Protecting Your Clients’ Nest Eggs

As financial advisors, we are required to take exams, acquire licenses, and perform continuing education with the primary objective of helping our clients protect wealth, save wealth, and grow wealth. However, the harsh reality is that the large majority of our industry tends to focus mostly on the growth component, and often overlooks the protection component. It can be very dangerous and damaging if we neglect to insulate our clients from circumstances that could cause severe financial hardship … or ruin.

What I’ve found to be true is that the vast majority of clients I meet with who are currently working with a financial advisor are not adequately protected against unexpected events including but not limited to:

• A car accident and major lawsuit

• A critical illness

• The need for long term care

• A major disability

• One spouse passing

• Both spouses passing together

• An unexpected coma

• Estate tax issues

• Probate costs and administration

However, if I meet with a client and ask them to provide me with in-depth details about their current investments, they can usually answer the question rather effectively (why they chose their advisor, what investments they own, their asset allocation, etc.). So, why is it that most financial advisors don’t work extensively to ensure their clients are as educated as they should be, and that their client’s wealth is protected as well as it should be? I think the answer is very simple … most clients do not like to purchase, discuss, or be sold any forms of insurance.

Most clients view insurance as “throwing money down the drain.” The perception and belief is usually that tragic events will never happen to them. Statistically speaking, they might be correct, and because of that, financial advisors sometimes prefer to steer away from wealth protection and focus on the “fun stuff” like investing and growing wealth.

That said, I’ve attempted to list some topics below that I strongly feel must be discussed when creating a sound comprehensive plan for our clients:

Lawsuit Protection:

• How much will you be protected if you are sued from an accident that occurs in your car? In your home?

• What are the deductibles on your car? Your home insurance?

• Does your home insurance have full replacement value?

• Do you have receipts, pictures, or a video of your home contents in the event of something such as a fire?

• How should your car be titled? Individual? Joint?

Disability Insurance:

• Do you have short-term disability, long-term, or both?

• How long is your waiting (or elimination) period?

• What percentage of your salary does it pay for?

• How long does it pay for?

• Is there a cost of living adjustment to keep pace with inflation?

• What is the definition of disability?

• What are the tax consequences?

• Is there a maximum amount per month?

• Does this disability insurance cover your salary and commissions?

• Does it have its own occupation clause?

• Is individual disability insurance a better option?

Long Term Care:

• At what age should you consider purchasing it?

• Do you really need it?

• How much does it cost?

• How much should you choose for your daily benefit?

• How many years should your benefits pay for?

• Does it make sense to own a cost-of-living rider?

• What carriers have the strongest financial ratings?

Medical Insurance:

• Does your medical insurance carry a maximum benefit limit?

• Which types of insurance are best: HMO, PPO, HSA, FSA? What are the differences?

• What is your deductible or co-pay?

• What is your maximum out-of-pocket cost?

• What are the differences between in-network and out-of-network?

Social Security:

• How do you read your statement?

• At what age can you begin taking benefits? When should you?

• What is your full retirement age?

• What are the tax ramifications?

• What are the spousal benefit options?

Wills and Trusts:

• What is the difference between a Will and a Trust?

• Which should you have?

• If you have one, is it outdated?

• What is a Living Will? Do you have one?

• What are Durable Powers of Attorney? Do you both have them?

• What are Health Directives? Do you both have them?

• What is the difference between Revocable and Irrevocable Trusts?

• Who should be your Guardians? Who should be your Trustees?

• Is your Trust properly funded?

Life Insurance:

• Do you know exactly what type of life insurance you own now?

• What are the different types of life insurance, and what kind should you have?

• How much total coverage should you have? And your spouse?

I firmly believe every financial advisor should practice what they preach! In other words, we should all be able to prove to our clients that we are doing the same things in our own personal life that we are recommending for them, which is being fully insulated from the things that can severely damage us, our families, and our practice. Although a large part of our job as financial advisors is helping our clients save and grow wealth, it cannot begin and end there. Protecting our clients from unexpected events that could cause financial ruin can be just as important, if not more important, than growing wealth.

The harsh reality is that you can spend a lifetime doing a great job helping your client accumulate wealth, or achieve what you believe to be a superior rate of return. However, should there be an unexpected event that was not planned for in advance, both you and the client can lose a lifetime of hard-earned wealth … and potentially cause a lifetime of financial pain.