Canadians who own life insurance products are much more likely to say that they value the advice they receive from their financial advisors compared with Canadian investors who work with an advisor but don’t own life insurance products, according to recent research from Mississauga, Ont.-based Credo Consulting Inc.
Furthermore, the research – which comes from the Financial Comfort Zone Study, an ongoing national consumer survey that Credo conducts in partnership with Montreal-based TC Media’s investment group (TC Media publishes Investment Executive) – suggests that clients who own life insurance are much less likely to consider switching advisors vs clients who work with advisors but don’t own life insurance.
“Life insurance is a ‘trust’ product – it’s a promise to pay out when you’re no longer here to enforce the contract,” says Ken Greenfield, director of tax and estate planning with Winnipeg-based Investors Group Inc. in Toronto and a former insurance advisor. “You’re not going to leave your family in the hands of someone you don’t trust.”
Among the Canadians Credo surveyed as part of the study, 22.2% of those who own life insurance rated the value of the advice they receive from their advisors as “great” – the highest ranking possible. In comparison, just 18.3% of survey participants who don’t own life insurance rated the value of the advice they receive from their advisor as “great.”
In addition, only 13.4% of Canadians surveyed who own life insurance indicated that they may be considering seeking another advisor, whereas 16.5% of survey participants who don’t own life insurance indicated they may be seeking another advisor.
Advising clients on their risk-management needs, including life insurance, requires engaging clients in what can be sensitive or difficult conversations that touch on many aspects of their lives.
“The conversations that go on between advisors and their clients in preparation for underwriting of those [insurance] contracts can be very personal,” says Greg Pollock, president and CEO of the Toronto-based Financial Advisors Association of Canada (a.k.a. Advocis). “In many cases, the advisor has to ask a client [about life insurance] two or three times because people initially can be hesitant [to talk about it]. But if the advisor builds up the relationship over time – builds up that trust – then the client becomes very confident with that advisor.”
Life insurance also is a key component of many estate planning strategies, particularly those for entrepreneur clients looking to pass on a business to the next generation – and in a way to do so in a tax-efficient way.
“Life insurance is a financial contract that’s going to give [clients’ heirs] liquidity to deal with any tax liability that arises and provide them with almost a matching [of payout to liability],” Greenfield says.
Adds Pollock: “Many clients might purchase a life insurance product in their 40s, and then 10 years later increase the [payout] amount; and 20 years later, increase that amount again. Why? For estate planning purposes, because they recognize that if they don’t [increase coverage], whoever is left behind is going to be left with a fairly major bill.”
Discussions between advisors and their clients on insurance issues – including on life insurance – can create bonds of loyalty as clients begin to view their advisor as a trusted counsel on a wide array of financial matters, Pollock says: “Clients will discuss broad family issues, health issues or ask: ‘Should I buy a new house? What do you think?'”
Clients who’ve gone through the process of sharing personal financial and health information to help determine how life insurance fits into their overall financial plan might not be eager to leave their current advisor for someone new, particularly if they’re happy with the advice they are receiving, suggests Jim Ruta, executive vice president with the Covenant Group in Toronto: “If you’re a client, you’re thinking, ‘I don’t want to have to tell someone all this stuff again’.”
According to Credo’s research, 4.5% of Canadians surveyed who own life insurance rated the value of advice they receive from their advisors as “poor” – the worst possible ranking – vs 6.6% of survey participants who don’t own life insurance rating the value of the advice they receive as “poor.”
Among other findings from Credo’s research on insurance and Canadian consumer attitudes toward financial advice, the survey found a positive relationship between clients who own segregated funds and their willingness to refer their advisors to others.
In fact, 29.7% of Canadians Credo surveyed who own seg funds indicated they were very likely to recommend their advisor to someone else. In comparison, just 20.9% of survey participants who don’t own seg funds indicated they were likely to recommend their advisor to others.
In addition, 10.6% of survey participants who own seg funds indicated they were considering switching advisors vs 15.7% of survey participants who don’t own seg funds.
Seg funds, which offer capital protection with an investment component, aren’t right for every client, but can be ideal for those who need to address certain financial or estate planning issues. That’s where the value of advice comes in, says Sara Gilbert, founder of Montreal-based Strategist Business Development.
“Often, clients see insurance as just an expense: something you need to have, but don’t really want,” Gilbert says. “But with seg funds, there’s the investment portion; there’s growth potential. This gives meaning to the product.”