by When I go out to eat, servers often ask me if I would like some fresh pepper on my food–but they ask before I’ve had a chance to take my first bite. My immediate thought is, You are asking me to make a decision before I’ve had a chance to taste my food. I will let you know in a few seconds. Only when I’ve tasted my food can I respond to the server. Following the same logic, I never order my meal and ask the server to put extra pepper on my dish before he brings it to me. Again, the reason being–I haven’t tried the food yet.
I have noticed this same scenario play out in the financial services industry. Like the hasty server, financial professionals are asking people to make decisions before they have had a chance to really “taste” them. And like extra pepper ordered in advance, people are requesting products from financial professionals without fully understanding the consequences of their request.
Anyone would agree that making a decision on a financial product is a lot more complicated than deciding if your meal requires pepper. I believe most people would also agree that because money touches every part of our life, the wrong financial decision may have widespread, negative consequences. This said, how does one get a chance to sample a financial product–like long-term care insurance, a managed investment portfolio, or a family trust–before making the decision to buy it?
My recommendation? Both the financial professional and the client should slow down the sale. When an individual asks about a specific product, the tendency is for the financial advisor to rush to sell a solution. For example, if a client asks their advisor about long-term care, the advisor may start talking about the benefits of a specific policy they consider to be a good solution. When this happens, the advisor has missed an important step: He has not taken the time to understand his client’s priorities, and glean enough information about them to know whether or not they’re advising the appropriate solution.
IMPORTANT NOTE: If the advisor begins a conversation with recommendations about a specific product before understanding what’s important to you, they are putting their needs before yours.
Let’s take the medical field as an example: Before a patient can call a specialist like a cardiologist, orthopedic, or allergy doctor, the practice is to first see a primary physician for a thorough examination. Then, a diagnosis can be made and the patient is directed towards a specialist who advises them about various options and solutions.
But if you take a look at the financial services industry, financial advisors tends to skip the general examination and jump right to a specific product and solution, without a proper diagnosis.
There are several reasons this may happen: If the financial advisor is an insurance specialist, they will see life insurance as the solution; and if the financial expert represents themselves as a hedge-fund expert, they will see hedge funds as the answer to your needs. In other words, to the hammer, everything looks like a nail and your financial advisor may offer one type of solution despite your unique circumstances and values.
Furthermore, when there is an economic benefit on the financial professional’s side, and fear or greed on the client’s side, there is also a tendency to rush towards a solution before a balanced conversation takes place. But regardless of the reasons, this conversation between client and advisor is crucial. It is the financial professional’s responsibility to slow down the sale and make sure they have taken the time to help their client organize their priorities and understand the consequences of purchasing a product. It is also just as important for the client to insist that they receive sufficient advice before they make any decisions.
Whether it be an insurance product–like life-, long term care-, or disability insurance– or an investment product like stocks and bonds, or an estate planning document like a will or trust, if the advisor’s first question has to do with a specific product, the question–even if it’s a good one–is being asked at the wrong time.
The financial professional is asking if you want some pepper before you’ve even tried your meal–a good question, but asked at the wrong time.