Short-Sighted Fools

One of my clients gave me hell today. The area of conflict is the commission that I get. Apparently she has this idea that if she goes directly to the insurer to get the policy, she could get the product at a cheaper price (as she thought she don't have to pay the commission since she by-passed me). I told her that it is not true. Even if she decides to DIY (Do-It-Yourself), she will still have to pay the same premiums. Worst still, in times of claim, she would have to DIY as well.

This incident reveals the naviety of consumers. So you think you go to a buffet, help yourself to the food (because the waiter/waitress do not serve you), and then they'll charge you cheaper? So you think that by going to Mac's and becoming the waiter/waitress yourself (because YOU serve yourself the food), you are going to get a discount? Haha. No. On the contrary, whatever the corporation saves from the intermediary, they keep it for themselves. So you think that I***A really pass you the savings by having you put the furniture together yourself? Don't you think I**A should PAY you instead for being the delivery-cum-installation man? How much is his effort worth? Since you are taking his job, why aren't you paid for it? So don't think that one can do everything yourself. Why don't you try to cook for yourself? Is it edible? How about make a shirt? Is it wearable? The best would be if you can built the house yourself. Then you can by-pass the property developers and save yourself a million dollars.

So this is the problem. People think that by buying their own insurance they can save the money. This is only the short-sighted perspective. Insurance consist of 2 parts - the buying and the claim. Maybe you can DIY the purchasing part. But to DIY the claims part? That's sheer insanity. Imagine yourself lying on the hospital bed, and you have to call up the insurer, get the claim forms, make sense of it, fill it in, send it to them and wait for them to mail you the cheque. If there are any disputes you have to settle it. Fantastic. Well at least you are still able to do all that. Imagine a death claim. How do you suppose you are going to call up the insurer to process the claim when you are lying dead in the coffin? Maybe you can pay a visit to your relatives in a dream and tell them where you've buried your fortune. This is what the commission is partly for. We get paid to clear the mess and set everything in order when you are incapacitated and can't make that happen. If you insist on self-service then, sure. By all means. Literally.

Financial Advisor or Product Seller?

Over dinner tonight, my other half asked me a poignant question:

"So are you a financial advisor or a product seller?"

"I am both," I replied. "If not why would I become an independent financial advisor? The difference between me and a 'tied' advisor is that my advice can be independant of the product. I can give you the comparison of whole life plans in the market and you pick your choice. But my advice cannot be independant in itself. I cannot provide you with alternatives that run contrary to commonly-agreed notions. I cannot tell you how to spend your way to wealth. The notion of such independent advice is absurd. All advice are dependant on commonly-agreed notions of earning, savings and prudent investment. The 'tied' advisor will tell you this. I will tell you the same thing.

But the most important aspect of why I am a product seller is the fact that people are not that interested in holistic cures - they prefer to get products which they perceive they have precise use for. Take a look at the healthcare stores. So you need vitamin C? Take the Vitamin C tablets. You need calcium? There's the calcium pills. You don't go to a pharmacist and get a planned meun that prescribe the foods you can take to increase your vitamin C or calcium intake. You get specific pills - a product, not a holistic cure. Maybe a dietician is better, but then how many people go to a dietician when they feel that they lack Vitamic C?

A more thought provoking example would be cancer treatment. You go to the specialist, and he will prescribe chemotherapy. A cocktail of drugs to 'kill' the cancer cells. He wouldn't put you on the Gerson Therapy. He wouldn't ask you to change your lifestyle and be a vegan. You can go ahead and live the same way. The medication is independant of your lifestyle. That's the interesting thing about 'western' medication. The 'eastern' medication, such as Traditional Chinese Medicine (TCM) emphasised on holistic cures - the belief that food is medication and you are what you eat. But maybe it is way harder to change your entire lifestyle, than to swallow a cocktail of pills.

So its nonsense to say that I am not a product seller. Of course I am a product seller, because I serve the needs of product buyers - clients who come to me for the purpose to purchase a prescription. Some clients come to me for a total revamp - they want a holistic cure and they want to know how to balance their finanical diet but managing the different aspects of earning, spending, saving and investing at various life stage. For these clients I am a financial advisor.

When is the best time to get a Whole Life Plan?

I've often heard of this phrase - the earlier you get the whole life plan the better it is for you. Rather than taking the notion for granted, I decided to find out for myself what are the basis of this statement, and whether it is valid or not. So here comes "Harry", and let's follow his life-span to see at which point in time is it the best for him to get a whole life plan.

When Harry is a newly born infant (i.e. age 0), his parents will only have to pay $103.65 per month for a $100,000, 20-year-limited-pay, whole life plan. Now the advantage of this is: assuming that Harry was born a normal, healthy baby then there would be no problems with his health condition. His parents will be able to 'lock-in' his health status and to hedge against any possible changes that the child might have in the future. Also, as we shall see, this would be the only time when the premiums are that low. Never again will the premiums be that cheap.

So maybe his parents did not think it was necessary at that point in time to get a whole life plan then - when Harry reaches 5-years-old, the premiums would be $120.00 per month. At 10-years-old, the premium would have increased to $138.40, and at 15 years the premium would be at $162.90. When Harry is 20-years-old, the premiums will be $177.50. By this time now, Harry will be on the verge of adulthood and on his way to join in the workforce. The irony is that people are usually at the poorest when they first started work, and 25-year-old Harry would have other uses for his income, rather than to take advantage of the $201.50 premiums. When he is more settled down at 30-years-old and starts preparing for the future, he finally decides to get the whole life at $234.50 per month.

Now let's just do a simple analysis. If Harry's parents had bought the policy for him during infancy, then they just have to pay $23,923 for $100,000 coverage. In comparison, if Harry were have to get it at 30-year-old, he would have to pay $54,113 for the same coverage.

However, the good thing about Harry is that his health condition remains constant. But this might not hold true for all people. I know of people whose children were already born with some health conditions, such as a hole in the heart. If that is not the case, then along the way one or another condition crops up. The National Service is a great time to find out all the 'hidden' health conditions, for it is during that time the recruits will be subjected to of health screening. Some of my clients were diagnosed during that time.

So, in essence, the phrase the earlier you get the whole life the better it is for you has some validity to it - in terms of the cost as well as the health conditions.