Volatility in the stock market is a reminder that thoughtful advisors can help their clients by preparing them for the possibility of a correction. Identifying and discussing risks that could affect a client’s hard-earned nest egg may not be the fun part of an advisor’s job, but it’s important and much needed.
One such risk — and one that is often overlooked by clients and advisors — is the risk stemming from accidents and losses involving property. In this area, research conducted by the consulting firm Oliver Wyman finds that advisory firm clients want and expect their advisor’s help in identifying risks and taking steps to help protect them from those risks.
Protection, of course, often involves insurance. Most financial advisors don’t profess to be property and casualty (P&C) insurance experts and quite understandably do not provide advice in this area. They don’t have to.
Advisors can help their clients and at the same time protect assets under management by developing a strong relationship with a trusted independent agent who can be part of yearly asset protection reviews with clients.
Such reviews are crucial, because while most homeowners have P&C insurance coverage, for many affluent clients such coverage often is inadequate or absent entirely. This means that if a client experiences an incident where the costs to repair the damage or replace the loss exceed policy limits, the money beyond what insurance coverage provides typically must come from the client’s own pocket.
Consider a family with a homeowners’ policy that was purchased several years ago and which never has been updated. Many such families, and probably many of your clients, have made extensive and expensive improvements to their home over the years.
If a catastrophic event were to occur involving their home — say, a pipe bursts and water destroys an expensively renovated kitchen or ruins the home’s new, energy-efficient heating and ventilation system — they may discover an enormous gap between the reimbursement they receive from their insurance policy and the total expense of repairing the damage.
If your clients find themselves in a similar situation, they may have to dig into their investment accounts to bridge the coverage/expense gap. That could mean not only unexpected disruption of your carefully drawn financial and investment plans, but also big changes in your clients’ lives as they face working longer to rebuild their retirement nest egg, for example, or having to change their estate or philanthropic plans.
All these potential negative outcomes could be easily avoided if your clients periodically update their P&C coverage. By introducing your clients to a trusted insurance expert who can help them select a more comprehensive policy, you are pointing them in the right direction to help manage their P&C risks. And your clients want you to be involved in this process.
In the Oliver Wyman study, 77% of those surveyed — all affluent clients of financial advisors — said they would appreciate their advisor providing access to P&C guidance and counsel. More than a third (37%) said they even would be willing to switch to an advisor who made such advice available.
In addition, if P&C advice were part of the mix a financial advisor provided, almost half those clients surveyed said they would be more satisfied. In addition, more than a quarter said they would increase the amount of money they invest with their advisor, 41% would stay with the advisor longer and half said they would be more likely to recommend their advisor.
In short, including P&C insurance counseling through a qualified insurance expert could be a profitable and very much appreciated service addition to your business.
If you have any questions about this topic, please email me at AskFran@Chubb.com.
— Check out What You Need to Know About Millennial Wealth on ThinkAdvisor.