3 important things your clients should NOT do during the cost of living crisis

Since the start of the year, you may have been inundated with requests from clients about how to shoulder the weight of the cost of living crisis.

The lingering effects of the Covid-19 pandemic, coupled with price surges following the Russian invasion of Ukraine, have caused a price boom that is creating stress for households up and down the country.

Indeed, your clients may be panicking and feeling as if they need to change their financial strategy in order to adapt to the rising cost of living. According to the Office for National Statistics (ONS), UK inflation reached 9.4% in June 2022.

However, in this surge of worry and panic, your clients could inadvertently be making costly choices that could weaken their financial viability in the long term.

If you are concerned about your clients’ habits during the cost of living crisis, it might be wise to put them in contact with a financial planner who can listen to their concerns and provide expert advice.

Here are three important things your clients should NOT do during the cost of living crisis.

1. Compromising on pension contributions

Regardless of whether they have ever sought professional financial advice before, your clients are probably already saving into a pension. It is essential to save towards your retirement while you are still in work, but for your clients, this could be more difficult now that prices have risen.

Indeed, FTAdviser reports that, in May 2022, more than 50% of Brits were failing to put more than the minimum amount into their pensions each month.

While your clients might have originally increased their pension contributions through their employer, now, they could be considering reducing them to free up more disposable income.

However, by reducing pension contributions in a time of stress, your clients could be causing themselves further difficulty down the line. If your clients are looking to retire in the next decade, it is especially important for them to maintain regular pension contributions wherever possible.

By working with a financial planner, your clients could find ways to meet their pension saving goals, even during the cost of living crisis.

2. Liquidating investments

If you have received a worried phone call from an investor client over the course of the last few months, you aren’t alone.

In our latest market update, you read about the volatility the markets have experienced since the start of the year. The “perfect storm” of the Ukraine war, the ongoing pandemic, and political upheaval has spooked even seasoned investors – and your clients might be among them.

One move your clients might make when their investments begin to dip in value is to panic-sell. Indeed, they could feel worried that their asset values will fall even further, and cut their losses now.

While this would be an understandable move during a time of volatility, ultimately, your clients could damage their wealth if they choose this option.

Although past performance is not a reliable indicator of future performance, markets usually recover – and in future, your clients’ portfolio may once again appreciate in value and provide them with a solid foundation later in life.

By working with a financial planner, your clients could gain invaluable peace of mind when it comes to their investments. Instead of liquidating assets out of fear that the markets won’t recover, your clients may gain the confidence they need to sit tight and remember their long-term investment goals.

3. Cancelling protection policies

As the cost of living crisis continues, many families are searching for effective ways to save money. This could be achieved by cancelling unnecessary direct debits; cutting down on household luxuries; or searching for cost-effective leisure activities in lieu of a summer holiday.

One expense that your clients could consider cutting is that of their protection policies. Indeed, a Royal London study from March 2022 confirms that 95% of UK adults were concerned about the cost of living crisis, with 11% considering cutting back on protection policies to save money.

While it could be understandable that your clients see their protection policies, such as life cover, income protection insurance, or critical illness cover, to be “non-essential”, now is not the time for your clients to add unnecessary risk to their financial situation.

Indeed, paying for protection policies can be strenuous when times are tight, but if the unthinkable were to happen, having no protection could make matters a lot worse. For example, your clients could struggle to pay their mortgage if they became ill, leaving them with difficult decisions to make in an already stressful time.

A financial planner can discuss the benefits of having protection in place, as well as reviewing your clients’ protection packages and ensuring they are covering their assets in a cost-effective way.

Get in touch

We’re here to advise you and your clients on all aspects of financial planning. If you have clients that would benefit from advice during the cost of living crisis, get in touch today.

Email enquiries@prosserknowles.co.uk or call 01562 829 222.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.