Follow the Money (A story about motives and biases)
“This is a work of fiction. Names, characters, business, events and incidents are the products of the authorโs imagination. Any resemblance to actual persons, living or dead, or actual events is purely coincidental.“
“Beep”
Jimmy taps his keycard on the reader as he pushes the office door open. Today, the office looks the same, but something is different about Jimmy.
Jimmy worked hard his entire life to get in the ranks of senior management and earning a decent wage to afford his family a good life in the city of KL. He has been diligently saving up his money every month and have built up a sizeable wealth.
But all that is now being threatened. Not by a person. Not by a company.
By his past actions.
As he put on a weak smile and greeted his colleagues, he walked down the corridor towards his office room. It was the first time he felt that the ceiling height glass door seem so heavy to push open and the glass walls makes him feel so naked.
He sat down and switched on his laptop. While the laptop whirred and the screen popped alive, he can’t shake off the nagging whisper in his mind:
“Your choices are limited.”
Jimmy stared blankly at his laptop screen as he replayed last night’s scene, where it was made clear to him.
Jimmy took his wife’s advice and asked his friend – Anson – over for dinner and to take a look at his financial health. Anson is not a Certified Financial Planner (CFP), which is supposedly a professional who helps their clients to plan out their financials. Jimmy had a CFP advising him, so he wondered how differently would this be.
“Anson has been sharing a lot on his website and I heard he helped a few of our friends to sort out their finances. Maybe we should get him him to take a look at ours?” Jimmy’s wife said.
Jimmy greeted Anson as he rang the door bell. He noticed that Anson was carrying a slim backpack today. Dinner was just ready. Jimmy’s family and Anson spoke freely about everything under the sky – family, friends, career, politics, religion, gossips, etc. It was a good catch up, Jimmy thought.
When the time came, as Jimmy’s children proceeded to clean up the table, Jimmy and his wife walked with Anson to the living area. It was of simple decor: a fabric L-shaped sofa, opposite of which hung the 50 inch Samsung smart TV that Jimmy often watches Netflix on, a soft wool carpet on the floor with a rectangular table in the middle.
The table will be filled with papers this very night
“Alright, let’s get this going shall we?” Anson declared in an upbeat tone as he cracked his knuckles.
Jimmy looked at Anson as he reached into his backpack to take out a huge stack of papers. He managed to glimpse doodles on the first paper, which he could identify as bank statement.
Anson laid down the papers systematically in front of Jimmy and his wife. Jimmy recognised the different documents as he was the one who emailed them to Anson a week before. Bank statements, credit card statements, loan documents, property documents, investment statements, etc.
Once he was done, Anson said, “Before we start, I just want to thank both of you for giving me the honors to do this. I have looked into the things you sent to me and let me show you what I figured out.”
He unfolded a large A3-sized sheet of paper and laid it in front of Jimmy and his wife. Jimmy spotted 2 tables on that paper. On the left it has a heading “Balance Sheet” and on the right, “Income Statement”.
Chapter 1: The CFP
“Remember the CFP dude you mentioned during dinner?” Anson started. “It’s time to call him and get rid of him.”
Jimmy was taken aback by Anson’s suggestion.
“Wait. Why?”
Anson lifted his pen up in front of him. “You mentioned he found you and asked to give you a free financial assessment, yes?”
Jimmy nodded.
“Do you meet him frequently, like say, once a month?”
Jimmy thought for a bit. Then, shook his head. He only met him twice so far since a year ago.
“Did he talk about his team or he usually works alone?”
Jimmy replied, “Not sure. He never mentioned.”
“Good. Then, are you paying him any advisory fees?”
Jimmy shook his head. “He mentioned that his advisory services are free for his clients like me as he gets commissions directly from the service providers once he managed to match individuals to these providers.”
Anson then grinned in satisfaction. “Exactly the issue, isn’t it? Who, then, are his clients?”
Jimmy never thought further before this, but when Anson asked that questions it hit him like a ton of bricks. Jimmy was silent as he reflected on his encounters with “the CFP”.
“Anson, but he has a Certified Financial Planner cert.” Jimmy tried to justify.
“Correct. So does the insurance agent next door. Their job is to get you to buy their products because they are paid off the sale.” Anson started explaining. “I adopt a very simple philosophy. Follow the money and you will find out his or her allegiance is to whom.”
“In this case, your CFP, whether genuine or not, is running on a commission-based structure. That means that he is aligned to sell more products to you whether or not it truly fits your financial planning, because it pays him whenever he sells you these products. I can guarantee that every time he finds you, he’s selling you something. His clients are truly the financial products provider.”
Jimmy let that sink in.
Anson is right, he thought. In the last two encounters, the CFP sold him a family insurance plan in one and mutual funds in another.
Anson proceeded to say, “I’m guessing that he sold you insurance plans and mutual funds as these two take up a big chunk of your income. Before we even get there, I’d say get rid of this CFP as he is not working in your favour.”
“Then, if you want to engage any financial planners, the first thing you have to make sure is you get those who work on a fee-based structure. As you pay them as the client, they act in your best interest to advise you what’s the best course of action for your finances and not fixated on selling you products. Here’s a list that I have prepared for you.”
Jimmy took the list from Anson. As he gazed at the list with his wife beside him, he can’t help thinking that he was duped by a salesman.
“On to the next.” Anson declared.
Chapter 2: Property “Guru”
Anson pointed to the “Balance Sheet” section of the A3-sized paper.
“The next thing we need to address is the impressive-looking list of properties that you have gathered. How did you manage this?”
Jimmy’s wife quickly responded, “Oh, that is the list of property investments that we took on a year ago. We followed the teachings of this famous property investor after going to his class. He helped us to get multiple loans from banks so our initial money to buy these properties is actually quite little. He mentioned that in 2 more years we can sell these properties and make good profits.”
Anson just nodded intently. Jimmy had a bad feeling about this.
“I know of this property investor who is going around giving talks. I also know of his method.” Anson started calmly. “I was worried that you might have bought into this.”
“Hold on. You’re telling me he’s a fraud?” Jimmy’s wife exclaimed, obviously upset.
“I won’t go so far as to call him a fraud. However, his methods are borderline fraudulent to the banks and definitely a huge gamble to his followers.” Anson began.
Jimmy and his wife spent the next half an hour learning from Anson about compressed loans – the act of applying for several home loans simultaneously from various banks in order to purchase multiple properties at a time, so they do not count as second or third home and benefits from the 90% loan margin.
“This is not a new strategy, but with it comes a huge gamble. Back to my philosophy – Follow the money. Allow me be blunt here. There are two winners here and it’s not you.”
“Firstly, it’s the property developers because they get to sell their unsold properties at a high price. Secondly and more importantly, it is this property “guru” that is teaching the wrong things to the audience. Where do you think he is earning from this whole act?”
“Your course fees, for one, will require each participant to pay a big enough sum so that he will divulge his dirty little secret of compressed loans. How about commissions from property developers of properties that he recommends to buy? So, of course he would love that his followers or students go buy up as many properties as possible. He ain’t the one taking up the liabilities of the loans or the properties.”
Jimmy then rebutted, “Ok so even if this is true, we still own the properties, right? So we can still sell it.”
Anson sighed and replied, “The problem here is that you own the properties and the loan that comes with it. These are all new properties so you’re not serving the monthly installments yet. But once they all kick in it will be as high as RM15,000 per month! In this seminar, I bet he only sold you the dream of selling the properties once it’s ready or rent out to cover the loan amount.”
“That’s why I say it’s a gamble. What if the properties are overpriced when you bought it? What if the property market suffers a decline in 2 years? What if there is no rental demand at that area for the price of your monthly mortgage payments?”
“No one, not even your property “guru”, can guarantee any of these.”
The room was silent for a few moments as Jimmy and his wife thought about what Anson had mentioned. Jimmy was perplexed as he had not thought about those before. Was it because the prospect that was shown by the speaker clouded his judgement at that time?
Finally, Jimmy relented and looked at Anson. “What can we do then?”
Anson, with a sincere look in his eyes, responded in a hushed tone, “My friend, your choices are limited.”
~ To Be Continued ~
That’s all for now!
I’ve only covered 2 chapters mainly in this entry as it relates very well to the topic of “Follow the Money”. Stop asking for the cheapest rate out there if you want what’s good for you. You either get someone to act for you or they will act for someone else. Start looking at where the incentives and motives are.
Whilst this is a fictional story with fictional elements, it is based on very real world issues that people face everywhere.
Shall I finish up this story about Jimmy and his financial dilemmas? One day, perhaps. With an editor and publisher, it might even become a book ๐
