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How do we sell a portfolio of products that provide guarantees and security in a marketplace that seems to make bad financial decisions on a continuous basis?

On Jun. 14, 2012, R. Allen Stanford was sentenced to 110 years in prison for investment fraud after being found guilty of bilking investors out of more than $7 billion dollars.

How did he do it? He offered certificates of deposit (CDs) through a bank he controlled in Antigua, telling them the money would pay high interest rates as it would be invested in stocks and bonds. However, he took the money and invested in risky real estate ventures and his other businesses. He kept needing more deposits to cover losses, and when the new investment money dried up so did his game — a true Ponzi scheme.

Thanks to Charles Ponzi (who in 1920 was found guilty and sentenced to five years in prison for bilking investors of $10 million dollars), the name Ponzi has become infamous for investor schemes that have been built on deceit, misrepresentation and outright fraud. Who could forget the Bernie Madoff scandal?

As a society, we have become increasingly savvy through financial education and now have immediate access to information never dreamed possible just a few years ago. How can individuals remain so susceptible to fraudulent behavior?

Perhaps it’s because as humans we always want to believe the best. We tend to be optimistic. Also, we probably all possess a bit of greed that clouds rational thinking at times.

It certainly makes our jobs harder. After all, how do we sell a portfolio of products that provide guarantees and security in a marketplace that seems to make bad financial decisions on a continuous basis? Even typical investors, according to Dalbar Research, continuously underperform average market returns because they hold on to losers too long, sell winners too early, buy high/sell low, etc.

Consider the use of “mental accounting” with respect to our retirement plans. When we think of retirement assets, we think of one “bucket” of assets to fund our retirement years, when in fact, clients should be thinking in terms of multiple buckets. Housing, food and future health care expenses are buckets that are akin to “keeping the house lights on.”

Other retirement buckets can be for travel, spoiling the grandkids and other fun. These buckets can hold investments that may have more upside potential and not necessarily provide absolute guarantees.

How does the bucket approach relate to you and our industry? Guaranteed income annuities can satisfy the former, “must-have” buckets in this example. Other types of products, focused on accumulation — either annuities or life insurance — may satisfy the latter. By framing solutions in this way, your clients will better understand the value proposition you bring to them.