by Tony Vidler 
Financial planners who do not tackle risk management issues thoroughly for clients do the clients a disservice. A good financial planner must be factoring personal risk management into their planning for clients.
Perhaps that is a little challenging to some, however too many financial planners simply do not include risk management in their suite of advisory services to clients. Many are investment advisers only – which is not a bad thing in itself at all, until that positioning and skillset gets misrepresented as a “holistic financial planning” service. It seems that the majority who downplay the necessity for risk management, or ignore it entirely, do so because of their desire to avoid being seen as insurance salespeople in the clients eyes. Or perhaps it is too hard. Or maybe it is just not cool”. Whatever…the result is the same: a lot of “financial planners” who say they do comprehensive planning ignore one of the fundamental tenets of creating a comprehensive personal financial plan.
Let’s do a quick recap on what insurance actually is, and does, for clients.
It is simply a method of transferring catastrophic financial risks that the client cannot afford to retain. It is this simple:
Clearly if clients can afford to retain risks then they should do so. Equally, if the risks being considered do not make sense to transfer to another party as they can be managed or mitigated or avoided entirely, then transferring via insurance is not a suitable strategy.
But it should be considered in every plan in order to be sure that it is not required.
What triggered this particular discussion point was a slightly testy discussion with a very experienced financial planner who adopted the position that it was not his role to consider insurance for clients. The majority of his clients were around the retirement age, and his general expectation was that he would be working with each of them on average for a further 15 years of so. His job was portfolio management and making the funds last the rest of the lifetime he said.
So I asked how he goes about ensuring existing assets are protected…he replied that he does provide estate planning advice. Except it turned out that this comprehensive planner doesn’t actually do that at all. What he does do is spot potential estate planning issues that might require advice and then refers the matter on to another professional to deal with. Not exactly handling the matter, but then, not leaving the issue un-addressed either. In itself that is an absolutely acceptable and professional method of handling a highly technical aspect of the personal financial planning process.
But the planner doesn’t do that with risk management. It simply remains un-addressed in any way by the planner.
So what about protecting the value of the physical assets NOW for the existing owners who want to continue enjoying them for 15 years or more? What about considering the impact of major medical costs….and the impact they could have upon the capital preservation strategies for the clients? Might it be that health insurance should be considered as a portfolio/capital protection strategy? Surely these factors are strategically more important than a bit of asset class tweaking each quarter?
I would think that the objective for most consumers in engaging a financial planner is the need (or desire) to create structure, certainty and as much accuracy as possible about their financial future.
Creating certainty wherever possible means being prepared to consider the uncertainties. Identifying risks beyond investment volatiliity that the client has a strong probability of encountering, and then selecting the optimal strategy for handling that risk is a core requirement of planning – even if the optimal strategy is “transfer” via insurance. Opting out of providing advice in that area because of the advisers own ego-sensitivity of “not wanting to be seen as an insurance person” is not serving the clients’ interests.
Without incorporating risk management into the personal financial planning process how can a good financial planner be sure they are even close to providing certainty within the plan they are preparing?
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