An Important, Often Overlooked, Risk to Clients
I’ve often heard it said that it is very difficult to be a generalist as a financial planner. One reason may be that there is a tremendous amount of information with which you must stay current. Being a financial planner has another challenge. Creating quality financial plans for affluent and high net worth clients can be a very labor intensive, time consuming process. Sure, there are software applications which allow the planner to get in and out of quickly, but how comprehensive are they? Allow me to digress a moment.
This week I spent part of my time completing my continuing education for the CFP mark. I found a wonderful resource called CE OneSource. As an alum of The College for Financial Planning, I was entitled to a discount. So for just over $120, I gained access to approximately 50 online courses for a full 12 months. This program will allow me to fulfill my CE requirements for the current cycle, which ends on November 30th, plus the following cycle, which begins on December 1st. It includes courses on financial planning, estate planning, investment planning, income tax planning, insurance, and ethics. You work at your own pace and receive your grade immediately upon completion of the final exam. The CE credits are reported each Monday. In short, it’s a great way to complete the required CE and learn something in the process.
Well, as I was studying the course entitled, “Risk Management and Investment Issues for High Net Worth Clients,” a thought occurred to me. It brought back memories of when I was enrolled in the CFP study program. Since risk management is such a key issue, why don’t more planners examine clients P&C insurance coverage? From personal to business liability, the risks of this select group of clients are far greater than that of Middle America. Since this is the market we seek to serve, shouldn’t we be discussing this? I think so. One good point brought out in the study material was “do the client’s policies coordinate well?” For example, let’s say the homeowner’s policy includes personal liability coverage up to $250,000. Does the client have an umbrella liability policy and, if so, what is the deductible? What if the deductible was $300,000? Then, the client would have a $50,000 risk exposure between the two policies, since the first policy stops at $250,000 and the umbrella policy begins at $300,000.
As advisors, I believe we need to be looking at this. The problem is that this is a lot to do for a one man shop. Ultimately, I hope to partner with other like-minded advisors to create a quality team approach to better serve these clients.
The property and casualty program, Certified Insurance Counselor, is filed to provide CFP credits in certain states. The site is: http://www.scic.com/
Spending a couple of days going through the auto, home and umbrella policies can be a real eye opener for planners.
Is it a true umbrella policy or just following-form? Is UM/UIM excluded or limited in the umbrella? Notification requirements (may be critical if umbrella is with another company besides auto or home)?
Mike,
Interesting that you should post this. On October 11th I presented at the Financial Planners Conference in Anaheim CA. My program was “The Missing Piece of Financial Planning – Personal Property and Casualty”. The program was a review of what questions to ask, what exposures to look for and major problems with the P&C of High Net Worth Individuals. I specialize in a fee based review of Personal P&C. I agree that nobody can be an expert in every area. That is why I narrowed my focus.
One of the larger gaps is when property is transferred to a Trust or other entity and the insurance agent is not notified. This exposure could create a situation where there is no insurance on the house, now owned by the Trust, and no Liability for the Trust in the event of a lawsuit.
Email me if you want to chat.
brian.boak@singernelson.com
Brian
Mike
You are so right. For more than 20 years I have been speaking on the subject and averring that financial planners and wealth managers do not spend enough (if any) time on the subject. How can we say we are advising on risk management if we do not address this issue? I’m not talking about merely advising a client about deductibles and umbrella insurance, but comprehensive P&C consulting. We do it and we’ve developed the in-house expertise.
Two years ago I spoke at a break-out session at the AICPA Advanced PFP Conference along with an experienced P&C insurance broker who understands the needs of high and ultra-high net worth individuals. It was a great primer on the subject for advisors (if I say so myself). Of the more than 500 attendees at the conference perhaps 20 advisors showed up for this session. They were feverishly taking notes next to copies of our ppt. slides.
A few weeks ago I was turned down as an expert in a case against an advisor dealing with P&C issues because I said that I couldn’t (wouldn’t) testify that it wasn’t the role of the advisor to look into this area.
Mitch
How involved or detailed do you get with analyzing a client’s P&C coverage? I’d be interested to hear what you cover.