Debating Active vs Passive management, Term vs Whole Life and more.
The first time I heard the name Christopher Tan was not a good time.
I was about four months in, two years ago - still a new consultant, enthusiastically trying to be the best there ever was.
Because I had no skills and a leg injury, I read (red) a lot. And Manulife’s new whole life insurance product - had just come out a month back and it seemed like the most spectacular thing.
It would be to Whole Life Insurance what a certain 2015 plan was to Savings Plans [and I was right!]. Seeing as this was clearly the most revolutionary product, ever, young me enthusiastically pitched it left right front back and center to whoever would listen.
…And someone crushed me.
“Didn’t you see this article? Whole Life is bad. You just want to get higher commissions.”
Obviously the above is ad-libbed, but it was from one person and it was one person who I thought would trust me more than a stupid article.
Guess who wrote it?
And it hurt. It really hurt, because I went in with nothing but good intentions and a really cool product that I thought was beneficial. Not beneficial enough, apparently.
…Christopher bleeping Tan.
There’s this saying that once you’ve developed a sensitivity towards something, you see it everywhere. And Christopher Tan began to pop up all over my career.
Providend was fee-based, and they appeared a lot in financial blogger articles. Everywhere I would go (online), everyone I talked to – Providend had a foothold. His online presence was domineering.
Now I had a lot more problems than Christopher Tan [and you can refer to pretty much every other article here for what they were and how I overcame them]. But they were beginning to rack up, and they were beginning to scream something at me.
It came down to two years of disliking somebody who I had never met, and now he’d asked for a conversation.
And so, last week at Christopher Tan’s office at Providend, we had one.
For those of you who have not been to Providend, it’s an extremely pretty picture and happens to appeal a little bit more to me for personal reasons.
It’s no Manulife Tower, but in some ways the mix of formal and homely somehow makes it better. It’s the kind of style I would have done for myself.
If I had any style. Or money.
Christopher was kind. I had arrived early by accident and he quickly finished his lunch, asked some questions of consideration about me and I got a nice cold apple juice for my trouble.
The first story Christopher told me was about the origins of Providend, and the place we were seating in particular – especially since I had expressed how much I liked the place (I really did). This was when I knew that we would have a very honest and open conversation, and we did.
We talked about many things, but in particular – I’d like to highlight some of the things below.
Is Christopher Tan right?
1) Is Term ‘better’ than Whole Life?
Christopher has answered this question a thousand times by now across his long and extensive career, and he’s become more and more concise about his view. Specifically, Term simply has more specific uses – of which are cost-beneficial.
It would be very hard to debate this. As my clientele expands every year, I’ve noticed a wider range of unique scenarios where selling a whole life plan would be impossible to justify. I honestly do not know how anybody would do it aside from simply having greater persuasion skills.
From a mathematical perspective, it is often extremely hard. From a logical perspective, it is often extremely hard.
Financial Bloggers have done a couple of examples, some of which are a little too skewed – and they’re not Financial Consultants.
But numbers do not lie. If you’re looking strictly at life insurance, Term is ‘better’. And I’ll tell you why.
Specifically, it’s more cost efficient.
Even if you’re looking at the idea of leaving behind an inheritance, which is one of the greater selling points for purchasing a whole life plan…
…My last calculation was in late 2017 – I did a policy comparison for myself – Whole Life versus Term.
Based on Life Insurance alone (no riders), I would need a mere 1.8% annualized till about age 65 after investing excess premiums, even if the par plan pays out all the bonuses accordingly.
[Note: Par Plans returns are actually pretty good (between 3.5% and 4% for my age), having seen it myself. But the difference in premium was too huge]
For context, most fixed deposits, SSB and even your DBS Multiplier (salary credited only) cover this. Let alone actual investing. As a professional who’s seen a lot of flubs by this point - it is dangerous to assume people can invest.
Anyone can access an investment account. Not everyone can invest.
But anyone can use a zero-risk instrument and make it illiquid. Which is why I have not sold a single whole life policy (without a rider) since.
On the flip side, I would point out that my clientele was largely millennials in 2018, and a whole life plan is ‘better’ for millennials quite often when it comes to ECI and Multipay coverage.
Unless you’re a high-risk investor like myself, and I’d be happy to have teach anyone currently looking for Critical Illness coverage how to IR.
2) Do Commission Based Advisors serve with Conflict of Interest?
Seedly hosted Christopher’s AMA a few months back (where's mine, Kenneth?), and someone wrote to Christopher Tan asking about the difference in Financial Advisors for MoneyOwl.
As one should know by now, MoneyOwl’s Advisors are salary based. The idea that they’re less conflicted is inane to me, since I’ve butted heads with bankers who are also salary based.
I had quite an enjoyable conversation with both Weber and Christopher about conflicts in the industry, what kind of training MoneyOwl advisors go through, as well as hearing their own honest experiences – which was quite heartening.
Ultimately, I think the situation that Providend and MoneyOwl is in, is unique. Possibly not as conflicted nor in the same situation as bankers, but...
I’m not entirely convinced that a salary-based advisor is going to be less conflicted. I’m really not.
I'm not even sure they’re going to provide better advice than commission-based advisors, especially me.
But are commission-based advisors conflicted? Yeap.
Part of a previous article I’ve written is how I deal with my conflict of interest. You can read it here - and you should, because its an inevitable experience not just towards insurance agents but towards relationships in general. I've also been clear about how else you can deal with conflict of interest - ask for two options, openly ask how much commission your agent can make compared to the other options, ask your agent to justify always.
You may want to use it as a benchmark for your own Financial Advisors or for yourself (if you’re an FA reading this).
And of course, if you’d like a second opinion on anything that you feel may have conflict, I’m always available.
3) Are Low-Cost market ETFs 'better' than mutual funds?
I am still not likely to ever give this particular area up, especially after months of studying various geography and sectors for investing, dozens of books later – it turns out, you can find a very definitive set of reasons to justify high cost because all the people who actually have more experience than you in investing have opted not to even look.
If you put in the amount of time and effort – you could probably find justifiable and logical reasons to pay for more. Doing my own due diligence, so to speak.
Of course, I had much more to gain than a standard retail investor – not only could I make my portfolio extremely kickass, but I could also make those portfolios for my clients.
It breaks some of the rules of business for myself – and two of these rules are pretty simple.
a) Pursue truth at the risk of being publicly embarrassed
b) Make sure you are right before saying anything.
I’ve certainly broken (b) here and there in my journey to improvement, especially with PA plans as recently as January, but (a) was not negotiable.
Which was why I came all the way down to Providend in the first place. So I was a little prepared there might be an extended debate on this.
Thankfully, there wasn’t – and yet I still got something really valuable. The personal arguments and experience from people who had experienced the 2008 Financial Crisis first hand, and how it affected them and their clients.
Looking at them share their experience and seeing how they survived it, I understood that it was the favorable position to be in, especially from Christopher.
My actions as a Financial Consultant right here and now, will determine whether my client’s money will survive, my relationship with them will survive and if my career will survive.
And thankfully I was able to depart with that kind of important lesson.
Are ETFs better?
Well they’re tradable, which isn’t a good thing in my book. I actually would prefer an index fund if you insist on capturing market returns only. And not all market returns are particularly good compared to the available funds.
But the efficient market result is indisputable – of 80 to 95% underperformance and even a pretty significant number gross of fees, so I rarely advocate a majority US portfolio when I provide one – unless I’ve done something drastic like refer them to Robo-Advisors when I am unable to provide what is best for them in their extremely, extremely unique situation.
If you want equities with less risk, stick with a low-cost ETF or index fund. I’ll leave the happy US investors to their Robos and SNP500 and even the QQQ – there are plenty of ways for me and my clients to make more money than that. After all, 100% of ETFs underperform the market.
As I left Providend, I asked Christopher:
“Hey, why did you want to do this?”
He didn't want to fight with me. He didn't want to hire me. He didn't want anything. Weird.
“Oh, I like having conversations with some of the (Seedly) members. It’s nice to know them.”
...What an odd thing to say, for someone who has poor social skills like myself.
Calling somebody to have a conversation with absolutely no benefit to yourself when you’re a renowned business owner seems like an inane thing to do. If I were a successful business owner, I’m not sure how efficient a use of my time that would be.
But perhaps that also why I’m not a successful business owner – and where I can learn something. Here’s two things.
1) Everyone struggles – I think there’s a perception that Providend basically ‘has it made’ already and they get away with a lot, especially with their digital dominance. But it’s very silly to compare step 1 of your journey to someone else’s step 20. There’s no substitute for hard work, and I do genuinely believe that Providend has more than earned its place in the financial industry.
2) People never stop learning and growing – I’m quite humbled by the story of Christopher’s Tan’s journey as a Financial Advisor. Even when he was successful already, he humbled himself when called to be humbled and developed better character and service, which undoubtedly helped him continue that success.
So in a long discussion of Money Maverick versus Providend, who won?
…I really have no clue.
I learnt a bunch though, and feel like I’ve made a better relationship with someone who I simultaneously disagree and respect in the industry, so I feel like a winner.
I don't have to like everything that is being said and done, but it doesn't have to be malicious and personal as long as everyone is trying to do the right thing in their own way, and I think Chris has done this better than me. Well.
He is old after all.
I mean, old(er).
Oh, come on now. How else was it going to go down?
We’re not catfighters.
Credit: 1) Christopher Tan's message to me 2) A picture on the Providend website