Rolling with the unexpected is a way of life for most of your clients with children. Your clients may be well attuned to discussing how to manage the unexpected in their finances with you, but less so when it comes to financially protecting their children.
3 areas to consider
BT’s Stella Network spoke to Daniella Elchaar, Senior Adviser for BT Advice; Peter Bobbin, Principal at Argyle Partners and Charlene O’Doherty, Advanced Financial Planner for BT Advice on their top three tips to discuss with clients about protecting their children.
1. Estate planning
Estate planning can be a crucial way for clients to protect their children in the event of their death, including where other caregivers are also unable to step in. Peter recommends clients spend time thinking through their options first, so it is then easier for you as their financial adviser and their appointed lawyer to help them set up the correct documentation.
Clients should consider who would take care of their children (if still minors) and financial support, for example, setting up a testamentary trust that allows money to be spent on their needs. The beneficiaries on their superannuation may also need to be updated as part of this process.
Reminding clients of the value of keeping their wills up-to-date is also helpful. Daniella recounts the story of a client in a second relationship who passed away without an updated will. As a result, her second husband inherited all her assets. Unfortunately, he also passed away and his children inherited the combined assets, with nothing left to her children.
Similarly, Peter had a client who inherited all of her ex-husband’s assets because he hadn’t updated his will after they had divorced.
Insurance may be part of the strategy you’ve set in place for clients to support themselves personally in the case of an emergency, but it can also be part of their protection plan for dependents or children in an emergency.
It might act as a financial buffer to cover children’s needs, or as part of covering child support payments for divorced parents. Some options to consider with clients include income protection, living insurance, Total and Permanent Disability insurance, and Term life insurance.
One of Charlene’s clients had recently been through cancer and had a young daughter to support. She had an insurance policy which she’d never claimed on and decided to maintain the cover just in case of a future need to help her and her daughter.
A further challenge can be ensuring clients personally own the policies covering them. The policy covering the previously mentioned client was actually owned by her ex-husband. To avoid having to take out a new policy, the client needed to request her ex-husband sign over the policy to her, a situation which can be complicated depending on how amicable a separation is.
3. Teaching children how to manage money
A simple, but often missed way for your clients to protect their children financially is to teach them how to manage their money and that what they do with their money is important. After all, if children know the principles of money management, they are better able to avoid the situations as adults where they can get into financial strait – or to find approaches to manage getting themselves out of debt.
“Delayed gratification is a key lesson, if you don’t have the money for something, you can’t afford it,” says Daniella. By encouraging children to save for the items they really want, they not only feel that sense of achievement when they finally can buy it but it sets them up for lifelong patterns.
Where children put their money too can be part of life lessons. For example, putting savings in a bank account, which earns interest, can show children the power of compound interest over time. Helping your clients find appropriate investments for their children can form part of their overall financial strategy.
Encouraging your clients to discuss their financial goals and strategies with their children and in front of them even when they are very young can be a way of demonstrating sound principles for children to model themselves on as they grow. Some clients may also choose to include their children in occasional meetings to allow them active understanding of the advice and money management process.
You may also choose to offer once-off advice services to the adult children of your clients to discuss financial plans and goals. This can be an invaluable service introducing a new audience to the value of financial advice – and in some cases, those children may become your clients in their own right.
Your clients may not be able to protect their children from all of life’s punches, but both education and planning ahead can help your clients and their children for worst case scenarios, or just preparation for adult life.
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