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Financial Planning > Behavioral Finance


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Are financial advisors practicing what they preach?

As you know, the Dow dropped to just above 10,000 in mid-April–well below the early March high of close to 11,000.

When I saw that, the thought quickly crossed my mind: Did the financial advisors and financial company executives practice what they preached? You know–did they do the asset allocation, the periodic rebalancing, the dollar cost averaging, the annual reviews for their own personal accounts? I sure hope so. That should keep them in a safer money zone than those who invest without follow-up or monitoring.

It also would be a great story to tell clients: “Remember when he had that big drop in mid-April of ’05? Well, I employ the same strategy that I am recommending to you, and the result in April was that….” (Hopefully, it was a good result.)

Chances are, though, that at least some experts were caught off guard by the market’s drop. They may have planned to reallocate their funds when the market was surging but somehow never got around to it. And by now, they surely are kicking themselves for the oversight.

This raises 2 key points for financial pros: They need to employ sound money management practices themselves; and they need to own the products (or at least the product classes) they sell.

From my conversations with many people in various financial sectors, neither point is a given.

Consider: At several conferences I’ve attended, speakers have asked the audience: “How many of you own…(the insurance coverage under discussion)?” Amazingly, very few people raise their hands.

That is an alarm bell. Why do so many professionals not say they own the coverage that is the source of their bread and butter?

OK, some non-hand-raisers might just be shy; they own it but don’t tell. Others might be very private about revealing financial positions of any kind. Still, the responses are so consistent from session to session that it’s hard not to think that many industry professionals really do not own what they sell.

When I ask around for reasons for this, here are common responses: “I have enough assets to meet the financial need in other ways.” “I really don’t need that kind of product.” “I’m just waiting a little longer–have a lot of expenses right now.” “I can’t qualify due to a health condition.” Some just admit to procrastination and oversight–e.g., “the shoemaker’s kids get no shoes, ha-ha.”

All of that is plausible. However, on more than a few occasions, I’ve sensed a generalized disinterest and/or lack of confidence in the product type itself. No one admits to that, of course, at least not to me, but it surfaces in the reticence that some people emit.

For sake of argument, though, let’s assume the main reason is procrastination. (It’s certainly a possibility.)

If that’s the case, it’s still a pretty damning statement about the importance professionals assign to their product/service and the need to set an example for others. It’s also a sure-fire way to hurt the bottom line. If there is no sense of urgency for the staff to own it, what possible sense of urgency or interest can the staff be expected to imbue in customers?

In financial circles today, there is much talk about finding ways to generate more sales and organic growth. And lots of people are trotting out solutions–technology, marketing, managerial, legislative, systems, etc. This is the buzz of the day (along with regulatory oversight and compliance).

But not many people are talking about solutions involving staffers having a personal stake in product types they handle. This is not to say that such investment will make sales problems vanish overnight or growth skyrocket in an instant. But it’s a good bet that product understanding will increase among staffers, and so, too, will staff interest in the business and its customers. Over the long term, the energy this creates can be infectious and a certain draw for customers.

Successful long term care professionals often recount how they entered the field after they saw loved ones going through an LTC experience. Their sales flow from their commitment, they often say.

Many successful life insurance professionals say something similar–that they entered the business after seeing a surviving loved one receive little or no death benefit (or, alternatively, receive an ample death benefit). They found their motivation in the personal experience.

Most successful teachers say they never grasped their subject areas until they started teaching. Then, they got it and could convey excitement about it to students.

Hands-on experience is so dynamically linked with success that it is difficult to see any advantage at all in not owning what you sell and not following your own financial advice. In other words, BYOP–buy your own products.


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