Why good financial planning should be all about protecting what you already have.
You will have been hard pressed over the last few weeks and months to miss the daily headlines around the “cost of living crisis” currently sweeping the UK.
What do we mean by ‘cost of living crisis’ – and why is it happening?
A “cost of living crisis” simply refers to a scenario in which the cost of everyday essentials like energy and food is rising much faster than average incomes.
A rapid increase in energy costs, particularly the wholesale price of gas, has been a key driver of the recent increases in inflation. Housing and household services (which include electricity and gas) and transport (which includes motor fuels) contributed to over half of annual CPIH (Consumer Prices Index including owner occupiers’ housing costs) inflation in July 2022.
Although increases began in early 2021, this year is likely to be remembered for the sharpest drop in household incomes on record, thanks to a dramatic surge in inflation.
In 2022, all food prices are now predicted to increase between 8.5% and 9.5%. This means that conversations around keeping food on the table and a roof over your client’s heads are more important than ever before.
Our role as financial advisers is key in having the conversations and talking protection in order to protect a client’s financial world and put in place an affordable robust structure of cover across the key areas of life cover, critical illness and income protection whether on a personal basis or as business protection.
So, how do we talk protection in a cost crisis?
With inflation up and the real value of wages down, maximising your client’s spending power and educating them on how to channel their money to best effect is paramount.
Our biggest role at the moment is to educate our clients:
- Go through accurate budgeting with your clients, including looking through bank statements – review standing orders and direct debits to identify any areas that could help save them money.
- Help them make honest decisions around where they spend their money to get the best value.
- Have open conversations regarding their finances, needs, concerns and goals.
- Encourage them to plan and consider the impact of “what-if” happening.
- Think about the messages we give to our clients and the language we are using around budgeting, pricing and value.
- Re-affirm and remind clients why they had put the cover in place originally and the financial hardships it is there to prevent.
If your client has existing policies in place for life cover, critical illness or income protection, try to focus on the value of this and not focus on the actual cost. Instead, highlight the potential cost of not having it.
Adviser attitude and approach is as important as the client’s.