DIY by all means, but…

I have long been an advocate of people doing their own financial planning. Far too many vested interests in the industry would have us believe that Financial Planning is too complex for individuals to do their own and that as a result they need the services of an advisor/financial planner. Bollocks I say. There is so much common sense involved that just about anyone with a brain and some time and effort could do their own financial planning (there is no need for it to be complicated or out of reach of Joe Average).

However, to my mind, doing your own financial planning could be likened to fixing the plumbing at home. Any one could do their own: get the instruction book, get the correct tools and parts and then spend the time fixing it. While this might provide an element of satisfaction to you, it could end up taking 2-3 times as long as it might the plumber (and lead to plenty of frustration and fowl language) and you might need to do it over because you did not do it right the first time. Or, you call the plumber. It is about the maths…you need to know how much your time is worth to you versus what it would cost the plumber. Either you spend the time fixing it or you call the plumber who will probably get it done right the first time in a fraction of the time and at a fraction of the cost.

And so it is with financial planning – you do it yourself or you can call the financial “plumber”.

Partly as a result of the DIY approach there has been a proliferation of “direct” insurance companies that have sprung up over the past years encouraging people to go direct, to cut out the middleman, to save on commissions and fees…and while this all sounds very attractive it is, in my experience, hardly ever true.

I wrote a while back about how expensive 1LifeDirect is compared to using a broker (https://www.thefinancialcoach.co.za/2010/03/18/1-life-direct-misleading-advertising-so-expensive/) and now it is the turn of new comer, OUTsurance Life.

I finally managed to get a quote from them after a few emails, a blog post about their poor service and then spending 40 mins on the phone with a very polite and friendly call centre agent. Towards the end of the conversation as he built up to the crescendo of his sales pitch he proudly announced to me that I was an “excellent” candidate for life cover with them and that as a result I would qualify for a very competitive premium. Bearing in mind that they have advertised that there was no advisor and therefore no commission on the policy I was expecting something quite attractive.

And here is the problem – it was R220 per month (almost 53%) more than a comparative quote through an insurance company (where the commision has been removed) and even with full commission on the comparative quote it was still 22% more (see below).

So let the old warning apply: Caveat emptor – or Let the buyer beware. By all means follow the DIY approach and go direct but beware – there are a lot of “lies, hype and spin” (also known as marketing) out there and just because it says there is no advisor and therefore promises to be cheaper, it does not necessarily mean that it is. My advice is this – rather find an advisor/planner who can supply you with the product you need without the commission costed into and and pay him/her a fee for the work that they do for you.

Comparative quotes from OUTsurance Life and Altrisk Insurance Company for a 43 year old male – R2million life & R300k dread disease cover:

OUTsurance (no commission): R644 pm

Altrisk (with commission): R529 pm

Altrisk (no commission): R422 pm

And on top of this, OUTsurance promised me an OUTbonus of about R3800 in 5 years time…attractive indeed but if you take the R220 that you would save by using the Altrisk product and saved it for 5 years (without any growth on it) you would have more than R13000 in 5 years time. Now that would be a BONUS!

4 thoughts on “DIY by all means, but…

  1. We checked the follow-up in response to your initial quote request and confirm that we called you twice (on the cell # you provided) within minutes of your electronic quote request. After our second attempt to contact you, you requested we call you at 14h00 that same afternoon which we did and we provided you with the required quote.

    We also note your comments about the DIY option and we understand that there are different channels available to consumers, being direct and through intermediaries. Within the scope of these choices, price, product benefits, scope of cover and service delivery are aspects that consumers would consider when making the choice as to which products they prefer and which ones better suit their needs. Our rating structure is actuarially sound and we are also confident that our rates are correctly pitched; we also realise that rates differ from company to company and are influenced by each ones’ rating model.

    Your reference to the advisor role also warrants clarification. We advertise that there is no ‘broker’ involved and not that there are no ‘advisors’ involved. There is an important distinction and our advisors are all FAIS-accredited representatives and are suitably trained to sell our product. They are not financial advisors and do not conduct a financial needs analysis for clients.

  2. Hi Dinky
    Thanks for the comments…I must take exception with your last paragraph, however. The advert on your website is misleading in that it specifially states “no broker fees or commissions”. If it is the case that there are advisors (who may well be earning an income from selling the products) then this is not true…
    I also cant see the “important” distinction between an advisor and a broker – in the insurance industry in South Africa these words are used interchangeably.

  3. Hi Dinky

    I would like to say that I believe there is a place for going direct and this is the same place as accepting policies though the post or telephonically. If this was not available, there would be many people out there that would have no insurance whatsoever.

    Although I would not want to take the risk of not having a proper financial plan and needs analysis in place, there are people that just do not want to speak to a broker and pay a fee. Those people are the ones that would rather go direct or take insurance through the post. It is risky, but it is something they will have to live with…or shall I say it is something their families will have to live with.

    Not having a financial plan can save you in premiums…but it could cost your family dearly. You state that your financial advisor do not conduct a financial needs analysis. I then take it that the client must sign a form or confirm telephonically, while recorded, that he does not want a financial needs analysis, because this is a requirement from FAIS? If a client would however want help with this how do you help him or do you just say that you cannot?

    If you do not do financial needs analysis and propose a financial plan, how can you say that you have financial planners? Surly this is then just a sales consultant selling a product like a TV or HiFi.

    A financial planner is a person who does a proper financial plan for you and he should take everything into consideration. This should not be a merely 3 page document stating that you must take X amount of cover. This should be a proper document showing your current status, what you need and the end result so that you can have the piece of mind that you are adequately covered.

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