Dec 21, 2010 Peter Owen
Remember back 20 years when the telephone would ring during dinner and the caller would say "Hi, my name is John Doe and I’m your new local Met Life Representative calling to welcome you to the neighborhood". You immediately knew he was an insurance salesman who was trying to get in the door to sell you insurance. Or the caller might have been a stockbroker calling to sell his newest stock pick. The same went for Accountants, Financial Planners, and Investment Advisers. The financial landscape was easier back then since you knew who the players were, exactly what they did, and why they were calling. The financial landscape changed in 1999. The players and their motivation are essentially the same, however, each of them now sell more varied products. When they call during dinner they now introduce themselves as Financial Advisors or Financial Consultants or a myriad of other general financial titles. Even after listening to them for 5 minutes on the telephone, you still cannot be sure exactly what they want to sell you. What changed to make the financial landscape so confusing?
Financial deregulation in 1999 expanded the salesman's product line
The Financial Services Modernization Act of 1999,(Pub.L. 106-102, 113 Stat. 1338), was enacted on November 12, 1999). It was signed into law by President Bill Clinton and it repealed part of the Glass-Steagall Act of 1933, opening up the market among Banks, Security Companies and Insurance Companies. The Glass-Steagall Act had prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. Previously, an insurance salesman could only sell insurance, your banker handled only your bank accounts and loans, your accountant kept the books and did your tax returns.
The 1999 Act allowed commercial banks, investment banks, securities firms, and insurance companies to consolidate. For example, Citicorp(a commercial bank holding company) merged with Travelers Group(an insurance company) in 1998, in anticipation of the new law, to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under one company. Citicorp After the merger, Citigroup included Citibank, Smith Barney, Primarica , and Travelers.
The Financial Superstore comes to Mainstreet
In the 1990’s, Americans were becoming familiar with the concept of the Superstore and loved the convenience of one-stop shopping. Companies such as COSTCO, STAPLES, and Home Depot were all thriving. The financial community began following all the other industries by creating the Financial Superstore. Once the financial superstore concept was born, the financial landscape began to change.
Starting in 1999, insurance companies formed or bought banks. Banks formed or bought insurance companies. Most financial institutions began selling all products. Now, when you walk into your local bank branch, you deposit your money and are asked if you would like to speak to a representative to review your insurance, or mutual funds, or credit cards, or loans. If you encounter an insurance salesman, he asks you about where you have your investments and starts talking about mutual funds. Your accountant wants you to hold the phone so that his insurance team member can talk to you.
The New Financial Players
Since the financial salesman had the ability to sell a number of products, they all change their titles. The new titles became financial consultant, financial advisor, financial representative, or a host of other titles. Now when the call comes in during dinner, the person introduces himself as a financial advisor and you cannot be sure of the caller’s motivation in making the call. Is he selling mutual funds, or insurance policies, or wanting you to hire him for investment advice?
Essentially the deregulation of the financial community served to confuse the general public. Now we just do not know who the players are. We do not know their strengths, weaknesses, background and we do not know if the person is a specialist in any one area.
What is the motivation of the financial salesman?
While the titles have changed, the players still remain basically the same, though with some additional capabilities. A salesman who starts out at an insurance company is still taught insurance principles and how to sell insurance. Even though he may have additional products, his specialty is still insurance products. If a person from one of the insurance companies calls and wants to talk about a myriad of products, you can be fairly sure in the end that is he is going to try to sell you an insurance policy. Likewise when a person calls from one of the financial companies and wants to talk about a number of products, you can be fairly sure that the subject will turn to the selling of mutual funds for your portfolio. The point is a salesperson's background and the company they work for still determine the person's motivation in what they want to sell. It is important to get at the person's background and motivation so you know what danger signals to look for while listening to the sales pitch.
The other danger with the financial superstore is the knowledge of the salesman concerning specific products. A person who spends his entire life selling insurance understands these products and understands what is best for the buyer. The financial superstore concept reduces the knowledge of the salesman. A general salesman who attempts to sell many different types of products cannot be expert in each one of those products. The average citizen may end up buying an insurance policy that does not suit his objectives or mutual funds which are not totally understood by either the seller or the buyer.
How to deal with the Superstore salesman
When the call comes in from the financial advisor, the first thing to ask is what company he works for now. This will give an indication of the salesman’s motivation. Then ask about the salesman's credentials. If the person states that he has a Chartered Life Underwriter Designation (CLU) you can be assured that this person is an insurance salesman. Ask about which companies the person has worked for in the past. You will probably find that he has worked for either all insurance companies or all financial companies or all banks during his career. Normally people do not start at an insurance company, move to a bank. Ask about his specialty if you cannot determine this from his professional designations. People start off with a specialty and become an expert in that specialty. If the person states that he is expert in all areas of investments, life insurance, and banking, you may want to be quite skeptical.
Essentially the financial landscape has changed, but the players have not changed. Salesmen are still salesmen.
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