Guaranteed Liquidity and Principal Protection for a Savvy Investor 

Issue 5, October 2022 | PCS Vision

Background

PCS by Mercer client is a retired former director of a successful investment company. He is in his seventies, has two adult children, and three grandkids.

An exceptionally sophisticated investor, our client strategically manages a substantial portfolio of assets in a trust structure. As is the case with many ultra-high net worth individuals, he had hitherto felt insulated by the extent of his wealth as well as his ability to generate ongoing asset growth. But the rising interest rate environment, his wish to ensure ready liquidity for his grandchildren’s future expenses, and the emergence of index-linked protection solutions have together changed his mindset.

When we met him, our client’s clear priority was to create an additional safety net for the third generation of his family in the form of liquidity that will continue beyond his lifetime.

Key considerations

  • Our client holds a diverse mix of investment assets, and real estate properties. He has also already allocated liquidity for the second generation.
  • Expected future expenses for the third generation include weddings and education as well as a buffer against unforeseen circumstances.
  • Our client wanted his capital asset protected, and any policy to be funded from the cash generated by his asset portfolio, including real estate rental income.

Solution

PCS by Mercer tailored an index-linked savings solution for our sophisticated-investor client. In a first for savings plans, the product chosen by our client allows for a flexible payment schedule. The flexibility successfully caters for clients with irregular cash flow whilst planning for legacy.

  • A 0% floor has been established, thus protecting the client’s principal
  • The upside ceiling is currently set at 9.1%.
  • The plan offers a long-term compound return of circa 5% annually, with a long-term guaranteed return of circa 1.5% per annum.
  • Assuming the premium of USD3M x 3 years is completed, the policy’s breakeven point is expected to be around policy year five.
Both the policies were incepted using our remote process. The client did not need to travel to access the products from different jurisdictions.

Key takeaways

  • The transparency of index-linked solutions combined with underlying guarantee(s) on policies offer certainty when planning for future liquidity.
  • Flexible funding schedules specifically cater for irregular cash flow. Payments can be made at any time, and suit limited asset portfolio liquidity and real estate rental income.
  • If client is in a cash-rich situation, there are other plans PCS by Mercer can tailor and offer which reward the ongoing cash flow commitments.
  • Index-linked solutions are suitable to serve clients’ savings and protection needs
  • Where accepted by the financial institutions, index-linked solutions may be used as lending collateral at any time.
  • Indexed savings solutions can also serve as a long-term stable reinvestment and wealth transfer tool.
  • Protection products are continually evolving to meet the unique needs of HNW individuals.
Related products for purchase
Related solutions
Related insights
Related case studies
Curated