Strategy that's a 'dream' for advisors and boost for clients

It’s never a great scenario for an advisor when a high-net-client client asks to take a sizeable amount of money out of their portfolio for a life insurance policy. Firstly, from a selfish point of view, the assets leave the advisor and then, from the client’s point of view, they are likely to be hit with significant fees.

A universal life policy could cost an investor anything up to 27% in fees; for a million-dollar policy, that’s no small change. Anthony Fogler, founder of Anassa Partners Inc., has a solution that’s geared to the high-net-worth – Private Placement Life Insurance. He explained it's like an RRSP but with unlimited investment room, and it's a comparison he says resonates with investors.

Leaning on 25 years’ experience with major financial institutions, both in Canada and Europe, Fogler is now focusing on the Canadian market. The minimum investment required is $2.5 to $3 million, with the PPLI designed for someone with about $10 million in liquidity.

Typically, when you purchase a universal life insurance policy it’s made up of three components – a portion will go to the death benefit, a fee is paid to the insurance company and the rest is invested to offset the chance of the client passing away early and a future payout.

For most people in the process of building wealth, however, the returns are conservative, around 3.5% a year, and the fees can also be extensive. It's not attractive. For a high-net-worth client, however, a PPLI presents a number of advantages.

Thanks to insurance laws, it allows the policyholder to invest in virtually anything they want. If the client is 45 and healthy, they can be 100% in equities and expect a 10% annual return. They would also benefit from tax-free growth and tax-free compounding. Crucially for advisors, a PPLI insurance policy can be given to any broker, asset manager of private equity manager, allowing them to keep the client and their assets, enabling they to grow the book of business.

Fogler said that case study 45-year-old can expect to be three times more wealthy when they pass away than if they were to invest in a regular taxable account. For those looking long-term and thinking intergenerational, this is a big selling point.

Importantly, clients can collapse the policy at any time with zero fees, although given the low interest rates, most prefer to borrow against the policy.

Fogler said: “The feedback that we get from wealthy individuals when we speak to them is one of two things. Either they don't believe it, and they ask us to call their lawyer and take it up with them and have them do the first layer of due diligence. Or they get it, and they love it, and they connect us with their accountant to proceed.

“After doing this for a few years [in the Canadian market], I thought it was time to start getting the word out.”

He added: “For the advisor network, it's a dream, because the client gets their insurance coverage that’s so important and the broker continues to manage the wealth.”

While fees in an universal life policy can be anything up to 27%, Fogler's PPLI starts at 1.3% per year and declines as the asset size increases. Clients can, through their broker or asset manager, invest in private equity as long as it’s valued at least once a year.

Fogler said: “The other thing is the insurance company will hold the investable capital with any custodian that the policyholder chooses. So, for example, if the client is with TD and has their money there and wants the policy capital to be held there, the team can set it up through TD. There is a comfort in knowing where your money is.”