101. Are VULs really better than bank deposits? It depends on the "context" on how it is presented

 

The staple pitch among financial advisors is comparing the "rates of return" of a savings account with the projected returns of a VUL, how the low interest rate of a savings account is not overcoming the negative effects of inflation over time leading to significant losses in purchasing power.

While data has shown the outperformance of funds over a savings account, this must be presented in the proper context.

First is that the nature of the returns is not comparable.

A savings account is categorized as a "lending" type of vehicle, that by depositing the money in a bank, we are effectively lending the money to the bank in return for compensation in the form of interest. This rate is normally fixed and the funds are withdrawable anytime.

The liquidity (withdrawable anytime) of a savings account is the reason why rates are normally very low.

A VUL (or mutual funds/UIT) is categorized as "owning" vehicles, that money invested is replaced by ownership (units/share) in the fund at the price the investment is made, for example funds are invested in ABC equity fund selling for Php 2/unit, a Php 10K investment will now be converted to 5,000 units of the fund (Php10k/Php2/unit) assuming zero transaction costs (entry fees, COI, etc), how much the returns would be going forward will be dependent on how the fund is invested. So if the fund is an equity fund (predominantly invested in the stock market), the price of the fund will be how the stock market behaves going forward.

If the market goes up, the price of the fund will follow resulting in some gains for the investor, but if the market went down, the price of the fund will also drop. The best way to handle this volatility (ups and downs) is to hold on to it for longer periods of time.

It is not withdrawable anytime because to cash in, you have to sell your ownership (units/shares) at the prevailing price, which could be lower than your purchase price.

Having said these, are VULs better than bank deposits?

It really depends on the timing and intent of your investment decision.

• If your current excess funds are meant to act as buffer for any income shortfall, you need liquidity so a savings account is better.
• If your current excess funds are meant to finance a "financial goal" happening years into the future, then a fund (whether a VUL, MF or UIT) may be a better option.

All the best my friends!

#acgadvice

100. Why some people don't like to talk to agents

If financial advisory just another selling job?

If we are to base the answer on the proliferation of popular seminar topics in the industry today (selling to the HNIs, objection handling, consultative selling, always be closing etc..), success in financial advisory is now a function of how well we sell products!

To me, focusing on just developing selling skills to build a career on financial advisory may or may not bring you to the accomplishments you envisioned. This is because approaching prospective clients with a "salesman" mindset will influence how we approach and talk to them - a salesman will focus on making a sale as an objective and if is not forthcoming, may lead to a contest of wills with the advisor using "sales techniques" to try to overcome objections and the prospect defending his decision with more objections, more often than not, this leads to negative outcomes.

Financial advisory is more on advocating financial literacy, to know and understand enough financial concepts and options to be able to make informed financial decision; whether it is to have enough funds to meet important life goals or passing on critical risk elements that may place these goal attainments in peril.

Financial advisory is all about "educating" prospective clients on how best to invest his current excess funds considering his personal circumstances, his risk/reward preferences, how market conditions may affect the outcomes, possible risk in the horizon etc.

Financial advisory is all about helping prospective clients make an "informed financial decision"! And if they decide that we are their best partner in their financial journey, then we have a sale!

• A salesman focuses on making a sale!
• An advocate focuses on sharing information that would help prospective clients understand where he is right now in his financial journey relative to where he wanted to be, options available to him and the best way forward. And whether they decide to buy or not is another matter.

Changing how we approach prospective client from a salesman mindset to an advocate mindset may be the better way of building a more sustainable financial advisory career!

All the best my friends!

#acgadvice