Who could become financially dependent on your client if they became seriously ill or their spouse or partner died?
How often have you heard the following statement: “We are specialist investment advisers and most of our clients are at or in retirement, so we do almost no protection business”? Do you say it yourself? Well, I think it is a mistake.
Advisers should be looking at protection needs where they are providing older clients with investment services in the context of holistic financial planning. It is a question of identifying all the financial risks clients face.
Older clients’ own direct needs for protection are likely to be fairly obvious, albeit not that frequent.
There will probably be a requirement for some life cover associated with insuring inter vivos gifts and there might occasionally be the need for a whole-of-life policy for inheritance tax planning.
But the main needs for protection involve children, grandchildren and other possible dependants.
One of the key planning questions for older clients is this: “Who could become financially dependent on you if they were seriously ill or if their spouse or partner died?”
A son or daughter would almost certainly call on the bank of mum and dad if they suffered some kind of financial catastrophe.
Take clients Peter and May, who have just retired in their late 60s in a state of reasonable comfort.
All is well until their son-in-law Michael falls seriously ill and has to give up work.
His salary will stop being paid after six months and the state support for mortgage interest benefit is inadequate – and, in any case, nowadays just a loan that will eventually have to be repaid.
If the grandchildren are in private schools, their education will be disrupted. It will be tough for the family to cover most day-to-day expenses and the pressure will be on.
Peter and May will want to provide help – even more so if Michael dies, leaving their daughter to struggle with the children on her own. Indeed, they will find it hard to refuse.
Much better for Peter and May to make certain that their daughter and son-in-law have enough income protection and life assurance cover. They might even offer to pay for some of the cost to make sure it stays in force. After all, they are on the line.
Any parent with grown-up children should ask themselves what the financial consequences might be for them personally if their offspring – or the people on whom their children or grandchildren are financially dependent – were to fall seriously ill or died. Setting up life cover and income protection for clients’ children and other such family members is the right thing to do. And it makes commercial sense as well.
First and foremost, arranging protection is generally financially worthwhile, whether the adviser works on a fee basis or in return for commission. It can be tiresome and one sometimes wonders if the life offices really want the business, but it provides valuable diversification for a mainly investment-oriented firm.
More importantly, taking the initiative in this way should provide a valuable and effective line of communication to the next generation. There is evidence that most advisers do not retain the next generation of families after their older clients have died. The young tend to get their own advisers and promptly switch the investment business to them when they inherit. The challenge is to connect with these next generations.
Several specialist speakers are going round the country explaining how older advisers can get on the same wavelength. Using cool text speak is not enough and may even be counter-productive.
The most effective approach is probably to employ younger advisers – which is almost certainly what most firms do if they are seeking corporate longevity.
Communications strategies are all very well but providing younger clients with products and services they really need, such as protection and mortgages, is likely to be a more sustainable approach.
So make a point of asking older clients about the protection needs of their children or other potential dependants. It is excellent advice that most overlook, and it is also good business sense.
Danby Bloch is chairman of Helm Godfrey and consultant at Platforum