With the current cost-of-living crisis affecting most people across the UK, financial advisers have a huge opportunity to show their value, as Liz Booth reports
We all know how the cost-of-living is spiralling – we see it in any visit to the supermarket, when we fill up the car with petrol, or when we check our latest energy bill.
Added to that, the cost of money is going up, with interest rates appearing to rise after every Bank of England meeting. In normal times, increasing interest rates would at least mean good news for savings accounts, however, we also read in national newspapers that the banks are simply not passing on higher rates to savers.
As The Telegraph reported:“No saving accounts come close to matching inflation, which reached a 40-year high of 9.4% in July. The top five-year fixed bond from Shawbrook returns just 3.4%. This means that the value of cash savings is dropping quickly. For example, while £10,000 saved in an average ISA at 0.76% would earn £76 a year, rising prices would eat away £790 of its purchasing power, effectively reducing the pot to £9,210 in real terms.”
But as the saying goes, ‘when the going gets tough, the tough get going’ and it seems there is a real opportunity for financial advisers not just to help their existing clients but to grow their customer base as more people recognise the value of financial advice.
The figures show that those without financial advice will do worse than those with support, but at times like this it can be hard for even those with good advisers at hand not to panic and change their plans.
Advisers at Ascot Lloyd stress to clients: “Remember, your financial adviser worked with you to create a financial plan that will meet your goals in the long term. However, you might feel that you need more income to get you through the cost-of-living crisis more comfortably.
“If you are retired, your day-to-day expenditure could be greater than you thought it would be at this stage, when you first mapped out cashflow with your financial adviser.”
Because it seems, many people are looking to their pensions as a quick and easy answer to accessing instant cash. However, Ascot Lloyd advisers point out: “There are ways to access income without having to ramp up pension withdrawals during a period of market decline. Equity release loans, for instance, unlock a tax-free lump sum of your home’s equity while ensuring 100% of the property remains with you as the owner. This is just one example.”
This is an option plenty of people are now considering, with equity release figures recently hitting new highs.
The key, whatever the individual solution, is to ensure your client trusts your judgement.
Greg Levine, managing director, sales and distribution at Vitality, believes: “Financial advisers can differentiate themselves during the cost-of-living crisis.”
Mr Levine’s tips for how advisers can show their value to clients right now include:
1 Highlight current trends in the macro environment
There is a lot happening in the world. Whether it is rising inflation, interest rate hikes or the Chancellor’s measures to help the vulnerable. These issues are no doubt playing on clients’ minds and featuring in the conversations advisers are having, as they look for guidance around social care, tax planning and long-term savings. Financial advisers are perfectly placed to stay on top of current trends to give clients the support they need.
2 Help your client ensure their money works for them
More than ever, people are looking to ensure their disposable income is going as far as possible. The majority of clients are going to be negatively impacted financially by the National Insurance (NI) levy, while the wealthier are getting pushed into higher tax brackets. This is where a financial adviser can help to ensure clients don’t fall short of future goals, especially where they might be looking to manage large sums of money as inflation rises.
3 Underline the need for financial resilience
Budgets might be tighter but having a conversation about financial protection is more important than ever. In the past, people might have expected to rely on cash savings, but with inflation higher than interest rates their money is less likely to go as far. It’s therefore crucial that clients fully understand the need for protection as part of any recommendation.
4 Deliver value from day one
Aside from the peace of mind and the reassurance financial advice can bring, intermediaries can set themselves apart by giving clients something they actually want to use. Most life and health insurance offerings only benefit clients either near to, or at the point of, claim. However there is an opportunity to deliver more than just additional services. Lifestyle benefits not only save clients money but also help them live a more productive, enjoyable life.
5 Don’t just protect them, make them healthier
Some life insurers might talk about wellbeing, but very few – if any – use behavioural economics to improve health outcomes and help prevent claims as a result.
A protection, health insurance or savings proposition that can help clients understand their health, access personalised tools, and form healthy habits through a behaviour change programme is not just innovative; it has revolutionised the market.
Another useful list of suggestions comes from Truly Independent financial advisers, which suggests three tips for your clients:
Going through spending with a fine-tooth comb can help find areas to cut back and save money in the long run. Keep an eye on the budget and make adjustments as necessary. Being able to see exactly where the money is going will help pin down where there can be savings and cuts.
When it comes to financial security, one of the most important things clients can do is to keep emergency savings aside. One method is to create a dedicated savings account that they only use for this purpose. Aim for clients to build up enough to cover between three to six months’ expenses, or as much as they can afford.
Pensions and investments
As many people across the country are feeling the squeeze, it’s more important than ever to make sure their finances are in good shape. One way to do this is by making sure they don’t touch pensions or investments. Drawing down on a pension or selling investments could leave them worse off in the long run.
Finally, all the advisers agree, clients must think about the long term when it comes to their finances and not be making short-term decisions which could jeopardise their long-term financial security.
Helping your clients
A 2022 study by Charles Stanley and Censuswide showed:
- 58% of UK adults are worried and losing sleep due to the rising cost of living.
- 48% of UK adults have never spoken to a financial adviser before.
- 41% of UK adults don’t fully understand the impact inflation has on the value of cash savings.
- 63% of women say they’re not confident that their finances can withstand the financial squeeze, compared with 47% of men.
Source: Charles Stanley and Censuswide 2022
Liz Booth is contributing editor of PFP