Sales vs Advisory II

A referral from my client called me yesterday. She went to a bank (that sails) to make some deposit and a lady bank officer came to chat with her. She mentioned to that officer that she was saving this sum of money for the child’s education and the officer suggested to look at some endowment or education plans for her child. She asked me for my opinions on the education plan that she was proposed. It was a plan that is require to pay a limited 6 years premium and a maturity amount close to $20,000 when the son reaches 14 years old.

Some questions that I had asked and her reply:

1) Is $200/mth a comfortable  amount for you or is it very stretch?

Ans: Its abit tight but we can reduce some expenses and this amount should be ok. We don’t have a choice too if we need to plan for the child’s education fund.

2) Is your intention to buy this plan meant for your son’s education? To be precise, it’s meant for his uni education funding?

Ans: Yes

3) Is $20,000 sufficient to be a decent education plan for uni?

Ans: I’m not sure but it’s better than nothing.

4) If its meant for uni education, why do you need the money at 14?

Ans: ……………….( a long pause) So I can buy some Gucci bags?

5) What makes you think your son will not use the  money to buy her girlfriend some Gucci bags? I don’t expect an answer for that.

A short 5 questions was all it takes to get the referral knew she was being sold a plan and not getting much advice.  A few steps are require in a proper financial planning process.

Step 1) Establishing the professional relationship – This was done with ease. Technically, a relationship is form when she walks into the bank.

Step 2) Know your client – The fact that this referral felt that the budget was tight shows no proper fact find of the client was done. As a financial planner who exercised due diligence, there should be sufficient ‘homework’ done to assess the current lifestyle, cashflow, limitation and possible near term changes in financial situation before a recommendation is done.

Step 3) Identify the Goals – The lady bank officer did a good job to identify the goals which is to save for her son’s uni fees. However, some important details were not identified.

  • Time Horizon – When do they need this sum of money?
  • Targeted amount – How much do they need?

As we had seen, the money comes in when the son is 14 years old and it is definitely not in line with his expected age of uni studies. The amount saved during this period of time is insufficient as well.

Step 4) Evaluate possible solutions – One of the risk about dealing with bankers or agents that are representing only one company is they usually have limited range of products. With that in mind, there is not much alternative for them to recommend as well. I was often asked if this is important. Think about this…

When you shop for a new pair of shoe, will you squeeze your feet into a smaller shoe to fit the shoe or will you get a shoe to fit your feet?   The answer is clear! But when most people buy a financial plan, may it be insurance, saving plans or investment products, they tried to fit into the plan rather than to have a plan that is customized to the individual’s needs.

Step 5) Create the financial plan – This is the part which the bank officer excel in. She created the financial plan way before assessing the client’s situation. She created the financial plan before the objectives of the financial goals were established. She had in fact created the financial plan then created the needs of this plan.

Step 6) Review of financial plan – I do not need to say much on this. You know how often bankers actually call you for review. And by review, I mean review NOT re-sell.