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Case study: Protecting clients with holistic advice

A holistic approach to financal planning could help advisers tackle difficult subjects with their clients, such as adequate protection for their family.


The problem:

Many of my clients have young families and while they may recognise the need to cover their mortgage, it can be difficult to overcome their objections to putting in place additional protection. Are there any strategies that can help me build a long-term relationship with these clients and ensure they are adequately protected?

The solution:

Since the implementation of the RDR, we have seen that advisers are increasingly trying to build long-term relationships with their clients.

One of the ways to do this is to talk about issues your client may face that cannot necessarily be solved by a financial product alone and they may not even be aware of. This is particularly relevant when advising on protection. It can ease you in to the protection conversation, allowing you to remain an adviser yet still get your client to a place where they recognise the need for life cover and want you to help them get it.

The first topic could be whether they have already written a will. Advisers know better than anyone that people tend not to write wills. More than 300,000  people die intestate each year, effectively allowing the Government to write their wills for them through the rules of intestacy.

For any solely-owned property, the intestacy rules mean that a surviving spouse may get far less of the estate than was intended while the children may receive an unexpected windfall! so it is really important to discuss intestacy with your clients.

The next topic is the issue of guardianship. If your clients have dependent children, you will want to explain to them how important it is to have legal guardianship arrangements in place. That way, if both parents die while the children are still young, the people they would want to look after their children have the legal authority to do so.

This is another reason for parents to write a will and to include a clause on guardianship. It is also a good way for you to raise the issue of whether financial provisions should be put in place to make sure the children’s guardians have the money to bring the children up in the way the parents would want.

Only now would you introduce the need to make sure there is adequate financial protection in place. This means going beyond protecting the mortgage and recommending cover that would protect the lifestyle of the client’s family. The statistics available to us in the UK show that most adults are under insured against the risk of premature death. So there is a lot of work for advisers to do to address the lack of knowledge or inertia from which that many people seem to suffer.

The final component is to put any protection policies in trust. The last thing a bereaved family wants is to see inheritance tax reducing the payout from a life insurance policy. Even where your client appears to have no IHT issues today, given the long-term nature of a protection policy, what guarantee is there that the proceeds won’t be subject to IHT if they pay out in five, 10 or 15 years’ time?

What about getting the payout to the right people? If there is no will the proceeds of the life insurance may end up going to the wrong people simply because the rules of intestacy will be applied. Placing the policy in trust removes the proceeds from the estate to avoid any intestacy problems. Don’t forget this is particularly important for partners who are not married to each other.

Finally, it is vital that the proceeds are made available to the people who need them with minimum delay.   The probate process can be lengthy and can mean that the benefits can’t be paid to the beneficiaries for many months. Probate delay can usually be avoided by placing the policy in trust.

Writing a will and nominating guardians, taking out the right level of cover and putting protection policies under appropriate trusts represents holistic protection advice. To your client, it is the approach you have taken as a professional that sets your advice apart from the rest. It clearly demonstrates the value your involvement has added to their experience and encourages long-term relationships with clients.

Ian Smart is head of product development & technical support at Bright Grey


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