The old adage ‘a jack of all trades, master of none’ appears to hold true within the realm of financial planning.
Some industry pundits believe non-specialist advisers run the risk of merely offering a watered-down advice service to clients if they attempt to be everything to everybody.
PSK Advisers risk specialist Des Roll suggests these non-specialist ‘jack of all trades’ advisers attempt to cater to all of a client’s needs out of fear of losing the client.
Roll says financial advisers that don’t tend to specialise in either personal super, corporate super, retirement planning or risk, but offer advice to clients in any of the aforementioned areas are advisers “that don’t want to let go”.
According to Roll, these individuals — usually ‘old school’ advisers — feel threatened in passing on their clients to specialist advisers, in areas such as risk.
“I guess this throws fuel on the whole ‘who owns the client’ debate, with some people thinking they may lose their client if they have contact with any other service providers,” Roll says.
However,Associated Plannersrisk adviser Ian Satill stresses that the provision of risk insurance can be extremely complex and therefore it may be in advisers’ and their clients’ interest to refer them to a specialist.
“Risk is very complex. You can’t be all things to all people and I certainly can’t be a specialist in both [securities and risk]. Better planners specialise in either one or the other,” he says.
According toCentrestone Wealth Managementco-founder and risk adviser Jon Pillemer, the majority of planners in the market tend to focus on securities, with few focusing exclusively on risk.
“There are some which offer both, but it is my view that it’s difficult to be a specialist in both areas, so most focus on retirement planning,” Pillemer argues.
Satill also believes most planners tend to avoid focusing on risk insurance in favour of providing retirement planning to clients because it is difficult to master both areas.
“It’s something that most planners avoid mainly because, and quite rightly so, it is extremely hard to be an expert at both risk and planning. If you try and be a ‘jack of all trades’ you become a master of none,” Satill says.
“We do it week in, week out and therefore have a process in place, but a lot of planners are not really comfortable with the risk market as they’re not dealing with it on a regular basis and therefore tend to steer clear altogether,” Pillemer says.
The added complications surrounding underwriting also influences an adviser in deciding whether to provide risk insurance or retirement planning services, argues IMR Financial Advisors principal Ian McRitchie.
“With risk you’ve got the whole issue of underwriting, because if you come back with an unfavourable outcome on a package — that is, the client may have had a back injury two or three years ago that prevents them from receiving full cover in the event of an accident — then it can be very damaging to the relationship with that client,” McRitchie says.
Despite this, Denis Cubis, an insurance adviser specialising in risk with Cubis & Partners, suggests that the underperformance of investment markets over the past few years has seen the entrance by non-traditional risk advisers into the area.
“With the pressure on cash flow, some traditional financial planners are now offering risk services to clients to improve cash flow rather than as part of a long-term career move into the area.
“When the money was flowing in the door from redundancies, as investment markets were up, financial planners just sat there and watched the money pour in. Now that financial markets are experiencing less than halcyon days, some advisers are going out and writing risk, but they’re doing it on the wrong assumptions,” Cubis says.
However, Cubis believes this particular trend is only fleeting, because “when investment markets pick up again, these advisers will abandon risk and go back to their oldmodus operandi”.
In the meantime, he suggests the industry could experience a rise in the number of law suits if advisers, not fully aware of the nature of risk insurance, offer flawed contracts to clients.
“Unfortunately, we live in a litigious society and I believe there’s going to be an increasing tendency of people running to their lawyers if something goes wrong. The lawyers will look at the insurance and if that’s found to be wanting, I don’t think a court will be too sympathetic towards the financial planner in question,” he says.
However, despite all the issues, nobody doubts the importance of risk insurance.
“If you have a plan for a client, the only thing preventing him [or her] getting there is their health, and for individuals in the accumulation stage, it is very important for them to have insurance to protect their income stream and allow them to reach their financial goal over the long-term,” McRitchie says.
Income protection, McRitchie argues, is essential, as an individual may have a number of business and investment obligations they must meet in order to reach a particular financial goal they have set themselves.
Apart from income protection, McRitchie also highlights the benefit of trauma cover, as it pays out a capital sum on the diagnosis of about 35 illnesses, such as cancer, heart attacks and so on.
“The foundation of any financial plan is to have life insurance, trauma cover and income protection. And what we’re essentially doing with a financial plan is looking after families and protecting them if the main breadwinner can’t work for a temporary period of time or is diagnosed with a serious illness,” he says.
Satill agrees there will always be a need for risk insurance.
“Fortunately in life the one thing that’s guaranteed is death … while there are taxes, there’s more death than taxes — some people manage to avoid taxes, but nobody can avoid death,” he says.
