The value of personal support: five reasons it’s in your clients’ interests to take financial advice

11 October 2024

4 minutes

At a glance

• If your client is awarded damages for personal injury or medical negligence, working with a financial adviser is crucial to help ensure finances are arranged in the best way to meet their needs.
• An adviser can also ensure that your client makes full use of any tax advantages or means-tested benefits available to them.
• Expert holistic financial advice will take into account all of their circumstances to ensure their settlement can meet their needs, both today and for the long term.
  

Securing a financial award due to an experience that was potentially life-changing or traumatic may well feel like the end of a journey for a claimant. This is understandable given the emotional, practical and legal challenges often faced in obtaining compensation or other form of payout.

But it’s also the start of another journey, particularly where the sums involved are significant. After securing a settlement, they need to work out what to do with the money and understand the impact on their life.

This is rarely straightforward. There will likely be a multitude of issues to consider, from tax, social support and potential care or rehabilitation needs, to putting the money to the most effective use over the long term.

Working with an expert

This is why financial advice is essential in such situations. It’s hard to know where to start when it comes to dealing with award settlements, and there are several factors that may well make it even more complex than it first appears.

Financial advisers can work with law firms and clients from the outset, helping claimants review their finances, find the correct type of assistance and plan for the future. Exactly how this is organised depends on whether the law firm dealing with the case has its own panel of preferred advisers, and the structure of the settlement once it’s been made. It could be the law firm that takes responsibility for financial decisions, or it may be the claimant’s family or the individual themselves.

Lawyers can’t make regulated financial decisions. The challenge is ensuring you’re working with an adviser who has the required skillset to meet the needs of the individual on whose behalf you’re working.

Financial advice is a good investment whatever the circumstances. However, for those receiving damages from personal-injury or clinical-negligence claims, the case for specialist help is particularly compelling.

Here are five important benefits of financial advice for personal-injury and clinical-negligence claimants.

1.    Managing financial complexity

The financial aspects of settlement cases can vary hugely, depending on the amount of money involved, the individual’s needs and their age, among other variables.

It also depends on whether it’s a single payment or they may get further payments down the line.

Usually, it’s a single lump-sum payment, but there are rare occasions where the prognosis at the time of assessment isn’t able to state categorically that nothing else will happen, so the individual may incur further challenges that can’t necessarily be compensated for initially.

In some cases, there may be considerations such as a progressive illness or condition that means the individual has additional capital requirements further down the line.

2. Avoiding common pitfalls and mistakes

On receiving a payout, it’s necessary to review the impact of this on the individual’s current financial circumstances. There’s no Income Tax or Capital Gains Tax charge on personal-injury compensation. But failing to manage the funds could see any means-tested benefits being lost.

You need to determine if they’re receiving means-tested allowances, in which case you must structure the investments in a way that ensures they don’t affect the benefits. You also need to know what they’ll use the money for, whether they have to do Inheritance Tax planning and so on.

3. Providing emotional support

Personal-injury settlements can be stressful and overwhelming, and the experience of suddenly having a large amount of money to deal with might add to that. An adviser who has empathy and good communication skills adds value here.

They can sometimes be quite harrowing cases and difficult circumstances. You may be working with a family who have different opinions. You could be dealing with a very vulnerable individual who might have incurred either an injury or been a victim of clinical negligence and may not be able to make decisions themselves.

4. Seeing the bigger picture

Alongside the settlement-related issues are the bread-and-butter advice matters. The focus will depend largely on the client’s life stage, financial circumstances and family status, in addition to the claim-related factors.

Lawyers and their clients sometimes underestimate the importance of holistic financial advice and planning, including cash-flow modelling and asset-protection measures.

They might say they need investment advice on a lump-sum payment without appreciating it isn’t as binary as that. There’s a lot more that needs to be considered before that advice can be given.

5. Future-proofing investments

In personal-injury cases, it can be especially useful to understand the client’s long-term financial requirements. They may well have a combination of complex needs and relatively little financial experience or knowledge. At the same time, there’s a good chance that the funds are being invested for the long term.

It’s a specialist activity and there’s more to it than just making decisions on what to invest in. As their circumstances change, you need to work with someone who understands the implications of that.

How we can help

To find out how a specialist financial adviser can support your personal-injury and clinical-negligence clients, get in touch.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

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