The main selling point of any financial products is their potential gain. Most people only see one side of the coin; they don’t realize that higher potential return equates to higher risk.
Statistically speaking, we almost always end up buying financial products and solutions from someone we like or trust in person. This is not wrong but it just isn’t right if we base our decision solely on this factor.
Financial agents are divided into 3 types:
- Tied financial agents are agents attached to a financial institution agency force. For example, insurance personnel, unit trust consultant, bank’s personal financial advisor. They are product focused and normally compensated by commission.
- Independent financial advisers(IFA) are personnel providing comprehensive financial solutions. This includes value-added advisory service (investment needs analysis, tailored financial plan, wills writing, retirement planning) and financial products (insurance, investment ). They are compensated by advisory fees and product sale commission.
- Financial coaches are personnel providing high degree of personal interaction to assist a client in financial awareness and profiling in order to achieve financial independence. They are usually compensated by advisory fees only.
Financial agents will take a comprehensive evaluation on your financial position and goals. Then, they will identify the gaps and subsequently propose one or more financial solutions to help you achieve your goals. They emphasize on long term engagement with the client.
The paradox of “having your best financial interest in mind”
No one will ever have your best financial interest in mind better than yourself.
If you walk into a bank, and ask the financial advisor to recommend you the investment product with the highest potential return, who is to blame if you realize you are being charged a 10% fees over your 6% investment return?
Answer: Your own ignorance
Can you guarantee your agent is going to serve you diligently after the sales even if you don’t buy additional products?
Then why pay 6% upfront commission while you just need to pay 2% commission via a DIY online investing platform to invest in the same unit trust?
Answer: Because either you don’t know how, don’t know what you want, don’t have time, don’t care or don’t want to ask.
I am 200 percent sure this is not the attitude you adopt in your professional career. Therefore, do not be so ignorant when it comes to managing your own money.
Let me reiterate this that financial agents are trained extensively on the art of sale, not on having your best financial interest in mind.
But our own ignorance is certainly not bliss here.
So what can you do?
Everyone should get educated on personal financial concepts. You must have the very basic financial literacy so that you can evaluate your financial needs and gaps. Then only you engage your financial agent and tell him or her what you need. Let them earn their commission, but always strive to minimize your investment cost before we even talk about earning a return. Always read the fine prints of any financial products Believe me, whichever type of financial agents you choose to engage in the future, he or she would definitely have more respect for you.