Saturday, May 25, 2019

How I respond to financial product promoters on train stations

As a buyer of consumer products, one observation I made : when a product needs to be sold aggressively by salesmen, it probably isn't a good one. The best products sell by itself without help from aggressive commission-based salesmen. This is especially true for financial products. The best financial products I bought are usually not promoted by salesmen.

It is getting common to be stopped by financial promoters at train stations nowadays. This is my usual responses when approached by financial promoters at train stations.

Response to insurance products promoters
"When buying insurance products, my main prority is protection. Please don't sell me insurance products that mix savings and investments with insurance. Sell me term-insurance products because they provide the most bang for the buck when it comes to protection."

On hearing this, the financial promoters will move on to selling other financial products such as savings/retirement products. Very few will actually promote term-insurance products even though I express my preference for term insurance products. No surprise because term insurance products pay poor commission to insurance agents.

Response to savings/retirement products promoters
"You mention your savings product pays X% interest income for Y number of years. How much of the interest is guaranteed? How much of the interest is projected? I'm wary of projected figures because they carry no contractual obligation. How does your savings product compare with Singapore Savings Bonds (SSB)? SSB is liquid and the interest rate is guaranteed. I can withdraw all the funds in SSB within one month without penalty. How long does my money need to be stuck in your savings product before I can start withdrawing with little or no penalty? How much penalty do I have to pay if I need to withdraw early for emergency reasons? I can also buy and sell conveniently bond ETFs on stock exchanges which offer similarly good interest rates as your savings products. How is your savings products superior to these bond ETFs, given that these bond ETFs come with low fees, probably lower fees than your savings products?"

Projected returns carry no contractual obligation and can be abused by aggressive financial promoters. I'm careful about making financial decisions based on projected numbers, especially when they are dangled by aggressive salesmen.

Financial promoters like to compare the much higher interest rates of their savings product with bank deposits. That is not the right comparison. I use Singapore Savings Bonds(SSB) as a benchmark when comparing with savings products. It is liquid, super-safe guaranteed by AAA-rated Singapore government and comes with very good interest rates for the liquidity. Besides SSB, I can also buy fixed-income investment-grade and high-yield bond ETF on stock exchanges as an alternative to the savings products.

When the financial promoter finally decides I am not keen to buy their savings and insurance products, they will move on to promoting their investment products.

Response to investment products promoters
"How much are the management fees charged by your investment fund? Why should I buy your actively managed fund when passive index funds have much cheaper management fees and have demonstrated superior long-term track record of outperforming most active investment funds? Is your investment fund cheaper than passive fund? If no, does it have superior long-term track record of outperforming cheap passive index funds?"

Index funds and ETFs are usually cheaper and better than most actively managed investment funds. I can easily buy and sell passively managed funds conveniently through ETFs on the stock exchange.

Incentives drive human behaviour. Bad incentives drive humans to behave badly. I don't blame financial promoters for behaving badly. I blame the bad incentives. If I were a financial promoter, I will also focus on selling the best-commission product. No need to be hypocritical about that. One reason I have deep trust for the engineering profession is that it is much harder for engineers to get away with bad behaviour. It is not that engineers are most honest or more moral than financial Wall-Street folks. If the engineering work is inferior, short-cuts are being taken causing the product to work poorly, customers will know. Conformance to specifications can be tested objectively. Engineers cannot hide behind the disclaimer like "All investments carry risk" when performance fails and still get paid handsome fees in a down year. I have the deepest respects for fund managers who do not charge management fees, given that it is the industry norm to transfer investment risks to clients because of the disclaimer "All investments carry risk".

Based on my experience as a consumer of financial products, I have come to the conclusion that good financial products are bought, bad financial products are sold. Good financial products are bought independently by knowledgeable financially literate consumers and they tend not to be promoted. Bad financial products are sold aggressively by commission-driven salesmen to financially ignorant consumers. So, is fee-based financial advice the solution? Sadly, not for the masses. The fees of fee-based financial advisers are usually so high that it makes financial sense only for the rich to engage them. If you are not rich, their fees will suck up a high percentage of your savings.

When it comes to money, it is best to rely on ownself. Help your own money or risk others helping themselves to your money.

11 comments:

  1. It's a fallacy that term insurance have lousy commission per se

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  2. Hmm .. so far no promoters ever stop me. My days are over. Sad or happy?

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    1. Lol! Last time act blur ignore them they will still rush to approach me. Now wear shorts & slippers even look at them they look away! Bittersweet feeling? Hopefully more sweet than bitter!

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    2. Hi CreateWealth8888,

      The financial promoters will stop those belonging to their targeted age group. Can be old or young. Maybe they don't stop you because you have that wise and financially savvy look? :)

      Anyway, no need to be sad even if no promoters stop you because you are not missing out on something good. Good financial deals are usually not sold to you. You have to actively seek them out yourself. Same as when you buy stocks. The popular ones that are frequently talked about are seldom the good stocks to buy. You have to actively seek out the good stocks yourself.

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  3. Hi Hyom

    https://www.moneyowl.com.sg/#/guideme/assets
    What do you think of DIY insurance schemes that do not go through brokers? Do you think ones insurance needs can be completely serviced through this without any (third party helpers)?

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    1. Hi INTJ,

      When I bought insurance for my family several years ago, I did research using information available on the insurers' websites and decide on what to buy. I don't see why DIY cannot be done.

      I have not used the DIY insurance website you provided before.

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  4. Can use CompareFirst website
    to source direct purchase insurance, which are cheaper coz no agent commission -- you buy direct from insurance companies. But got limit of $400K for term. If want higher need to go thru usual agents & buy the standard policies with the usual built-in commissions. Of course you can get multiple $400K DPI terms, but there is some loss of economies of scale, and some insurers may disallow multiple DPI terms for 1 person. They have to protect their profitability & not piss their agents!

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    1. Hi Anonymous (Sunday, May 26, 2019 at 2:26:00 PM GMT+8),

      Thank you. Looks like a useful website for DIY insurance buyers.

      I don't think $400k is enough for breadwinners who need to support parents and kids. I bought $1m life coverage from Aviva Mindef Group Life insurance in case I'm no longer around to support them. It's the most value-for-money term life insurance I can find but it is available only to Singaporeans who have done NS.

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  5. Actually term insurance has the highest commission in terms of percentage as compared to other product, the reason why it is low is because the premium is low . Therefore, usually insurance agent will boost the protection amount in such a way the premium would be 1k-2k plus thn advise you to pay annually using discount as a bait because if you pay annually ,the commission is like 50% for first year which make it worthwhile . I was one of the agent

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    1. Hi Unknown Tuesday, May 28, 2019 at 11:56:00 PM GMT+8m,

      Interesting nugget from an industry insider about term insurance paying the highest commission in terms of percentage compared to other products.

      My premiums for term insurance is not low to the extent that it is not worth the agents' time and energy. Term health insurance premiums for my family this year is way more than $2k and my term life insurance with Aviva Mindef is in the $1k-$2k range.

      As a customer, I care about the absolute amount I'm paying and want the most bang for the buck for protection. If the agent gets handsomely paid for offering me a good deal, I don't mind paying.

      Since term insurance has the highest commission in terms of percentage for the insurance agent and provides the most bang for the buck for the customer in terms of protection, it's a win-win situation for both parties. Making more win-win deals like these will also boost the image of insurance agents. When you go to online money forums, it is plain obvious that insurance agents are not well looked upon, especially by financially literate consumers.

      If I were an insurance agent, I will focus on selling term insurance for the entire family to boost the insurance premium and thereby, commission. Most importantly, it's a win-win situation. Make money by doing good and creating genuine value for customers. Much better than getting rich off ignorant customers.

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