A client’s desire for accumulating wealth usually overwhelms their awareness of how to manage risk. Yet a core role of an advisor is to provide enough life insurance that can cover the client’s family expenses in the event there is a permanent loss of income. Balancing financial planning with protecting the family will test an advisor’s skills with dialogue and guidance. So, here’s how I start that conversation.

I begin with the financial risk perspective. I tell clients there are still many unexpected risks that can close the door on wealth accumulation at any time. Then I ask how should they guard against that possibility. Now that the client’s awareness of risk is awakened, I guide them to the notion that the purpose of saving money is to achieve a better life in the future. However, before we save money, we must find a way to make money. Before we can save for wealth accumulation, we have to make money to pay for the family’s expenses. But if the ability to make money is interrupted due to the occurrence of risks, not only is the future of wealth accumulation impacted, but so too is the family’s ability to maintain their lifestyle. 

Then I help our clients understand that life goes through many different stages and responsibilities, and there are different responsibilities and expenses that occur at each stage. We can go through each journey smoothly as long as we have the ability to earn money. However, many people do not think about what happens if the family income is interrupted. The bills and other expenses will not disappear. 

By presenting this scenario layer by layer, the client realizes the impact that a threat can bring to their current life. Simultaneously, the client comes to understand that the first step in wealth management is not to chase high-reward profit opportunities, but to deal with life risks appropriately. I lead clients to understand the four major risks they could and will face — death, disability, illness and old age — and through dialogue and interaction, help them see the need and help them find solutions.

I reinforce the need for insurance and hedging by analyzing the family balance sheet. I let the client know that as long as they have the ability to make money, they will continue to create assets to meet current and future liabilities. But the average person rarely accounts for a risk that will take away their ability to produce income and saddle them with using existing assets to pay for current and future liabilities. If those assets are insufficient, there is a serious imbalance on the household balance sheet. How can they make up for this loss of income? I’ll ask the client to estimate how much money represents their responsibility, expectations and self-esteem. I’ll write that amount on the blank check and ask the client, “if that check appeared in your hand right now, would your life choices be different?”

Finally, I help the client find a reasonable asset allocation ratio and diversify their investment portfolio using the Standard & Poor’s allocation strategy, budget for their premiums and structure a financial plan that addresses the risks of dying too early, becoming ill or living for a long time. Through needs-based analysis, clear financial report structure analysis, and diversified commodity portfolio suggestions, we can help clients stay financially sound and continue to love and fulfill their responsibilities to their families without fear when faced with risk.

Tzu Hao Kuo is a six-year MDRT member from Taipei, Taiwan Area. Contact him at morris.kuo@taishinlife.com.tw