Has your client been mis-sold Life Insurance?

Why Knowing more about your clients’ past, will help more with their future planning.

 By Karl Cameron - Head of Legal at WLI Claims

As with many service industries, Independent Financial Advisory and Wealth Management is still a relationship business. The relationship you have with your clients will determine how long they remain your clients, and the better the understanding you have of their past and present financial situation and needs, the more value you will be able to add to that relationship.

The IFA sector has seen both huge growth and consolidation over the last few decades. The changes in regulation and technical advances in financial controls has reduced the barriers to entry in becoming an Independent Financial Advisor (IFA) and in turn, building up a solid client base.

One of the biggest challenges for many IFAs is how to effectively market their business and build their client book. Many are focused on their local region and personal network. For others, they collaborate with partners to form a business, or partnership of independent advisors, sharing the operational and marketing costs.

Historically, it has been this latter group of IFA businesses that have had the financial strength to buy up the books of those independent IFA’s who are retiring. Therefore, inheriting new clients and growing their businesses.

None of this is a lightning bolt insight. It has been happening within the industry for years. However, what is becoming clear is that, given all the financial and wealth management products and vehicles available today, IFAs (including wealth management specialists) are having to work harder, and dig deeper to understand the financial history of their clients.

Adding to the historical information needed, the increase in property prices over the last few decades, has meant that there is an ever-growing number of people sitting on an estate that is going to be subject to significant IHT. As such, those individuals who are aware of this potential liability, increasingly need advice to help them protect the financial future of their families and avoid them being hit by an IHT bill that could potentially, cause more upset and angst, during an already stressful and emotional time.

With this in mind, over the last few decades it has become common place for those in this situation to incept Whole of Life Insurance to cover the estimated IHT liability . However, the situation has not been as clear cut as everyone thought. Rife with mis-selling, increasingly complex policies and ever-increasing premiums, a considerable number of policy holders have had to cancel their policies, are feeling the pinch of increasing premiums, or feel they are at risk of not being suitably covered.

At WLI Claims, we work with individuals who have had to cancel their whole of life insurance policy because their premiums became too expensive. Often such policies were mis-sold by the insurance company, and by working with us, we are helping these people recover very large sums as compensation, possibly amounting to tens, if not hundreds of thousands of pounds. 

The reason I mention this, is not to give the “hard sell,” but because so many of our clients had given up on recovering any of this money. As such, many if these individuals have not even mentioned these cancelled wholes of life insurance policies to their existing IFA or Wealth Manager. In their heads, it has been written off. Money that has gone!

As mentioned above, many of these legacy whole of life policies was sold direct by the insurance companies and not through IFAs or Wealth Managers. Because of this we can understand why the issue is not usually front of mind when talking to their personal advisor unless they are asked about it.

What is worse, is that the woes of these individuals do not end there. The majority of these clients who we are engaged with, are now of an age where they are unable to buy affordable life insurance moving forward. They still have a need to protect the financial future of their loved ones and have turned to their trusted IFA or Wealth Manager to help them do this. But the cost of this cover is increasingly prohibitive.

This is where the value of a trusted relationship between the IFA and their client comes to the fore. The best IFAs or Wealth Manager have built a strong and in depth understanding of their clients, asking the right questions about their financial past, family background, retirement, and succession plans, they do this so that they can provide the right service and advice moving forward. As such, IFAs often help with banking, loans, mortgage advice, wills, trusts and insurance policies.

However, from our understanding, very few of our clients have been asked in detail about their financial past, especially if they had previous life Insurance policies and if and why they had to cancel it.

This is where a valuable IFA or Wealth Advisor can go above and beyond for their client – not only helping them potentially recoup tens, or thousands of pounds, but strengthening their relationship for years to come.

If, as an IFA, your client was on the wrong mortgage or investment strategy you would advise them to change it. Hence, if your client used to have a life insurance policy but had to give it up as the premiums unexpectedly became too expensive, questions should be asked!

Was your client told the premiums would increase so dramatically? Were they sold a policy with a fixed premium? Did they buy the premium direct from the insurance company or through a broker? How much did they pay out in premiums before this happened?

Informing their client that they may be eligible for significant compensation is not only beneficial for them, but in the long term, could be beneficial for the IFA. This demonstrates the IFA has their best interest at heart. It also means that they may have significant capital to invest and protect in the future – especially when it comes to the potential IHT!

To find out more information about the mis-selling of life insurance or if this has impacted any of your clients go to www.wliclaims.co.uk and one of our experts will get in touch.