FOR FINANCIAL ADVISERS ONLY
In association with
SHEDDING LIGHT ON PROTECTION
3 Critical illness re-broking: A portfolio approach 7 Protection: Bright ideas 8 Death and taxes: You know the quote 9 Social media: Top tips
COVER magazine and Old Mutual Wealth have joined forces to produce this e-book to help bring into focus areas that advisers are missing out on. The e-book looks at things that advisers could be discussing with their clients and includes techniques to help them do this in a practical and efficient way. It is also designed to shine a light on things that advisers can consider improving in their own business models and ways of marketing their advice services. On page 3, I discuss with advisers how best to re-broke critical illness policies and how to position critical illness to the best effect within a client’s portfolio. This topic has come to the fore recently with the consumer press highlighting historic policies that customers have not updated and found they could not claim on. But critical illness policies are seen as complex by many advisers and weighing up the pros and cons of re-broking policies or not, can be a complex feat for advisers to pull off. My feature discusses the issues that advisers should consider here. Elsewhere in this e-book, Old Mutual Wealth discusses lead generation using social media. Advisers often get frustrated with social media due to regulation, lack of time and not seeing immediate results from social media outputs. I hope that you find the contents of this e-book informative and useful to fill in some of the gaps in your protection advice proposition.
Powering protection planning
Fiona Murphy, editor, COVER
“Now policies have additional partial payments, there has been a lot of change in add-ons and definitions, and some definitions have been scaled down“ Ian Berrett, Old Mutual Wealth
One way to tackle the difficult issue of critical illness re-broking is to take a portfolio approach, blending older and newer plans. Fiona Murphy looks at this area of advice in more detail
Critical illness definitions have hit the headlines again with the consumer press reporting cases of people having policies that do not pay out. The most notable example of this was Hein Pretorius who lost one of his legs in a motorcycle accident. The critical illness policies that he took out over a decade ago only covered for the loss of two limbs. The definition has since been changed by insurers across the protection market to cover the loss of one limb. Such cases trigger questions for advisers. What is the best way of making sure clients have the critical illness policy most suitable for their needs? This is important as critical illness policies regularly update their definitions or tweak existing definitions for different purposes. Client contact Garry Webb, head of operations at Roxburgh Financial Management, says that regular client contact is crucial. He said: “An adviser should be contacting a client at least once a year irrespective of whether the client contacts you [the adviser] to review their situation and look at any changes in the plans or the market.” Ian Berrett, marketing manager at Old Mutual Wealth warned that critical illness re-broking of older policies is a “minefield” in that advisers are looking to re-broke policies that are very different now to what they were like 10 years ago. He said: “Policies now have additional partial payments, there has been a lot of change in add-ons and definitions, and some definitions have been scaled down. You might have a fuller cancer definition under an old plan but conditions grouped under multiple partial payments under a new plan.
Critical illness re-broking: A portfolio approach ight
3 Critical illness
“There are several things we take into account, it’s not just swapping the old policy for a new one, there is a process we take the client through“ David Mead, Future Proof
“It’s about thinking what’s relevant to the client. It’s not just thinking that a new policy might be cheaper or provides cover for 40 conditions compared to 60 definitions, it’s a much wider conversation to consider a client’s needs. “There is an opportunity to keep some old cover (or reduce it and lower the premiums), and alongside that take out new cover.” Why policy age matters David Mead, director of sales and marketing at Future Proof, added: “There is an opportunity to keep some existing cover. That would reduce the premiums, and allow the client to take out new cover alongside. “So it's like a new policy top up. This process can be quite a minefield, so it's important to approach it carefully. “If the cover is between two and 10 years old, potentially there is a win in taking out a new policy but if the policy is over 10 years old, we are a lot more cautious. Some of the definitions on these older policies around things like cancer were more generous than they are on policies now. We use CIExpert to compare that.” Losses and wins Mead continued: “In particular, you may wish to consider replacing a five to 10 year old policy. For example, there have been a lot of improvements in definitions over the past two years in the main causes of critical illness claims: cancer, heart attack, strokes and MS. “The other big area of improvement is children’s cover – this wasn’t available on policies in the past and companies have since improved their definitions to cover conditions that are specific to children. “And we also discuss other issues with clients, such as whether their health has changed – if they have been diagnosed with a condition there could be exclusions under a new policy – and the fact that as they will be older than when they took out their first policy, the new one will be more expensive. “Taking a portfolio approach is relatively common – if there’s a clear loss or disadvantage in terms of the price or the conditions covered when looking at swapping, we’ll say top it up with a
4 Critical illness
“Unless there is a radical change in the marketplace, you need to ask, is there a need to change the client's existing policy?“ Garry Webb, Roxborough Financial Management
“There is no reason why people can't have multiple critical illness plans – locking in premiums“ Tom Connor, Drewberry
new one, or you could take out a more comprehensive plan if that meets your needs.” Re-broking versus review However, Webb warned: “Re-broking can be the wrong phrase or have the wrong connotations because some advisers will say ‘I will move the client because I can for my own personal gain’. “It’s all about reviewing your client’s situation. What has changed in their life or circumstances over time? Are they looking to change their plan or to move their cover from one insurer to another? “So I would say this is part of the review process, not a re-broking process. Unless there is a radical change in the marketplace, you need to ask, is there a need to change the client’s existing policy?“ Client priorities Webb added: “A client might want a new plan to top up what they need – is their priority [for a critical illness payout] to pay debt off, or provide support for their family in conjunction with IP? Can you use existing arrangements as part of the planning process? Is there a change in their circumstances? It's also essential to find out whether clients are open to taking out multiple policies or whether this could cause confusion.” Multiple CI plans Tom Connor, director at Drewberry Insurance said: “There’s no reason why people can’t have multiple critical illness plans – locking in premiums. “If something happens with their health, they could claim on one plan but not another which might be confusing. “That’s why it’s important for advisers to have an ongoing relationship with the client and make them aware of changes over time. If clients feel like they need to claim, they should contact us [advisers] first to make sure there’s a valid claim and receive guidance, taking confusion out of the process.”
5 Critical illness
“We should encourage a broad range of solutions for clients, it’s not just the cost but the intrinsic value of the policy“ Paul Roberts, Old Mutual Wealth
Adviser opportunity Meanwhile, there is an opportunity for advisers to make critical illness part of a wider portfolio approach. Paul Roberts, head of protection at Old Mutual Wealth, said: “The great opportunity here is the broader discussion: it is not just about re-broking, but making CI part of a protection portfolio. It’s also about making sure when an adviser gives a recommendation to their client, they have considered a combination of more than one provider. An example is maximising children’s CI. “If you have CI from two different providers, and a child covered under both developed a critical illness, both providers would pay the relevant CI claim. It’s about broadening cover and making more use of individual providers’ product features.“ Clarity for clients “For advisers it’s about awareness and being transparent. When they are comparing like for like, or make a recommendation, it should be made clear in any suitability text or the adviser’s report. We should encourage a broad range of solutions for clients, it’s not just the cost but the intrinsic value of the policy.” Is this type of work something for all advisers to use with their clients – or is it the preserve of more specialist protection experts? Well-focussed advisers Roberts said: “There’s a great opportunity for us to engage with well-focussed advisers. Many advisers have a portfolio approach to working with platforms and we think a portfolio approach to protection should be similar. Historically a protection adviser’s role was to sell IP and CI but a single provider menu plan might not be best for the client. “All advisers should adopt this. The client should be the centre of everything we do. The approach should be to make sure they have the best product, provider and price to meet their needs and discuss what they need to do. Whether it’s transactional or high net worth advisers, the approach might be the same.“ Specialists v generalists Meanwhile Berrett believed protection specialists would be more likely to struggle with this approach than generalist advisers. He said: “I think it’s more of a challenge with protection only specialists. They may be more price-sensitive and have different needs. The portfolio approach may not always be the cheapest when you have a menu plan that offers discounts for single policies.“
6 Critical illness
Colleagues can also be a fruitful source for leads. Brokers who arrange car, buildings, plant and public liability insurance could provide referrals to potential business clients. Accountants and solicitors who provide services to businesses may also be able to give you some leads.
7 Financial planning
Protection is arguably the cornerstone of financial planning. It underpins a person’s financial future. Without it there could not only be dire financial consequences in the here and now but the ability to save for that well-planned, comfortable future could be severely affected. So why do we see such a huge protection gap reported each year? Well you don’t need us to tell you: ‘it’s too expensive’ and ’it won’t happen to me’ are objections we see all of the time. However, if you’re looking to do your bit to close the gap (and maybe just increase your turnover at the same time) this guide aims to help you identify some clients and opportunities that you may not have considered before and how you can expand your reach using social media.
Business protection can sometimes sound complicated but it’s actually relatively straightforward. At its core it’s about protecting profits, borrowings, or shareholders and partners should a vital member of the company become seriously ill or die. Despite the effect such an event could have on the business, most companies think about insuring cars, building and machinery first and its people last . . . if at all. This may not be too much of a problem for a large corporation, but the effects on a small company can be devastating. With 99% of business classed as small to medium sized enterprises, the opportunity is large and can be lucrative. But if you want to get a foot in the business protection door how do you start? Well the chances are you already have untapped opportunities on your doorstep.
Business protection: your untapped resource
Client bank Colleagues Networking Research
You may already have some potential business protection opportunities waiting in your client bank. Have you arranged personal cover, investments, group life or a pension scheme for clients who are business owners? If you have it’s possible they will also have a business protection need, plus the hard bit is done: as their financial adviser you have already established a relationship and have their trust.
Get networking. Cold calling doesn’t usually go down well, especially with hard working business people. Attending local business clubs and events, or even running your own event, gives you the opportunity to build a relationship with potential clients face to face, or discover contacts that can provide referrals.
Once you’ve identified a client you can prepare by researching their company which can normally be done online through their own website as well as that of Companies House. This will arm you with information on their accounts, as well as that of their company’s aspirations, and help you to demonstrate in a much more personal way the effect not having adequate protection in place could have on their business. When your clients are identified and engaged Old Mutual Wealth can offer both the support and the solution. For example, our business protection webpages contain a number of guides and case studies to help you set up the right solution for your client, as well tools to help you calculate cover and equalise premiums, and the trusts and cross option agreements required for shareholders. For your clients we have Protect, our Defaqto 5 Star rated life and critical illness cover which offers comprehensive cover and unique options such as permanent, flexible indexation and rolling term. In the end though, it’s your advice that could make the difference between a company surviving and failing.
(click tabs to discover more)
Protection: Bright ideas ight
Discounted gift trusts are a way of gifting assets into an investment while retaining the right to income. The value of the withdrawals is used to calculate the ‘discount’ which immediately reduces the value of the investment used to calculate the IHT liability. Any growth on the investment is outside of the estate from an IHT perspective. Similarly a loan trust also places assets into an investment, but in this case it is treated as a loan to the trustees. This gives the individuals the right to demand the loan is repaid, should they need the capital, but any interest on the loan is outside of the estate. The loan is gradually repaid and assuming these repayments are spent the taxable estate is therefore gradually reduced. The loan is not treated as a gift so any remaining loan on death will form part of the estate.
8 Financial planning
Death and taxes: You know the quote ight
These are just some of the available solutions. You can visit our website to find out more about Old Mutual Wealth’s unique products such as rolling term, our 10 year renewable term that lasts as long as it’s needed and has guaranteed premiums from outset, or the unrivalled flexibility when it comes to increasing the cover, including our unique, permanent inflation option. You can also find a range of support material and calculators to help you work out the liability and overcome any objections if your clients view life assurance as ‘dead money’.
Reducing liability with investment
Reducing the estate
Ensure your clients have a will. Having one in place means it’s clear to all how assets should be distributed on death and avoids the possibility of your client dying intestate which could lead to: • assets being distributed according to the intestacy rules rather than how your client intended • potential delays in settling the estate • an IHT bill which could be avoided.
When writing a will it’s also important to consider the use of nil-rate bands. The whole estate can be passed on to a spouse or civil partner tax free, leaving the deceased partner’s unused nil-rate band available to claim when the second spouse or civil partner dies - effectively doubling the nil-rate band. However, depending on the circumstances of your client, passing on a whole estate to a spouse or civil partner may not be the most tax efficient solution. It could be better to leave an amount up to the nil-rate band to their descendants to reduce the estate that is passed on to the surviving spouse.
Reducing liability with investment
Reducing the estate
There are a number of exemptions that can be used each year to reduce the size of a client’s estate: • An exemption allowing £3,000 to be given away each year, free from IHT. Unused exemptions from the previous year can be carried forward meaning an allowance of up to £6,000 (£12,000 for couples). • Any number of small gifts of up to £250 per person can be given away tax free each year. • Regular gifts (eg yearly) can be made tax free from true income, such as dividends, if they are proved not to affect your client’s standard of living. • Gifts of up to £5,000 can be made in consideration of a marriage or civil partnership. • Exemptions are also made for gifts for the upbringing of children and to charities, political parties, universities or for national or public benefit.
An IHT liability can gradually be reduced by placing assets in a trust. The IHT on the assets will reduce in stages over a seven year period, after which they will become exempt. The reduction depends on which trust is used: • Discretionary trusts are considered a chargeable lifetime transfer (CLT) and can be subject to IHT of 20% at outset with additional tax on a reducing scale should the individual die within seven years. • Absolute trusts are considered as Potentially Exempt Transfers (PETs). These don’t have an immediate liability but should the individual die within seven years IHT is due on a sliding scale from 40% to 8%.
Simple and effective, a life insurance policy can provide the money for the beneficiaries to pay an IHT bill. In most cases a whole of life policy is used, but if your client is asset rich but cash poor and affordability is an issue some providers can provide alternatives. These can include policies with a rolling term, where the cover and premium is renewed every 10 years for as long as it’s needed, or a long fixed term that can last until the lives assured reach 100. Whichever term you choose it’s important that the cover can be increased in the future to ensure any increase in liability can be matched. It’s important to place the policy in trust for the beneficiaries for a number of reasons, including: • it removes the benefits of the policy from the life assured’s estate • it ensure the benefits are paid to the right people at the right time, without the need for probate.
Benjamin Franklin’s quote from 1789 about death and taxes is much used in this industry. An overly used cliché? Possibly. As true now as it was then? Definitely. Where do the two meet? Inheritance tax. Apart from a dip between 2008 and 2010, the amount of inheritance tax being paid has been increasing for the last 15 years. With the value of residential property still increasing and the nil-rate band frozen to until 2021 this trend is likely to continue, albeit alleviated slightly by the introduction of the main residence nil-rate band in 2017. Whether it’s reducing a client’s IHT liability or making provision to pay a large bill, sound financial planning can mean your client’s inheritance goes to the right people…. and we don’t mean the taxman.
(click to discover more)
Take your time & have patience Don’t worry if you don’t generate leads straight away. Building your presence and expertise takes time. Ensure your content is regular and up to date, keep listening to your feeds from contacts and don’t be afraid to jump into conversations that are genuinely asking for something that you can help them with.
9 Social media
Social media: Top Tips ight
Check out our social media hub Social media expert, Phil Calvert, offers top tips on what you can do on social media this year. Whether you’re a beginner or advanced user of social media why not get a refresher in our social media hub Click here to visit
Define your objectives Set yourself a few social media objectives for the year. Perhaps you want to grow your network, share useful information or use it to provide customer service. Maybe all three! Lay out your objectives clearly and tie all your social media activity back to them. Don’t just do social media for social media’s sake.
Create a content plan You wouldn’t just hope that things go well for your sales strategy, so why would you leave your social media strategy to chance? We strongly recommend building your own content plan for the year. Your plan could include business news, useful information and important dates/reminders. You can create a simple plan in Excel or use Outlook and/or your email calendar to diarise especially important dates. By using a content plan, you can be better prepared in your communications and not miss out on any opportunities. Try to think about what is happening that is of interest to your clients or industry news at different times of the year, and how you can have your own say on those matters.
Think about your content and conversations Another essential tip is to listen to your customers, find out where and what they talk about, then focus on these issues. Create content that people want to read and that gets them talking. Be careful about posting just for the sake of it, or being boring. A good rule of thumb is to maintain an 80-90% engagement to 10-20% promotion ratio in your posts. You want to build relationships with your audience and gain their confidence and loyalty – after all, it’s called ‘social’ media because that’s exactly what it’s about. This lends credibility to those posts in which you talk about your business and how it can help your customers. Centre your content on topics that interest and add value to your audience. Bring your expertise to the table while engaging your audience, rather than just posting updates.
Be smart about posting On Twitter it’s fine to post around five to ten times a day, while on Facebook, one or two posts is adequate. Try boosting some of your posts; you can use the various platforms’ targeting features to spread an important message. Also be mindful about the times that you are posting on social media. When is your audience likely to be active on which platform? There are many free tools available via Google which can help you judge the best time of day to reach your widest audience.
Leads & new business Social is a great way to find leads and discover new business. Make sure in a professional way you use your profile to link into your clients/contacts on Facebook and LinkedIn. Quite often you might get signals from their feeds around life moments which could be opportunities, such as home moves, etc. But remember not to be a stalker!
Miles Eames is head of social media at Old Mutual Wealth. Prior to that he was head of social media at Barclays Bank for three years where he took the brand from a low level presence in social to one of the top 20 social FS brands in the world ( Financial Brand Power 100).
Compliance Ensure your posts always follow the big three rules. Honest, true and not misleading in any way. You have to be able to back everything you say up if challenged, so false claims are completely unacceptable. If in doubt stick to simple factual conversation. Treat your social channels as you would any other communication channel (email etc).
Did you know that 80% of advisers in the USA use social media to generate leads. In the UK that’s currently around 21%. Why not spend some time this year focussing on how you can use the power of social media to generate leads and help build your reputation and brand awareness? Miles Eames, head of social media at Old Mutual Wealth, explores: