How many calls must be made?** - Insurance funded buy sell arrangement: 5 key questions

Previous posts have explored various aspects of insurance funded buy sell arrangements

Based on adviser feedback, 5 of the most often asked questions during the planning process for implementing an insurance funded buy sell arrangement – with View’s short form answer – are set out below.

In no particular order, View generally asks for access to the following information before providing recommendations on the optimal way to structure the buy sell legal documentation:

1. the insurance policies for each principal – why: to ensure the agreements align with the ownership structure of the insurance;
2. copies of the most recent financial statements for each business entity (including any notes to the statements) – why: there is a material risk that loan accounts are not properly considered as part of the business succession arrangements. Certainly at a minimum, we would recommend that the legal documents specifically regulate how loans are to be treated on the various triggering events;
3. copies of the trust deeds for each of the trusts involved in the structure – why: many trusts do not permit the entering of buy sell arrangements (due to the rules against fettering of trustee discretion – concept explored in previous View posts);
4. the most recent ASIC statement (showing all shareholders and directors) for each business entity – why: to ensure the documentation is binding there should be an audit of the structure of shareholdings and directorships as against the records of the statutory authority; and
5. any existing legal agreements – why: if the existing documents are appropriate our preference is to leave them as is, as opposed to amending simply to ensure they align with View’s approach.

View’s initial review of the material provided is at no cost or obligation and is so that we can ensure we have a proper understanding of the circumstances before suggesting the best way to progress.

All information provided is only retained with authority and is otherwise treated in strict confidence.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Spandau Ballet song 'Only when you leave’.

View here:

Adding (or bundling of facilitation) fees**

One issue that arises relatively regularly is where advisers looking to facilitate legal solutions have different options for communicating pricing to the end user client.

There is nothing at law that prohibits a 'bundled' price to be given to a client - i.e. one total fee for all work in relation to delivery of a particular solution (for example, estate planning).

However, the licensees for many financial planners and risk advisers do effectively prohibit bundling of fees unless written consent is provided in a particular factual scenario.

The approach of most licensees is to allow one of two alternative approaches, namely:

1. 'mailbox' approach - this alternative effectively sees the adviser act as a mailbox for the client. The adviser receives an invoice addressed to the client from the third party provider and simply on sends the invoice to the client for payment. Generally, this invoice is sent together with the facilitation fee invoice.
2. 'disbursements' approach – under this method the adviser will incur the third party fees directly for the client. The adviser then provides one invoice to the client itemising each discrete cost, and in particular, listing the facilitation fee and the legal fees each as a standalone item.

While to our knowledge there is no mandated approach, our experience is that most advisers seem to adopt the disbursements alternative.

There are a number of reasons we see for this, including:

1. It is administratively simpler for the adviser.
2. Similarly, it is often far simpler for the client, as they have one invoice that relates to all of the work.
3. The approach generally reflects what is happening in a practical sense - i.e. the adviser is responsible for facilitating the entire process.
4. In some instances, there can be indirect benefits to the facilitator - for example, under credit card loyalty programs.

** for the trainspotters, the title today is riffed from the 10,000 Maniacs song ‘Dust bowl’.

View hear (sic):