CHRISISM #31 - Intergenerational Advice

13 December 2016

Have you ever heard an adviser say something along the lines of “ Well, insurance is not really relevant for most of my clients, because most of them are pre or post retirees”. If you have – or if you’ve even said something similar yourself, then read on…….

Can you spot the major flaw in the statement above?

If you were to ask a retiree the question:- “ What do you consider to be the single biggest financial risk that you face in your retirement?” or “ What do you think is the single biggest threat to your retirement nest egg?”, I guarantee that the large majority of retirees would answer one of the following :-

1) Investment risk

2) Market Risk or

3) Another GFC

Would they be right? Absolutely not

We need to educate our retiree clients that by far and away the biggest threat to their retirement nest egg is if serious illness, injury or death were to strike a retiree’s child, grandchild or spouse thereof without proper protection being in place. What financial impact would such an event have potentially on your clients’ retirement nest egg?

Well, who do you think will be expected/required to fund the financial shortfall that this situation would create? You guessed it – the retirees! And what could this shortfall amount to? As a bare minimum, we would be talking about the injured/dead breadwinner’s income (possible on an ongoing basis) or the mum/homekeeper’s E.R.V. (Economic Replacement Value) again possibly on an ongoing basis – and this takes no account of other potential medical or capital expenses.

Once you have made your retiree client aware of this potential exposure, I would ask the question:- “ Tell me, in this scenario, would you rather fund the potential financial shortfall yourself out of your retirement nest egg or would you rather pay a small premium (which would have absolutely no impact on your retirement nest egg) to a life company so that the life company can fund the financial shortfall instead?

I believe this simple client engagement piece will more often than not open the door to at least meeting with the kids and/or grandkids, and although there would be no reason why they should not fund their own personal protection package, in a worst case scenario, you know the retirees would be prepared to pay the premiums.

This simple strategy also results in an FYCB (For Your Clients’ Benefit), namely an appropriate personal protection package for all eligible children, grandchildren and spouses as well as an FYOB (For Your Own Benefit), namely you turn a shrinking business (as most of your clients are in draw down phase) into a stable or even better a growing business by bringing wealth accumulators into your client base.

The Risk Workshop by Chris Unwin

Are you a financial adviser who would like all of your clients to have appropriate types and levels of personal protection? But perhaps you feel you need a more structured and client friendly engagement process?