The Context of Financial Tools Matters

Financial tools like investment funds, life and disability insurance, mortgages, credit cards, lines of credit, education plans, pensions and casualty insurance are readily available and easily arranged.  The simplicity in acquiring them hides their innate complexity and their potential misuse.

The financial services industry is generally unbalanced.  The clients tend to know much less about the particular tool than does their advisor.  That is acceptable up to a point.  Knowing the complexity of a disability insurance plan may be unnecessary, but knowing what it does, when it does it, its limitations and the reasons this particular version has been chosen should not be outside the client’s view.

Both client and advisor have an implicit understanding that the client will have help with anything they need and the advisor will have the information needed to provide that help.  That works up to the point where the advisor does not know what is going on with the client or has left the industry.  Frequent communication is an essential part of the relationship.

Some people make assumptions about what is covered.  Off work with a heart attack is covered, but off work with anxiety or depression is not, should not be an assessment the client, (or the advisor) makes.  Insurance companies have claims adjusters to answer that question.  Do not try to do their job.

Large companies tend to pay claims more readily and that should be a consideration when arranging coverage.  It is good to know who you deal with and their record.  Many will give you information on claims handling and disposition.

Pay some attention to the background. Investment fund history is often distorted by a unique event.  Averages mislead.  Fire and liability insurance are far more complicated than the average person believes.  You do not want to discover deficiencies later.

As a general rule, consider this.

“Solutions that come before understanding
usually end poorly.”

Because solutions and problems interact and if the client does not understand the solution in context of the problem it solves, they will eventually make a mistake.  Clients need to know what the tool does and what that means for them.

Take some time to explain the tool in context of the problem and possible future situations.  A well-informed client is a better client.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.


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