Advisers have been urged to protect their businesses after research found nearly half of independent financial advisers have not taken out business protection for their own firm.
Research from VitalityLife showed 46 per cent of all advisers have no cover in place for their company, a figure which rose to 59 per cent for IFAs who were sole traders.
The research also showed 48 per cent of advisers regularly give advice on business protection matters while about a quarter of advisers wanted improved product features (28 per cent) and more support and training from insurers to help them better meet clients’ — and their own — business protection needs (24 per cent).
Business protection (life insurance or critical illness policies which cover the ‘key people’ in a small to medium company) can protect businesses against critical events by providing a lump sum towards business costs if a key person falls critically ill or dies.
Last year research showed one in four small to medium size businesses would have to immediately close if a ‘key person’ became critically ill or died.
Roy McLoughlin, associate director at Cavendish Ware, said: “Advisers will often point out the potential impact on a small business of illness or death, and in many SME adviser firms there is equally a reliance on key advisers in terms of both maintaining and bringing in new clients.
“Those advisers may often be irreplaceable in the event of long-term illness and key person cover is incredibly important for this sector. Most IFA firms are also privately owned and there are important consequences in the event of death of the business owner.”
Mr McLoughlin added advisers often established their business over many years and so stressed the passing of ownership to the right person was “crucial”, saying shareholder and partnership protection should be a priority for such firms.
He also said long-established clients could expect advice firms to have such cover in place as financial advice was a “relationship” based service.
He said: “If an adviser is unable to work for a significant amount of time, it is possible the practice could lose clients if appropriate processes are not in place.”
In general Vitality found advisers with corporate clients had seen demand for business protection rise in the last five years, putting the increase down to more awareness and a rise in the number of SMEs and the self-employed.
Craig Palfrey, IFA at Penguin Wealth, said: “It’s great to see enquiries from businesses for protection insurance are rising.
“This is a crucially important area and one that is sometimes overlooked by advisers and insurers.”
Mr Palfrey added the need for advice on business protection was “only likely to increase” due to ongoing insecurity about UK business and finance.
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