How can I help my clients with the rising cost of living?

Summary 

• The cost of living continues to increase,  with UK consumer prices increasing by 20% between 2021 and 2024.

• The inflation rate in October 2022 was at 11.1%, but is down to 2% in 2024.

• Domestic energy costs skyrocketed in 2022 but are now 29% higher than the 2021/2022 levels.

What is happening with the rising cost of living? 

The rising cost of living in the UK and worldwide is significantly impacting your clients, with essentials like food, housing, and energy becoming increasingly expensive. Inflation rates have surged over the past few years due to global supply chain disruptions, increased demand post-pandemic, and geographical tensions affecting energy prices.

As a financial adviser, you must understand these trends to offer practical cost of living advice and ensure your clients can navigate these challenges. By providing tailored support, you can be your client's cost of living guide and help them make informed decisions, thereby enhancing their financial resilience and strengthening your client relationships.

What should I discuss with clients about the rising cost of living?

When considering how to guide your clients through the current cost of living crisis, it's pertinent to consider the following four areas that will affect their budget: savings, investments, mortgages, and pensions. 

Let's examine how each aspect is affected by the cost of living and how you can help them navigate each of these challenges.

Savings

Savings are often the first cash stash to be affected by the increased cost of living. Rising living costs can erode your client's savings as inflation diminishes their money's purchasing power. 

It's important to discuss strategies for safeguarding their savings against inflation, such as seeking higher interest rates or diversifying their savings portfolios. Providing cost of living advice in this area will help clients consider their living costs in relation to their savings goals and ensure they remain confident in their savings goals.

Discussion points include:

• Ask your clients about their current savings goals and whether they need to adjust these goals in light of increased living costs. 

• Discuss the potential for increasing their savings contributions to help maintain their financial stability.

Investments

Inflation and rising costs can impact the actual returns on your clients' investments, affecting their long-term financial plans. Reviewing their investment portfolios to ensure they are well-positioned to withstand economic fluctuations is essential.

Discuss with your clients how their investments are currently allocated and whether there is a need to diversify to hedge against inflation. Questions to consider include:

• Is your client comfortable with their risk levels?

• Do they feel their investment goals need adjusting?

• Are their investment goals still the same?

By considering aspects surrounding your client's investment goals and needs, you can help them weather the cost of living while retaining their investments and supporting their financial objectives.

Mortgages

The rising cost of living often leads to increased interest rates, which in turn affect lending rates—specifically, mortgage rates. You must discuss the implications of these changes and explore options such as refinancing or adjusting payment plans.

Ask your clients the following:

• If they have considered how higher rates might impact their monthly budgets.

• If they have strategies in place to manage potential increases.

Encourage your clients to review their mortgage terms and evaluate whether locking in a fixed rate could be beneficial. This approach can help them cope with the increased cost of living and strengthen your role as a trusted advisor, also helping you retain clients through challenging times.

Pensions

Inflation can significantly affect pension plans, as cost of living payments may not keep up with rising prices. Review your clients' pension arrangements to protect them adequately against inflation. 

Discuss whether their current contributions and investment strategies are aligned with their retirement goals and explore options for increasing their pension savings.

Key questions include:

• Have your clients considered the long-term impact of inflation on their retirement income?

• Does your client's pension plan need adjusting?

Providing cost of living advice tailored to their retirement needs will give them the tools they need to better cope with increased living costs and reinforce your commitment to their financial well-being.

What does the rising cost of living mean for financial advisers?

The rising cost of living presents challenges and opportunities for financial advisers. As your clients face financial strain, they will increasingly seek your expertise in navigating these difficulties.

This allows you to provide valuable cost of living advice, helping clients optimise their budget and investment strategies. Advisers must stay informed about economic changes and offer solutions to help with cost of living increases, such as recommending cost-effective financial products or strategies to mitigate inflation's impact.

Building trust through proactive guidance is crucial for client retention. Demonstrating how to retain clients in this potentially challenging environment can strengthen your client relationships and position you as a reliable resource, ultimately enhancing your reputation and client base.

How to retain clients

Retaining clients during challenging economic times requires proactive and personalised service:

• Start by regularly reviewing your clients' financial plans to make sure they align with their changing needs. Then, provide that addresses their specific concerns.

• Maintain open communication by scheduling frequent check-ins to discuss financial goals and any adjustments needed due to the rising cost of living.

• Offer tailored strategies like budget management or investment diversification to demonstrate your commitment to their financial well-being.

• Keep your clients well informed about various cost of living payments and other support mechanisms.

• Work on your soft skills, for example, building trust and showing empathy, to help your clients see you as an essential guide for them to navigate financial challenges.

Want to work with Unbiased? 

The rising cost of living poses challenges for your clients, but it also offers opportunities to strengthen your relationships by providing targeted cost of living advice. By addressing savings, investments, mortgages, and pensions, you can help your clients manage their finances effectively through a challenging economic time.

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