The Best Products to Start with for New Advisors
As new advisors, the biggest headache is to think of how to be a good wealth manager, financial planner and advisor. Assuming you are on the path to learning all the knowledge and techniques of wealth management and financial advisory:
- How long does it take for you to build up your competency?
- Would you earn enough for your financial advisory platform to keep you on your job?
- Is your platform a laggard or a leader in the industry?
- Would you stay for long?
- When do you know if you know enough?
- Should clients trust you or trust your competency?
- Are the products constructed in favour of clients or for pure profit?
- Do you recommend the best products or the safest products for your clients?
- Should you go for exotic investments such as Hedge Funds, Private Equity, Structured Notes, Derivatives or Leveraged Trading?
- Are you missing out on the returns if you avoid sophisticated instruments?
- Do you impose your personal preference on clients’ financial needs?
- Do your clients qualify for the services?
Related Articles:
- Top 2 Products to build a Strong Relationship with Clients in Retail Banking
- 7 Key Investment Products in Personal Banking
- The Eureka Moments for Financial Experts and Advisors
We look at some of the best products to start with for new advisors:
No. 1 Insurance Products (Regular Savings)
Love it or hate it, Insurance Products (Regular-Savings) are the most lucrative products for new advisors.
Regular Savings Plan (RSP) Insurance Products is a savings and insurance plan that requires only a small regular outlay from client. It is easy to understand and to explain. In the unfortunate event of death or activation of the insured elements, there is a much higher payout than the original capital.
Insurance products also pays attractive commission to the financial advisory firm and the advisor. The best part is – almost every client has it, making selling or recommending the product, a much easier task.
For clients, it is a great disciplined savings plan where they can regularly contribute a small sum. They don’t have to worry about a volatile stocks, bonds or foreign exchange market. Should their life end prematurely, a large sum more than what they have contributed would be paid out to their estate / beneficiaries.
Benefits to Advisors:
- Easy to Understand
- Easy to Explain
- Only a Small Regular Outlay from Client means little commitment
- Usually comes with guaranteed cash value or projected returns
- Payout a large sum higher than the principal sum in death or insured elements
- Most clients have such insurance policies
- Able to help clients borrow against the cash value of the policy or terminate the policy
Benefits to Clients:
- Simple Savings Plan
- Forced & Disciplined Savings
- Able to accumulate returns without worries of financial markets such as stocks and bonds price fluctuations
- Insurance coverage and large payout in the event of death or related cover
- Able to borrow money from policy or terminate policy anytime
Product Examples: Endowment, Whole-life Policies, Investment-Linked Policies
Product Revenue: 20% to 200% of Annual Premiums
Product Failure Risks: Low, Systemic Risks
Product Projected Returns: Above Inflation Rate and Sovereign Treasury Yield (Correlated to Length of Policies)
No. 2 Insurance Products (Single Premium)
Single Premium Insurance Product is a popular savings product for clients who don’t know what to do with their accumulated money or a one-time lump sum they had received from possibly:
- salary bonuses
- inheritance
- financial windfall
- investments
- businesses etc.
It is much easier to explain as it is only a one-time investment. It shares the same product nature as the regular savings plan such as stable projected returns and insurance on life.
The revenue margin is attractive, ranging from 0.5% to 3% of the total sum invested. Due to the larger sum usually invested and the ease of explaining, advisors are able to do many transactions quickly and in large volume.
For clients, it is often the simple way to manage their money without worries about the financial markets. The tenor can range from 1 or 2 years to as long as 10 or 20 years, depending on the insurer product variations.
Benefits to Advisors:
- Easy to Understand
- Easy to Explain
- Only a one-time capital outlay
- Usually comes with guaranteed cash value or projected returns
- Pay out a sum higher than the principal sum in death or insured elements
- Able to borrow money from policy or terminate policy anytime
- Most people have such insurance policies
- In case of emergency, able to help clients borrow against the cash value of the policy
Benefits to Clients:
- Simple Savings Plan
- Able to select tenor from 1 year to 10 or 20 years
- Able to accumulate returns without worries of financial markets such as stocks and bonds price fluctuations
- Insurance coverage and large payout in the event of death or related cover
- Able to borrow money from policy or terminate policy anytime
Product Examples: Single Premium Endowment Policy or Guaranteed Plans
Product Revenue: 0.5% to 3% of Annual Premiums
Product Failure Risks: Low, Systemic Risks
Product Projected Returns: Inflation Rate or above Inflation Rate, Sovereign Treasury Yield (Correlated to Length of Policies)
No. 3 Unit Trust
Unit Trust is the best friend and foe of advisors. It is the easiest way to participate in the global financial market, from investments in United States to Russia, India to Australia. You can select from global funds, multi-asset funds, single country, single sector or multi-strategy funds. Unit Trust transforms you from a novice to an expert immediately as you have access to investments globally instantly. Neither do you have to worry about liquidity or if it is a synthetic structure since the earnest is on the Fund Manager to do his / her job.
There isn’t a need to set up a stock broking account nor is there a need to spend 30 minutes buying 30 stocks, checking through the order entry, price accuracy, fees, and importantly, trading hours that keeps you awake 21 hours a day.
On the other hand, it is the foe of advisors as the result of the Unit Trust investments is uncertain, solely not in your hands, and could possibly be negative over time. Add in the fees that range from 0.5% to 3% annually means the global access and ease comes at a pricey premium.
For clients, Unit Trust offers simplicity in managing their investment portfolio. They don’t have to spend time learning about the different countries, asset classes and details of the transactions. It gives them the very reason why they go to an advisor – their life and time is more precious than thinking about money matters, daily.
Benefits to Advisors:
- You do not have to understand about the global financial market
- Easy to monitor and performance comparison
- Easy to explain the nature of Unit Trust
- Flexible investment option: Invest regularly or ad-hoc investment
- Able to choose from a wide variety of investment options
- Able to buy and sell from clients anytime (operating hours)
- Unit Trust are usually direct investments without complex structuring of products
Benefits to Clients:
- Fuss-free investments
- Access to global investment opportunities
- Access to financial & investment expertise and strategies
- Able to invest anytime
- Able to invest any amount
- Able to sell investments with ease
Product Examples: Global Balanced Funds, Asia Equity Fund, China Fund, Commodities Fund
Product Revenue: 0.5% to 5% one-time fee, 0.5% to 3% Annual Trailer Fee
Product Failure Risks: Low, Systemic Risks
Product Projected Returns: Dependent on Underlying Investments, possible – 80% with a concentrated high-risk investment during severe crisis, inflation rate, above inflation rate
No. 4 Exotic or Sophisticated Products
For new advisors, getting into the financial sector is mind-blogging. The financial numbers, jargons, terms and regulatory adherences resulting in tons of learning and paperworks have a dramatic impact on the turnover rate.
For some, avoiding exotic or sophisticated products is a basic rule of advisory. For others, exotic and sophisticated products are what separates their knowledge and advisory skills from the pack.
Inevitably, whether you are for or against, exotic or sophisticated products are a constant conversation point. Since most clients innately wants to do something different to outperform others but at the same time, want a “tested and prudent” way to outperform. Many try allocating a small sum into an exotic and sophisticated at some point in time.
Example of Basic Products & Exotic / Sophisticated Products:
| Basic Products | Exotic / Sophisticated Products |
| Insurance Linked Products | Structured Notes |
| Deposits | Options |
| Unit Trust | Futures |
| Exchange Traded Funds | Forwards |
| Stocks | Swaps |
| Bonds | Universal Life |
| Preferred Shares | Hedge Funds |
| Foreign Exchange | Margin Trading |
| Private Equity | |
| Venture Capital |
Benefits to Advisors:
- Provide more financial products access to clients
- Build relationship with clients
- Keeps the conversation going
- Deepen financial and economic knowledge
- Understand global risks and returns
- Understand different clients’ segment financial behaviours
Benefits to Clients:
- Able to access effective sophisticated instruments to present their investment views
- Able to participate using different capital & investment structure
- Able to stay in touch with global investment & economic trends
- Able to learn about global financial markets and the financial instruments
- Understand and decide in the longer run, should exotic & sophisticated instruments play a role / important role in the portfolio
Product Examples: Currency Linked Notes, Equity Linked Notes, Structured Notes, Convertible Arbitrage, Credit-default Swaps, Interest Rate Swap, S&P 500 Futures
Product Revenue: 0.1% to 10%
Product Failure Risks: Varies, Systemic Risks
Product Projected Returns: Dependent on Underlying Investments, Total Loss to Unlimited Gains
Read More:
- The Eureka Moment for Financial Experts and Advisors
- Top 2 Products to build a Strong Relationship with Clients in Retail Banking
- 7 Key Investment Products in Personal Banking
Related Articles:
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- 11 Interesting Strategies to Advice Clients
- Most Popular Investment Theories Clients Ask Wealth Managers
- How Do You Start Advising Clients in Your New Job?
- What Happens if You Make Mistakes, Say The Wrong Things to Clients?
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