Whilst it’s important to regularly look at your savings and investments, it’s also vital to take stock of your lending commitments too and the security in place to protect these should circumstances change. By either not taking the time to ensure adequate and appropriate cover is in place or seeking the wrong support, guidance and advice, this could prove to be a costly decision.
Our clients are farmers operating a Partnership who are also using the accounting services of Armstrong Watson. Our Financial Planning Consultant was initially introduced to discuss their respective retirement planning arrangements. During the initial meeting, it was established that the Partnership had significant land assets, including a portfolio of residential properties. It was also identified they had four loans arranged through their Bank which had been set up at different times over the last few years. There were some protection policies already in place to protect the lending in the event of death, again set up through their Bank.
Upon reviewing these policies it was identified that they did not fit their objectives both in respect of the term of the policies and the sums assured required to protect the total borrowings outstanding with the Bank. The way the current protection arrangements were set up meant their ability to service the total debts across all of the loans would be severely impaired if one of the two Partners was to pass away prematurely.
Following our initial discussions, it was agreed this was the priority to address rather than the initial intended focus of their discussions. The retirement planning of the surviving Partner would be irreversibly disrupted if the other party passed away with significant debts still outstanding.
During the discussions, the clients also informed us that they had already had a discussion with their Banks adviser (in this instance an adviser who was only able to recommend the products of one company), who had provided a recent quote to protect their additional borrowings. On further investigation, the costs involved for this advice appeared excessive and there were also other options available to the client to ensure suitable cover was in place which better matched their budget and requirements.
The quote also outlined, which is not uncommon, that this recommendation was generating approximately £19,000 of commission for the Bank if the policy originally proposed was taken out.
It was recommended that the client take appropriate action to ensure that they were both fully protected should one of them pass away so the survivor would have no problems in respect of meeting the total liabilities of all four loans now in place. Following an agreement with the clients, and after a full assessment of their requirements, an alternative proposal was prepared to recommend four separate decreasing term assurance policies, all with different sums assured and terms to match the various lending arrangements. This means the sums assured decrease in line with the loans as they were being paid each month, each to end when the respective loans were due to be repaid.
At Armstrong Watson Financial Planning and Wealth Management, we have access to the whole of the protection market as Independent Financial Advisers, and we also have the ability to work, where a client chooses to do so, on a fixed fee rather than a commission basis, for protection advice we provide to our clients. In this scenario the clients were willing and able to pay a fee for our advice rather than for commission to be paid by the product provider. In this instance, based on the level of work involved to provide the advice, the fee was less than 20% of the commission they would otherwise have paid to the Bank. This also provided the clients with significant savings on a monthly basis when compared to their other option.
In this advice scenario over the full term of the policies, assuming they ran to the end, the savings to the client would be in excess of £58,000.
Even more importantly the Partners are now fully protected for all their outstanding borrowings giving them peace of mind that should either of them die the full outstanding borrowings, totalling in excess of £1 million, would be settled.
As part of a financial review, we look at all areas of a client’s financial planning to help them prioritise what are the most important issues to address, either for their personal situation or, if applicable, from a business perspective. In this instance, once the protection advice was set up we were then in a position to discuss with the clients how to take forward their original retirement planning priority.
Our key priority, when providing protection advice to our clients, is to ensure, by being able to access the whole of the market, that we can identify the best solutions and providers to fit a client’s circumstances. This also allows us the flexibility to work with clients on a fixed fee basis, should they prefer, for protection advice which can often also help to achieve significant costs savings when compared to other potential solutions.
At Armstrong Watson, our quest is to help our clients achieve prosperity, a secure future and peace of mind. We are Chartered Independent Financial Advisers, and can help to review both business and personal clients’ protection and wider financial planning and wealth management requirements.