If you are like me you may have noticed a preponderance of TV and radio ads where fear is used to pitch various financial products. If seems that these are overwhelmingly from providers of products such as annuities, insurance or other commissioned financial and investment products. Recently I heard commercial for a variation of the insurance product called Be Your Own Banker. Their pitch was the inevitability of a 50% loss in the stock market. Really, come on.
My personal pet peeve is that far too often these fear mongers seem to target seniors afraid of losing their nest eggs.
Should fear be a financial motivator?
Ameriprise has been running a commercial asking folks if they would outlive their money in retirement. A valid question and one in part based upon fear.
In fact many folks in their 50s or 60s looking for financial planning help as they approach retirement are asking this question. Whether it’s fear-based or born out of a desire to be prepared it is a good lead-in to the financial planning process for folks in this age range.
On the other hand scaring people, especially seniors, into purchasing a financial product that may or may not be right for them strikes me as sleazy.
In a prior post on this blog, 5 Steps to a Lousy Retirement, I listed making financial decisions based on emotions as one of the steps to take on the road to a lousy retirement. This especially true when you are being sold annuities or insurance products because so many of them come with onerous surrender charges meaning that it will cost you dearly to move your money elsewhere over the first 5-10 years of ownership.
Planning should precede the sale of financial products
The logic, other than the desire to earn a sales commission, of pitching a financial product instead of a financial plan to a client escapes me. In my world a financial planning strategy generally comes first, the implementation of that strategy including the use of appropriate financial products comes afterwards.
Inflation vs. investment loss
Many of these fear-based product pitches cropped up in the wake of the financial crisis of 2008-09 and the corresponding drop in the stock market.
In my opinion, however, retirees should fear the impact of inflation on their purchasing power vs. losing money in the stock market. Even a relatively benign 3% inflation rate will cut your purchasing power in half over a 24 year period.
Yes the stock market was hammered in 2008 and if you use the SD&P 500 as a benchmark the market gained very little during the decade 2000-2009. However a diversified portfolio did reasonably well even during this “lost decade.”
Ask questions and do your homework
Many successful financial sales types are very personable individuals. In some cases the sales person might be your neighbor, a member of your church, or a fellow member of the local Rotary club. This shouldn’t disqualify them as an advisor, however you should also be prepared to scrutinize their credentials and the products they may be trying to sell you with the same tough standards that you would hopefully apply to a stranger in the same situation.
As an example, with the Be Your Own Banker (or any of its variations) sales pitch that I mentioned at the outset, you need to dig very deep before writing a check for this type of insurance policy. I went to the site and found much of the presentation confusing and found little or no information about the associated policy costs and expenses.
Whether an insurance policy, an annuity, or commissioned investment products you need to ask many, many questions of the agent/registered rep.
- At the very least understand ALL associated fees, expenses, and restrictions on moving your money.
- How does this individual get paid?
- With an insurance related product how solid is the company behind the policy or annuity contract?
Fear must be a very effective tool in selling financial products, otherwise we would not see so many fear-based product pitches. Don’t fall for this type of sales pitch. The only financial products that you should consider are those that are right for your situation, not those that you are scared into buying.
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