Thinking large to capture middle class

For a market not used to receiving sound advice, advisors can capture an elusive segment of the market by thinking long term.

Thinking large to capture middle class
To win the elusive battle for mid-market clients, advisors have to think big picture.

“Advisors can have a great business if they just focus on the mid-market and actually provide value added advice,” said Steve Santoro, Certified Financial Planner & Investment Representative of Santoro Financial Group. “That’s the differentiator. The mid-market aren’t used to getting high level advice and you can give them that, you can position insurance as part of the overall plan as long as they know you’re taking care of their needs first.”

A Scotia Bank report from 2013 found 58 per cent of mid-market Canadians were without enough life insurance.

The key is to make sure advisors are thinking big picture. “I call them emerging affluent,” said Santoro. “So the people that are 30-45 that are accumulating wealth, there are a lot of opportunities for insurance-based strategies, but it has to be part of an overall plan.”

For the middle class, life insurance is an obvious requirement for anyone with family and dependants. The main choice for advisors is determining whether term or a permanent product is the best fit.

“But it also then does step into as their generation receives wealth from their parents – the boomer generation – they’re going to be placed with the burden of tax planning come their death,” said Chris Karram, Co-Chief Executive Officer, Financial Advisor, Safebridge Financial Group. “As a result life insurance doesn’t have an age bracket or an age limit but it does need to be used effectively and in the right places.”

Increasingly the mid-market is using life insurance in estate planning.

“Whole life insurance does play a role in the mid-market,” says Santoro. It all comes back to compartmentalizing assets. “Typically, your insurance is your safety assets,” he said. “So when we’re dealing with the middle market, they’ve maxed out RRSP or TFSAs, the concept still holds true whether you’re putting in $5,000 or 500,000.”

For the person with the cottage as soon as they own it’s a secondary property and when they die, there might be a capital gain on the cottage. There might be taxes owing. If the couple has a joint last to die insurance policy so the policy pays out when the tax bill is triggered.

But it can also be used by the mid-market to enhance their wealth because their money grows tax preferred. “Sometimes they use that as an alternative vehicle,” said Santoro. But it’s typically used as an emergency fund in the short term or if they live longer than their retirement savings can provide they can access the catch. Of course if they die early the death benefit is there. “So it’s kind of a multipronged asset in the portfolio,” says Santoro.

But, again, if an advisor doesn’t take the clients full financial plan in consideration, life insurance might not be suitable.  “I have seen it be oversold to people,” he said. “You have to look at the overall plan. I’m a certified financial planner myself so we look at your assets, your liabilities and your goals and your cash flow and then we’ll recommend a solution we think is right.”

“It really comes down to, as an advisor you’re making sure your customer truly understands why they’re making this decision and then how it’s going to benefit them both in the short term and in the long term,” said Karram.