A log by any other name is still a generic section of wood from a tree. How do you sell that? You need the power of marketing.
Salespeople like having an edge like exclusivity or innovation to stand out from their competition.
The consumer world places a premium on the exclusive or innovative. The special edition. Limited quantities. Get it first.
In the financial world, deviating from convention has consequences. We already looked at the risk of financial innovation (podcast 142). This time, we’ll explore the lure and allure of “exclusive” strategies using examples from the world of insurance.
ExamplesAdvisors like wrap product configurations into packages called strategies. For instance,
- the family cottage preserver: use life insurance to pay the capital gains tax due upon the death of both parents
- the retirement asset conserver: use life insurance to pay the tax on RRSP savings at death
- the investment multiplier: instead of investing in interest-bearing investments, buy the biggest death benefit possible
A rose by any other name would smell as sweetWhen you buy a strategy, you ultimately get a normal life insurance policy from one of the few insurers left (ideally one good at keeping promises). You could buy the identical coverage without a strategy. When you receive annual statements from the insurer, you rarely find references to the strategy.
— William Shakespeare
Advisors may be unable to show you how the strategy works when it matters most — years after you’ve bought. There's little incentive to service policies already sold unless there's a good chance of selling more insurance. Also, the tools are designed to make the initial sale. Later, when real life interferes with the alluring projections, there isn’t much help available.
GenericWhile a strategy may look unique, the tools used often come from an insurance company or third party. This means that other advisors can often produce the same results.
This is good.
Strategies rely on numbers which depend on formulas and assumptions. Mistakes are easier to make than spot and correct. Even mainstream applications like Windows contain bugs. Your advisor won’t have the resources of Microsoft.
ExclusiveWho says that what you're seeing is one-of-kind? Besides the salesperson and their team.
Steve Jobs was able to draw people into his Reality Distortion Field and have them believe that whatever he was then promoting was the best thing ever. Your salesperson may not have quite the same charisma but there are parallels. We want to believe. We want to feel special. That makes us vulnerable. What if you’re being fooled?
RiskIce cream comes in many flavours but vanilla remains the most popular (29%) followed distantly by chocolate (8.9%) and butter pecan (5.3%). You might want to try chocolate marshmallow salsa almond crunch that only one place sells. That’s fine. Go wild.
For financial strategies, do you really want something unique? You might get more peace of mind and better results with the boring and proven.
- The risk of financial innovation
- Why after-sales service stinks for life insurance
- How to evaluate a proposal from an advisor
- How advisors fool you (and what you can do)
- The fine print taketh away
- The top 15 ice cream flavors (The Food Channel)
- image courtesy of Szabo Borka (Hungary)
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PS If an advisor asks you to sign a Nondisclosure Agreement, back away.