Why Consumers Should Not Rely Blindly on Financial Consultants for Their Financial Planning

Why Consumers Should Not Rely Blindly on Financial Consultants for Their Financial Planning

by April 30, 2021

The layman customer is extremely reliant on the financial consultant. The recent proliferation of simplified consumer-facing tools has helped many understand their financial gaps to a fair degree. However, when it comes down to creating a plan to close those gaps, the customer remains poorly informed about his options.

The financial consultant who is held to the suitability standards is obligated to make a recommendation with reasonable basis, but not required to demonstrate that it is indeed the best possible. Another consultant held to the higher fiduciary standards is obligated to put the customer’s interest before his own, but the customer is subject to the consultant’s best knowledge.

The financial consultant’s advice is only as good as his means

financial consultant’s advice

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Be it suitability or fiduciary standards, the financial consultant’s advice is as good as his means. Even if his means is suboptimal, in the land of the blind, he is still the king, albeit being one-eyed.

When customers are blindly reliant on their financial consultants, the industry stagnates. Regulations such as best interests duty and fiduciary rule keep the financial consultants’ integrity in check so that customers can trust the industry readily. However, over time, customers grow to rely on the regulatory protection so much that they become unmotivated to explore options and challenge their consultants.

The reliance deepens especially in a market where there is a myriad of products that can serve the same financial objective, but product complexities make it difficult for the layman to do a contextualized comparison independently.

When things go awry, such as an unprecedented market crisis that rocks the customer’s portfolio, an over-dependent customer is quick to point fingers at the consultant. It is therefore inevitable that financial consultants stick to cookie-cutter recommendations that fulfil the compliance requirements without hassle, but which are only as good as the list requires.

For example, the customer looking to close his retirement gap could be recommended an annuity product manufactured exclusively for the retirement objective or, on the same budget, a solution that complements the annuity product with some investment funds.

The former recommendation is easier to explain while the latter requires a strategy to be discussed and understood, as well as extensive post-sales servicing. Most financial consultants would choose to give the former recommendation – one that checks the compliance list easily but may not fund longevity as well as the latter.

The industry has therefore not been able to shift from product centricity to solutioning, incurring consequences which amongst them, the perennial and concurrent protection and retirement gaps.

Occasionally financial consultants may come across prosumers who want to engage in an exploratory and technical discussion. To stay on the safe side of the law, consultants prefer to minimize their own input and execute whatever their customers want, with all disclaimer boxes ticked. Under such circumstances, prosumers see little value in having financial consultants and choose to plan and execute independently.

Empowering customers to know their options

What the industry needs is a critical mess of prosumers such that financial consultants and their principles are compelled to level up their game or risk irrelevance. Empowering the customers goes beyond giving them simple financial calculators that identify gaps. Instead, customers should get to know their options before entering a conversation with their financial consultants.

Industry veterans who believe that insurance is ‘sold, not bought’ would argue that motivating the customers to self-explore without the financial consultant’s nudge is an exercise in futility. However, a generational change is in the air. 360F recently collaborated with an online life insurance platform to study the present consumers’ understanding towards insurance.

It was found that those between 18 and 30 years old are more aware of their existing life coverage than their older peers. In fact, compared to the older generations, the young adults tend to want higher insurance protection coverage. A supporting theory is that the young adults’ parents had been nudged by financial consultants to purchase insurance and the lessons passed down the generation. Whatever the reason might be, the implication is clear: the generation that has just started their economic lives have the willingness to learn about their options.

To help customers understand their options without bias, we need to make technology the facilitator. Analogous to how Google Maps can give us recommended routes before we take a stranger’s car, 360F automates suggested solutioning to help the customers grasp the possibilities and more important, to have a reliable and valid reference benchmark.

As a neutral facilitator, 360F’s technology is carrier-agnostic. Given any insurance and/or investment product universe, 360F algorithms will seek for the “best possible” solutioning design to fulfil the customer’s set of prioritized criteria in the context of constraints and everyday life probabilities.

To validate that the solutioning is indeed the best possible, 360F innovates a transparent and objective feedback mechanism in the form of a simulation metric, HappiU. This metric evaluates the customer’s holdings and portfolio, with and without the new solutioning suggestion, relative to his circumstances, values and aspirations.

It not only helps the layman to assess overall financial satisfaction but also makes contextualized product comparison a breeze. In other words, the HappiU metric is pivotal to making buyer empowerment a credible reality.

The one-eyed king can lead the blind, but it takes intelligent technology to empower the people to see. Only then can the financial advisory industry advance and raise the bar for all parties.


Featured image credit: Photo by Scott Graham on Unsplash