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Product 101 > Investment Loans > Flashcards

Investment Loans Flashcards

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1
Q

What is a leverage loan?

A

Investment leverage is a powerful tool that can accelerate the growth of your client’s non-registered savings and help them achieve their financial goals sooner.

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2
Q

How many products do we offer as investment loans?

A

Two: Quick Loans & Multiplier Loans

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3
Q

Name five types of clients who may benefit from a leverage strategy?

A
  1. High-income clients
  2. Clients with an existing non-registered portfolio and non-deductible debt
  3. Clients with permanent life insurance
  4. Small business owners wishing to remove retained earnings from the business
  5. Retirees with discretionary RRIF income
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4
Q

Describe three traits of a client who benefits from investment loans.

A
  1. They have adequate disposable income to comfortably pay loan interest and applicable taxes.
  2. They have a reasonably high tolerance for investment risk.
  3. They understand how ‘the borrow to invest strategy works’, including the potential for increased losses.
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5
Q

Describe the characteristics of Wealth Builder clients.

A
  • Middle-aged clients with *higher earnings
  • Lower debt levels
  • Retirement is still distant, but planning for retirement is quickly becoming the primary goal
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6
Q

Identify how retirement planners might use investment loans.

A
  • Inject a retirement plan with a large non-registered investment to maximize savings for retirement
  • Take advantage of unique high-income, low debt situation to build an estate on a tax-advantaged basis
  • Establish a non-registered savings strategy that, unlike registered plans, does not force withdrawals at any age
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7
Q

List three important points you need to discuss with clients about using leverage as an investment strategy.

A
  1. Leveraging increases risk
  2. Diversification is key
  3. Leveraging is a long-term strategy
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8
Q

Name three important benefits for the advisor who recommends investment leverage.

A
  1. Remove the single biggest sales obstacle – access to funds
  2. Increase assets under management now and in the future
  3. Increase referral business by recommending this innovative and powerful investment strategy
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9
Q

What are the fees associated with Quick Loans?

A

There are no application fees and two free withdrawals per year. It is $100 for each withdrawal thereafter (restrictions apply).

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10
Q

How much money (financing ratio) does the client have to provide when taking out a Quick Loan?

A

None. Quick Loans are 100% Manulife Bank’s money.

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11
Q

What are the financing ratios for Multiplier Loans?

A
  1. For a 1:1 loan, Manulife Bank loans $1 for every dollar the client invests
  2. For a 2:1 loan, Manulife Bank loans $2 for every dollar the client invests
  3. For a 3:1 loan, Manulife Bank loans $3 for every dollar the client invests

For every dollar the client provides, Manulife Bank will lend them 1 or 2 or 3, the total then goes to the investment that is secured to the loan.

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12
Q

Name two other terms an advisor might use to describe an investment loan.

A

Collateral loan or Leverage loan

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13
Q

List the features of a Quick Loan.

A
  • Loans of $10,000 to $100,000
  • No margin calls
  • 100% financing
  • Minimal underwriting and a streamlined application
  • Interest rate = Floating Prime + 1%
  • Available for personal loans only
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14
Q

Define margin call.

A

Margin call – when the value of the investment is lower than the loan, the lender may contact the client to add money to the investment to bring it up to the amount loaned or pay back part of the loan from assets outside of the investment. The timeline to address this is approximately 10 days.

If the client doesn’t comply, the lender can force the sale of the investment to recoup their money and any “shortfall” will be the responsibility of the borrower.

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15
Q

Name four funds available for investing leverage loans.

A
  1. Manulife and Standard Life segregated fund contracts
  2. Manulife and Standard Life mutual fund accounts
  3. Manulife Securities nominee name
  4. RBC DS and CIBC WG nominee name
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16
Q

List the repayment options for Quick Loans.

A
  • Interest Only
  • Principal and Interest amortized over 10- to 20-year terms
  • No penalty for early repayment
17
Q

What are the terms for making withdrawals from a Quick Loan investment?

A
  • Two free withdrawals per year
  • $100 charge per withdrawal > 2 per year
  • ​Minimum withdrawal amount of $2,500
  • Client must request withdrawal from investment
  • Investment may have restrictions
  • Manulife Bank has restrictions to preserve their equity

Approved by the Bank

18
Q

Name the benefits for the advisor who sells Quick Loans.

A
  • The BankLink online application generates all required loan documents and can provide pre-approval for loans of up to $100,000 early in the application process
  • One-step application process means advisor can provide client with leverage in a single meeting
  • Low minimum loan amount and 100% financing means advisor can offer investment leverage to a broad range of clients
  • Standardized, attractive features make it easy for advisor to explain the product to appropriate clients
19
Q

Identify the difference between Quick Loans and Multiplier Loans.

A

Multiplier Loans are designed for sophisticated investors who wish to borrow larger amounts

20
Q

List the benefits of Multiplier Loans for the client.

A
  • The BankLink online application generates all applicable loan documents, reducing errors and follow-up
  • Larger loan size allows high-net-worth clients to maximize their investment growth
  • Interest-only payments mean that the full amount of the loan is at work for the client over their entire investment horizon
21
Q

Describe the key features of Multiplier Loans.

A
  • Personal loans in excess of $10,000 to $1,000,000
  • No margin calls due to market fluctuations
  • Floating interest rate
  • Interest-only payments option
  • Principal and Interest payments option (10 to 20 years)
  • No penalty for early repayment
  • Various non-registered assets may be used as client equity
  • Full underwriting
22
Q

Name three benefits for the advisor who sells Multiplier Loans.

A
  1. Personal loan options allow you to address the leverage needs of the higher-net-worth client
  2. High loan ratio substantially increases advisor’s assets under management
  3. Providing this valuable service to clients may lead to other high-net-worth referrals
23
Q

List the client equity options Manulife Bank will accept at 100 percent of the market value.

A
  • Cash
  • Excess equity from an existing Manulife Bank investment loan
  • Manulife segregated fund contracts (including Standard Life segregated fund contracts)
  • Manulife mutual fund accounts (including Standard Life mutual fund accounts)
  • Manulife Securities nominee name accounts
24
Q

Can you name three alternative types of client equity?

A

Acceptable alternative investments include:

  • Manulife Bank or Manulife Investments GICs
  • Manulife permanent life insurance policies with cash surrender value
  • Manulife mutual fund accounts (to purchase a different investment type)
  • Manulife segregated fund contracts (to purchase a different investment type)
  • Manulife Securities nominee name accounts (to purchase a different investment type)
25
Q

When underwriting Multiplier Loans, what will Manulife Bank typically look for?

A
  • Client’s credit rating
  • Net worth
  • Previous bankruptcies
  • Client’s assets, liabilities and income
  • Demonstrated net worth of at least one and a half times the total amount borrowed
  • Sufficient disposable income, not including variable income, to comfortably service loan payments

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