Thomas Hodgson, a partner at Clearwater Wealth Management, principal partner practice of St. James’s Place Wealth Management, argues that robo-advice offerings often miss the ability to truly understand what a client is looking to achieve and how one individual’s view of risk and loss may differ from someone else.
In Hodgson’s view it is the questioning and time taken by good advisers to really understand clients’ priorities that differentiates them from a computer algorithm.
When it comes to insurance, this is often a misunderstood and neglected area that most families should really spend more time reviewing. Most people see it as something they have to do, whether it be because family members or colleagues have it – but not something they want to do. The view being, every month that goes by, and I’m fit and healthy, that’s effectively money wasted.
This should really be looked at a little differently. Firstly, given the life expectancy and mortality rates in the UK (as history goes we live in a relatively safe period!), life insurance itself is incredibly good value.
The chances of dying during your working career, is relatively small, and therefore life insurance companies will pay out generously in that event.
Secondly, for those who are on good incomes, this is the one scenario that could de-rail their families from achieving the financial independence they are working towards. Being able to insure against that is something which should be pursued, not shied away from.
The most common areas to focus on are life cover & critical illness cover (CIC).
Although CIC is many times more expensive that life cover, it’s for the very reason that it’s far more likely to be called upon. Whilst mortality rates are relatively low in the UK, the number of people suffering serious illnesses; cancer, heart attack, stroke etc. appears to be on the rise, and from some of the numbers quoted, are quite frankly scary.
This is where the robo-adviser and online do it yourself approach to insurance creates an interesting scenario.
It can be far better for someone to take a form of advice, whether it be robo or human, than none at all. But the trick often missed with the robo advice offerings, is the ability to truly understand what the client is looking to achieve, and how one individuals view of risk and loss may differ from someone else’s.
Value of insurance cover
There are wide ranging perceptions of the value of adequate insurance cover. Some people are very keen to make sure as many of the uncertainties in life can be protected against, whilst others as mentioned above are more likely to try and avoid the issue and happy to leave it to chance.
That’s absolutely fine – and quite natural to see different views – however, it’s not fine for people to avoid the issue because of a lack of understanding of what is on offer.
Whether an individual chooses to take a policy with myself or not, is entirely their decision, but either way, it’s important they understand why the adviser is recommending what they are, and what is on offer.
The biggest miss focus of attention for some people, is that they have been typically insuring against all their assets, but the most important one. They have car insurance as standard, and the rest of their life cover will usually be judged against the debt on their main residential home.
So, if anything was to happen to them unexpectedly, the life cover pay-out would give the surviving spouse the capital to pay off the mortgage.
This misses a big asset – yourself! For a 40 year old earning £100,000 a year, working through to age 65 – if we take an approximate net income of £60,000 per year, over that 25-year career, and inflation adjust it at current RPI (3.5% ONS May 2017), they would have earned a net income of almost £3.07m over their career.
Inflation at 3.5% means £60,000 today is the same as £141,795 in 25 years’ time. Scary – but a commonly overlooked area when planning around insurance.
This this example – if something happened at age 40, that’s potentially £3.07m his family miss out on.
Now maybe he doesn’t want to pay to insure against all of that, maybe he does.
But finding a good adviser who educates you to this way of thinking is important, however it’s the questioning and taking time to really understand the clients’ priorities which differentiates themselves from a computer algorithm.
Do you agree with Tom? Is face-to-face protection insurance advice typically better than robo-advice and online offerings? Email me your view and join the debate: Ronan.McCaughey@verdict.co.uk