No man is an island.
Now that we have covered the many aspects of establishing a winning game plan for your financial future, it is time to form your own advisory team. Come! Join me in discovering the 4 important team members all of us need to have in our own advisory team.
It is time now for you to search for your Strategic Financial Coach and Mentor (SFCM).
A good SFCM knows how to handle the 3 Shocks and will establish a good distribution and succession planning framework for you.
Let me introduce the 4 important SFCMs:
His primary role is to help you protect your first timeline – from the Start-Point to the Mid-Point and his secondary role is to help you protect your second timeline- from the Mid-Point to the End-Point. He will establish for you a reasonable Risk Management Portfolio (RMP).
Usually, a comprehensive RMP will consist of the following:
-Family Income Funding
-Undisrupted Retirement Income Funding
-Undisrupted Children Education Funding
-Funding for Estate Duties
-Disability Income Funding
-Obligation & Opportunity Funding
-Medical & Mortgage Funding
The Protector never works alone. He usually has an R& D department that provides him with the latest update on the various financial instruments that are available for risk management. The Protector should ideally not be a single-company representative to allow for more unbiased designing of solutions and options. Since not all companies’ products and solutions are alike and the costing for similar products and solutions may differ by a substantial amount as much as 50%, you will most likely be unfairly represented if your Protector is a single-company representative because he is most likely unable to represent your interest holistically.
Not having an appropriate solution or product to manage the relevant risk exposure is like being diagnosed with a dreaded disease. It is just like being told there is absolutely no treatment or cure available for you. Given such a scenario, I am sure you will look for alternatives in other hospitals, even if it means seeking overseas treatment. Being provided with a limited offer of solutions and options, a single-company representative may lack the solution that is needed to meet your risk management needs.
Another consideration in selecting your Protector is his ability to source out appropriate solutions and options at a premium efficient level. Over the years of working with clients and different risk management organizations, I have found that the cost of managing a similar risk can vary from:
-$2 per $1000 sum assured to
-$15 per $1000 sum assured to
-$25 per $1000 sum assured to
-$45 per $1000 sum assured to
-$85 per $1000 sum assured!
*the premium differences are the result of different types of plan covering the same types of risk like Premature Death, Total Permanent Disability and Dreaded Disease.
In managing risk exposures, you have to be clear on whether you are getting a solution for risk management or wealth accumulation. As a risk management tool, insurance products are irreplaceable. But if you are using risk management products for wealth accumulation, you must determine its appropriateness on whether its rate of return is able to meet the return-on-investment (ROI) needed to achieve the desired capital to fund your various goals and objectives in the future. A mismatch in the ROI needed to meet your future financial objectives may have deep implications on your ability to fulfil all your financial goals and objectives.
If you have diligently saved for the last 20 years in a plan to fund your children’s tertiary education which gives you a 3% rate of return, but unknowingly discovered that in actual fact, based on the monthly amount you have been saving – you would require a return of at least 8% in order to achieve the capital needed to meet your objective, you would have fallen short of the amount needed to realize your goal. If every plan is established based on such a solution, you would have accumulated a substantial amount of shortfalls in all your goals and objectives. When that really happens, you will not have the luxury of time to restart your entire program again. The price you pay for ignorance can be as high as all your unfulfilled goals and aspirations. That is an exorbitant price to pay for not choosing the right Protector.
Conversely, if the rate of return is only 3% when you surely need 8% to achieve your capital accumulation objectives, you may end up having to save a much higher sum each month to achieve the same results.
Your Protector must manage both the internal and external threats for you:
-Long Term Medical Care
-Government Policy Changes
-Parents Long Term Medical Care
-Changing Economy and Marketplace
The Protector must also help you develop a RMP that can cushion against timeline shocks, market shocks and self-funding shocks.
His primary role is to help you establish a strategic game plan in your first timeline- from the Start-Point to the Mid-Point and his secondary role is to help you establish a strategic game plan for your second timeline – from the Mid-Point to the End-Point. The strategist will establish a timely and prudent Wealth Accumulation Model and Wealth Management Model for you.
Usually the process will involve:
-Proper risk profile test
-Establishment and application of the five principles in investing
-Consistency vs. Volatility
-Staying invested despite market shock
-Him accumulating and managing your funds by doing proper switching and rebalancing of your IGA Portfolio periodically
-Him spreading your risks by constructing an IGA Portfolio with low correlation
-Him spreading your funds into tactical, growth, balanced and income funds
-Him having an R&D Department that provides him with critical research information like
-Economic Issues and Figures
-Liquidity -Interest Rates
-Other relevant issues
A good strategist will need to work very closely with the Monitor. Without the Monitor, the Strategist is helpless and unable to function effectively and accurately. The key role of the Strategist is to help you construct a portfolio that can withstand market shocks and at the same time, help you achieve a decent rate of return of 5% to 12% returns on your capital annually. In addition, the Strategist will also coordinate the allocation of resources for Wealth Protection, Wealth Accumulation and Wealth Management to achieve the optimal balance between return on investment, risk exposure of your IGA Portfolio and the need for financial protection against unforeseen circumstances.
The next module I will be discussing on the Monitor & Successor.