Anything can happen in the financial markets, and it can happen very fast. Whether it's a tech bubble, terrorist attack, Lehman blowup, debt ceiling debate or an uncertain European future, we've seen firsthand that investors move quickly when the prospects of financial losses are on the table.
I've met many investors who welcome risk, but never one who preferred losing their bet. And no matter how much money you have most people agree it is nice to have more than less.
The concept of risk is fairly simple and it is something we encounter daily, but rarely consider. We jump in our cars and begin our day and never question what would happen if we get hit by another car or if we ourselves cause an accident. If an unfortunate situation such as this occurs most drivers have insurance and never second guess whether the insurance is going to pay. Assuming you have made your insurance payment, and as long as you are not breaking the law, you can be confident that you are going to be covered. Not only is this a common sense way to protect you and your assets, it is also the law.
Insurance protection is utilized by many people in all areas of life. Most forms of insurance, however, are optional, but highly recommended. And whether it's protecting your car, home, life or other personal possessions it is something most people would not want to live without.
Unfortunately, this same common sense planning has played a very small role in protecting individual financial assets. Most investors choose to not insure their financial investments and directly purchase investments such as stocks, mutual funds and ETFs. The decision to directly expose a large amount of financial assets is dangerous and a major mistake for most investors. And I believe people would agree it is no less important to protect a $300,000 IRA than it is to protect a $300,000 home. However, what we see is just that — too many investors attempting to get "ahead" by carrying the complete risk in their investment account.
Be the voice of reason
Whether it's because of bad advice or simply because they never knew solutions were available to protect their financial assets, it is your job as a financial professional to be the voice of reason. It is impossible to argue whether it is a smart decision to insure your home — it is. Explaining to an investor that similar financial institutions protect their financial assets just like they protect their home, most would agree that it makes sense to plug all the holes and not just one.
The annuity market has seen tremendous growth and one of the products that has received much debate is the fixed indexed annuity (FIA). The FIA is a fantastic tool for protecting assets and income in retirement. And it allows a financial professional to make wonderful real-life comparisons when working with clients.
With the FIA you are able to highlight the indirect exposure it provides, as well as other insurance guarantees designed for retirees that preserve accumulated assets. Incorporating the features of the FIA into your client discussions allows you to connect the dots to overall asset protection.
You can start the discussion this way:
When you buy a FIA you are not investing directly in any one index. You would be, however, if you purchased an S&P 500 mutual fund or another index mutual fund. This means you get 100 percent of the good and 100 percent of the bad. Within the FIA contract you are given the opportunity to potentially grow your funds via the index available and selected strategy, yet your exposure to that index is indirect. You may get some of the good, but will never receive any of the bad from that index. The FIA protects you from losses via a contractual guarantee just like homeowner and auto insurance protects you from losses. It's that insurance protection that makes the FIAs attractive and even more so if you purchase a rider, which would offer either contractually guaranteed growth, income or death benefit.
With this product you can now offer clients a solution that protects their financial assets just like their insurance protects their car and home.
Undoubtedly, risk will always maintain an appeal and many investors will always chase it. This is how the U.S. economy and the financial markets operate. And what you have to do as a financial professional is not reinvent investing, but simply reinforce the smart decisions an investor has already made in one area of their life and explain how that is equally important in all areas of life. Outlining those choices will not only demonstrate the areas where they have protection, but most importantly it will expose the areas where they are vulnerable, which opens the door to multiple opportunities.
There will always be people who take risks whether they need to or not. And those investors will probably never care about safe money solutions. However, many investors follow the herd and never consider other options because Wall Street won't. That's where the opportunity lies and this is where you are going to create curiosity. One of the common pieces of advice investors are told is "stay the course." And, for many of them, the results have not been good. Right now is the best time to educate yourself and demonstrate to the public that you are the voice of reason and really care about protecting clients from harm. It's natural to seek and want security in retirement, and repeating that message will generate a response and cause people to listen.
Everyone needs asset protection and most people have some form of it already. This is a concept that is applicable to someone age 32 or 62. And expanding that protection to include one's financial assets is a great decision and one that I believe people welcome. It's not complex and it is not a debate. If they are protecting some of their assets right now, then they are already a believer. Use examples that people can relate to and are already applying.
Our job as financial professionals is helping clients find an intelligent path to accomplish their goals. Removing unnecessary obstacles along the way will keep them happy and excited about their financial plans and the recommendations you've made.
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