Should protection feature in advice conversations as par for the course? That was the question we posed to paraplanners for Professional Paraplanner’s latest Parameters Survey.
The findings were overwhelmingly in favour, with 97% of respondents believing protection should be discussed as a matter of course.
As one respondent told Professional Paraplanner: “Planners should definitely be discussing this with clients and gathering all relevant details to assess a potential need and shortfall in this area.”
It was an approach echoed by a fellow respondent, who said: “It should always be discussed and if any suggestions or recommendations are declined, the potential consequences should be followed up to ensure clients are fully aware.”
For many advice firms, protection forms the building blocks for other areas of advice.
One firm said: “We are a strong believer in contingency /protection planning as the first item to cover off and are moving towards this position in our process.”
There was also a general feeling that while protection can often be overlooked in favour of more “exciting” investments, clients should be made aware of the different types of protection available and establish whether they have a requirement for it.
As one paraplanner explained: “Most are aware of life insurance and have something perhaps via death in service benefits but what about if they were not able to work? How long will savings last? People can do with being made to feel a bit uncomfortable rather than bury their heads and say ‘I’ll be ok’.”
More than three quarters of respondents said protection already forms a part of the financial planning conversations with clients, with 37% stating that it “always” features and 47% noting that it takes place with “most” clients. In comparison, only 16% said it is addressed on an ad-hoc basis.
Client conversations
The survey found that a common approach to raising protection with new clients is through the fact-find. Likewise, firms often use annual reviews to discuss the subject with existing clients.
“During the fact-finding stage protection is always addressed,” said one respondent. “When there is a protection gap, there is a conversation with the client to establish whether they wish to address this. If they do, a recommendation is provided to the client; sometimes on a certainty that the client would proceed, or just to establish the cost for the client to make an affordability assessment.”
Others said protection needs are raised when building a client’s financial plan/ cashflow forecast, making it easier for clients to understand the potential impact of certain scenarios on their wealth and family.
One told Professional Paraplanner: “Our cashflow planning shows what the shortfall would be if either partner were to pass away earlier than projected. This then forms the basis of protection need discussions.”
Another said: “By showing the client the impact on their financial plan from a visual perspective with differing scenarios, it really drives the need home.”
The findings of the survey also found that for some firms, protection needs can naturally arise from discussions around inheritance tax liabilities.
According to one respondent: “When discussing IHT, it is usually our first option for clients rather than more complex planning. For so-called ‘emerging affluent’ clients without an IHT liability, there will usually be some other need and it will naturally form part of our initial and ongoing discussions.”
The survey also revealed a general trend towards asking open-ended questions that encourage clients to think about possible scenarios.
One said: “I know it’s important to ask open questions like ‘have you considered the impact it would have on your financial plan/life if one of you were to die or suffer an illness or injury that would prevent you from working?’ Just asking ‘do you think you need life insurance’ won’t cut it.”
Life insurance was found to be the most common form of protection among firms, with 96% of respondents researching this form of insurance. This was followed by critical illness (43%) and income protection (38%). In contrast, private medical insurance and mortgage payment insurance featured far less among paraplanners’ research, with just 6% of respondents citing these respectively.
Despite the recent introduction of Consumer Duty placing advisers under greater pressure and scrutiny to ensure they are actively focused on achieving good outcomes for clients, its impact on firm’s research practices has shown to be limited. More than two thirds (68%) of those surveyed said they had not researched protection more as a result of the new legislation, with less than a fifth (19%) stating that it had led them to place more emphasis on protection.
To feature or not to feature?
When asked whether their firm would feature discussions around protection in the client’s suitability report, more than a quarter (26%) of respondents said they always include it, while 31% said they do “most of the time.”
One said: “Our templated suitability report has a line about protection but most advisers deem protection unnecessary. If a discussion has been held it would be included in the report. We would also include a comment if a protection gap had been identified but the client did not want to discuss.”
Another said: “If we are recommending for example pensions, we mention that we have taken all circumstances into account but would address it in a separate report or in the same report if advice is to take out a policy.”
However, just over a third (35%) said they only feature discussions if the client takes out a policy, preferring to include it in fact finds and meeting notes.
One paraplanner commented: “The suitability report does not need to contain any mention of protection if it is not being recommended but conversations will be noted on fact finds and meeting notes.”
Another said: “When we are doing a full holistic review then protection will be discussed in the report, otherwise we mainly make file notes around the discussion and only mention it in the report if we recommend something.”
This approach was echoed by a second respondent, who told Professional Paraplanner: “We will provide details of our protection discussions in our client confidential questionnaires and include in there why we have discounted protection. If protection is deemed necessary then that will be outlined in detail in the suitability report.”
