I was at expo the other day looking to buy household appliances when I discovered that the number of insurance and financial adviser salespersons were more than household appliances salespersons!
These agents tried to sell me all sort of products from saving plans to Aviva Mycare. I survived the ordeal as I told everyone who approached me that I am a financial adviser. My wife got harassed quite badly because she had no valid excuse to stop the harassment.
But what got me thinking is the Prescription Approach and Swiss Cheese Model to financial advice that these agents and as well as majority of the financial advisers are doing.
Prescription Approach is allowed under the Balance Scorecard
The Prescription Approach is what many financial advisers, insurance agents and banks are doing. They claim to do some form of needs analysis but in reality they have already decided the kind of product they want to sell right from the beginning.
It is as if before you consult a doctor, the doctor has already decided the kind of medicine that he wants to prescribe. Prescription Approach to financial advice is the most dangerous form of approach. Imagine your doctor performing an open heart surgery before he even examined you!
Prescription Approach also runs the risk of overdose because the doctor did not ask whether are you taking the same medicine which he is prescribing. Some of these agents tried to sell me Mycare when I was already insured with Mycare long ago. So I ran the risk of over insurance if I had gone along with their recommendations.
I thought the Prescription Approach was banned since the introduction of Balance Scorecard. But when I read through the countless pages on how the Balance Scorecard works, I discovered a fineprint which practically nullified the entire regulation on the necessity to recommend suitable product to clients.
Although KPI 1 of the Balance Scorecard says that the financial advisers should conduct a fact find before recommending a product, there is a fineprint at the bottom of page 28 of Notice on Requirements for the Remuneration Framework for Representatives and Supervisors ("Balanced Scorecard Framework") and Independent Sales Audit Unit [Notice No. FAA-N20] that states:
“A representative should collect as much relevant information as possible so as to understand the circumstances and needs of a client. Where a client does not wish to provide the information required during the fact-find process, the representative should clearly document the client’s decision.”
Implied in the fineprint that it is actually permissible to sell a product without fact find provided the client does not wish to disclose the personal details. Thus, the entire KPI 1 that deals with fact finding is no longer applicable.
Most consumers would also not want to disclose their personal details. Would you disclose your salary and your assets to a total stranger? Of course not. Hence, many financial advisers have no problem getting their clients to sign on the form stating that it was the clients’ decision not to disclose their particulars. Hence, both sides are quite happy with the situation until when there is a complaint, the client is always the losing party because the client was at fault for not disclosing personal details.
Swiss Cheese Model
I did not coin the term ‘Swiss Cheese Model’. I read it from this article: Patient care goes beyond a prescription. In that article is about how a patient eventually died despite having seen so many doctors. The patient died because each doctor he saw overlook the same issue. Here is a paragraph from that article:
“… a stack of slices of Swiss cheese where the holes present opportunities for an error; each subsequent slice, however, is a "defensive layer" in the process. The genesis of an error may allow a problem to pass through a hole in one layer, but it would be stopped in the next layer if the holes are in different places.
For an error to emerge and manifest itself, the holes in all the layers would have to be aligned in a straight line.”
The Swiss Cheese Model is equivalent to what is known as ‘specified needs’ selling or advisory. For example, ‘retirement planning’, ‘savings’, ‘insurance planning’ and ‘health insurance’. For specific needs planning, the financial planner only provides a narrow scope of advice. Although there is fact finding, the data collection is only pertaining to areas that are perceived to be relevant. The financial planner will never have a full picture of the client’s situation. For example, if I would to do ‘retirement planning’, I would not be looking at insurance. Obviously, doing ‘retirement planning’ and ‘insurance planning’ is better since having proper insurance when one is retired is important.
The danger of specific needs planning – as opposed to comprehensive financial planning – is that the planner may overlook certain areas.
The Prescription Approach and Swiss Cheese Model are bad for customers. The best approach is a comprehensive approach to financial planning in which nothing is left untouched.
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