102. Why should you be chosen over other financial advisors?

the prospect will choose you because:

• you represent the biggest insurance company?
• you have the most comprehensive coverage with the least cost.
• the investment funds you offer are the top performing funds in its class.

Selling life insurance is difficult if we consider the number of agents calling on the same prospect, because of this competition, it may have evolved into a "product contest", when agents compete against each other based on product merits and benefits, force selling it to the prospect without considering whether it is needed or not.

While these 3 points are quite valid and could contribute to your business, these are not sustainable over the long term. First, another company may overtake yours in terms of industry rankings, Second, products are created continuously, any advantage your product currently have might be overshadowed by a newer product tomorrow. Third, fund performance fluctuates, and not all securities move in the same direction all the time, the best performing fund today can be the worst if market condition changes, which it constantly does.

3 traits that advisors should have to remain competitive and be chosen:

1. Relevance - Keeping yourself updated with the latest trends in financial advisory, be it market knowledge or better ways to help clients achieve their financial goals, since the financial market is always evolving, we should constantly learn so we can give our clients timely and relevant advice.

2. Empathy - Clients don't need everything that we offer, some would be useful, but most would be redundant, clients may also not be in a position to buy any new product at this time, let's respect that and not force the client to a situation when they have to "reject" us.

3. Always! the client's best interest - You are one case away from qualifying to that incentive trip ending today, the prospect is having second thoughts and would like more time to consider, what do you do? 

All the best my friends!

Feel free to ask questions in the comments section

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101. Are VULs really better than bank deposits? It depends on the "context" on how it is presented

 

The staple pitch among financial advisors is comparing the "rates of return" of a savings account with the projected returns of a VUL, how the low interest rate of a savings account is not overcoming the negative effects of inflation over time leading to significant losses in purchasing power.

While data has shown the outperformance of funds over a savings account, this must be presented in the proper context.

First is that the nature of the returns is not comparable.

A savings account is categorized as a "lending" type of vehicle, that by depositing the money in a bank, we are effectively lending the money to the bank in return for compensation in the form of interest. This rate is normally fixed and the funds are withdrawable anytime.

The liquidity (withdrawable anytime) of a savings account is the reason why rates are normally very low.

A VUL (or mutual funds/UIT) is categorized as "owning" vehicles, that money invested is replaced by ownership (units/share) in the fund at the price the investment is made, for example funds are invested in ABC equity fund selling for Php 2/unit, a Php 10K investment will now be converted to 5,000 units of the fund (Php10k/Php2/unit) assuming zero transaction costs (entry fees, COI, etc), how much the returns would be going forward will be dependent on how the fund is invested. So if the fund is an equity fund (predominantly invested in the stock market), the price of the fund will be how the stock market behaves going forward.

If the market goes up, the price of the fund will follow resulting in some gains for the investor, but if the market went down, the price of the fund will also drop. The best way to handle this volatility (ups and downs) is to hold on to it for longer periods of time.

It is not withdrawable anytime because to cash in, you have to sell your ownership (units/shares) at the prevailing price, which could be lower than your purchase price.

Having said these, are VULs better than bank deposits?

It really depends on the timing and intent of your investment decision.

• If your current excess funds are meant to act as buffer for any income shortfall, you need liquidity so a savings account is better.
• If your current excess funds are meant to finance a "financial goal" happening years into the future, then a fund (whether a VUL, MF or UIT) may be a better option.

All the best my friends!

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100. Why some people don't like to talk to agents

If financial advisory just another selling job?

If we are to base the answer on the proliferation of popular seminar topics in the industry today (selling to the HNIs, objection handling, consultative selling, always be closing etc..), success in financial advisory is now a function of how well we sell products!

To me, focusing on just developing selling skills to build a career on financial advisory may or may not bring you to the accomplishments you envisioned. This is because approaching prospective clients with a "salesman" mindset will influence how we approach and talk to them - a salesman will focus on making a sale as an objective and if is not forthcoming, may lead to a contest of wills with the advisor using "sales techniques" to try to overcome objections and the prospect defending his decision with more objections, more often than not, this leads to negative outcomes.

Financial advisory is more on advocating financial literacy, to know and understand enough financial concepts and options to be able to make informed financial decision; whether it is to have enough funds to meet important life goals or passing on critical risk elements that may place these goal attainments in peril.

Financial advisory is all about "educating" prospective clients on how best to invest his current excess funds considering his personal circumstances, his risk/reward preferences, how market conditions may affect the outcomes, possible risk in the horizon etc.

Financial advisory is all about helping prospective clients make an "informed financial decision"! And if they decide that we are their best partner in their financial journey, then we have a sale!

• A salesman focuses on making a sale!
• An advocate focuses on sharing information that would help prospective clients understand where he is right now in his financial journey relative to where he wanted to be, options available to him and the best way forward. And whether they decide to buy or not is another matter.

Changing how we approach prospective client from a salesman mindset to an advocate mindset may be the better way of building a more sustainable financial advisory career!

All the best my friends!

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99. Does a "diversified stock portfolio" guarantees returns?

 Harry Markowitz: Creator of Modern Portfolio Theory (investopedia.com)

There are hundreds of stocks listed in the Philippine Stock Exhange, if you are to design a well-diversified portfolio, which stocks will be select?

Diversification is the idea that not all securities will move in the same direction at the same time as each stock will be affected individually by changes in market conditions. For example, the OPEC announced a hefty price increase in the price of crude oil, among the listed companies - oil companies may benefit from this and see their stock price rise while companies dependent on oil like transport companies may see their operating margins shrink leading to lower stock price. By combining these two companies in a portfolio, the price drop of transport may be balanced off by the increase of oil companies' stock price.

A portfolio is a collection of assets (stocks) created by the investor intended to transfer the "purchasing power" of excess funds into the future.

Investors can design a portfolio made up of these individual stocks so that the overall return of the portfolio will be more predictable. 

The "Modern Portfolio Theory" was first published in 1952, it was discussed more extensively in the Markowitz's book "Portfolio Selection" in 1959. Here are some key ideas.

Portfolio design can be reduced to two dimensions - First is the expected return and its risk (as measured by the probability that it may not deliver the expected return - it's variance)

The risk of each stock that really matters is not the risk of the stock by itself rather its contribution to the risk of the aggregate portfolio.

With this insight, Markowitz was able to reduce the complicated and multi-dimensional problem of portfolio construction. From an investor's perspective, the more assurance that actual returns will parallel expected returns, the better!

The objective will be a portfolio with the highest expected return with the lowest variance.

Data needed are: 1. the estimated expected return of each individual stock and 2. the variance of its return and 3. the co-variance of the stock returns in relation with other stocks in the portfolio.

Diversification: Why Not Put Everything in Whatever Will Go Up the Most? – Marotta On Money

While a diversified portfolio is no guarantee of future returns, it increases the sense of comfort for investors that the actual return will not deviate too much from the expected return.

All the best my friends!

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98. If you forget your goal and just focus on your "system", will you succeed?

 

Winners and Losers have the same goal, the only difference is one achieves it while most others fail. If we are to apply this to the total number of financial advisors vying to qualify for the Million Dollar Round Table each year, statistically, just by setting a goal to qualify for the MDRT does not work!

The prevailing wisdom says that for us to achieve anything we want in life, we need to set goals and tie it to an action plan, Jim Collins even coined the term BHAG for "Big Hairy Audacious Goal", the idea is that the bigger, clearer and more well-articulated the goal, the more likely we are to achieve it, because it would constantly inspire and motivate us to reach it!

Inspiration and motivation are not sustainable! just look at new year's resolutions!

One interesting insight I gathered from reading James Clear's book "Atomic Habits" is that "Goals is just a standard to let you know you won the game" while "Systems is a set of habits that allows you to continue playing the game" even after your current (goal) game is won, the system will enable you to play bigger games in the future, one that builds from your latest success. 

A Habit is a series of Behaviors.

A System is a series of Habits.

Success habits for financial advisors are "Prospecting" and "Presenting", setting up a system to embed these two activities in our daily habits is the sure-fire way to success!

Building habits are daunting at the beginning, imagine telling yourself to make 5 client calls a day as suggested by a sales guru, you may do it for a day or maybe two, but as it goes on the weight of rejections may start demoralizing you and you most probably will give up after a while. The key idea is to develop habits to make this automatic!

BJ Fogg in his book "Tiny Habits" suggests breaking down the task to its smallest possible version - so making a client call may just become browsing your contacts in your phone directory. 

Next is to identify an "action prompt", this will tell you when to start a new habit, Fogg suggests tying this to an anchor (a habit you are already doing regularly like having coffee in the morning?)

Your anchor - After I ... (had coffee), the new tiny habit - I will.. (browse my contact list). browsing is much less intimidating than making an actual client call, its easier and you don't need a lot of motivation to do it, so it is an easier habit to create. But just browsing your contacts will not make you any money, you have to "grow this habit", How? 

By celebrating your small success (browsing your contacts)!  After browsing congratulate yourself for a job well done! It may sound ridiculous in the beginning to celebrate such an "insignificant" action, but the positive feeling generated will encourage you to repeat the habit again, this momentum that you have created may now give you enough motivation to repeat and grow this habit.

So the next habit that you formed in this progression may be, After I... (browsed my contacts) I will... (send messages to 3 of them requesting for an appointment)

Celebrate this and grow this to an even bigger habit till you are making 5 client calls a day!

Success is the result of what we do every day, and habits are what we do regularly, embed a new habit that would lead to your achieving your goals to a habit you are already doing will help ensure you do it everyday.

Read "Atomic Habits" (James Clear) and "Tiny Habits" (BJ Fogg | Tiny Habits) for more insights!

All the best my friends

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