A client’s dreams define their risks

Insurance advisors may well have a template to cover off obvious insurable risks for their clients. Often those risks involve some projection of future financial security.

How much should future financial security be covered though? There is a product for every need — almost. In terms of academic financial theory, insurance markets are often not complete — meaning that not every client need can actually be insured. There’s certainly enough product and product innovation.

Even when insurance markets are complete, they are often fragmentary and not complementary. No one policy fits all. Take group benefits. Are they sufficient for client’s lifetime needs? Perhaps not, suggests Allan Bulloch, president of IPG Insurance in Ottawa.

“Certainly you could count it in there, but a lot of times you really shouldn’t because so many people have moved from job to job and then they find out they don’t qualify for the new group plan,” says Bulloch. “Then there are people who rely on group insurance and then they retire and didn’t have enough of their own [individual coverage].”

Are long-term care, critical illness, and disability the kinds of needs that clients want to discuss? Well, first it starts with a financial plan, notes Bulloch. “We always try to get our advisors to start with a financial plan and so it’s looking at all aspects of that. Whether it be term or permanent would depend on whether it were a term or permanent problem. Dealing with CI and long-term care is becoming even more important.”

How these products work together for the client depends on the client’s identification of risk.

The process of discovering client risk and then getting clients comfortable with their risk profile is often more protracted, suggests Peter Wouters, director, retail risk product marketing at Empire Life in Toronto.

Knowing your client doesn’t really work unless the client has identified a need. And the need isn’t always discernable, until the conversation turns to values, namely, what are a client’s aspirations, what are their dreams in retirement, how much do they value their estate?

The dry dust of forms and actuarial tables can take on a life of its own, as the client takes an inventory of their dreams, and learns about risk in the process.

It begins with a conversation, Wouters explains. While a KYC is “the starting point for discussion about what a person’s risk tolerance is for anything,” it doesn’t address the more fundamental client question: “What’s it worth to you?”

The conversation starts like this: “Don’t tell me the number, but percentage-wise how much of your estate is important to you? Most people will say 100% or 90% — they don’t care about some old junk, but 90% of my estate is important to me and if I ask you about the part that’s not, it’s stuff that is of no value to you, it’s a garage full of junk that you want to get rid of unless you’re going to donate it to the Sally Ann or have a garage sale.”

From the value of the estate comes the inkling of a plan: “The follow-up question I ask to that is: ‘are sure it’s 100% or 90%, or is it 100% or 90% with a bunch that the government can keep?”

That is the tax discussion. There are other discussions around illness, for example.

“I talk about things like that and it leads into the discussion about people’s dreams,” Wouters explains. “You say, ‘you know what, you’ve picked the neighbourhood you’re living in for a specific reason, if you’re a couple or if you’ve got a family, you’ve picked it because it’s convenient to work, it’s close to the kids’ soccer practices, it’s close to the hospital, the schools.'”

Then Wouters narrows the focus to the “no matter what” question. “You went through a lot of trouble picking that place. Do you want to be able to stay in the place no matter what? Under what conditions do you want to be forced out? How important is it for you to stay in that particular house or at least that neighourhood?”

The “what is it worth to you” and “no matter what” questions guide the conversation, because the client very often has never quantified his or her dreams.

“I can tell you that if you’re a financial advisor, that your competition isn’t the guy down the street, it’s not the bank, it’s not the next insurance company that has the lowest rate. Your competition is the Riviera vacation or a plasma television or something else. That’s who your competition is.”

And he plays into the client’s tendency to focus on the here and now rather than on things that are a long way off. Insurance isn’t nearly as compelling as spending, or investing.

“If they think insurance is a lousy investment, let’s give that to all the debtors and collectors. Revenue Canada doesn’t care whether you give them a useless thing like a whole life policy,” says Wouters. “What’s it going to cost the client right now? One to five cents on the dollar. It will be a lifetime cost of 60 to 70 cents. It might only cost you 30 cents. It might only cost you a penny because you’re unfortunate enough to be the statistic tomorrow.”

That isn’t to say Wouters operates without an itemized checklist of potential needs, but sometimes that’s placing the cart before the horse.

“If I have that conversation we really get into it in one or two hours. Once you get their priorities straight, the client comes to you, and you say ‘are you ready to take the next step? You’ve got a homework assignment.’ The client may want information on how to do this and how to do that. I’ll bring it back to them. What do they think they need to bring to the table next time around? Why don’t you bring a copy of the financial plan you got with your last advisor? Why don’t you bring that to the next meeting and we can review whether or not it’s doing the job it was designed to do when you set it up?”

“What do you think the answer’s going to be when I ask him to do that?

“What plan? What will?”