May 25, 2013


spoiled apple?Think different. Imagine your friend earns $1,000,000 and pays $600 in tax. Or earns $10,000,000 and pays $6,000. Well, on $30 billion of net income ($30,000,000,000), Apple paid $21,000,000 in tax. That’s a tax rate of 0.06%.

Exhibit #1a

According to a May 21, 2013 memo on offshore profit shifting (get the PDF)
"Apple Inc established an offshore subsidiary, Apple Operations International, which from 2009 to 2012 reported net income of $30bn, but declined to declare any tax residence, filed no corporate income tax return and paid no corporate income taxes to any national government for five years.“
Apparently, Apple didn’t do anything illegal and has been named the most valuable global brand by Marketing Week.
“We not only comply with the laws, we comply with the spirit of the laws.”
Tim Cook (May 21, 2013)
Jon Stewart | Tax Men | Apple (click to watch on The Daily Show)Really? Since the 1980s, Apple has been avoiding tax and invented strategies like the “double Irish with a Dutch sandwich” (InfoWorld, May 24, 2013). Apple’s creativity cost Americans $44 billion in tax revenue in the last 4 years (including $9 billion in 2012) (Bloomberg, May 21, 2013).

In 1952, corporations paid 32.1% of all federal taxes. That’s dropped to 8.9% today. Government expenditures have grown in the last 60 years. Who’s making up the shortfall?

The Scope

Tax avoidance isn’t restricted to Apple or the US. Canadian companies are clever too with “nearly $60 billion flowing from Canada to Barbados, which has a statutory tax rate of roughly 2 per cent for foreign firms” (Global News, May 21, 2013).

Muted Response

Money spent lobbying in 2012 (click to read article on Apple Insider)There hasn’t been much outrage about what Apple is doing. Some senators even congratulated the company.

On minimizing taxes, Senator Rand Paul said, “It would probably be malpractice for them not to do so”. He even said “I frankly think the committee should apologize to Apple.”

Perhaps lobbying is a factor. Apple is relatively small, spending $2 million in 2012 and an estimated $4 million in 2013. Google is the biggest spender — $18 million in 2012. If there’s no effect, why spend the money?

Fair Share

Whether you consider Apple and other tax avoiders heroes or villains, ask yourself this: how do you feel about the taxes you pay?


Podcast 221

(note: poor recording quality due to microphone problems)

direct download | Internet Archive page | iTunes

PS Imagine what’s going on that we don’t even know about.

May 18, 2013


The right cure?Buying life insurance is a sign of maturity. You care enough to protect your family if you are no longer here. Or, if you're single, you avoid burdening others with unpaid financial obligations.

Since life changing events — the purchase of a home or the birth of a child — no longer trigger insurance sales, your actions even more commendable.

Here are mistakes to avoid.

Don't Buy On Price

Insurers create products using the same ingredients: mortality, interest and expenses. If one product looks cheaper, you may not be getting the same quality, features or guarantees. Why would that insurer knowingly choose to earn lower profits?
You can’t buy based on brand name either. Following the building collapse which killed 1,100 people, Benetton, Calvin Klein, H&M, Marks & Spencer and Tommy Hilfiger signed the Accord of Fire and Building Safety in Bangladesh. Companies which refused to participate include Foot Locker, Gap, OshKosh, Macys, Sears, Target, The North Face and Walmart. Maybe this matters to you.
Life insurance is a promise. Will your (legitimate) claim be paid? Probably, but some companies are better at keeping promises. Buying from an insurer ranked high in corporate governance might cost a little more but give you more peace of mind.

Look Beyond Today’s Price

Term 10 insurance looks inexpensive until you look at big increase when you renew. This week, I saw a case where rates increased by 569%. Where will the money to pay for that increase come from? If you're buying primarily to cover a mortgage maybe you want Term 20 if you expect to have paid off your mortgage by then.

Stay fit. You buy insurance with your health. Rates will spike with term insurance. If you're healthy, you can apply for new insurance which will often be much cheaper.

Avoid Buying From A Bank

Banks cut costs to benefit their shareholders (e.g., the RBC-iGate saga). Banks are not known for offering the best value to their customers. They sell unaccountable products like mortgage life insurance. What are they doing to put your best interests first? Why would they change if people still buy?

Avoid Buying From An Association

You might be offered insurance through your alumni or professional association. The rates are rarely guaranteed, healthy lives subsidize the unhealthy, you don’t have any say in selecting the insurer and you have limited flexibility in the products.

Insurance companies pay compensation regardless of whether sales are made through an association, a bank or an advisor. You might want to support your association. Fine. Can you make a donation and get tax savings? When buying insurance, look out for yourself first.

Your needs will change over time. If you eventually need the flexibility and guarantees of personal life insurance, you might as well start now.

Avoid Buying Through Your Employer

You may have some life insurance coverage from your employer (say twice your salary). If that's not enough — it probably is not — you may be able to add more. Avoid this temptation. You have more options, guarantees and flexibility if you buy your own coverage. Buy privately and you also get privacy.

If you lose your job, you likely have a month to convert your group coverage to personal coverage without underwriting. This option may not be explained well. You may not appreciate the value because you're in an emotional state. You might think you'll get another job within days and get coverage there. There may be delays …

You don't want to be shopping for insurance when you’re also looking for work. If you have already built the habit of paying for your insurance, it's much easier than adding a new expense at a traumatic time. Some permanent plans let you skip premiums, which improves your cash flow at just the right time.

Avoid Young Advisors

Advisors have natural markets and tend to sell to people their own age range. New advisors tend to be young. First-time buyers tend to be young too. Two inexperienced parties, do not make a great combination. You won’t save money since products tend to sell at the same price wherever you buy.

Unfortunately, you may not be able to get help from experienced advisor because you are a relatively small client.

Avoid Old Advisors

You might consider the same advisor your parents use. Generation gap. That advisor may be out of touch with your needs. You’re also mismatched. An older advisor has much more experience selling than you do in buying (not just insurance, but in general).

You may feel reluctant to ask questions or feel pressured to accept recommendations you don’t fully understand. Older doesn’t mean wiser, either. You might get proposals better suited to yesteryear.

Don’t Overlook Health Insurance

It's tempting to only buy life insurance. That’s risky. During your working years, you’re more likely to get sick or disabled than die. That's why life coverage costs much less than critical illness insurance or income replacement insurance.

The problem is finding money to pay for all these forms of insurance. You could take money that you're saving for other purposes such as retirement.

Making optimal decisions takes care. Buyer beware.


Podcast 220

direct download | Internet Archive page | iTunes

PS Feel free to comment or ask questions below

May 11, 2013


adults in the air
“… where all the women are strong,
all the men are good looking, and
all the children are above average."
— Garrison Keillor,
Lake Wobegon

We like to think we’re better than than the rest but we can’t all be above average.

You’ll find lots of health statistics from Statistics Canada. In 2011, here are examples of “the 80/20 rule” in action, where the 80% is good:
  • 19.9% smoke
  • 19.0% are heavy drinkers
  • 17.6% have high blood pressure
  • 20.4% of youth age 12-17 are overweight or obese
Other parts aren’t as reassuring. For instance, 52.1% of adults are overweight or obese. Yet when asked in 2011, 61.6% of Canadians perceive themselves as having very good or excellent health (61.9% for males and 61.3% for females). Aren’t they looking in the mirror?

Explain This

Let’s look at a more dramatic comparison: hypertension. Here 13.8% of Canadians report having the condition but 19.6% are under a doctor’s care. I could see more people having a problem than getting treatment but the opposite is taking place here. You’d know if you’re getting medical treatment. Yet there’s a reluctance to report the facts.

(2007 data) Self-reported (Health Trends, Canada) Under Doctor’s Care (Canadian Chronic Disease Surveillance System)
Hypertension 13.8% 19.6%

I’m reminded of Monty Python’s Dead Parrot skit. Who’s fooling who?

Reality Check

When you apply for life or health insurance, you undergo underwriting. The premiums you pay are not determined by how healthy you think you are. You might face a surcharge or even get declined coverage. This may be a shock.

An easy way to stay in denial is to not apply. Maybe that’s a reason why life changing events no longer trigger insurance purchases. Besides, we don’t think we’ll have a claim anyway.

What To Do

If your health is rated worse than you expected, you have the opportunity to improve. Sometimes underwriting uncovers problems your doctor wouldn’t catch during your regular medical examinations. Depending on the condition, you may be able to get treatment sooner, while there’s more time and less damage. Hospitals are best avoided.

Medical Misadventures

Medical misadventures occur in hospitals around the world. Examples include
  • accidental cuts
  • gauze left in the body during surgery
  • lack of sterilization
  • wrong amount or drugs or radiation
The consequences are extended hospital stays, disability or death.

These findings are from a 2009 report by the Conference Board of Canada. Canada ranks 7th out of 15 peer countries. About 158,000 Canadians admitted to an acute care hospital in a year (7%) suffer from a medical misadventure — about 60,000 (38%) are preventable.

As a consequence, about 150 Canadians die each year (compared with 33,000 annual deaths in the US). The graph shows the trends in both countries.
deaths by medical misadventure: Canada vs US (click to enlarge)
We want to be healthy. We see ourselves as healthy. Let’s takes steps to be healthy.


Podcast 219

direct download | Internet Archive page | iTunes

PS When are you exercising next?

May 4, 2013


B is for Backup.

What a beautiful Friday afternoon. I’m in my office trying to work but can’t. The reason isn’t the weather: our Rogers Ultimate Internet is down. I called and found out that 64 addresses are affected. Repairs could take 12+ hours.

Within the Rogers universe, 64 disconnected clients is minuscule. Their anthill. My mountain. The timing is unfortunate.

Plan B

A backup plan is worthwhile.

We have cable Internet from Rogers and mobile Internet from Bell. We lose out on bundling deals but are more likely to have Internet access unless a mega disaster like Superstorm Sandy strikes. There’s a cost but there’s also peace of mind.

Recently, I was running a workshop on building trust (next one on May 28th) and the Internet was out (Bell this time). I turned my smartphone into a mobile hotspot and carried on. That worked reasonably well (though I was mindful of data usage). As a Plan C, I modified the workshop to rely on a workbook. No Internet required.

Financial Plan B

A backup plan is worthwhile for all four steps in wealth management. As you proceed, you can protect your financial security by diversifying. It’s tempting to get multiple services from the same place (though perhaps different people in different departments):
  • banking: savings account, chequing account, credit card, line of credit
  • financial planning
  • investments
  • insurance
You get convenience but what about objectivity? The more dealings you have in one place, the tougher for you to leave. As Ellen Roseman notes in Fight Back (my post), what you see as loyalty they see as inertia. The rewards go to them (more money), not you (lower prices or upgraded services). You probably won’t pay much more — you might even pay less. However, you’ll get much more since you have a larger team working for you. Since there’s some overlap, you have opportunities to get different opinions.

If you run into problems, you can switch more easily. That gives you leverage, flexibility and a Plan B.


Podcast 218

direct download | Internet Archive page | iTunes

PS Service was intermittent for about six hours, which felt like much longer