Planning as a Concept

By Dave Faulkner   October 23, 2018

If you are like most financial advisors that sell product and earn all or part of your income from commissions, you are no doubt familiar with the many insurance sales concepts that are promoted by the companies you do business with. Most of the concepts used by advisors have been around for years. The Estate Bond concept for example, was a mainstream concept used to sell permanent life insurance long before many of the advisors entering the business today where born.

The longevity of the different sales concepts is a testament to their effectiveness. They help explain the many benefits of the financial products offered by insurance companies and investment firms. In fact, they are so successful that most companies have branded and linked the most popular sales concepts to many of the products they offer.

Insurance sales concepts for example, will typically fall into 1 of 3 categories:

  1. Comparison Concepts: These are designed to illustrate the benefits of one type of insurance over another. “Buy Term and Invest the Difference” and “The Cost of Waiting” are included in this category.
  2. Estate Preservation Concepts: These are designed to illustrate the projected value of a person’s after-tax estate using life insurance compared to investing in GICs or doing nothing. “Estate Bond” and “RRIF Insurance” are included in this category.
  3. Retirement Income Concepts: These are designed to compare after-tax income in retirement using a permanent life insurance policy to the after-tax income from a fully taxable investment. “Insured Retirement Plan” and “Insured Annuity” are included in this category.

With all their advantages and proven track record for selling financial products, sales concepts have one serious flaw, they fail to consider the client’s big picture.

Sales concepts use simple assumptions and a limited analysis to highlight changes in one aspect of a client’s financial life. A sales concept that compares the future death benefit of a life insurance policy to the accumulated future value of the premiums invested in a GIC, ignores other positive changes to the client’s financial situation. Sheltering non-registered investments reduces interest income which can prevent clawback of the age credit and OAS benefits. Both important side-effects from the recommendation to purchase life insurance for your estate. Added value that cannot be measured with a simple sales concept.

Financial planning is a highly integrated, yet focused process consisting of six distinct elements:

  1. Financial Management
  2. Investment Management
  3. Risk Management
  4. Tax Planning
  5. Retirement Planning
  6. Estate Planning

As a financial advisor, the scope of planning for a given client will generally focus on 2 or more of the above elements. Retirement Planning is connected to Investment Management. Estate Planning with Risk Management. No one element of financial planning can be effectively done in isolation of all others. When financial advisors replace comprehensive analysis with a product sales concept, it can have a negative effect on the client even when the advice is the best solution given their situation. Advice that is attached to a product can be viewed as bias and valued less than advice that is focused on the client’s financial goals.

Sales concepts in and of themselves are not bad. They are very effective at helping clients understand the benefits of various planning strategies. The fact that most are tied to a given product is simply due to their origin. Supplier companies want you to sell more of their products, providing sales concepts is just one of the ways they market their products to financial advisors.

Financial advice should be recognized as a profession, no different than accounting or law, but if we continue to tie advice and recommendations to product sales concepts provided by supplier companies, how can we expect the public and other professionals to view us as such. The answer is simple, take the product out of the concept!

In the coming weeks, we will be posting a series of articles that break down each of the six financial planning elements listed above. We will illustrate the planning concept of each as a separate entity from the sales concept often used to deliver each aspect.

Planning as a Concept™ is a feature of RazorPlan financial planning software and uses Value of Advice to validate your recommendations and instill confidence in you as a financial professional.

Download the ebook: Planning as a Concept

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