Bringing the Orphan Client in from the Cold

Those of us who have long been in the financial advising business are well aware that too few financial professionals stay in the field past the four-year mark. A 2010 study by LIMRA International shows that only 1 in 10 (11%) advisors stay in the business after four years.

But sometimes we forget about who stands to lose the most when a financial advisor leaves the industry. It isn’t his colleagues, and it isn’t his firm. Rather, it’s the client — in this case, the orphan client.

It’s all too easy to worry about how we are impacted by a colleague’s exit from the field. It can be inconvenient and even awkward to tell a client his advisor has left the business. And the list of names and numbers can seem long for a life insurance agency keen to take care of its clients. But it’s important to remember that with each entry, there is a real person with a real life and real financial needs. Individual lives are at stake. Every person on the list had a financial goal in mind when they purchased their instrument of choice. The person who can suffer the most is the one whose insurance policy hangs in the balance, who could further benefit from other financial instruments and who needs the guidance of a seasoned professional.

Not all advisors relish the idea of following up on a client with whom they don’t have a relationship. It can feel too much like cold calling. But doing the right thing is always best, and in this case, what you do can impact not only the client’s life, but her family members’ lives. Are you doing all you can to help the orphan clients to whom you have been assigned? Are you conducting annual reviews? Do you know the status of the client’s retirement funds? The orphan client can be at risk without the guidance of her financial professional. You may be the only one who stands between her and financial mishap.

Here are some circumstances that can cause significant problems for a client if a financial advisor isn’t there to pay attention:

• Investments: Risk tolerance or product performance can change.
• Retirement: Companies can fold, and qualified plan trustees — the only people with the authority to access the client’s funds — can disappear, leaving the money stuck in the plan until a lengthy legal process can free it.
• Life insurance: Policies can lapse if the bank account changes, or if people die and beneficiaries can’t be reached.
• Life events: Clients’ situations can change, and their financial plans may not reflect those changes — for example, marriage, divorce, birth or health.
• Insurability: Some life insurance policies have a guaranteed insurability option that allows the insured to increase his insurance every three years (usually between ages 23–46) without proving insurability. If the client’s health changes and he is no longer insurable, it’s vital that this is pointed out to him, so he can take advantage of the increased insurance before it’s too late.

In doing right by the orphan client, you not only build up the reputation of you and your firm, but you may also develop a long-term relationship with a client who stays with the firm and purchases financial instruments to serve her needs. Here are three examples when orphan clients and their dependents benefited from an agency that had systems in place to ensure their care.

Case #1: A 35-year-old divorced father of a 10-year-old boy wisely purchases a $100,000 term policy while he is healthy, on the advice of a financial professional who later leaves the agency. As the sales manager, I take over the account and notice that payment to the policy has stopped. I contact the client. It turns out the bank account has been changed, and the billing information hasn’t been updated. Then, two years later, the client’s brother contacts me and shares that the client is dangerously ill. Soon after, the client dies. Because the policy is current, the brother is able to use the money to provide for the client’s son. I help the brother place the money in a 529 plan for the boy, helping to ensure the funds grow tax free for his college education. The brother even purchases life insurance for himself.

Lessons learned: In this case, if the agency had not had processes in place to care for orphan clients, the boy may have been left both fatherless and financially insecure. As an added feature, I was able to grow my practice, all while doing the right thing.

Case #2: A client buys a policy in 2007 from a new agent who leaves the field within a year. I take over the account and meet with the client annually over several years. In March 2011, the client shares that he has terminal cancer. I explain the claims process to the client, and the issue of beneficiary comes up. The client’s life partner feels that the client’s two adult sons should not serve as sole beneficiaries because they were not visiting their father or caring for him. I encourage the client to do what he feels is best and to communicate his decision to all involved. As a result, the life partner knows to contact me when the client dies, and the claim is straightforward. Also, the sons receive a six-figure inheritance that has an improved chance of being properly managed.