‘Irresponsible’ for mortgage advisers to arrange liabilities without discussing income protection
As an income protection advocate, I was recently invited by PRIMIS mortgage network to talk to fellow advisers about the importance of maintaining regular income and how income protection should be viewed as a long-term financial resilience tool, rather than just a mortgage protection solution.
In the end, we hosted two sessions speaking to over 400 advisers. During the sessions, I used a logic-based argument challenging the conventional approach to protection advice adopted by many mortgage advisers - which is often centred around protecting against a specific liability rather than the very thing that facilitated the borrowing in the first place: the income.
I explained how income protection should always be at the top of the priority list for any discussion given the number of potential eventualities it protects against. Although somewhat provocative, I also claimed that it was irresponsible of mortgage advisers to arrange liabilities without first discussing the sustainability of the income being used to apply for the debt and how best to protect it.
It seems ludicrous to me that advisers focus on insuring the golden egg, rather than the goose that lays them.
I explained how by protecting their income, a client is also taking steps to protect their credit score and ring-fence their deposit funds, both of which would likely be impacted should they fall ill and find themselves unable to work during the house-buying process.
My primary goal wasn't to be critical of advisers but to encourage them to look at protection in a totally different way. Not as something that is simply bolted onto a mortgage sale, but an integral part of their mortgage advice process as they consider the overall financial resilience of their client - both now and in the future. This approach doesn't just protect the clients but the advisers' own business too, given the ongoing reliance on mortgage transactions proceeding.
Our job is to protect our clients as comprehensively as possible. Considering a myriad of possible eventualities, we are expected to offer a solution that provides the client with the best overall package in terms of cost and risk.
As advisers, I believe we place too little emphasis on the importance of maintaining regular income. For most people, their income is the means by which they pay for everything. Not just their mortgage or rent but everything else such as groceries, utilities and lifestyle expenses including other insurance contracts.
Whilst a decreasing term critical illness plan, for example, would possibly clear the mortgage debt in the event of serious illness, what about the ongoing household expenses? Worse still, this policy offers a reducing benefit at a time when the risk of suffering a serious illness is increasing.
Income protection provides something constant. Regardless of changes to their mortgage term or amount, the client will receive a regular income that can be used to meet their repayments and other expenditure, should they be incapacitated. If the client suffers an illness or injury mid-term you won't be faced with the headache of trying to find favourable replacement terms for their mortgage-linked critical illness plan.
To be clear, I'm not suggesting we stop recommending critical illness contracts at all. I simply believe that protecting income should always be the priority.
Our reliance on regular income has never been more apparent than throughout this current pandemic. To avoid financial disaster, the Chancellor introduced the furlough scheme to provide a lifeline to millions of UK workers in the form of a regular income, as a percentage of their earnings, to enable them to meet their liabilities, pay their bills and support their families whilst they remain unable to work. Sounds just like an income protection plan to me!
The similarities between the furlough scheme and income protection got me thinking about how we, as an industry, need to do more to make the solutions we recommend to our clients more relatable and easier to understand.
As a simple example, anyone who has enjoyed the short-term financial security of being furloughed - knowing that their household bills are still being taken care of - will undoubtedly see the value of an income protection policy that offers similar financial support but for any illness or injury that stops them working and all the way through to retirement.
If you haven't yet connected with me on LinkedIn, I invite you to look at my feed. I recently produced a mini-series of videos aimed at making income protection more accessible and relevant, using real-world examples such as the one above and highlighting the need to focus on income first and foremost.
Whether you are new to protection or a seasoned adviser, I implore you to dispense with any prejudice you have and reconsider how you approach and prioritise your client protection discussions.
To help you with this challenge, I have compiled a list of my top tips to help you to become a more effective and relatable protection adviser:
- Adopt a holistic mindset
Try to move away from a single event mindset and into one that instead considers as many potential risks as possible. Then offer your client the most comprehensive coverage you can.
- Focus on effective prioritisation
Have a clear process for prioritising cover needs and work through it in order with the client signposting the different risks as you go. I always start with income protection and family income benefit and then move on to specific liabilities.
- Go outside your comfort zone
Take the time to learn your craft and all of the solutions you can offer. The more knowledge you have, the more credible and confident you become. Clients then value your expertise. Don't limit yourself to that which you know or that comes easy.
- Don't insult your client's intelligence
Avoid using disruptive or aggressive sales tactics. Treat your clients with respect and talk with them openly and passionately about the potential risks and how you can help to protect them.
- Put things into relatable context
Try to explain the product in a way that is easily relatable. Provide examples of how the benefit might be used (I.e. to pay the mortgage and put food on the table) which allows the client to visualise the benefit. I used the example of the furlough scheme and its similarities to income protection above.
- Remove any stigma
If you are currently working with any preconceived ideas or bias when it comes to protection solutions, then you need to stop. This makes you ineffective as you can't see the bigger picture. Throw any stigma in the bin and start again. You'll be a better adviser because of it.
- Show passion, enthusiasm and sincerity
People buy from people. Or more accurately, people buy in to people. If you come across as genuine and are passionate about the need for protection, the client will logically feel the same way.
- Do a proper job
This might seem obvious and I'm sure most of us would like to assume we're doing a proper job. But are you? Are you considering the clients lifetime protection needs or do you tend to focus on decreasing term critical illness because it's the path of least resistance and easy to sell off the back of a mortgage?
- Stop selling to start selling
This might seem counter-intuitive but in order to be an effective adviser, you need to view the protection conversation differently. You're not selling anything. Your job is to identify and signpost the risks, and then expertly identify and explain suitable solutions, allowing the client to ultimately conclude the product is an essential requirement for them.
- Get a protection buddy
Find someone outside of your organisation with whom you can share best practices, successes and techniques. Ideally someone who possesses skills that you lack. This will force you to up your game and will avoid you being negatively influenced by other advisers within your firm.
- Anticipate objections
Learn to anticipate objections. Overcoming objections is a genuine opportunity to learn. I try to predict what objections a client may raise and aim to cover these off before I finish my presentation - thereby limiting any negative responses.
- Introduce income protection at the earliest opportunity
Discuss the need for income protection as soon as possible, either when assessing affordability or when capturing their income details as part of the fact-find. Explain how income protection offers security now and in the future and is not related to the mortgage. Don't forget, any mortgage you are looking to arrange hinges on them receiving regular income.
Matthew Chapman is business & practice protection expert at Plus Protect