreasing term assurance? The 3 great myths – true or false? • It’s good advice • It’s all people can afford • Compliance makes me

  35. Why do advisers sell decreasing term assurance? The 3 great myths – true or false? • It’s good advice

  36. Is DTA a perfect match? Plenty of choice but is it needed? What is a safe assumption? Source: Defaqto Matrix, data effective as of 05 March 2014

  37. Interest rates over the last 25 years Not a perfect match Source: Bank of Enhland, Accessed March 2014

  38. Decreasing term – an over insurance problem Sum assured will only be correct on the first day 10% interest rate 3% interest rate 37% over-insured Source: PruProtect data, March 2014

  39. Comparing LTA and DTA

  40. Why do advisers sell decreasing term assurance? The 3 great myths – true or false?  • It’s good advice • It’s all people can afford

  41. Age next birthday Term 20 25 30 35 40 45 50 55 60 65 70 75 5 -1% -2% -10% -13% -21% -23% -16% -17% -20% -25% -27% -29% 10 -1% -5% -13% -18% -21% -23% -22% -22% -24% -36% -30% 15 0% -4% -9% -15% -17% -18% -18% -16% -23% -34% 20 -1% -1% -9% -12% -14% -15% -12% -10% -14% 25 -1% 0% -8% -12% -13% -12% -9% -4% 30 -1% -1% -7% -12% -11% -8% -3% 35 0% -1% -5% -8% -3% -4% 40 -1% 0% -1% -1% -1% 45 0% 0% -1% -1% 50 0% 0% 0% 55 -1% -1% 60 0% Relative costs of LTA v DTA Yes it is more expensive but there is good reason why • Difference is marginal at younger ages • For ages 30 – 35 difference is 8% - 12% for 25 year term Source: PruProtect data, March 2014

  42. Cost or Value The value equation Essentials Joint life policy. Age 35nb, £200,000 cover, 25 year term • Level Term Cover - £23.46 pm • Decreasing Term Assurance - £20.70 pm +39% Source: PruProtect data, March 2014

  43. Cost or Value The value equation Essentials Joint life policy. Age 35nb, £200,000 cover, 25 year term • Level Term Cover - £23.46 pm • Decreasing Term Assurance - £20.70 pm + £31.88 pa

  44. Adviser value Increase the value of each sale + 13% Source: PruProtect data, March 2014

  45. Why do advisers sell decreasing term assurance? The 3 great myths – true or false?  • It’s good advice  • It’s all people can afford • Compliance makes me

  46. How many times have you heard this? True or false Compliance says I have to sell decreasing term to cover a repayment mortgage

  47. Common themes Use the Fact Find to identify the wider need for cover Explain the difference between LTA and DTA Show the difference in premium Document the reason for the recommendation Mr Lazy’s 4 steps to ££££

  48. Why do advisers sell decreasing term assurance? The 3 great myths – true or false?  • It’s good advice  • It’s all people can afford  • Compliance makes me

  49. Putting Business Consulting into action What you are going to do to help an adviser over these misconceptions?

  50. Objectives • Understand the implications of MMR • Understand the role of protection in a typical mortgage sale • Show mortgage brokers that protection is worth selling • Dispel the myths of DTA, and show brokers how to recommend LTA instead • Help brokers recommend SIC to customers with a new tool • Demonstrate the value of SIC to advisers with new sales aids

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