For a financial adviser, one of the most tricky bits of client interaction is ‘having the protection conversation’. Without casting doom and gloom on the proceedings, how do you broach the subject of risk? Denise Wond, Marketing Manager at Royal London, offers some food for thought.
There’s no avoiding the fact that life can be a risky business. You only have to tune into news reports to see how easily, and unexpectedly, life can be turned upside down. The older I get, the more often I come face to face with those risks. Not to put too fine a point on it, my 50s have been consumed with loss; add to that recent political and economic turmoil, and I’m feeling a little bit more vulnerable than I once did. Working in this industry makes me all the more aware of the day to day challenges these risks present and the havoc they can wreak on long term plans. And it’s also true that the more you earn, the more you have to lose.
Let’s consider a young couple in a two-bed semi with two young children, relatively small salaries and no savings, and compare them with a slightly older couple with grown up children at university, living in their detached property, equipped with ISAs, investments and pensions. At first sight you might think that the young couple need protection, whereas the more mature couple have enough capital to keep them going should they hit a bump in the road. But is this really the case? Personally, I don’t think so.
Should the young couple ever have to rely on the state, the gap between what they earn now and the support they get would be smaller. That’s not to say they wouldn’t struggle to meet their commitments, but it’s likely that everything will hit on a smaller scale. In the case of the more affluent couple, that gap is going to be huge.
The majority of more affluent clients have highly paid jobs or a business of their own. They generally have a pretty good lifestyle too. Their children might be in private education, and maybe they have a few nice holidays in a year and a couple of cars in the driveway. Importantly, they could have a pretty substantial mortgage on the family home – and they might even have some debt. So now let’s imagine that a severe illness comes along. Even a substantial amount of savings is unlikely to fund that kind of lifestyle for very long. How long before this family has to raid the piggy bank, cease pension contributions and sell the family silver? And what impact is that likely to have on long term plans?
I understand that when the world is rosy it’s difficult to have the protection conversation, but if your clients really understood the risks they face, they’d probably be far more willing to listen. Most of us bump along never thinking that illness will strike and fervently hoping that it won’t. I’d had it pretty easy until my late forties. All was good in Denise’s world, but as I approached my fifties it all changed. I don’t know who these people are who are living to 100, but it’s not anyone I know. In the last few years cancer and cardiovascular disease have cut a swathe through both family and friends, and my little bubble has been well and truly burst. Consequently, I’m fully aware of the additional costs and challenges that illness throws up. If you have any doubt about the impact illness has on financial stability, take a look at MacMillan Cancer’s No Small Change Report. It makes for grim reading.
We often talk about peace of mind, but what protection products really offer is freedom and choice. Specifically, the freedom to walk away from work in the event of a life changing illness, and the choice to make significant changes to accommodate a new reality. Even when the world around you is tumbling down, you know you have that safety net in place.