Don’t just say you have wisdom.

Don’t just say you have wisdom.

Wisdom “the soundness of an action or decision with regard to the application of experience, knowledge, and good judgment”.

Wisdom should include an understanding of the scope of the subject matter at hand.

Wisdom should include an understanding of the consequences of various actions when attempting to solve problems.

and yet …

Example 1
The incredibly stupid request

Dr. Dentist’s assistant leaves a message…

“Stop payments on Dr. Dentist’s 6 year old guaranteed $1 million, level cost of insurance, face plus fund Universal Life policy contract for which he is paying $1,000 per month.”

I email Dr. Dentist to tell him (nicely) how stupid he is being

I tell him there are options he may not have considered. I hypothesize / suggest 6 or 7 reasons why it might not make sense to cancel this policy. I offer to come to his office and discuss it with him.

I receive an email from his financial advisor (NOT the client / NOT even a cc to the client) which said…
“Thanks you for the email you sent to Dr. Dentist. What value do you feel there is in keeping the policy if the insurance need no longer exists?”

I wanted to email a response to Dr. Dentist that pointed out the absurdity and irony of a “financial advisor” that couldn’t calculate the value of a financial product simply because it wasn’t under his management. Energy better spent examining the “value” of the advisor.

Instead I wrote:

Hello Dentist Client,

I received an email from your financial advisor asking for an explanation of the value of your insurance investment. Beyond the immediate benefit of the life insurance itself, we carefully examined the long term return to your estate. You have invested $X to date into this strategy that will be un-recouped in any other scenario.

Walking away from a fixed interest investment that earns 16% compounded each year! ?

To match the performance of this investment, you would have to find a fixed interest investment that earns 16% compounded each year for the next 27 years.  This calculation is based on my estimate of your life expectancy.  If of course the unthinkable should happen before you reach 83 then there would be an even greater return on the investment. There is a guarantee of a million dollars to your family at any given moment in the future.

The other two policies you own are term policies which will expire in 5 years and six years.  The CDSPI insurance is also term and will expire.  At this point you will have no insurance if you allow the permanent policy to lapse. This XXX policy is the only permanent insurance you have.

I simply cannot fathom any scenario where you would be counseled to walk away from this investment, in favour of any other investment.
Please know that I have no financial interest in your decision, it is simply the best advice I can give you.


What’s going on here?

I can only surmise that the financial advisor was being self-servingly greedy. He most certainly wasn’t considering the best outcome for this client. He wanted the $1,000 a month plus anything else he could get under his management. A successful 56 year old dentist is a perfect client for a middle-aged advisor in the financial advisory business.

Mathematically the choice to walk away from this policy was wrong

My guess is that a skilled financial salesperson could move this client in virtually any direction he chose to. He could create fear that the client needs to save more for retirement and he is going to rescue him by getting rid of unnecessary expenditures.
The story sounds incredible and it’s effective too… but wrong.
I know the client. He has a strong cash flow that will get stronger as the kids finish private school. I listened when the client set out his estate goals. I did an analysis of his situation and I know he will have a strong financial finish but NOT because of the financial advisor. I’d bet his financial advisor didn’t do carefully considered retirement projections or provide him a written plan when he offered his professional advice. He simply ‘sold’ him.
The financial advisor has one business goal… assets under management. Mathematically the choice to walk away from this policy, in this situation, was wrong. In my world the advisor sucks; in his world, he’s a great businessman. And his success will be built on great salesmanship, not great advice.

The story is all too common.