Understanding your clients: Helping them prepare for a future beyond COVID-19

By Christina Bentley on April 13, 2020

Helping your clients find financial security

Until recently, many of your clients would have been rejoicing at the fact that their pension savings were growing steadily. That took a turn when COVID-19 emerged.

While being in lockdown has left many feeling anxious about the future, we can take comfort in what we can control.

As a financial adviser, you have the chance to give your clients this control. You’re there to help them as they progress through different life stages and events.

By better understanding where they are in their journey, you can help them find a path to financial security.

While stock market instability affects everyone, the age of your client affects how much of an impact this has on their lives. We’ll take you through the common concerns of all your clients, depending on their life stages and common circumstances.

Your client has already retired

Clients in this position will feel like they’re trying to patch up a leaky bucket – especially if they’re relying on a drawdown fund. With your help, they can reduce their losses and start to plan ahead.

Your client will need extra reassurance at this stage, so remind them of your continued support. It also helps to be patient and listen. They may need to vent their concerns before they can consider tackling the problem.

Once you’re both ready to move forward, help them shift their focus from the present to the future. One way to do this is to explain strategies such as the three-bucket approach. Because it focuses on the short, medium and long-term, it could help them restore balance:

  • The short-term bucket includes cash investments to fund the first few years of retirement. This bucket will only include cash which is used as spending money.
  • The medium-term bucket looks ahead to help the client preserve capital. It can include cash but includes stable, low-risk investments.
  • The long-term bucket is untouched for a longer period to fund the rest of the client’s retirement. Here, they will include their remaining income to fund riskier investments such as shares or property that will have time to grow.

Once you’ve established a plan for your client, you can help them revisit each bucket and continue to plan ahead.

Annuities and final salary pensions

The crash has had a negative impact, but those with annuities and final salary pensions will have some security. The key to making it through this is to advise your clients to make fewer (or, better yet, no) unnecessary withdrawals from their pension pots.

You can help them revisit and streamline their outgoing finances, which will have no doubt changed since the lockdown. By reallocating funds that are not needed for travel or shopping, you can encourage them to keep more in their pension pots.

Your client is at retirement age (65+)

If your client is ready to retire, you can help them make better decisions to soften the hit on their pension pot.

Defined Contribution (DC) schemes

DC pensions will have no doubt suffered losses from COVID-19’s effect on global stock markets. These schemes also aren’t covered by the Pension Protection Fund (PPF).

This may lead your client to feel that all is lost, but there is a silver lining – even if your client’s employer has gone bust.

You can reassure your clients by explaining that DC schemes are generally run by third-party pension providers which are regulated for their protection. Whatever happens, money must go into their pension scheme and will be safe even if their employer isn’t.

Defined Benefit (DB) or final salary schemes

DB schemes are protected under the PPF. In the unfortunate case that your client’s employer enters insolvency, they’ll continue to protect your client’s pension. This process is a lengthy one, lasting anywhere from 12 to 24 months.

If your client is retiring now, they’ll receive their full pension payment. The downside is that your clients will lose 10% of their DB pension income in addition to the restrictions of an annual cap. To date, the government has set this to £40,020 for over 65s and £36,018 for people who have not yet retired.

You can help your client by reassuring and reminding them of the security offered by DB pension schemes. They offer pensioners a guaranteed income with no investment risk.

Despite these assurances, their pension pots are likely to have suffered. In this case, you can suggest that they:

  • Delay their retirement plans until the markets have bounced back.
  • Ask them if they have extra income, savings, investments or assets they could support themselves with while their pension recovers.
  • Confirm whether their pension was transferred into its default fund. If so, their cash will be moved to lower risk government bonds and other assets, which will soften the blow.

Your client is 56-65 years old

As they count down to retirement, clients in this position may worry that the crash will deplete a big chunk of their pension pots. Here are their common aims:

  • Accessing their retirement funds
  • Considering options for assisted living
  • Downsizing into their retirement homes
  • Estate planning

The good news is that they’re in a better position than they might think. Again, the key is to encourage them to think long-term so they can start planning ahead to retirement. Here are a few ways you can help:

  • Ask if they’re willing to postpone their retirement plans: This can give their pots time to grow with the market.
  • If they can postpone retirement, ask if they could contribute more to their pot: This could benefit them when the market picks up.
  • Suggest a savings and investments review: Besides a fuller pension pot, transferring these to their pot can also give them a tax-relief bonus.

Your client is 46-55 years old

At this point, your client should have healthy savings to see them through their golden years. But, they will have concerns about how the stock market will affect their quality of life in retirement. Their goals and life changes may include:

  • Making a career move – a complete change or step down
  • Putting their children through university
  • Offering financial support to their family
  • Caring for elderly parents
  • Divorce and separation
  • Downsizing after their children leave the nest

As a financial expert, you can give your client the reassurance that with time, their pensions and investments will recover.

Remember that some customers may have been projecting their finances into retirement and the volatility of the financial market is threatening to push their goals back a few years. Knowing exactly how much they have and will need in the future is integral, so steer these customers towards short-term financial planning.

Your client is 36-45 years old

Clients at this age will have a better view of their futures. They may have accomplished many of the life goals they were aiming for, such as getting married and starting a mortgage. Unfortunately, this means they’ll likely feel they have more to lose in the midst of a bear market and COVID-19. Here are a few common goals they may have:

  • Renovating their first home or buying a second property
  • Increasing pension contributions and savings
  • Paying off their mortgage and/or other debts
  • Setting up funds for their children’s education

Your advice can help your client see the bigger picture. Invite your client for a video conference to revisit their goals and spending to help them move forward. Try to remind them that a few important decisions made now will have great effects on their financial future.

Your client is 26-35 years old

You are likely accustomed to dealing with older clients, but people aged 26-35 can be eager searchers for financial advice. COVID-19 may be the first financial event to affect them directly. This means they’ll be open to guidance on how to set themselves up for future events, giving their income and pensions a better chance to grow.

At this stage, your client is carving out their own path in life. This can be an intimidating process in itself. The future is uncertain and the coronavirus will most likely increase their anxieties. Your client will have many goals in mind during this stage such as:

  • Buying their first home
  • Getting married
  • Starting a business
  • Climbing the career ladder
  • Starting a family
  • Saving for a rainy day

They’ll likely be most concerned about job security. Check-in with your client and listen. Let them know they’re not alone. By helping them form a plan of action, such as setting up an emergency fund, you can give them peace of mind.

Offering support to all your clients

The best advice you can give your clients is to stop and consider their options before making quick decisions. Remember, the value you can bring isn’t limited to financial advice. By offering your continued support, guidance and understanding, you’ll build a stronger relationship.

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