How Can Financial Planners Save You From America's #1 Killer?
You probably aren’t aware of this, but it’s true: financial planners are heroes.
Yep, it's the truth.
And when you think of the America's top killer, you might think about smoking, cancer or obesity. Or maybe even a serial killer.
But the real story is far more surprising.li
Because, according to Duke University’s Ralph Keeney, the top killer is our inability to make smart choices and overcome our self-destructive behaviors.
Ralph estimates that about half of us will make a lifestyle decision that will ultimately lead us to an early grave. And as if this were not bad enough, it seems that the rate at which we make these deadly decisions is increasing at an alarming pace.
Why Do So Many of Us Make Lousy Personal Decisions?
It has everything to do with one of the biggest problems we encounter in our financial planning practice.
The other day I received an email from a financial planner after asking him what his greatest struggle is nowadays. This is what he wrote:
This may sound strange, but one of my challenges is to get clients interested in their own finances. Many have the best of intentions but keep getting distracted by life. I have one client who needs to withdraw some money for his daughter’s education. I have been waiting over a month for him to tell me how much.
Why is this?
Why can’t we enthuse our clients to save for their daughters study?
Why can’t we save part of our paychecks, as we know we should?
Why can’t we resist new purchases?
Why can’t we exert some good old-fashioned self-control?
The answer comes from Dan Ariely, author of the bestseller Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions.
Ariely explains that at first, we’re in a cool state when we say that we’ll save money. We feel good about ourselves.
However, after a while, this hot piece of lava called emotion passes by. Just when we promise to save, we see a new car, the latest iPhone or this great pair of shoes.
We promise to spend the money on retirement, but we spend the money on vacation
What happens here is that people give up their long-term goals for immediate gratification.
In other words, people procrastinate.
Why do We Lose the Fight Against Procrastination So Frequently?
In Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions Ariely tells about his search for the cause of this problem and the fix for this human weakness. He tells about himself – standing in front of his class – asking his students to finish three papers over the 12-week semester. The papers would constitute much of the final grade.
“But what about the deadlines?” a student asked.
Ariely decided to test his students by dividing them into three groups:
- Group 1 had to commit their deadlines to the paper. After setting the deadlines, they couldn’t be changed. Late papers would be penalized at the rate of one percent off the grade for each day late. To help them, Ariely gave them a scheduling tool and spaced the timing of their papers across the whole semester;
- Group 2 had no deadlines at all. They could hand the papers at any time before the end of the semester. There was no grade benefit if they turned in the papers earlier;
- Group 3 received the dictatorial treatment: Ariely dictated three deadlines for three papers, set at the fourth, eighth, and twelfth weeks. There was no choice. This was it.
So, here’s a question for you.
Which do you think achieved the best final grades?
Ariely found out that the students in group nr. 3 – the group with the three firm dictated deadlines – got the best grades. The group with no deadlines (group 2) had the worst grades. And group 1 – logically – ended in the middle.
So what do these results suggest?
- Students procrastinate. Nothing new here.
- Tightly restricting freedom is the best cure for procrastination.
- The biggest eye-opener, however, was that by giving the students a simple tool by which they could commit to deadlines, helped them achieve better grades. It helped them to achieve their goals.
How does this tool look? Well, very simple. They had to fill in the blank to this question:
I promise to submit paper 1 on week ____
And they did the same for each paper of course.
This eye-opener implies that the students generally understood their problem with procrastination and took action to fight it when they were given the opportunity to do so, achieving relative success in improving their grades.
What Does This Mean for Your Financial Planning Service?
A lot, I believe.
Although people have all the information and tools available within one or two swipes, they find themselves again and again in the same predicaments as the students – failing to reach what they really want to achieve.
Because without commitments, people keep falling for temptation.
You see, most of your clients don’t get what they really want these days. Not from their jobs, not from their families, not from their religion, not from their government, and most important, not from themselves.
Something is missing in most of your client’s lives. Part of what’s missing is a purpose. Values. Worthwhile standards against which your client’s lives can be measured. Part of what’s missing are goals worth pursuing.
As a result, your clients scramble about hungrily seeking distraction and instant gratification. Through television, via Facebook, and return on investments. Distraction and instant gratification fill the emptiness.
What most people need, then, is guidance. Guidance from someone with a purpose, with an order, with meaning. Someone who shows the way to becoming organized and clearly focused on a specific worthwhile result.
And this person, mister and miss Financial Planner, is YOU.
You are the one who’ll become prized for who you are: a leader whose values such as integrity, intention, commitment, vision and (financial) excellence can be used as action steps in the process of producing worthwhile results.
What kind of results?
Results that satisfy your client’s basic needs:
- a feeling of competence;
- a feeling of relatedness (belonging and feeling connected to others)
- a feeling of autonomy (feeling a sense of mastery and control)
What Do You Need To Do
Unless you believe that you’ll get the most out of giving orders to your clients (just like Ariely did to group nr. 3), you need to consider the group 1-approach.
This is great news for you.
It’s scientific proof that your clients really need you, to help reach their goals. To make the approach work, you need to give your clients the opportunity to commit up front to their goals and preferred path of action. This helps your client in the right direction.
However, There Is One Problem Financial Planners Have to Solve First
As you can read in one of my ebooks, 97% of our clients don’t have goals.
No financial goals.
No goals at all.
Just think about it: have you ever had a client who – without you asking – says:
“My financial goal is ……………..”
Neither have I.
This means that what your clients actually do, is that they hide. They hide from themselves. They hide because when they don’t reach their goals they have to admit to themselves they were wrong.
And that’s pretty painful.
That’s why people need your help. You need to reassure them that it’s ok to express themselves. And guess what: people love you for that.
Because your clients only care about one thing – themselves.
And when you are helping them to express themselves, you are helping to make them feel good.
Is this easy? No.
Is this scary for you and your clients? Yes.
Does it have an impact? Yes, like a tsunami.
Do your clients appreciate this? Yes, they LOVE it.
How Do You Help Them Express Themselves?
You help them by taking them on a journey that goes 10% – 25% deeper than they normally go.
You see, one of the biggest ways people hide is by speaking in ‘symbolic language’. For example, if your client says:
“I’ve always wanted to be successful”, what do you think successful means?
What you think success means, can be completely different from what your client considers success. Your client might value success in money terms, while you might value success in lifestyle terms.
You and your client can use the same ‘language’ and assume you’re talking about the same thing, while you’re probably not.
This is disastrous. When you assume you understand your client – when you really don’t – you leave them feeling disconnected from you and themselves. It makes you and your client feel dissatisfied and uninspired.
Also, your client’s goals stay hidden.
Here's another example:
Client: “It's important to me that I leave a legacy when I die”
Financial Planner: “How big does your legacy needs to be”
In moments like this, your clients might keep hiding and because of that, they feel disconnected from you. You’ve engaged them in a conversation with nothing new or inspiring for them.
However, when you take your clients on that 10% – 25% journey, the ‘symbolic language’ of your client could be an opening opportunity. A chance to let your clients express themselves so that they can truly find their goals in life. In this situation the conversation could go like this:
Client: “It's important to me that I leave a legacy when I die"
Financial Planner: “Why is this important to you?”
Do you feel the difference?
With this approach, you are taking your client on a journey that’s new and self-revealing. Your client is now on his way to really finding his goals.
Now, there are many, many examples of your client’s ‘symbolic language’. Here are a few:
- ‘I’ve made some mistakes in the past’
- ‘We haven’t had good experiences with your industry’
- ‘I’m disorganized’
- ‘My wife and I come at money from different directions’
- ‘I have real growth plans for this year’
- ‘My values are everything to me’
- ‘I have difficulty making decisions’
- ‘I care about consistency’
- ‘I’m getting tired of product sellers’
- ‘I want to make this year the best year ever’
- ‘I can’t remember the last time I took time off’
This is what happens all the time in conversations with our clients. And guess what? You have a huge opportunity when your clients say things like this. You have the chance to empower your clients to express themselves.
What's an Investor to Do When History Doesn't Repeat Itself?
We’re in an era of extremes. It seems a day doesn’t go by without the word “historical” popping up in the financial news.
The equities market and consumer debt are at historical highs. Interest rates and high-yield credit spreads are at historical lows. We haven’t seen even a 5% pull-back in the market this year—for the first time since 1995—and the DJIA is exhibiting its narrowest trading range in history. These are indeed historical times. And whether this fact has you filled with extreme optimism or extreme pessimism, you have some important decisions to make going forward.
There are theories about how we landed in this particular era of extremes, and most are rooted in the significant changes that have impacted both how we live and how we invest. At the top of the list are globalization, automation, and the largest aging population in history (yet another “historical” to add to the list). It’s said that the most dangerous words in investing are, “it’s different this time,” yet one has to wonder if, in fact, it really is different this time. Not just because of the historical market highs. After all, there always has been and always will be a new market high waiting around the corner. What’s different today is the sheer number and confluence of these extreme highs and lows—and their duration. It’s a situation no investor has experienced before, which can make these waters feel pretty daunting. History repeats itself, and investment strategies are largely built on that conviction. But what do we do when it doesn’t? When history fails to repeat itself, how can investors plan for tomorrow with confidence that they are positioned to protect their assets and gain a reasonable level of yield?
The first step is to recognize that, at least in many ways, the investment landscape really is different this time around. All you have to do is look at the numbers to be sure of that fact. And the catalysts I mentioned before—globalization, automation, and the aging population—aren’t going anywhere. If anything, the impact of each will only grow as time moves on. What that means is that there’s no way to predict what’s coming next. The only thing we know for certain is that predictability is a thing of the past (if it ever really existed at all). The result: you need to approach your portfolio differently than you ever have before.
Your goal, of course, is to find return given a risk tolerance. Current yield is an important part of total return and getting it is an elusive proposition in today’s market. If, like many people, you’re less than confident that the four major sectors that currently drive the equities market—healthcare, discretionary, tech, and financial—are poised to continue to rise at even close to recent rates, it may be wise to seek out alternatives to help drive yield without adding more risk to the equation.
But if alternatives are the wise path forward, which alternatives are the best options?
Real Estate Investment Trusts (REITs), Business Development Companies (BDCs), and energy stocks, traditionally the favored “non-correlated alternatives,” defied expectations when the stock market crashed in 2008, inconveniently revealing high correlations just as the equities market began its freefall. Anyone who was invested in these alternatives at the time knows all too well the devastating impact “non-correlated investments” can have on a portfolio, especially when they fail to do their job when it matters most.
Luckily, there is one alternative that can be counted on to remain uncorrelated to the traditional financial markets and, ultimately, deliver that precious yield: life insurance-based investments. And because this asset is literally built on one of the irreversible catalysts of change, the aging Baby Boomer population, owning life insurance may in fact be the ideal alternative to help investors generate non-correlated returns, regardless of where the market turns next. Even better, these investments typically deliver those returns with very low volatility.
What makes life insurance different is that, unlike typical alternative vehicles, secondary life insurance returns aren’t based on the economy. Instead, they are inherently non-correlated because returns are based solely on the longevity of the individual insureds.
As much as we would all love for the bull market to continue on its merry way, one thing history does tell us even today is that a bear market will come. It’s only a matter of when. As you strive to hedge your portfolios and prepare for the inevitable, life insurance-based investments are one tool that can help you achieve the three things you need most: diversification, low volatility, and yield.
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