Have you ever run with an idea only to find out you never really understood all the details? Is the Immediate Finance Arrangement (IFA) one of those ideas? It has been a “hot topic” which continues to gain in popularity… specifically over the last 5 years!
I’m not going to go into details on how an IFA works, you can go to your preferred carrier and get their respective white papers, presentations and or summary sheets.
What I do want to provide you with are some guidelines on how to identify the ideal IFA client profile.
1. Permanent Insurance Need: Without an insurance need it’s hard to get an application past the insurance company’s underwriters and client’s CPA. Not only do you have to identify a need, but the client needs to be insurable.
2. Strong & Stable Cash Flows: The words “Free Insurance” are often wrongfully associated with an IFA. This doesn’t mean there is no exchange of money. Strong cash flows are required to pay large premiums and monthly interest charges. Only after a series of payments and tax deductions, is there a reduced or minimal net cash outlay to the owner. Don’t fool yourself, cash is required for this to work.
3. Comfortable with Leverage: It’s difficult to approach a business owner whose sole goal is to pay off all debt and introduce an IFA. An ideal candidate for an IFA is likely already leveraging financial assets to create wealth. The client needs to have a use for loans and be able to continue to invest loans in the future.
4. High Tax Bracket: The client is currently and likely to stay in a high tax bracket (50.17% CCPC). This is important to amplify tax deductions. This is where many advisors incorrectly make assumptions when requesting illustrations… the advisor assumes loan proceeds are to be re-invested in passive investments (deductions are calculated 50.17%), but the client invests loan proceeds in active investments (deductions are calculated at 26.5%).
5. Sophisticated Investor: The client can withstand an IFA strategy long-term, comfortable with tax complications and implications, has a team of legal, tax and banking professionals on board and willing to collaborate with their insurance advisor. The more the premium commitment, the more this IFA resonates with the sophisticated investor.
The IFA is a sustainable and effective strategy for the right client, but they are few a far between. If you are an advisor who has built your business around the IFA, kudos to you! No offence to anyone, but there really only are a handful of insurance advisors in Canada who have the entire IFA process down pat.
If you think you have a client who might benefit from an IFA discussion, reach out to a QFS Business Development team member or email firstname.lastname@example.org . We can help you navigate the IFA conversation with our carrier partners and/or introduce you to advisors specializing in this market who are willing to partner and streamline a rather complex process.
Scott A. Morrow, CEA, CLU
Vice President, Business Development
Qualified Financial Services
This communication reflects the views of Qualified Financial Services Inc. as of the date published. The information in this publication is for general information purposes only and is not to be construed as providing individual legal, tax, financial or other professional advice. Qualified Financial Services Inc. assumes no responsibility for any errors or omissions in the information contained herein nor for any reliance placed on such information. Please seek independent professional advice before making any decisions.