Today is a day for sharing what I discovered hidden in 15 hours of research when I volunteered to go through a new client's existing policies to see exactly what he had.
A dentist, 46 years old and to my delight, very protection-conscious, to the extent that Medical Sickness – which is now Wesleyan but still does not do business through IFAs – had “protected” this client for 19 years by way of making sure his income-protection policies were regularly reviewed to the maximum possible, and I suspect that in itself is a lesson to all of us.
Now read the following extract from a report I found in the client's papers, and remember it is written by a desperate salesperson who can only sell one company's products.
“I am writing to confirm the details of my recommendations and advice to you following the completion of a full personal appraisal on the 18th June
Permanent Health Insurance.
I identified a shortfall in your income protection cover of £742 per week after 0 weeks.
I therefore recommended a policy to provide cover at a deferred period to match as closely as possible with your sick pay entitlements.
The amount I have recommended is to provide the maximum cover allowable based on your current earnings, taking into account any existing cover, sick pay and Ill Health Retirement Pension and the society's maximum benefits' rule.
I have recommended Indexation of the policy to offset the effects of inflation.”
At this point, I was mighty impressed with the adviser for spotting a “shortfall” that size, but to continue
“The premium for this cover is £72.86 per month.”
Now I was chomping at the bit, £742 per week benefit, nil deferred period and only £72.86 a month. I started to look for a job application form if they had a product that good.
I turned to the next page of the “report”.
“The benefit amount and the deferment periods are £742 and 26 weeks respectively. The policy has been written to age 55 and 26 week deferred instead of 0 weeks, to tie in with the society's maximum benefit rules.”
Try reading that again because I had to read it a number of times to satisfy myself that this so-called professional had the temerity to “identify” an immediate need and sell the client a 26-week deferred policy to fit in with his employer's rules.
Apart from the fact that he had then over-insured the client by almost £20,000 a year, according to the society's own rules relating to maximum benefits, and remember that this is an adviser who stated that he had carried out a full appraisal of the client's financial affairs, he had also put in a policy that would cease at 55 (to appease his employers) which would leave my client slightly out on a limb in respect of income shortfall at 55.
Wesleyan admits its adviser did miscalculate, and there is a happy ending as my client now has inherent distrust in tied advice (as he should) and thinks the sun shines (as he should).
The moral of the story.
Read the entire file, do not assume the figures are right and do not be afraid to challenge any company who employs direct salespeople as the law of averages says that although we may occasionally miscalculate, we can think outside of the box for the correct solution.
John Joseph is director of John Joseph Financial Services