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Financial Planning: How to Spot a Marketing Ploy

Feb. 2, 2012
6 mins
A young couple look intently at a series of papers and something on the laptop in front of them

In Canada, there are well over 18,000 individuals qualified to call themselves financial planners and thousands more can call themselves financial advisors, financial consultants and investment advisors without any set qualifications.

When we look at the financial planning world and the individuals preparing plans, you might be surprised to learn that the overwhelming majority of these individuals are actually working as commissioned sales people or on salary and bonus where almost every one of them have sales targets set by their employers.

The majority of financial companies (banks, life insurance companies, brokerage firms, etc.) operate on such a sales business model. So if you’re in the market for a financial planner, you need to be able to spot their marketing ploys before you agree to one of their investment packages.

Identify the Needs of Yours vs. Theirs

Over the past few years investors have been told how they need to make financial planning one of their top priorities. Accompanying this emphasis on “planning” has been an explosion in the types of financial plans marketed to investors like you. Some within the investment industry market a holistic financial planning approach, some a life-cycle approach, some a life-goals approach, and some just market a simple financial plan.

The investment industry markets financial planning to sell additional products and services. They prepare the financial plan; the plan clearly identifies the needs you have (real or not); and the sales person just happens to have the right product or service to satisfy those identified needs. In other words, the financial plan is the tool that leads to the sale!

While some of these financial planning needs may be legitimate, some may simply be part of the sales process.

6 Marketing Ploys to Watch For

So, the next time you sit down with a financial planner, be ready to identify the legitimate plans, and those “extras” that are nothing more than a marketing tool to boost sales.

#1. Estimates of Current Expenses

If you were asked to estimate your expenses, then the plan is not meant to help you save and create wealth. When asked to estimate expenses most people grossly underestimate their costs, and without a true and accurate picture of your daily expenses you have no idea where you are financially.

#2. Estimates of Future Income

Does your financial plan base its projections on your future income or your future expenses? If it focuses on your income, then the plan is more about marketing investments and insurance than it is about setting you on the path to financial independence. Your income is important, but for most of us going into retirement, estimating income is less reliable than estimating expenses. It’s harder to know what income amounts you will have as you get older and going into retirement. (What amounts will you receive from your income, investments, your company pensions, government pensions, etc.?)

Your expenses, on the other hand, can be identified and quantified today and you can use today’s expenses as an excellent guide when estimating your expenses in retirement.

#3. A One Size Fits All 20-Page Report

If your financial plan is 20 pages thick, how much of the information is specific to you? If your personal financial information is limited to a few lines at the beginning of the report, then the report is more about marketing products and services. Computer software can spit out a 20-page report in five minutes. All that’s needed is a few of your financial details and a few financial assumptions to be made and a glossy financial plan can be created. Your financial plan’s usefulness is directly proportional to the amount of specific personal detail it relies upon.

#4. No Plan to Revisit

How often do you refer to your financial plan? Have you revisited your financial plan in the past six months, or one, three and five years? Or was it created, presented, and then filed, never-to-be-seen again?

Plans created for marketing focus on a single purpose (make the sale) and when that purpose is achieved, there is often no reason to revisit the plan. But a real financial plan is a useful tool (full of concrete personalized numbers and budgets) that you should return to frequently to measure and monitor your financial progress.

#5. Little Time = Little Usefulness

How much time did you personally invest in the creation of your financial plan? Were you asked to provide specific details of your expenses and income, not just your investments, insurance details and financial accounts? Did you invest a few hours of your time or did you simply answer a few questions off the top of your head?

Useful planning requires a commitment of your time if it’s going to be accurate. Basing your plan on guesstimates is pointless, unless it is a marketing tool.

#6. You Get What You Pay For

Finally, how much did your financial plan cost you? How much did you pay for it to be completed? Nothing? Then the plan is probably worth exactly what you paid.

More importantly, how do you think the person creating your financial plan is getting paid? Do they work as a charity, out of true concern for your financial success, or does selling you the products and services that satisfy the needs identified by your financial plan earn them a pay cheque, promotion or bonus? Learn to spot the differences in the financial planning game.

It’s Not All Their Fault...You Get What You Ask For

Selling financial products and services is an art. You have to sell the concept, the idea and the dream. It’s not like selling a car or an appliance where the buyer can see, touch and test-drive the product. Selling financial concepts takes a high level of skill, psychology and a great set of tools. Financial plans are one such tool.

So whom do we blame – the sales person or the buyer? Let’s face it. What would you prefer to have, a financial plan or a budget? A financial plan is fun, it deals with your wish list, your dreams for the future and it tells you how in 20 years you are going to have a million dollars for your retirement. What could be better? A budget, on the other hand, what could be worse?

A budget is not a lot of fun. It deals with our today, our reality. It tells me how much I spend (d’oh!) and how little I make. A budget is like the slave master – so serious, mean-spirited, always telling you what you can do and what you can’t do. How enjoyable is that?

The point is this: if you want to deal in dreams and fantasy, then you can’t complain when you get a financial plan designed as a marketing tool. Real financial plans take real time and effort, use real numbers, include a proper budget, and get real results.

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