Thinking better about financial advice

The Guardian in April 2013, published an extract from an essay first published at dobelli.com an example of the work in The Art of Thinking Clearly: Better Thinking, Better Decisions by Rolf Dobelli is published by Sceptre.

In the Guardian extract, Dobelli posits that one of the biggest detractors to our cognitive processes ie: our thinking, is our consumption of "news".

He argues that daily we are fed "stories" in a manner which does not require us to critially analyse what it is we are reading and consequently we don't "think", when we think we are thinking!

What the media does is if we look purely from a financial planning / financial services point of view is publish stories that deal with the negatives of an issue. If we as consumers could recognise or be informed by the journalist what the relativities were, then we could assess the information and make a judgement on the entire situation. The current media reporting of FOFA as an example does not provide people with that opportunity. We are not rationale enough beings to rely on the press. For me the current reporting is a lot like what Dobelli says about the media reporting of a plane crash : "Watching an airplane crash on television is going to change your attitude toward that risk, regardless of its real probability"



The way our bodies react to "news" especially hyperbole, panicked, extreme news stories is powerful: "It constantly triggers the limbic system. Panicky stories spur the release of cascades of glucocorticoid (cortisol). This deregulates your immune system and inhibits the release of growth hormones. In other words, your body finds itself in a state of chronic stress. High glucocorticoid levels cause impaired digestion, lack of growth (cell, hair, bone), nervousness and susceptibility to infections. The other potential side-effects include fear, aggression, tunnel-vision and desensitisation." (Dobelli, 2013).

This all has a damaging impact on our decision making process and we find constantly that, people, make bad decisions. This has a lot to do with the way we think. It has a lot to do with the two systems we utilize in our thinking.

System 1 : is intuitive and automatic.

System 2 : is reflective and rational.

The automatic system is associated with one of the oldest parts of the brain, and unless we actively override our brain at times, we may lose perspective and make the wrong choices.

In the media reporting of FOFA, the bad decisions that "news" may lead to is the lessening of trust in the financial advice system and process. When balanced with facts : that decision is not rationale. Some of the basic facts around financial advice clearly spell this out and daily we see positive client experiences from the engagement with financial advisers:

•$5billion paid in claims to Australians in 2013
•If it wasn’t because of financial advisers: where else would these people get the money?
•NPS scores : a score in the 50’s for the average financial adviser (Health Insurers and Telco's score in the negatives) and this indicates that once Australians get advice from a trusted adviser they have positive experiences

So how can we engage clients and get them and their social and family circles to stop the ingestion of "news" and assist them to make better decisons?

This is where professional advisers, professional financial and insurance advisers can step in. We can organize the context in which people make decisions. We can influence peoples behavior in order to make their lives better.

Research on what makes up best practice financial advice has also uncovered detail on how clients feel before, during and after the advice process. What becomes apparent is that by tapping into the core motivators of clients, in regard to their values and their innate hardwired human needs, not only engenders the adviser to the client, demystifies the advice process and maximizes the possibility of the prospect becoming a client; but, that the well-being and sense of self of the person receiving the advice is markedly improved. Leading businesses have done this by truly engaging clients with:


•a concept of the types of clients they can specialize in and like working with
•capabilities to deliver needed specialized services and resources to their desired client set
•positioning of the typical outcomes these types of clients have in the messaging and value statements they make about the services they offer
•a process where client stories are illuminated so that the prospective client can associate and relate to the outcomes produced
•the resources for clients to participate and collaborate in the advice process



Increasingly then firms delivering best practice advice are utilizing techniques and tools such as mind maps, lifestyle questionnaires, wealth indices, personality profiles and wealth choices diagnostics, to engage clients, set benchmarks for communication, engagement and outcomes and in so doing are winning the hearts and minds of clients and delivering not only financial but psychological well being outcomes : they are helping their clients to "think".

The Science and Emotion Behind Trauma Sum Insureds

Is there a right way for calculating the appropriate sum insured for trauma? Do you have a rule of thumb based on a multiple of income or a formula for removing debt? Or is there a science to our art whereby we can combine the emotional fall out and the true cost of disease to determine a sum insured? Trauma cover, cover that provides a lump sum payment to assist an individual navigate through the treatment of a serious illness and focus on getting better not the stress of the financial strain, is where and when a quality adviser led insurance process is invaluable.

When my sister was diagnosed with a menigioma (a brain tumour that grows between the skull and the brain) there were a few things going for her:
• She’s a doctor and very quickly she had the best physicians around her
• It was thought to be benign
• It was operable
• She had income protection and trauma insurance

However what she had not had, was: advice. The policy for trauma did not make a payment. The income protection cover was inadequate relative to her salary at that point in time. Only through excellent financial advice post surgery was she able to maximise her income protection claim and secure an appropriate level and breadth of cover for income protection and trauma for the future.

As an adviser I worked with a rule of thumb for trauma. My best and most desired position was a sum insured that allowed for the removal of debt and the provision of one years income. My least favoured but lowest sum insured I would recommend was at least half a years income for the sum insured. Was this appropriate? That depends on the discussion I had with the client and their understanding with my guidance of the risks and outcomes.
Looking at the cost of disease in time and money provides some science to the process of calculating sum insureds. The Health Funds of New Zealand December 2013 report on the time of work due to sickness found that:

• An average of five weeks per person is being lost from the workforce as a result of surgical waiting list back-ups.
• Many thousands of New Zealanders waiting for surgery are having to take extended time off work, and also need loved ones to do the same so they can take care of them.
• 280,000 New Zealanders currently needed elective surgery with the average waiting time from GP referral to surgery in the public system was upward of 224 days.
• Almost a third of those needing surgery reported experiencing significant pain and said they had had to make lifestyle changes.
• More than half said their quality of life had worsened, mainly due to pain and mobility issues but also due to the psychological and financial stress of their ongoing illness.

A Canadian study, (Cancer and Work: A Canadian Perspective, 2011, Canadian Association of Psychosocial Oncology) reminds us of what we know only all too well that Cancer is a complex array of illnesses that can bring a potentially overwhelming spectrum of physical, psychological, social, emotional, functional and economic challenges. The paper concluded that there are broad reaching effects of having cancer on an individual’s worklife. And sadly that the development in the field of vocational rehabilitation and is fragmented and limited, in part due to its infancy.

This is where trauma insurance cover becomes incredibly important. Not only is the sum insured critical to allow required surgery and treatment to take place as soon as possible whatever the choice of treatment the patient embarks upon, but that they can do so without financial stress and further that upon recovery they have the resources to undertake vocational rehabilitation that can address the impact of the psychological and emotional strain of the disease and recovery.

The costs of disease, the financial cost to the individual and family must be also taken into account. As an example when considering the impact of Cancer the individual may also incur financial and economic costs, which are often overlooked when considering the impact of the disease (Cost of Cancer in NSW, 2007, A report by Access Economics Pty Limited for The Cancer Council NSW). This report found that non-financial costs are also very important – the pain, suffering and premature death that result from cancer. Although more difficult to measure, these can be analysed in terms of the years of healthy life lost, both quantitatively and qualitatively, known as the “burden of disease”.

Their detailed analysis found that, individuals bear around 40.4% of the total cost of cancer, with governments (42.1%), society (16.1%), family and friends (0.8%) and employers (0.6%) sharing the remaining costs. In regard to a dollar figure, the finding was this: that the total expected lifetime economic cost of cancer per person is around $966,000 – of which the burden of disease is $851,600 and the financial cost is $114,500.

Applying the 40% ratio does that provide a sum insured of $386,000? Perhaps, there’s a science to that calculation. Does it match up against my old rule of thumb? In some cases it far surpasses it, whilst in others it falls short. What it does highlight is this: that not all diseases are the same, in fact this Cancer Council report found that brain cancers can be double the calculation above. Not all the impacts on an individual are the same. Psychologically my sister was well prepared, was financially stable and had a good support network. Should these factors, those emotional input,s be part of your fact find and deliberations in determining a sum insured? Perhaps.

What all of this, points to is the value of advice, the matching of the art and science behind providing an insurance solution for a client. As the cost of cancer as an example, increases, as people live increasingly complex lives within complicated family structures, the value of a trusted adviser to shape solutions, bespoke solutions, has never been more important.

Creating Believable Client Value Propositions

The earliest “professionals” arguably were the medicine men and women of tribes, the shamans, who presided at all rites of passage such as births, deaths, marriages. They mediated between the inner workings of the tribe and its external affairs . Today, who holds that mantle? An accountant, the family lawyer? Who has a position as the central hub of a families affairs who could mediate for the family from matters financial to social?

Perhaps this is the future for the “Trusted Adviser”. David Maister, writes of the valued resources and relationship strength that leads to becoming the trusted adviser . The packaging of those resources, and the way to gain that position in a clients world provides the right to win in the differentiation stakes that ultimately leads to satisfied clients and intergenerational relationships. That right to win is the centre of the triangle that requires more than the building of valued capabilities and a service promise that delivers them. It requires the building of a pitch that actually means something to the clients you are trying to attract.

It is that pitch that becomes vital, for not only must it be compelling, but it must be simple to articulate by the advice business and by it’s clients. It is in that way that the promise of the proposition gains life and is shareable.

The simplest proposition we have seen that works because everyone in the business embodies it, is this:

“We know that no-one wakes up in the morning and says this is
the day I’m going to get the families estate, insurance and wealth
plans in place!

But all of our clients want to live well and look after their families.”

It works because fundamentally it taps into a base drive that the clients (that this businesses works with (families)) have at their core : a drive to provide a better and satisfying life for their families.

So for any business it requires some self awareness. Who are our clients? Why do they use us? What wants, goals and dreams do they have? What are the commonalities? This applies for each subset of clients : singles, young families, professionals, mature families, retirees, seniors.

At each stage there may be different drivers and being able to offer differentiated services and a call to action that has meaning at each stage is critical to staying relevant and valued at each life stage across the generational divide.

This is the secret to Intergenerational Advice success. This is also why many attempts at delivering an intergenerational advice proposition have failed:

• The business does not have a believable value proposition or “why” statement.
• The business has not built consistent, repeatable, sustainable capabilities around an intergenerational advice proposition.
• The business does not have a service model for intergenerational advice.

For an advice business the challenge is to understand your clients, construct your pitch, develop the capabilities that are relevant and deliver those capabilities consistently, reliably and sustainably.

The family advice proposition once you do this, moves from a relationship delivered by default to one of design.