The Human Brain: An Amazing and Powerful 3 Pound Machine

By: Charlie Gipple, CLU,® ChFC® - Senior VP of Sales and Marketing, Partners Advantage
This is an excerpt to the full whitepaper by Charlie Gipple: "What Robo-Advisors CanNOT Do That You Can An Introduction to Behavioral Finance"

The Brain is a Powerful Thing
The date was May 6, 1954. Up to this point in time, it was clear, it was impossible. Sports scientists, medical doctors, world class athletes from across the world said it was absolutely impossible to athletically accomplish this feat. Our bone structure was all wrong. We were not aerodynamic enough. Humans had inadequate lung power and inadequate heart power. All of these excuses were used and millions of athletes tried but failed. This challenge went all the way back to the ancient Greeks and nobody could do it. However, on this day, somebody proved wrong all of the pundits and athletes before him. His name was Roger Bannister. Here is the interesting part. Over the next 12 months, 37 more people broke the 4-minute mile. In the second year, thereafter, 300 more people broke the 4-minute mile. 337 people broke the 4-minute mile within two years of Roger Bannister accomplishing this feat that was “absolutely impossible.”¹ 

What is my point? My point is it’s all psychological! The Human Brain is an amazing thing. This little three-pound thing between our ears that usually takes up about 2% of a human’s bodyweight and has 100,000 miles of blood vessels is one of the most powerful things on earth. Of course, I’m talking about the human brain. It’s that powerful! There isn’t any other animal (except for maybe a dolphin) that has the brainpower like we do. For example, although an elephant’s brain is physically larger than a human brain, the human brain is 2% of our total body weight, where an elephant’s brain is .15% of their bodyweight. Meaning humans have a very large brain to body mass which makes us one of the smartest species on earth.²

Furthermore, because we are so smart, we can predict events that other species cannot predict. For example, I know when lightning streaks across the sky, there is the sound of thunder to follow. I know that if I am on the street and there is a car coming towards me from ½ mile out, to get out of the way. I can predict that if I bring home a Harley Davidson today, to my wife’s surprise, I will be single the next day. We have predictive capabilities that no other species on earth has.

Here is the paradox, however, because we are so smart we are also so dumb. Because we can predict things that other species cannot predict, we tend to think we can predict things that are impossible to predict. This is an example in behavioral finance of what is called “Overconfidence Bias.” Have you ever seen a client that thinks they can predict the stock market and makes irrational decisions as a result? Have you ever run into a client that believes they do not need life insurance because they will live to a ripe old age? Have you ever spoken with a client who says he will never need long-term care because he/she will “just die”? The problem is, markets are unpredictable, mortality is unpredictable, and morbidity is unpredictable! There are some things in life that are hard for a human being to predict, unlike hearing the sound of thunder following a lightning strike. This “overconfidence bias” is an example of the 117 documented biases that behavioral finance studies and works to find solutions for.³

If you would like a copy of this whitepaper please contact our Partners Advantage Marketing Team at 888-251-5525, ext. 138 or email news@partnersadvantage.com.

For financial professional use only. Not for use with consumers.

¹ Mackay, Harvey, 1988, Swim with the Sharks.
² “Thinking About Brain Size,” http://serendip.brynmawr.edu/bb/kinser/Int3.html, last accessed 3/10/16
³ Source: “Conquering Concerns: Selling Through Behavioral Biases”

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Behavioral Finance and the Two Lane Highway

Even though the “Robo-Advisors” would disagree with me, today I would argue that in this day and age the most important thing a financial professional can do is relate to the “art” and not the “science” of their profession.  In other words, the most successful financial professionals I have ever worked with would agree that it is about the art of simplification, analogies, storytelling, managing clients’ emotions so they make healthy financial decisions, and to help them through good times and bad times.  I do believe the “science” of algorithms, Monte Carlo Analysis, alpha, beta, sharpe ratios, etc.; they are all important, but should they take a backseat to the “art” of BEHAVIORAL FINANCE?  Let me give an example of a simple behavioral analogy I like to use in financial professional and client seminars.  

A fitting analogy is that buying high and selling low in the stock market is a lot like driving down a two lane highway. Pretend you are sitting in the right lane and both lanes are at a standstill. What do you do when you notice the left lane is starting to move? You move into the left lane. Shortly after that, the left lane always comes to a standstill. Well, shortly after that is typically when you see the right lane starting to move forward. So then what do you do? You move back into the right lane. What happens to the right lane at that point in time? It comes to a standstill. But of course, that is when the left lane opens up and you hopelessly jump back into the left lane. Many of us do this over and over again to then realize that it is a losing proposition. Why does this phenomenon happen with traffic where it seems like you cannot win by switching from lane to lane? Because everybody else has the same idea of jumping into the same lane as you, the moving lane, and eventually the bubble bursts and traffic comes to a standstill. Due to the fact that everyone moved from the other lane and thus "emptied" it, the other lane opens up. At that point, everybody jumps back into that other lane and you create another "bubble“ that stalls traffic. 

That is very analogous to how the stock market behaves. Because people buy high and sell low by chasing each other, they actually do not perform as well as what the market actually does over the long haul. 

Some of the most profound studies in this area have been done by the financial services market research firm, DALBAR. Dalbar recently launched their 22nd study on investment returns versus the returns actually experienced by investors. They found that over the 20-year period of time ending December 31, 2015, the average return for equity mutual fund investors was only 4.67% even though the average in the S&P 500 was 8.19%. Thus, a 3.52% "gap" in investment returns versus investor returns. This "gap" on a $100,000 investment can mean significant damage to a pre-retirees’ or retirees’ retirement portfolio. For example, if that $100,000 gets 4.67% over a 20-year period of time versus 8.19% over a 20-year period of time that is the difference of having $249,140 versus $482,772 by the end. This is a difference of $233,632 by "buying high and selling low." And this does not include the negative impacts of taxes and trading costs for the investor that moves in and out of the market.

So again, whether it is providing simplification and analogies like the two lane highway or managing a clients emotions so they don’t “buy high” and “sell low,” today this is one of the most important topics a financial professional can use to “sharpen their axe” which is the study of Behavioral Finance.  

Learn more in the full white paper "What Robo-Advisors Cannot Do That You Can. An Introduction to Behavioral Finance," by Charlie Gipple, CLU, ChFC. 

Fill out my online form.

Questions or Need Case Assistance: Contact the Partners Advantage Brokerage Team at 888-251-5525, Ext. 700.

For financial professional use only. Not for use with consumers.

Please note that in order to provide a recommendation to a client about the transfer of funds from an investment product to a fixed insurance or annuity, you must hold the proper securities registration and be currently affiliated with a broker/dealer. If you are unsure whether or not the information you are providing to a client represents general guidance or a specific recommendation to liquidate a security, please contact the individual state securities department in the states in which you conduct business. The information in this presentation is for general use and while we believe the Information is reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. You need to take into account your client's health and legacy goals. Neither the information presented or any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any insurance or securities products and services.

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FOR IMMEDIATE RELEASE

Charlie Gipple to Speak at the 2016 MDRT^® Top of the Table

Riverside, CA (August 2, 2016) – Partners Advantage is pleased to announce its Senior Vice President for Sales and Marketing Charlie Gipple, CLU, ChFC, will be a speaker at MDRT's Top of the Table annual meeting. This year's conference will be hosted in Quebec City, Quebec, Canada, Sept. 21-24.

Gipple will be addressing the "Seven Secrets to Effective Communication" on Sept. 22, during the event's Ten X Talks at the Top segment. His presentation provides insights on how to improve presentation, public speaking, storytelling and influencing skills.

"I am honored to be part of the distinguished program at the 2016 Top of the Table event," stated Gipple. "This is an extraordinary event that brings together some of the best in the business and helps them to become better."

Gipple is a specialist in index products, financial markets, financial legislation, behavioral finance and the positioning of insurance products. He is well-known in the industry as a keynote speaker on these topics. At Partners Advantage, he manages all sales, marketing, recruiting, agent training and sales support activities across all company segments driving a focus on Education That Causes Sales.

As an index product thought leader, Gipple regularly authors articles about index universal life insurance and index annuity products. His expertise has been featured in Broker World, LifeHealthPro, InvestmentNews, Financial Advisor, Insurance News Net, National Underwriter and numerous other media outlets. He has also made appearances on thestreet.com and AM Best TV. Gipple joined Partners Advantage in 2015.

About Partners Advantage Insurance Services

Partners Advantage Insurance Services, LLC, is among the top national insurance marketing organizations in the country with 70 associates located in offices across the United States. The company's Advantage Division is a one-stop brokerage for licensed agents and agencies throughout the United States who sell annuities, life insurance and linked benefit products. The company's Platinum and Premier Divisions work to enhance insurance marketing organizations and agencies throughout the country. The corporate headquarters for Partners Advantage is located in Riverside, CA. Regional offices are located in Huntington Beach, CA, Palm Beach, FL, Sioux City, IA, Ada, MN, Florham Park, NJ, Houston, TX and Henderson, NV. For more information about Partners Advantage, visit www.PartnersAdvantage.com.

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PAIS01072816

What Robo-Advisors CanNOT Do That You Can; An Introduction to Behavioral Finance

Whether we are talking about life insurance sales, annuity sales or investment sales, one thing is undisputable, MONEY IS EMOTIONAL. Learn how to separate yourself and your practice from the "Robo-Advisors" by understanding and implementing behavioral finance. After all, Behavioral Finance and Speaking Your Clients' Financial Language can become one of the main determinants in your clients' success in their retirement planning process.

BONUS: We will also provide insights on how you can

Better understand the Allianz annuity
story by explaining the features of both the preferred and standard portfolio: Income Now. Income Later. Income Never.

Join Us on June 22

11 AM PDT, 12 PM MDT, 1 PM CDT, 2 PM EDT

Register HERE

Nationally recognized indexed product educator Charlie Gipple, CLU, ChFC will provide insights on how you can help your clients better understand how fixed annuities might work within their overall retirement income roadmap.

Questions?

Contact the Partners Advantage Annuity Advantage Team at

888-251-5525, Ext. 709

For financial professional use only - not for use with the public.

Product and feature availability may vary by state and broker/dealer.

The calculator is designed to highlight the income feature only. Keep in mind that FIAs are designed to meet your clients' long-term needs for retirement income. They provide many benefits for your clients, including principal protection, the potential for tax-deferred growth, and a death benefit for beneficiaries. Always consider each of the features available and how they work when considering if a product is appropriate for your client's needs.

Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.

Products are issued by:

 Allianz Life Insurance Company of North America

 5701 Golden Hills Drive, Minneapolis, MN 55416-1297

CONFIDENTIALITY NOTICE: The information in this email may be confidential and may be legally privileged. It is intended only for the use of the individual(s) named above. If you are the intended recipient, be aware that your use of any confidential or personal information may be restricted by state and federal privacy laws. If you, the reader of this message, are not the intended recipient, you are hereby notified that you should not further disseminate, distribute, or forward this email. If you have received this email in error, please notify the sender and delete the message. Thank you. 

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Post DOL Fiduciary Standard, Robo-Advisors Versus Real Advisors

By: Charlie Gipple, CLU,^® ChFC^® - Senior VP of Sales & Marketing, Partners Advantage

This is an excerpt to the full whitepaper by Charlie Gipple: "What Robo-Advisors CanNOT Do That You Can An Introduction to Behavioral Finance"

Whether we are talking about life insurance sales, annuity sales or investment sales, one thing is undisputable, MONEY IS EMOTIONAL. I believe financial professionals can never be replaced, because “robo-advisors” cannot adequately help manage the clients’ emotions and behaviors! Here's some insights into why.

Traditional Finance is what we have been taught. Traditional Finance would lead one to believe that helping our clients is more of a science than an art. This is the mathematically and scientifically fun stuff you read in the textbooks, such as efficient market hypothesis, correlation coefficients, charts, graphs, standard deviations, alpha, beta, and of course, the big one, Modern Portfolio Theory.

The Emotional Tail Wags the Rational Dog

Traditional Finance is the thought that what we doing financial services is more of a science than an art. I am a fan of “Traditional Finance,” and I have studied it a lot as I have a finance degree, two designations and four securities licenses. What does all of that mean, however? It means absolutely nothing, unless I can also help my clients with their behavior as well. Nothing else matters if investors’ behavior gets the best of them.

Furthermore, at the level of your client, these errors in their minds, in turn, can harm the success of a retirement and/or insurance portfolio. In other words, you as an agent/advisor can lay out a perfectly sound mathematical and scientific argument for your clients to either take action (buy insurance, for example) or not take action (buy and hold), but, if they have a “bias” in their mind that completely cancels out your rational argument, you are spitting in the wind.

In a world where supply and demand drives the price of multiple types of traded instruments up or down, when investors commit errors in thinking/judgment, the prices on these “traded instruments” tend to be different than what they would have been in an error-free environment. This is because the decisions of investors, whether rational or not, are what drive the prices of “investments” up and down. Bubbles and discounts do happen and have happened. The “rational models” have failed.

Therefore, you have this proliferation of behavioral finance. This is “the study of how finance is affected

by psychology. It attempts to understand a and explain how human emotions influence investors in their decision-making process.”

Now, why is behavioral finance a “new thing”? Why has it only been around for a couple of decades? Why have many agents never heard of behavioral finance? If it is so important now, then how have we lived without it for all this time? In other words, what is the paradigm shift that has taken place where behavioral finance should now be introduced into your practice when it was never a thought in previous years?

Find out more in the full, 14-page whitepaper by Charlie Gipple: "What Robo-Advisors CanNOT Do That You Can An Introduction to Behavioral Finance" Fill out the form below to request the full whitepaper or call Partners Advantage direct at 888-251-5525, Ext. 700.

Fill out my online form.

For financial professional use only. Not for use with consumers.

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