Bridging the protection gap will require a change in mindset and process for mortgage advisers. That was the view of delegates at a BestAdvice/Royal London roundtable debate in October. While all the participants saw the value to themselves and their clients in selling protection, there was no ‘one-size-fits-all’ approach which unified them.
What they did agree on, however, was that the mortgage sale today is more complicated and takes longer; this can have a knock-on effect on the protection sale.
Owrang Rahmani, adviser and owner of Credius Wealth, explained that mortgages took a lot less to manage 15 years ago, as opposed to the current environment, with regulation and affordability calculations adding extra complexities to the process.
“At the same time, with the affordability calculation, it’s a good time to really build protection in,” he said.
“However, the first thing clients do when they think about the mortgage is jump online and look at what the monthly costs would be. They then have this preconception of what their outgoings will be without factoring in protection. So you can you can be fighting a losing battle to an extent where you’re trying to introduce a different outgoing figure to the client when their expectations might be a lot lower already.”
He added that an added complication can arise when clients have previously spoken to other advisers who aren’t protection focussed. This can require a difficult readjustment of their expectations. Sebastian Riemann, financial consultant at Libra Financial Planning, agreed: “It’s always difficult because if you don’t win the client for the mortgage, there is no point talking about protection.”
He believes that protection should be mentioned to the client enquiring about the mortgage from the outset and then continuing throughout the process.
“I do try to focus on the protection and not just on the mortgage. I concentrate on client retention and looking after clients for a long time. So protecting their income until retirement is a lot more important to me than just protecting a mortgage, which then may pay off or change. It takes the conversation in a different direction quite early on.”
Rahmani favours two separate tracks for mortgages and protection, and if pushed, values the protection side more.
“We decouple the protection from the mortgage; the protection has got nothing to do with the mortgage because whether they rent or whether they own a home, if they don’t have an income, they won’t be able to support themselves.”
He ensures that protection has its own sales and presentation meetings, as well as its own fact find.
“You can shortcut that process, because, as we’ve discussed, the mortgage process is much more complicated nowadays, with more of an emphasis on affordability. This means you know pretty much everything about these people anyway before whether they own a house or not.”
“Clients don’t really understand that [the need] could exist or what risks they run in their lives, and how those risks can covered”
IN THE REAL WORLD
The group agreed that overcoming misconceptions or a wider lack of knowledge about protection is key to selling it.
Jennifer Gilchrist, protection specialist at Royal London, said a lack of understanding was something the business faced regularly. Despite a widely quoted industry statistic that 50% of adults in the UK have life cover, Gilchrist explained that clients lack awareness over the actual need for income protection and crucial illness cover.
“Clients don’t really understand that [the need] could exist or what risks they run in their lives, and how those risks can covered.”
When asked how this could be overcome, there was agreement around the table that face-to-face meetings were essential.
Riemann stated that providing advice over the telephone or online was no substitute for actually looking the client in the eye and gauging their responses.
“You can’t engage with the clients otherwise,” he said. “When you talk to them face to face you can engage with them and see their reactions. You can plant seeds [about protection] and get a feel for how they perceive it and what areas you need to focus on.”
Rahmani said time pressures shouldn’t mean advisers don’t hold meetings with clients. He believes many brokers have fallen into a “trap of trying to be efficient with the mortgage application”.
“In the past, the approach would have been to say to the client, ‘here’s a Word document, fill that in, send me these bits of paper and then we’ll have a chat.’
“What actually needs to happen is something more involved than that. Trying
to make it too efficient also misses all the opportunities that could arise from a proper fact find.
“You’re not only going to get more information about them in their body language, they’ll give you more face to face. You’ll also understand what it is that matters to them and hopefully you’ll be able to empathise with some of their situation.”
Only then, he explained, could advisers properly tailor their advice and begin to recommend the correct protection solution to the client.
CASE IN POINT
The issue of millennials was widely discussed by the panel. Research from Royal London, published earlier this year, found that three-quarters of IFAs surveyed by the insurer think younger consumers are not addressing their protection needs early enough, with 43% of advisers struggling to attract clients under the age of 35.
The main barrier to selling or recommending the product was a lack of awareness of income protection among clients, while affordability was another obstacle, despite the fact that, on average, income protection is cheaper than a monthly gym membership.
While the panel was broadly aligned on this view, Riemann’s experience was different. He finds that millennials are keener than the previous generation on advice and will have done some research in advance.
“The conversation is often slightly different in that they will have a better basic understanding, but maybe don’t know exactly what they want or need. They are much more open to getting advice and assistance.”
Rahmani agreed that millennials do not want to receive advice online: “I don’t think we’re ever going to have ‘robo advice’ that can empathise in a human way with another human about the fact that if they lose the main breadwinner in the house, their kids are going to be out of a home.”
The panel talked about the use of case studies when discussing protection with clients and all agreed that these could have real impact. Gilchrist cited a case study from Macmillan’s annual report on how much it will cost an individual when they get cancer.
The study said the extra financial cost was £570 a month and looked at the case of a 28-year old single man who was diagnosed with cancer. Despite living and working in London, the extra costs forced him to move back in with his parents in the North of England. This also meant that his cancer treatment in London stopped and he had to arrange new treatment near his parents’ home.
Gilchrist commented: “You think it’s all just horrible and what you want is for him to have income protection so he can keep his flat. He can keep the life as it is, not have to worry about money and get on with his cancer treatment.”
Pardeep Tiwana, mortgage and protection adviser at Temple Walbrook Financial Services, added that case studies can be beneficial to both the client and the adviser.
He mentioned that there is a fear factor of something goes wrong; there could be problems later on if the adviser didn’t talk about protection to the client or had no disclaimer.
Tiwana outlined a recent case which had caused him to look at things differently: “I had a client who died last year and her husband, who also was a friend, called me. Literally the second thing he said to me after he told me that she had died was: ‘What about the house Pardeep?’ because she was the breadwinner. She earnt a lot more than him.
“It was very sudden, it wasn’t expected. Thankfully, I had done life cover for her. So he’s not going to lose the house.
“But I know personally it hit me that it could have gone seriously wrong. I’m sure every adviser has got a story like this.
“You’ve got to start changing and not just because it is profitable for the business. For me personally, that’s why it’s become a big thing now.”
Riemann added: “It comes with age; we all have more experience when we get older. We tend to witness people close to us suffering and clients suffering. So it does make the conversation that much easier when you’ve got first-hand experience – easy in the sense of knowing what it’s like and explaining it.”
Gilchrist mentioned research that Royal London had conducted recently into what triggers people into thinking about cover and found that other than needing a mortgage or starting a family, another key factor is change in employment.
Rahmani agreed that a change in life circumstances should be a time for a protection review: “Generally, people start to get serious about money when they buy. So it’s a good point at which to start talking about protection. But the conversation doesn’t end there. People get divorced, people move, people go from being employed to being self-employed. And that creates a whole new series of risks because they lose their employee benefits that they may have. So we use the mortgage as an excuse to find out absolutely everything about each client.”
This resonated with Riemann. He said: “We’ve had such a shift in the makeup of the employment sector, where people have gone from PAYE to contracting and self-employed.
“There are a lot of people out there who have taken out policies, but then their family has expanded and the husband now stays at home. He might not now qualify for a pay-out, so he’s paying for something that he can’t get anyway. I think that’s where there’s a huge need for a protection conversation.”