Thomas J. Henske, CFP, ChFC
Tuesday, February 2, 2010

Step 4: The Plan - Drive the Values

In our third installment to this five part series, Step 3: Open for Business, we discussed the importance of knowing prospects before they become clients.  Conducting a two-way interview will reveal what is important to them, while allowing them to feel more comfortable with you.  This will also help you determine if they are a good fit for your firm.

Next, you must figure out your clients’ personal values about money and their life goals.  To do so, have them create a Personal Money Constitution - similar to a corporate mission statement - to serve as the basis for all planning decisions.  This document will significantly increase the likelihood that you will be bale to help them achieve their hopes, dreams and goals.  Once it is created, you can strategize with your clients by using the following four categories to balance competing priorities:

§               Save

§               Invest

§               Spend

§               Donate

Wealth management should be a process that offers your clients a different experience - one that is personal, exclusive and driven by results.  This unique method will differentiate you from other professionals and provide a competitive advantage.

MDRT President Guy E. Baker, CLU, MSFS
Tuesday, January 19, 2010

In a recent Blog post I discussed the supermarket approach to markets.  To remind you, I suggested most nutritionists tell us we need a balanced diet to be healthy and supermarkets provide submarkets of the basic food groups – protein, carbohydrates and fats.  The stock market does the same thing, only they are called asset classes – large cap and small cap, value and growth.  How you combine these sub markets is the basis for efficient and inefficient diversification.

These two kinds of diversification – efficient and inefficient diversification are the foundation for developing a healthy portfolio.  You might be asking yourself, “What is inefficient diversification?”  Simply put, your portfolio is either diversified or it is not.  However, that is not really correct.  With a little research, it is easy to see there are many different kinds of mutual funds all fishing in the same markets, looking for good investment opportunities, so they can bring value to their investors.  Active management drives these funds to select stocks based on their short term outlook and in many cases results in high turnover.  High turnover then means hidden higher trading costs.  Most importantly, since the analysts are all looking for the best stocks to hold in their portfolio, it is easy to end up with eight or ten funds with similar holdings.

Efficient diversification focuses on owning distinct asset classes that do not overlap in stocks.  Why?  Statistical analysis shows submarkets do not necessarily perform with the same characteristics.  These asset classifications (small, large, value, growth) have different characteristics and perform differently over time.  This is measured by what is called correlation coefficients.  If the CEs are negative, then the asset classes will act as counter balances to each other during economic cycles.  If they are all positive, there is no real diversification.  They are all moving the same direction at the same time, which will cause the diversification to be less efficient.

When you are helping clients manage money, it is important to have a philosophy and a way to execute your philosophy.  There is more to managing money than buying a diversified portfolio of mutual funds.  You must make sure the funds are equally and adequately diversified and don’t cause unexplained risk for your client.  Knowing the correlation coefficients of the asset classes is integral to building an efficiently diversified portfolio.

Rajesh Satoskar
Tuesday, January 5, 2010

My observation is that, time and time again, big prospects are impressed by my innovation.  Their decision to purchase life insurance always comes from the heart. 

I always send the client a detailed summary of our previous meeting.  This summary consists of the client’s objections and my solutions.  This creates a great deal of clarity in his mind and helps me to close the deal.

However, selling insurance is an effort that also requires a lot of patience as well as homework.  And, it is important that the client feels my emotional involvement in all my business promotions and presentations.

For example, last year, I presented my clients a small feng-shui tree with a quote – “You make money and I make it grow.”  And, I make a deliberate attempt to draw my existing and new clients’ attention by designing personalized birthday greeting cards in a very unusual shape (i.e., writing the birthday message on a kite) or on a full-sized sheet of colored paper with just two or three lines of message about my product.  I’ve even sent a birthday message on a piece of half-torn paper with an insurance message.  Such unusual attempts help me to stand apart from my competition. 

Ultimately the subject of life insurance is very common and clear in all prospects’ minds. But, I believe every insurance professional should adopt an amazing and fresh style of approach.

My Court of the Table and Top of the Table journey every year is possible only because of such unique attempts of business promotion rather than gifting, which is very common.  My search for such innovative ideas is always on, which has transformed me into a result-oriented financial professional.

In what ways are you utilizing your creativity to set yourself apart from the competition?

MDRT President Guy E. Baker, CLU, MSFS
Tuesday, December 29, 2009

Most everyone has been taught the Rule of 72 at one time or another.  The rule approximates the number of years it takes for money to double.  To determine this, divide 72 by the interest rate.  If you know the interest rate is 6 percent, then it will take 12 years for money to double.  If the rate is 10 percent, then 7.2 years will be required for the money to double.  It is that simple!  All you need is a pencil and paper to figure out how much is needed in retirement.

There is another principle — money grows in intervals.  At 10 percent, during the first 7.2 years, $1 will grow to $2.  And, after the first 7.2 years, $2 will grow to $4, and after that, $4 grows to $8 and so on.  Each subsequent interval doubles the starting amount.  Another way to look at this is to see it only took half of an interval to accomplish what was earned in the previous interval.  So, in interval one, it took 7.2 years for $1 to grow to $2.  But in interval two, it took 3.6 years for $2 to grow to $3.  Likewise, in interval three, it only took 1.8 years for $4 to grow to $5.

Compound interest is very exciting.  However, you must note how long it takes to complete the first doubling — a full 7.2 years.  This is why people fail financially.  They want the results derived in intervals two and three, but can’t tolerate how long it takes to complete interval one.  It is impossible to achieve interval two and beyond unless you complete the FIRST interval.  You can try to speed up your results by taking more risk or adding more capital, but you can never add more time.

Remember, we are in the compound interest business.  Teach your clients the power of growing money over long timeframes.  It is the only way financial success can be achieved.

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