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KISS Rule: Simple Products and Strategies Work Best for Clients

By Suresh Sadagopan, CFP

A teacher once remarked to me, “We can only simplify concepts if we have a deep understanding of the subject.” It dawned on me that this is actually a very profound statement. Only an experts know things so well that they can make the sublime, simple.

Some financial planners are guilty of spouting jargon, talking Greek and generally distinguishing themselves by being unintelligible to their clients. Clients come to us because we are experts… they see us as people who will be able to offer solutions to their problems. In such a situation, there is no need to go out of our way to prove our expertise to clients.

But still, some of us have this compulsive urge to show-off by putting our erudition on display and creating an aura about ourselves and our career. We have this belief that clients will not be willing to pay the fees we charge, if they can understand what we do. Based on this belief, planners sometimes go out of our way to suggest complicated strategies and products to justify our fees.

Financial Planners are like Doctors

When someone has an illness, they go to a doctor for diagnosis and treatment. Ideally, the patient would like to hear that there is no illness and the manifestation is a temporary problem, which will go away. The doctor, on his part, needs to understand the illness, consider the lines of treatment that are possible, and suggest the treatment that is best suited for the patient. What the doctor says is usually acted upon without question. After that, the doctor should periodically monitor the health of the patient and adjust the treatment along the way until the patient is cured.

The position of a financial planner is similar to that of a doctor. Doctors work in the area of physical health. Financial planners work in the area of financial health and wellness. So, why is there an urge to prove our worth to our clients? Don’t we believe in the efficacy and usefulness of our work? The reason planners feel the need to prove their expertise is because they are not confident enough to believe their clients understand the value of financial planning. The fact of the matter is, planners who have enough grasp of the subject to simplify it for clients, should.

The next question is, “Do we really need complex products and complicated strategies to achieve client goals? Are simple products not good enough?”

Why are Simple Products Better?

The straight answer is that simple products help us clearly understand what we are investing in and what we are going to get in return and when. Simple products do one thing well – for example, a term insurance offers life-cover at the minimum cost or a fixed deposit offers a steady return on investment.

Most complicated products are actually just combinations of simple products. For example, an endowment is a combination of term insurance and steady investment, which returns money at the end of the term. When this is the case, we can create the structures required for our clients easily. Many of the PMS product structures and their potential payoffs can easily be replicated with readily available, off-the-shelf products – at a much lower cost to the client.

Some complicated products, such as structured products may not be easily replicated and they add complexity to the client’s portfolio, which financial planners don’t necessarily appreciate. Also, with these complex products, the clients don’t always win, but they almost always pay a much higher price.

3 Reasons Why Simple Products are Better

The low cost is one of the prime reasons why simple products are better. The other, even more important reason, is that clients can understand what you are doing with their money. Let us look at this from the client’s point of view: planners are handling all their money and what they do will have a major effect on the client’s financial well-being.

Clients will be ill-at-ease if they don’t understand the majority of what their planner is doing, in terms of products and strategy. Contrary to what many planners may think, simple products and understandable strategies put clients at ease and give them a greater sense of control over their finances. Their trust and respect for the planner increases, because they see their planner as someone who guides them in a manner they can understand and relate to.

Finally, clients pay financial planners for their expertise, experience and knowledge, and, more importantly, for helping them understand their finances themselves! As financial planners, we need to understand that. Clients want us to simplify finance for them – not make it more confusing, than it was before.

People who go to doctors are more uplifted by a hopeful conversation with the doctor than the medicines he or she prescribes. We, as planners, should be able to explain complex concepts in a simple manner and uplift our clients with optimistic conversations.

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