As a trusted financial advisor, your clients ask you questions about new or complex financial strategies. It’s not a matter of if they will ask about an Immediate Financing Arrangement (IFA), but when.
They may have heard about an IFA from a colleague or seen a presentation that seemed too good to be true. They will look to you for an independent opinion, and how you handle that conversation can enhance your client relationship and your professional standing. For a detailed understanding, read our foundational guide to IFAs.
This guide is designed to help you prepare for the IFA conversation proactively, equipping you to manage client inquiries, address underlying risks, and lead the discussion with confidence.
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Reframing the Risk: A Proactive Partnership
When a complex strategy is proposed, two sentiments can arise: a valid fear of the unknown and a fear of missing out (FOMO). An improperly structured IFA can create significant tax and compliance headaches. However, not proactively addressing a strategy that could be highly suitable for the right client carries its own risks.
Partnering with Taxevity Insurance helps you navigate this landscape. Our role is to provide a process that manages risk and creates clarity. We support you by:
- Preparing comprehensive, independent insurance summaries that aren’t tied to an insurer’s sales templates.
- Explaining the insurance foundation of an IFA to you and your client, and acting as a resource to review third-party proposals your client may have received.
- Guiding you and your client through the insurance implementation process from application to policy activation.
Answering the Inevitable Question: “Why Didn’t You Tell Me About This Before?”
When a client learns about an IFA, they might implicitly wonder why you didn’t present it to them. This is a fair question. The answer is that the modern IFA is a relatively recent evolution, and you may not have been aware of the latest developments. The current viability for a given client is driven by a combination of factors:
- Product Innovation: The development of new High Early Cash Value (HECV) whole life insurance policies provides the strong collateral needed from day one.
- Lender Appetite: More major Canadian financial institutions have entered the space, creating a competitive lending environment, some with dedicated programs for IFAs.
- Client Readiness: The client’s own financial situation—their income, net worth, and financial objectives—may have only recently made them an ideal candidate.
Why an IFA Isn’t a Universal Solution
An effective way to manage client expectations and demonstrate your expertise is to explain why an IFA is not for everyone. The strategy’s power is matched by its specificity.
Addressing the Fine Print: A Look at Key Risks
To fully address client skepticism, tackle the “what’s the catch?” questions head-on. A transparent discussion of risk is the cornerstone of trust.
- Lender & Loan Risk: Clients may worry that a lender could call the loan. We work with major Canadian financial institutions that have dedicated, long-term programs for IFAs, minimizing the risk of unexpected changes at renewal.
- Interest Rate Volatility: The IFA strategy works best when after-tax investment returns exceed the loan’s after-tax interest cost. While this spread is historically positive over the long term, it can narrow. To show sensitivity to this risk, our projections model a higher-than-current loan rate, helping to build confidence in the strategy’s resilience.
- Policy Performance: Projections are only as good as their assumptions. We build our plans on conservative projections, using a dividend scale below the insurer’s current scale. This stress test provides an essential buffer against potential downturns.
- The Exit Strategy: An IFA is designed as a lifelong strategy, with the loan repaid from the tax-free death benefit. Unwinding it early is possible, but this stops the ongoing tax savings and can have significant tax consequences if the policy itself is collapsed. This reality underscores the need for a genuine long-term commitment.
Lead the Conversation, Don’t React to It
Your successful clients will continue to be exposed to sophisticated tax-planning strategies like Immediate Financing Arrangements. By understanding the nuances of an IFA in advance, you can shift from reacting to inquiries from clients to proactively guiding them.
You can also initiate the conversation by identifying clients who might be suitable candidates and, just as importantly, those who are not.
Whether you have a client asking about IFAs, want to be better prepared for the next inquiry, or need a second opinion on a proposal a client has received, we’re here to help. We provide the specialist knowledge and due diligence support that complements your core services. To get started, we invite you to schedule a chat with us.
For a deeper look at the due diligence process for IFAs, please see our detailed guide: An Accountant’s Guide To IFA Due Diligence.
At Taxevity Insurance, we’re passionate about bringing clarity to complex financial decisions. Let us empower you with personalized strategies to achieve your goals. We focus on life and health insurance solutions to protect your business, your family, and your legacy.
