Last Updated on 26, April 2014
“Dear Wilfred, should I cancel Product J so that I can buy Product X and Y? Regards - M”
Dear M,
The general rule is buy a product based on your needs. If Product J continues to serve your original needs, continue with it and do not switch it to another product as this will involve unnecessary cost. Do not worry that future products are better. It is just like buying a computer. The moment you buy a computer, it almost immediately becomes obsolete due to more powerful computers being introduced.
However, if the needs have change, you should do a financial review. My experience is that if you have bought a long-term contract style of product like Product J (which you are contractually required to be committed to it over XX years time horizon), there is nothing much you can do about it even if your needs change. Everyone’s needs change over time. Human beings are not robot and their personalities, goals and circumstances change over time. Thus, I am not in favor of long-term contract style products. Therefore, I will always to try my best to recommend investment products that do not have long-term contracts. These are what I call simple products. Unfortunately, such simple products pay little or no commissions. Thus, many financial advisers do not recommend them. Their firms would also prohibit them from recommending those.
Take for example, a simple product requiring $1000 per month of investment would pay a commission of 3% x 1000 x 12 = $360 assuming sales charge of 3%. If there is a wrap fee, the first year commission is around 360 + 12000*0.01/2 = $420. However, a long-term contract product like Product J will have a commission of 100% x 1000 x 12 = $12,000 for the first year. You can see that there is no incentive for the adviser to recommend a simple product.
Wilfred
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You are right. One should not commit on a fixed long term plan. When I was acyoung man, my insurance friends sold me few life plans that require me to pay right to the eighties and nineties. Four decades later, in my sixties and retired with no income, these’friends’ are no more in the industry.
Lessons learnt: don’t just ‘support’ friends. The moment they become insurance agents, keep far away from them, they have been brainwashed by their companies to betray friends. Sad but true. Those days without these media to get information, you thought your friends can be trusted.