No protection, no financial plan
Can you say you have created a holistic financial plan if it doesn’t include financial protection? And what about business insurance? Fiona Bond spoke to advisers about how they approach protection with clients
The UK protection gap has been making headlines for several years now, with a spate of studies revealing it to be low on consumer’s financial priorities. While accumulating wealth is undoubtedly the focus for many, advisers are agreed that having a protection plan in place can be equally important and should form part of a client’s financial plan.
Scott Gallacher, director, Rowley Turton, says: “Almost all clients need some protection and without it, your financial planning may be built on very insecure foundations. Those building their wealth need life insurance, critical illness and income protection to protect themselves and their family should the worst happen.”
Despite this, studies in recent years have highlighted a worrying gap between the number of consumers requiring protection and the number who have policies in place.
According to research carried out by the Money Advice Service and the Association of British Insurers in October 2015, almost one third of UK adults experienced a serious financial shock in the five years preceding it, but only a third (35%) had the right insurance in place to deal with it, and figures published by MoneySuperMarket in October 2016 revealed that 60% of UK adults do not have any life insurance.
With seemingly vast numbers of the population under-protected, it falls to advisers to help highlight the importance of having provisions in place.
According to Martin Dodd, director, Midlands Investment Agency, protection is “critically important,” but he acknowledges that it can be challenging to get clients to buy into it as often they do not understand the need for cover other than for mortgage repayments.
“In my experience, the easiest protection to advise and put into place is mortgage protection, from there family protection. What seems to be difficult is any form of business protection,” he says. But despite this, Dodd said he raises the issue of protection as soon as the client relationship begins.
Gallacher has seen the repercussions for those businesses which failed to put protection in place.
He says: “Those with business interests need partnership or directors share protection. I have seen many cases of people falling out and businesses failing due to a lack of protection.”
For Keith Churchouse, director, Chapters Financial, taking a softer approach towards the subject helps.
He explains: “We talk to many of our clients about protection. As the financial planning industry becomes more professional, we need to ensure we are offering clients a full, holistic view and that includes all aspects of protection. However, we are careful not to ‘sell’ products, instead we give clients the opportunity to consider the potential need for protection and in doing so, we find clients are much more receptive.”
Company analysis of sales show that protection policies account for some 7% of Chapters Financial’s sales throughout the year.
Churchouse says: “The cost of life cover is very good value when you weigh up the benefits. It would be foolish not to have raised it with clients who would benefit. It may be that only one in five decides to take up a protection plan, but if we didn’t raise it with our clients and make them aware of the benefits then that 20% might not have something in place which could ultimately help them and their loved ones farther down the line.”
While many older at-retirement clients may have paid off their mortgage and have financially independent families, reducing their need for protection, the growing number of younger clients in the accumulation phase means advisers must recognise the role protection has to play.
According to Lee Glennan, managing director, Glennan Wealth Management, those advisers who do not address the growing issue of under-protection are missing a trick. Although clients rarely approach a financial adviser for their protection needs, it must form part of the conversation.
He says: “If you’re offering clients a lifetime financial plan, you need to take into account all scenarios and that includes illness and death. The premiums are nothing compared to the benefits and the type of client we work with is usually very receptive to protection planning.”
Glennan, who describes himself as a “huge fan” of life insurance, says his passion for it helps his conversations with clients, with between 10-20 per cent of personal clients having some form of protection in place.
“In order to offer something to clients, you need to believe in it too. I have forms of insurance for myself and my family and that’s the way it should be; you can’t advocate something if you’re unwilling to do it. Equally, I would struggle to work with someone who didn’t feel the need to put in place protection for their loved ones. Life insurance can achieve a lot, and is a very effective way of protecting the family,” he says.
In addition to protecting loved ones, protection can also help with inheritance tax planning, with policies used to cover the tax payable.
“Those with excess wealth may also still benefit from protection for inheritance tax purposes,” says Gallacher.
While advisers acknowledge that underwriting can be a time-consuming process, developments in technology make choosing the right policy more straightforward than ever.
Dodd says his firm uses Assureweb to retrieve a league table of potential premium costs for clients, and says he has no preference for providers, opting to use those that are the most competitive and offer clients what they need.
According to Gallacher, the use of good lifestyle financial planning cashflow software is helpful in showing the impact of disasters on people’s finances.
He says: “Software such as Prestwood’s Truth makes it easy to show the lack of protection on your financial planning. It’s a powerful tool in helping people understand their need for protection and has led to an improved take up of our protection recommendations from clients.”
He adds: “With the right sourcing systems (The Exchange or Assureweb), it’s incredibly easy to get the right quotes, paperwork and so forth, and many of the insurers provide off the shelf trust documents and share protection agreements to help advisers and keep costs down for clients.”
Chapters Financial uses platforms like Iress to obtain quotes and says firms who fail to highlight the importance of protection planning are failing in their duty to clients.
“It’s not difficult to build into the business model at all,” says Churchouse. “We don’t offer wills, but if someone doesn’t have one we would suggest they get one and refer them on. As a business, you need to ensure that you are meeting the needs of your clients and protection must form part of that.”