96. PIFAAP's First Post Pandemic Special Interest Session - April 27,2023 9AM at Deogracias, Ayala-FGU Bldg, Makati

Uncertainty is all around us, never more so than today. Whether it concerns a global pandemic, the economy, or your finances, health, and relationships, much of what lies ahead in life remains uncertain. Yet as human beings, we crave security. We want to feel safe and have a sense of control over our lives and well-being. Fear and uncertainty can leave you feeling stressed, anxious, and powerless over the direction of your life. It can drain you emotionally and trap you in a downward spiral of endless “what-ifs” and worst-case scenarios about what tomorrow may bring.

Dealing with Uncertainty - HelpGuide.org

“SELLING CERTAINTY IN AN UNCERTAIN WORLD” is a talk I have prepared to discuss the top 3 certainty issues facing financial advisors today.

First is the issue of “are we certain of returns?” – the market has been very difficult in the last five years, some clients who bought from me five years ago are still nursing a significant amount of “floating losses”, while most agreed to stay put and stick to their financial plan. 

here I would provide economic update and insights as to where the market is now and its prospects going forward.

Second is the issue of “are we certain we are protected?” – People in our profession is called Insurance underwriters in the past, now we preferred to be known as financial advisors or wealth managers. Are we losing sight of what we are really meant to be to our clients; as their “chief risk manager?” Life Insurance is primarily a risk mitigating product, while investment returns will always be desired, it should not be offered as an investment solution.

Third and the most important issue of “are you certain to succeed?” – Yes, the market is admittedly very difficult right now, but should it be a factor in the pursuit of our own dreams and aspirations? What are the things that may be holding us back?

I am very excited to share with you these insights, see you all on April 27 in our first post-pandemic face to face Special Interest Session

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95. Is the advisor to blame if markets go down?

 

The market has been quite difficult to ascertain as it comes out of pandemic, easy monetary policies that aims to jumpstart stalled economies due to lockdowns are now rearing an ugly head of an "unintended consequence" in the form of rising inflation. As a result, Central bankers all over the world are responding aggressively by raising interest rates, leading to another "unintended consequence" of a liquidity crunch for financial institutions especially the banking sector because of higher funding costs. The last few days saw the closure and almost closure of some of the biggest banks both in the US and Europe. This could lead to a contagion considering how connected financial institutions are in a globalized financial market that operates without borders.

To sum up where we are today - Pandemic > Lower interest rates > Inflation > Higher interest rate > Liquidity crunch > Global contagion?

Is it the fault of the advisor that the client he convinced three years ago to start investing for his retirement is currently nursing a significant amount of "floating" losses?

The stock market (typically where funds intended for long-term goals such as retirement is invested) has delivered above average returns over the long term, but this does not come with occasional anxiety brought about by "market volatility", the regular gyration of stock prices due to changing market conditions.

Changes in market condition is totally out of the control of the financial advisor!

So, is the advisor to blame for the client's current predicament?

This all goes down to how the "retirement funding plan" was sold in the very beginning, did the advisor fully explain the "risk" associated with going after the extra returns provided by the stock market? The risk being the uncertainty of future returns brought about by market fluctuations? That keeping the faith and holding on to the plan may eventually lead to the fulfillment of a financial goal?

If these information are not fully disclosed and understood by the client before he made the commitment to start investing, then it is the fault of the financial advisor.

One of the account opening forms is a "risk disclosure statement" which the client has to sign signifying he understood the risk involved.

This part of the sales process is the most important part in managing client expectations, unfortunately, some advisors would simply rush through this process fearing that an extensive discussion of "risk" might discourage clients from investing. These would be the very same advisors who are now in a very awkward situation in trying to explain to clients why it is best to hold on to the plan, that the market will eventually recover, and all will be well.

So, dear advisors, full risk disclosure may be something we inadvertently take for granted, fully explaining to the client the risk involve can help in keeping the client invested which is key to goal fulfillment, remember it is not "timing the market" (knowing when the market will rise or fall), but "time in the market" (how long we are invested).

All the best my friends!

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