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Three Overlooked Questions That Can Affect a Financial Plan

It’s always a good time to sit down with clients to review their financial goals and plans. But the new Trump administration gives advisors an extra reason to touch base with clients who may be wondering how this change may impact public policy and the financial markets. 

The change in administration also may leave clients questioning their financial plans and insurance strategies. Addressing client concerns and asking thoughtful questions allows you to deepen your relationship with your client, provide additional value and create a quality financial plan that meets their comprehensive needs.

Refocusing clients on their existing plan by revisiting goals and expectations is a good way to encourage clients to participate and take ownership of their plan. Once you have identified any major changes such as retirement goal updates, use this opportunity to take the conversation and the plan one step further by talking about risks.


Risk categories

Clients often are unaware of the severe impact certain risks can have on their financial plan. This lack of awareness represents an opportunity for financial advisors, but where do you begin?

The typical risk tolerance questionnaire primarily is focused on market risk — more specifically, the client’s tolerance for losing money. However, a quality financial plan takes the definition of “risk tolerance” further to include a client’s longevity, liquidity, health and inflationary risk. Stepping outside the common boundaries of the common risk tolerance questionnaire will help advisors set themselves apart. 

Our firm conducted research on more than 1,600 financial professionals, reviewed data from 1 million plans and gathered insights from 40 financial industry thought leaders. All are in agreement that there are three primary risk categories that should be explored in a quality financial plan. See the chart on the next page for specifics from the survey. 

Our research further showed that these categories and specifics frequently are overlooked while addressing the risks in a quality financial plan. Without the proper analysis, these factors can have a significant impact on the plan’s accuracy and the appropriateness of investment recommendations. 

What is really surprising, shown in the chart below, are the risk categories that can be financially devastating to households that are not deemed required for all client plans. 


Ask the right questions

Talking about risks is never easy, but advisors are in a particularly good position to prepare families for the unexpected. Again, this type of information gathering goes beyond the typical questions on a risk tolerance questionnaire. By asking about potential risks, you will get to know your client better, and may uncover additional financial needs. Asking these types of questions also helps to gain a more holistic understanding of a client’s financial situation and will give you more information to make recommendations that are in their best interest. Here are some questions that will uncover potential risks.


Do you have life insurance?

Ninety-seven percent of advisors surveyed said this was a necessary question. However, aside from life insurance-centric firms, fewer than 10 percent of financial plans actually included a life insurance needs analysis and only 22 percent of financial plans included life insurance.


Do you have disability insurance?

Ninety-one percent of advisors surveyed said disability insurance is an important element of a financial plan. A severe injury right before retirement could create an unrecoverable situation for any household, and probably presents one of the most significant risks to any financial plan. Disability insurance is important for everyone, but it is extremely important for single-income-earning couples. Of the 1 million plans reviewed, 41 percent belonged to single-income-earning couples but only 3.5 percent of plans included disability insurance.


Do you know what your property and casualty insurance covers?

Twenty-five percent of advisors surveyed said that a property and casualty discussion is not necessary. This is concerning, as a 2015 Gallup study showed 70 percent of Americans and 80 percent of baby boomers own their own homes. If someone is injured on your client’s property or your client is in an auto accident and is sued for damages beyond what auto insurance covers, their retirement savings can be considered an asset for purposes of paying damages. This can derail a retirement savings and investing plan.


Communicate the risks

Take the time to explain the purposes for each question. Describe how a client’s financial situation potentially will be affected if the risks these questions address are not accounted for.

Clients who understand the reason for a recommendation are more likely to embrace it and understand its importance to the overall financial plan. Asking and discussing these questions, and putting appropriate insurance policies in place, will lead to a quality financial plan while elevating the advisor-client relationship.


Bob Curtis is the founder of PIEtech, the creator of MoneyGuidePro, software for the financial planning industry. [email protected].

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