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My washing machine gave problem after a soft toy being washed burst resulting in all its internal "parts" contaminating the entire machine. My wife when to the classified ads and called a repair man. He came to my house and charged us $40 for quotation. The quotation says that the machine has to be brought back to his work place and dismantled and cleansed. For that the quote was $240. Fortunately my wife decided to seek a second opinion. She called the original distributor. They came and told us that they can dismantle and clean the washing machine on-site for $60 only. So that is what he did and repaired my machine for $60 at my own home. To think that the former repair man tried to rip us off 4 times that of the original distributor’s price! Now, isn’t this so similar as financial planning?
A lot of people treat financial planning like this. Either they anyhow select their financial adviser or they anyhow do it themselves. Worst, some even don’t care about their financial health thinking that everything will go on well. But they don’t realized that either they are going to be rip off, spending a bomb in useless products and in the case of not bothering would resulting in very expensive “school fees” manifest through problems later in life. A person who do some due diligent (i.e. bothers about his or her own well-being) would source for a competent adviser to assist them. When come to financial planning, it isn’t going to be a mere price of $240 vs $60. Sometime it can be bankruptcy (or even suicide due to undue financial hardship) or financial independence. So serious? Oh yes. Here are some examples: A person who buys a whole life without critical illness (because he was advised by an agent who bluffed him). When he got major cancer, he cannot claim resulting in escalating medical bills. An unethical adviser will not bother to sell a good hospital plan because the commission is terrible. And so the customer either has to declare bankrupt, borrow from relatives or kill himself to escape the pain of financial hardship. A retiree who invested into a large sum of money into an investment without being told of the risk involved. He thinks it is safe. Isn’t this so wide spread? But when he wants to liquidate to get some money, he found that he will incur more then 50% penalty due to early redemption. Being shock by the large losses in his retirement fund, he either has to sell his house, borrow from children or ensure he doesn’t live too long otherwise he will run out of money. An adviser who churns. Here is how churning occurs and let’s take an example of investment. The adviser tells the client to invest into a very high risk sector or fund. He puts a large amount of the portfolio into it betting that the fund will go up. If it does go up by a lot, he tells the customer to sell and buy into another hot sector. By switching, he charges a 5% sales charge. So for every switch he earns that 5% margin. What the client isn’t aware is that the entire portfolio is subjected to a very large risk. So when the market comes down, he is going to suffer an extremely large loss. The adviser wins during the upside but isn’t penalize when the client suffer a horrified loss. During this bull market, it is so common to see this churn. The worst part is that the client likes this style because he sees his investment going up. Well, when the party is over, let’s count how many family goes bankrupt because of this.
This being said, sometime good advice doesn’t result in monetary reward. For example, there was an instance in which I met a retiree. What I understand was that after less then half an hour of presentation, his private banker managed to sell this person a super high risk fund and he invested a huge amount of money into it. When he saw me, I constructed for him a prudent and diversified portfolio and a roadmap/plan for his entire retirement. Well, that effort didn’t pay off, he didn’t come back to me since. Although he told me that I was the only one (obviously he saw a few advisers and private bankers) who gave him a wholistic advice rather then pushing for sales, he never sign up from me in anything. I think I know what happened - I wasn’t pushy into pressuring him to buy anything. In a known phenomena in sales, there is this principle of “strike while is hot”. The principle states that the salesman must apply the necessary pressure when the client is interested or positive about the presentation/product. Otherwise later on the client gets less interested or “not so hot” and it becomes very difficult to pressure them into buying. “Strike while is hot” is the known technique used by many relationship managers and financial advisers. The more experience sales man will further apply another technique known as “Strike while is hot and go in for a kill without mercy”. The meaning is always pressurized the client to use all his money into buying that particular product – nevermind he got nothing left. Because I believe in giving the client a lot of time to think about it, I know that it often backfire. Sometimes it backfired because the client conveniently “forgot” about me but very often they become busy in other things. Of course I am sure when other advisers prospected them, they got themselves pressured by them that they will just listen to them and get “killed” because these advisers apply the “strike while is hot and go in for a kill without mercy” technique. |
