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Needs analysis and your advice process

Now this is been scratching away at my brain for a while. With the many advice processes discussed, in conversations with advisers over the years, I still struggle with two fundamentals when it comes to risk management and life cover planning.

Monday, July 2nd 2018, 9:00AM

by Jon-Paul Hale

These are the discovery of the value of assets with a client and this whole bit about education planning for the future.

Now don’t get me wrong, having a good picture of your client is all part of the process, and I do discover how many houses they own, general asset position, and generally some aspirational stuff around the goals and around education, if they have kids, of course.

What I’m talking about here is the bit where you put numbers to that in your advice.

Fundamentally as advisers I think we are overcooking some of this. Because someone who claims, never complains it is too much, and those that don't claim, never realize they were over insured.

When we look at assets and liabilities, and the stage of the process that we are asking these questions. To talk to a client about whether they would be selling their assets, is a completely irrelevant question at this stage of the game. It is still a case of they don't know what they don't know for most.

As too, if we look at this from a pure risk perspective, what the value of the asset is, is completely irrelevant. What we are advising on is the risk to those assets.

Frankly all we need to know is what the liabilities are. The discussion about selling assets, using investments and inheritance, all happen down the track from, what’s the problem?

And the problem is; what’s going to take your assets off you? Your liabilities.

From a pure risk point of view, when we advise on insurance the principle is to replace loss, not provide enrichment.

Which brings me to my second point; why do advisers labour on about education costs and the value of education in the future for the children?

I get it from the fear uncertainty and doubt perspective, frankly from advice point of view it has very little relevance.

When we sit down and look at education costs those children are either going to have the education paid for them or not, based on the current financial situation of the parents, our clients.

Aside from replacing income, which we already know, there is no fundamental reason to be planning for education in addition to what we planned for with the replacement of the household income.

Yes, they may want to give poor Johnny, who's lost dad, a good start in life with education, but it's a big what if? When 90-95% of people make retirement without claiming on their life cover.

Part of my point here is we overcomplicate what is a relatively simple conversation, either to confuse the client, disturb the client, or just to make ourselves sound intelligent

Over all the years I’ve looked at this, I’ve never had an insurance adviser explain the relevance of these two points, in terms of the actual numbers they come up with, that can’t be explained from replacing the household income.

I do understand where these questions have come from, and why they have been asked in the past. Because insurance advisers in the past would have been planning some wealth creation around this, while doing the insurance work, you would’ve been looking at savings plans, short term and retirement.

However, that’s not the environment we work in today.

The questions around wealth creation, sale of assets, planning for an estate, and planning for education, actually sit firmly in the space of investment/financial planning.

Yes, clients may want to explore the option of selling assets, once they realize the have a problem with the premium required to insure it, but that's an implementation discussion not a covering loss and risk needs analysis question.

You need to state the full loss situation if you're giving advice. To not do this you are leaving your client with unknown risk, which is the opposite point of consulting an adviser.

As too, we can talk models of values and returns but we can't talk funds and fund management, that's the purview of the investment adviser. At the end of the day this is the world we play in. And it's only going to get tighter.

Your client does want to know how they are going to pay for the kids did education, at the same time as an insurance adviser we’re not really in the position to solve it.

Yes, we can talk budget; yes, we can talk about how you need to save. In terms of applying product, insurance isn’t going to help that problem over and above the planning we do, if you stick strictly to explaining the possible loss.

In some cases in the past, clients are left with the feeling of that's solved, there's $50,000 for Johnny's education, not quite computing that they have to die or be terminally ill to get it. That's sales not advice.

One of the fundamentals I’ve found as an adviser, and to be fair in my time is a BDM as well, people, given sufficient information, will make relatively intelligent decisions when it comes to their own welfare.

The big issue is most people don’t know what they don’t know and the professionals in front of them are incredibly guarded with the information. Which I can only put down to fear that their relevance will be undermined if they share.

I’ve come to find the more I share the more loyal my clients are. The more I share, the better the solutions.

The more I share, the better the outcomes for my clients are, when they face serious medical and personal challenges in their life.

So are you just selling products or are you advising? This is going to become the big question with the environment we're about to walk into.

Tags: Insurance Advisers Life insurance risk management

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