The secret of getting what you want is knowing what you want.
- Arthur D Hlavaty -
Very often, the biggest angst most people have with the insurance industry is not doubting that financial planning is not important but being afraid of making the wrong commitment. After all, most of these plans tie you down for 20 years or longer. What an expensive screw up if convinced to get an unsuitable plan! Bet lots of you can relate to this.
This is also a question I've been asking myself, "how do we audit financial advise?" If my mission is to create a place where people will feel safe and assured they get competent and credible advise, I need to address this issue. To kick start this, I've come up with some guidelines people can follow to make sound decisions.
1. Does the solution fit your objectives?
The art of meaningful advisory is all about providing solutions that help clients meet their financial objectives for the mid to long term. In fact, I've even found myself increasingly solving short-term objectives as well such as giving suggestions to get better salaries. With that in mind, in order to assess if the advise you are getting is suitable for you, ask yourself how effectively are the solutions presented meeting your needs. In most cases, a lot of people tend to do modular financial planning which is mostly reactionary. For example, they get stopped at a roadshow and then they are reminded of the importance of savings so they get an endowment plan. They get cold called and then they are told hospitalisation plans are the basic coverage so they get the 'minimum'. The problem with this reactionary approach is that people are reacting to 'what makes sense' at that point of time and you might end up utilizing all your spare cash with a lot of needs left uncovered.
It might be more ideal if you find someone who can plan in a more holistic manner for you covering both your protection needs and your wealth accumulation needs. This approach tend to help you manage your budget better. Sometimes, you may find yourself with insufficient budget to do everything at one go. However, it's important to assess the big picture of your overall needs then prioritize what to get started on. The truth is savings and protection needs are all important. If you react based on singular needs, you might end up committing more resources than you can afford on one aspect of your life.
2. Appeal to logic
Increasingly I've been meeting a lot of clients who are shocked to discover that their endowment plans is not principal guaranteed on paper. One of my clients has the intention to put a fixed deposit and was proposed an endowment that's not even principal guaranteed on paper. The effective yield in 10 years is about the same as the prevailing fixed deposit rates today. I'm not saying that the plan is bad, but perhaps not meeting this client's needs. When your intention is to save (put in fixed deposit), and you do not need liquidity, why would you ever put your money 'at risk' on paper when the benefit is not superior to the risk you undertake? When something doesn't make sense, it's probably not very suitable.
3. Do you need the features in the plan?
Insurance plans nowadays are so advanced there's tons of solutions to mix and match. For instance, if your intention is to invest long term and all your protection needs are covered but you are presented with an investment-linked policy with protection elements, then you will be paying for additional cost of insurance for a feature you do not need. What might be more suitable may possibly be a '101 investment-linked policy'. Another such example may be endowment plans with cashback features. A lot of clients I know do not utilise it and do not even need this feature. This compromises on the returns and may be the reason why endowment plans are not principal guaranteed at maturity. If you need this feature (and some do) then it's a suitable solution but those who don't and own such a plan is obviously 'paying' for an unnecessary feature.
4. Ask more questions and asks more whys
I'd like to end off by recommending everyone to question more and asks more whys. A good competent adviser will definitely have no issues answering questions clearly and directly. If you meet someone who evades your questions or gives you vague answers, it's a very big red flag. I think the value of advisory work has never been to simply put a solution across. In my opinion, in a business where everyone wants business, the worse salesperson will still attempt to put a weak solution across simply because if you don't try, it's a 'no' for sure. The value of advisory work has always been in the rationale behind knowing how this particular solution solves issues better than the available alternatives. As a consumer, and if you are wondering what questions to ask, you can start with what makes you uncomfortable about the solution. I always tell clients, you should ask me questions till you are totally comfortable with the solution on hand then we proceed.
I mean seriously, why would anyone buy anything they aren't comfortable with if nobody is putting a gun at their head?
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Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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