Dec 04 2023
Empowering clients with financial literacy for effective financial advising
In the world of financial advising, one of the most prevalent challenges financial advisors in Singapore face is the lack of financial literacy among clients. All too often, we hear of individuals who dive into purchasing insurance policies without a thorough understanding of the products they are investing in. Consequently, this leads to potential complaints from clients regarding losses and dissatisfaction with the performance of their chosen policies. In many cases, clients who have gaps in financial literacy mistakenly assume that insurance plans serve as a dual-purpose tool for both savings and investment, perpetuating a generational misconception. Therefore, it is paramount for financial advisors to prioritize educating their clients about financial literacy to ensure informed decision-making before giving them financial advice or recommending various insurance policies.
Educating by asking questions
Gabriel Fok, a four-year MDRT member from Singapore, starts his process with a comprehensive assessment of his clients’ existing knowledge and understanding of financial products. He achieves this through a series of well-crafted questions that delve into the nuances of insurance policies and investments. By actively engaging his 200 clients in thought-provoking queries, Fok can gauge their comprehension and identify potential gaps in knowledge, providing an opportunity for targeted education.
For instance, “testing” clients about the different types of available insurances or probing into the rationale behind the pricing disparities between seemingly similar insurance options can unravel underlying misconceptions and prompt clients to reevaluate their assumptions. These tailored questions serve as an entry point for advisors to bridge the gap between client misconceptions and financial literacy.
Fok illustrates this by posing scenario-based questions that prompt his clients to contemplate their long-term financial planning and potential risks:
- "Mr. Client, envision yourself at the age of 70, having outlived your spouse, with children who might become your primary caregivers. Have you considered the financial implications for your caregivers if they must prioritize your care?"
- "Imagine you are a farmer today. Would you prioritize building a sturdy fence around your farm or acquiring chickens first?"
The former highlights the importance of having a whole life policy to ensure that clients do not have to rely on their children for financial support during retirement, while the latter ensures that clients understand that protecting their existing wealth should always come before wealth accumulation.
By presenting relatable scenarios, clients are compelled to internalize the potential financial challenges and implications in their lifetime, enabling them to comprehend the significance of sound financial decision-making within specific contexts.
Educating clients and their loved ones
With his expertise in helping many families plan for income replacement and helping clients plan for a newborn, Fok understands that most clients require the support of their spouses or close family members when it comes to purchasing insurance policies or making important financial decisions.. In such situations, it is important that your clients’ loved ones are also educated on financial literacy.
Fok recalls meeting one client whose spouse was not keen on her taking up a whole life policy and another client who was asked by her husband to swap to a cheaper term policy. In both scenarios, Fok asked the husbands if they understood how a whole life policy works and most importantly, should they pass on before their wives, where will their wives be living at and who will take care of their wives if they fall ill. With their answers, he took the chance to clarify any misconceptions the husbands had, and educated them about the mechanics of a whole life plan and available government schemes to supplement the incomes of retirees in Singapore. As a result, both clients agreed to support their wives with their insurance purchases. In fact, one of them even chose a policy with a higher premium for his wife.
Fok also shares that “financial literacy is not about pushing an idea or concept upon the people we meet. Education starts with identifying how good a person is in terms of their understanding of a certain topic or product”. He believes once you get a good grasp of your clients’ level of financial literacy, you can provide sound financial advice accordingly. Through a proactive approach to enhancing financial literacy, advisors can not only mitigate potential wrong financial decisions for clients, but also cultivate a more informed and financially empowered clientele.