Why Dr. Phil Can Sell More Insurance Than Warren Buffett
May 25, 2017 by Charlie Gipple
If Dr. Phil and Warren Buffett were trying to sell you a financial product, which one of those two people would you be most likely to buy from? This is actually rhetorical for you, the financial professional, because I already know the answer to that question. Most of us would choose Warren Buffett because of the fact that he is so financially savvy and understands finance as well or better than anybody on Earth. He is called “The Oracle of Omaha” after all. However, ask your spouse this same question and I bet you will be surprised with the answer. I asked my wife, Noelle, two questions. The first question I asked like this: “Noelle, picture yourself in an hour long conversation with both Warren Buffett and Dr. Phil and they are discussing with you financial matters that are important to you and will suggest a solution in the end. Based on the topic at hand and how you would view the meeting going, who do you think you would most likely buy from in the end?” She said, “Definitely Dr. Phil.” I then asked the second question that went like this: “Why Dr. Phil? He knows nothing about finance and Warren Buffett knows everything!” She said, “I feel I would be less intimidated by Dr. Phil and he would just hear me out better and connect better with me. I don’t care about the brainiac stuff.”
The above is pretty profound to me as it confirms what I have been preaching for a while and I just have not, until now, tested it on my wife or my clients. I bet if you asked your spouse (who is not in financial services), he/she would say the same thing. I bet if you asked your clients they would say the same thing! I emphasize that it is important that the person you do this test on is not in financial services because we in financial services will have our answer skewed toward the analytical Warren Buffett. We in financial services have been indoctrinated into the notion that being savvy with fancy language, data, charts, and statistics will make you a good financial professional. Well, the 21st century financial professional is different! Allow me to explain the shift that has taken place with our clients and thus how financial professionals should change to abide by this “shift.”
So far, in this new millennium, we all have witnessed terrorism that has had a profound effect on our perception of safety. We have also witnessed events that have led to profound changes in our perception of financial safety, such as bankruptcies that wiped out trillions of dollars of assets. For instance, Lehman Brothers, WorldCom, Washington Mutual, General Motors, Enron, etc. We also saw Bernie Madoff wipe out the retirement accounts of millions of people, either directly or indirectly. Furthermore, we saw from 2000 to 2002 the S&P 500 lost 49 percent because of the dotcom bust. Then, from 2007 to 2009, the S&P 500 lost 57 percent because of the financial crisis. And because of the financial crisis, the notion that your house would always be an implicit “piggy bank” was gone. As a matter of fact, many lost their houses! We realized that it was actually possible to be in a scenario where no place is safe for your money.
Even more, those that have been fortunate enough to have not had their savings wiped out because of all of this have seen interest rates on their savings decline to almost nothing. As a matter of fact, a 5-year CD in 2000 yielded 5.54 percent versus .83 percent today.
In short, the last 17 years have seen terrorism, two financial crises, war, bankruptcies, unemployment, low savings interest rates, QE1, QE2, QE3, etc. Furthermore, all of these events have led to the public’s lack of trust with the players involved; government, big corporations, Wall Street, and financial professionals of various stripes. Because of all of this, the rules that applied in the 20th century do not apply anymore, especially when you work as a financial professional. In order to be successful, what does a financial professional need to do differently in this century that he/she may not have done in the previous century? In short, the 21st century financial professional resembles Dr. Phil more than Warren Buffet. Allow me to explain in four points:
1. The 21st Century Financial Professional Understands Behavioral Finance: Prior to the new millennium it was all about “Traditional Finance.” Many believed that the value a financial professional brings was in the technicalities and their communication of complicated matters relating to finance, with very little attention being paid to the client’s behavior. In other words it was believed, as I was taught in training as a career agent, if a financial professional knew product specs inside and out, could fluently speak to asset allocation, modern portfolio theory, alphas, betas, mortality tables, premium loads, TEFRA, DEFRA, TAMRA, etc., and also had a bunch of analytical spreadsheets to back up this information, that financial professional would be successful. It was more technical Warren Buffett type stuff rather than the behavioral Dr. Phil type stuff. Granted Warren Buffett does have some very witty ways of explaining things and using analogies! Nevertheless, prior to the new millennium it was all about “Traditional Finance”.
The calculus has changed! Prior beliefs are no longer true whether you are a life insurance agent or a registered rep. Trust has been lost in prior models that created the foundation for traditional finance. A simple example of a “traditional finance” belief that has been imperiled in this new millennium: The notion that a “buy and hold” strategy in the stock market will always work well for your money. We have all seen the mountain chart that is the Ibbotson “Stocks, Bonds, Bills and Inflation Chart” that suggests that over the long run we should expect the S&P 500 to average 10 percent per year. Yes, I know past results don’t reflect future performance but yet this chart is used all over the place! Well, what this chart “suggests” did not prove to be true. As a matter of fact, from 2000 to 2017, if you “bought and held” the S&P 500 you would have only attained a compound annual growth rate of 2.71 percent without the inclusion of dividends and 4.32 percent with the inclusion of dividends. The risk/return dynamic we have all been taught turned out to be very little return and a ton of risk! Fear and greed happens and resulting “bubbles” happen. We have experienced two examples of this over the last 17 years in the stock market and thus examples of traditional models and beliefs failing.
As a result, today you have the proliferation of Behavioral Finance which can be defined by: The study of how finance is affected by psychology. This study attempts to understand and explain how human emotions influence investors and the decision making process. In other words, consumers have a lot of biases against what we do and what we represent today because of what they have experienced over the last 17 years. And if your client is infected with one of these “biases” it does not matter how mathematically and scientifically sound your recommendation is to the client, it’s all an exercise in futility unless you address that bias with the client. There are 117 documented biases in behavioral finance. Learn the biases and learn how to speak with the client in a manner that overcomes these biases! We at Partners Advantage have a whitepaper on this. I also want to send a shout out to my friend and fellow columnist Jack Marrion for his studies in this area.
2. The 21st Century Financial Professional Is An Elephant Not An Alligator: Elephants have big ears and small mouths. Alligators have big mouths and small ears. If you have ever watched a Dr. Phil show (yes, I admit I have) you realize that he is an elephant. Dr. Phil speaks for a small portion of the time relative to the guests on his show and he does a great job of “reflective listening.” Reflective listening is when you hear what somebody has to say then articulate how they are feeling back to them so they understand that you understand the issue. Because of Dr. Phil’s ability to do this, people think he is brilliant—which I am sure he is! Conversely, I have sat with many agents that talked and talked and spent little time understanding the client’s situation and the client’s emotions around money, retirement, and insurance. These financial professionals are alligators, and alligators do not last long in the 21st century where people have experienced the turmoil I mentioned earlier and just want to be heard rather than talked at. Reflective listening is powerful and here is an anecdote that supports this. In Malcom Gladwell’s book entitled Blink he states this:
“The overwhelming number of people who suffer an injury due to the negligence of a doctor never file a malpractice suit at all. Patients don’t file lawsuits because they’ve been harmed by shoddy medical care. Patients file lawsuits because they’ve been harmed by shoddy medical care–and something else happens to them.”
Gladwell then goes on to elaborate what that “something else” is:
“What comes up again and again in malpractice cases is that patients say they were rushed or ignored or treated poorly.”
Whether you are a doctor or a financial professional, people just want to be heard and listened to! They feel a significant amount of distrust with many things today and by hearing them out you can build trust. Being an elephant and using reflective listening will help you with this.
3. The 21st Century Financial Professional Understands That It Is About Simplicity: Note that I am a very technical person at heart and have the “fancy” designations and securities licenses, and it would actually benefit me if we thrived on just knowing the technicals. Unfortunately, it is not that easy. It is understanding the technical stuff but explaining it in a way that people understand. Mark Twain once said in a letter to a friend, “I am sorry I did not have time to write a short letter so I wrote a long one instead.” Simplifying a complicated story is hard. Harder than understanding the complicated story in the first place. The 21st century financial professional is very aware that “sounding smart” is actually intimidating to people and the downside far outweighs the upside. Our clients just want us to make their lives easier and you can provide a huge amount of value in taking what they find complicated and making it make sense. Spend time thinking about and rehearsing analogies, stories and ways to simplify a difficult concept.
4. The 21st Century Financial Professional Offers Products That Allow For More Stability: This one is easy. In a world that has been uncertain for almost two decades, clients want certainty in lieu of, or in addition to, the traditional products. Mentalities are different than they were in the late 90s. No longer is it “certain” that throwing money in the stock market will generate great results. This is also why I believe that the younger generations (X and Y) look at money more conservatively. Because all they have known in their adult years is the turmoil we discussed. Indexed products, guaranteed income products*, life insurance, linked benefits, etc. can bring stability through guarantees which are backed by the financial strength and claims-paying ability of the issuing company and a level of certainty beyond just investing in the stock market.
When you look at what I just explained—Behavioral Finance, listening skills and simplifying the complicated—it is all about soft skills which, by the way, RoboAdvisors will never have! When the statistic says that 85 percent of a person’s financial success in life is about the soft skills, not technical skills, I believe it! This is why, although Warren Buffett does have a good way of simplifying the complicated, I would put my money on Dr. Phil. 
*Guarantees are backed by the Financial Strength and claims-paying ability of issuing company
References:
CD Rates: http://www.bankrate.com/banking/cdshistorical-cd-interest-rates-1984-2016
Historic S&P 500 Returns: https://en.wikipedia.org/wiki/S%26P_500_Index
This material is intended for educational purposes only. For financial professional use only. Not to be used for consumer solicitation purposes. You should not treat any opinion expressed by Charlie Gipple as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion and experiences.
Author’s Bio
Charlie Gipple
CLU, ChFC, is the senior vice president of sales and marketing at Partners Advantage Insurance Services. Gipple manages all sales, marketing, recruiting, agent training and sales support activities across the company. He is also the co-founder of The PILLAR System, a trademarked cutting edge practice management and client seminar system for use by financial professionals. Prior to Partners Advantage, Gipple was the national director of index products at Genworth where he directed the sale of and was integral to the development, public awareness and marketing of these products. He was also at ING for 11 years, where he was a vice president, leading a number of diverse product lines and distribution channels. Gipple has worked in client sales, account management and product development, as well as the wholesaling of life insurance, annuity and mutual fund products. He has extensive experience working with MDRT-level agents, IMOs, BGAs, broker/dealers and banks. Gipple is a specialist in index products, financial markets, financial legislation, behavioral finance and the positioning of insurance products and is well-known as a keynote speaker having been asked to speak at NAFA, NAIFA and MDRT Top of the Table meetings as well as media outlets like AM Best TV and thestreet.com. He regularly authors articles about index universal life insurance and index annuity products and has been featured in numerous industry publications. Gipple holds a B.A. in Finance from the University of Northern Iowa and carries Series 7, 6 and 63 securities licenses. Gipple can be reached by telephone at 951-977-2600 ext. 358. Email: cgipple@partnersadvantage.com.
