Protection should be for the wealthy too

Paul Yates

Paul Yates

“My client doesn’t need protection – they’re self-insured and have enough money to survive through a difficult period.”

Ah, the oft heard cry of the wealth manager when explaining why they do not discuss protection with clients.

But is this assertion rooted in fact or fiction? Especially as Covid-19 has thrown up a host of uncertainties for many people both in terms of health and finances.

Now more than ever there are a range of questions a wealth manager should consider before dismissing the importance of protection for their clients:

  • Have you really stress-tested your client’s financial resilience?
  • Have you used your planning and cashflow tools to demonstrate what happens to their retirement plans if they cannot work for the last five to 10 years before retirement? I know from discussions with cashflow system providers that the protection part of the system is often not used.
  • Do your clients fully understand what steps they or their family would need to take if they became ill or passed away?

It often helps to ask yourself these questions and assess one’s own situation. So, what would happen to me and my family if I became sick or died? Fortunately, my family can survive financially.

Yes, they could sell property/downsize/change their lifestyle. Yes, we could start decumulating earlier – but is it a great time to do this?

Yes, the kids could take more debt for university and first homes. But these are not very palatable to me (if I survive), or my family.

I also need to consider what happens to my business. Can it survive? What happens to any loans? And if I died, what happens to the business shares?

I don’t think the company wants my business partner as a sleeping partner. All these factors should form part of the business’s risk register.

Recently, a friend was struck down with an illness at 50. Thankfully, he survived because a hospital helicopter was passing over the golf course where he took ill.

He could not go back to work for many months and, when he did return, he was limited in hours and effort.

Yes, he survived.

Yes, his business survived, but his savings were hammered and he needed to increase business loans. This means he now needs to consider whether he can retire when he wanted to and, if so, whether he can retire to the standard that he (and his financial adviser) planned and worked so hard for.

There was a reason we as an industry used the PRISM process (Protection, Retirement, Investment, Savings and Mortgages) and put a financial safety net and protection at the core of what we did.

In today’s uncertain world, let’s think about why we should be doing our utmost to protect our clients’ wealth. Let’s think about how we ensure clients are fully informed about risks and mitigations.

Furthermore, let’s look at the nudging and research tools available today – they really do make the job easier and faster.

Now, you may say that you are not an expert in protection so why should you discuss it with your clients? Well, that is no excuse – if your client wants to be protected and you can not help them yourself, signpost the case.