Life insurer, FMI, hosted a thought-provoking event for financial advisers at the Century City Conference Centre, Cape Town on Friday, 23rd of February. The session saw three long-standing myths applied regularly in the financial industry dismantled by some of the industry’s top thought leaders, namely founder and CEO of Cannon Asset Managers, Dr Adrian Saville; former CEO of Lombard Life, Rob Rusconi; and FMI CEO, Brad Toerien.
The event was facilitated by Rusconi, who introduced the theme by stating that investment and risk planning are inextricably linked, and that there are many commonly-held outdated assumptions that drive financial planning today. He told the audience that their customers are real people with a complex mix of needs, and therefore the risk expert has to understand the investment context and the investment expert has to understand the risk context.
Toerien and Saville then tackled the same problems, but from different perspectives. In his presentation, Toerien said, ‘We tend to put risk planning and investment planning neatly into separate boxes when, in reality, they do the same thing. Risk planning is about protecting you from the financial consequences of bad things happening, so that you are able to accumulate wealth; and investment planning is about protecting and growing that wealth so that you can continue to earn an income at retirement. In many ways, they’re both about protecting your income.’ He then went
on to challenge three commonly-held industry myths that drive much of today’s financial planning.
The first myth is that you will earn a continuous, steadily-increasing stream of income until retirement. The reality, however, is that you have a 70% chance of having an injury or illness during your working career, which could affect your ability to earn an income. So, not only is there a high probability that your income will be interrupted, but there is no way to guarantee that it will increase steadily year-on-year.
The second myth is that you know exactly how much you will need to retire, when the truth is we underestimate how much we need and don’t take costs like rising medical expenses post-retirement into account.
Finally, the third myth is that you will retire at 65 and live until 90, when in reality, most people can’t afford to retire at age 65 or simply don’t want to. Individuals are also living longer, healthier lives with higher life expectancy, which means post-retirement money needs to last longer.
Toerien offered a solution through FMI’s HouseViewTM approach, which FMI considers to be the most efficient way to do life insurance. They believe that your greatest asset is your ability to earn an income and that all insurance benefits should be designed to protect this. And the best way is with a life insurance product that provides a combination of monthly income and lump sum benefits in the event of temporary or long-term disability, critical illness or death. The income benefits are ideally suited to meet your ongoing monthly expenses, while the lump sum benefits provide for any once-off costs like settling large debts or estate duty.
‘If one recognises that income benefits are a much better fit to the way you approach your life and that they are much cheaper, it will affect the way you select your risk benefits.’ Toerien went on to say that FMI’s HouseViewTM can give clients better cover, provide them cover that is tailored to their needs, remove the inherent risks that come with managing a large lump sum of money and save them a significant sum of money, which they can use towards their investment contributions.
Saville then took to the stage and shared his conventional wisdoms from this 20 years’ experience in the industry. These conventional wisdoms debunk the myths and help you achieve the investment returns that are available.
In keeping with the theme, he began by saying, ‘The world in which we live is filled with myths and those myths lead to fear, greed, uncertainty, pursuit of holy grails and non-existent pots of gold, and some people who never venture anywhere for fear of going off the edge of the earth. I think Brad has done a great job of sharing his experiences in understanding people’s approach to risk management. I have seen the same holes when observing people’s behaviour in the management of investments.’
Saville concluded by saying, ‘It’s about ensuring your 70s and 80s are successful and effective, and that we can reward ourselves with the quality of life that we can afford.’
Food for thought and cause for action.
Issued by FMI