September 26, 2009

Three Steps To Keeping Financially Solvent

It is hard for us without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.
--- Joseph Cassano of AIG on their credit default swap business (Aug 2007)

Well, a house of cards was never built for shock
You could blow it down in any kind of weather.
--- Dire Straits,
Solid Rock

Julie Dickson addressed a sold-out audience at the Actuaries' Club of Toronto this week. She's the Superintendent of Canada's most important regulator, the Office of the Superintendent of Financial Institutions (OSFI). Her remarks were informative, interesting and have relevance for you. OSFI oversees the federally-regulated banks, trust companies, insurance companies and pension plans.
Julie was accompanied by my first actuarial boss, Stuart Wason, now a Senior Director at OSFI. We haven't met in years. During my summer job at Crown Life, I learned plenty from Stuart and Henry Essert. They inspired me to pursue my actuarial career. I'm in their debt and haven't thanked them enough.
Offend the tax department and you can appeal all the way to the Supreme Court. Offend OSFI and your company risks swift intervention. Don't expect much sympathy either.
Actuaries would be well served to sit up and take notice of the speed at which risk management expectations are changing.
--- Julie Dickson
OSFI's mandate is solvency: ensuring that financial institutions have enough capital to weather financial storms. How? By predicting the unthinkable, setting high standards, and intervening early. This process works wells in protecting the public and the politicians. Here only one financial services company cuts dividends (but they cut them in half).

You can protect your own financial solvency as you follow the four steps in wealth management. Let's look at three ways
  1. predict the unthinkable
  2. follow high standards
  3. forget bailouts
Predict The Unthinkable
Your challenge as actuaries is to learn from the past but like your motto says, you need to "see beyond risk".
--- Julie Dickson
We underestimate risk, especially during periods of stability. Also, we fear the wrong risks. So we don't prepare for storms and get shocked when the tide reminds us that our castle was made of sand.

We can't predict and prepare for every disaster but we still benefit from planning.

We can look at different "what if" scenarios, especially the bad ones we like to ignore.
  1. Suppose a car accident confines you to a wheelchair for life. What happens to your savings, your ability to work and your future earnings?
  2. Suppose you're forced to retire five years early due to a layoff or ill health. What happens to your retirement income?
  3. Suppose you live an extra 10 years or earn lower returns after tax and inflation. Would your money last?
You can examine your current and projected financial situation more regularly with your financial advisor. Ideally one who know how to stress-test your plans. Maybe you're following simple "rules of thumb". Changing conditions can make them obsolete. In Dumb Money, Daniel Gross identifies four simple but incorrect assumptions that leading to the financial crisis in the US.

Yes, we can over-prepare but we're more likely to do too little.

Follow High Standards
Life is going to be more challenging for "experts", and a premium will be placed on how well you can explain such things as actuarial reserves and capital.
--- Julie Dickson
Raise the bar on your risk management. Picking better quality investments does dampen the returns (the perennial risk vs reward quandary) but the chances of potential problems drops too. Diversification helps diminish risk too.

Canada trusts actuaries to apply principles, which requires judgement. The US prefers rules, which makes compliance easier to monitor. Since rules don't change quickly, companies can follow the letter of the law without following the spirit.

Forget Bailouts
You can take on extra risk if you've got someone to bail you out. Maybe you've got a kind rich aunt. The financial sector turns to us taxpayers. Without market discipline, companies can take undue risks with impunity. That's where we rely on the regulators.

We face four key financial risks: outliving your savings, dying too soon, getting sick and getting disabled. What are you doing about them now while you can? You are your own regulator (unless you have a spouse).


September 19, 2009


You can fool some of the people all the time, and those are the ones you want to concentrate on.
--- George W. Bush

We're surrounded by companies and people who want to make money by fooling us. Look anywhere. The fine print taketh away. Restrictions apply. Supplies are limited. Previous investment performance is not indicative of future returns. Object magnified to show the fine detail. Limited time offer. Some terms and conditions apply. See dealer for details. Subject to credit approval. Excludes Hawaii and Alaska. New customers only. Subject to change without notice. May not be as illustrated. Penalties for early termination. Batteries not included.

We respond by becoming skeptical and cynical. We don't believe the claims and we don't know who to believe.

Congratulations! You Won $1,000,000.00
Did you ever receive a letter saying you won a million dollars? The first time, you might have believed. You at least wanted to believe. Did you tell someone excitedly and have them laugh at your gullibility? As you dug deeper, you realized the fine print said that's how a letter to you might look if you won by entering the contest. The fine fine print showed that your chances of winning were basically zero and that the contest was running for months and months. You also noticed the bulk mail stamp.

Won't get fooled again.

One To One
Folks are basically decent
Conventional wisdom would say
But we read about the exceptions
In the papers every day
--- Rush,
Second Nature

Companies likely meet the letter of the law but perhaps not the spirit. You can find countless examples of shocking behaviour in Ellen Roseman's blog and at Consumerist. When you're dealing with an advisor, it's tough to gauge how much they know and if they truly have your best interests at heart.

I see life insurance proposals that are incomplete to the point of being misleading. Or assumptions distort the results. Or apples get compared with mangoes. Or no comparison is made with other options. Or the fine print has been left out.

Your Solution
You're not helpless. Here's what you can do: ask for a copy of the details.

Even if you don't think you'll understand them. Even if you're not planning to get a second opinion.

You're really after the advisor's reaction. Is the advisor willing to comply? If not, what are the "reasons"? How long does the advisor take to reply? Did you really get what you requested? Were pages left out?

Be sure to ask for this information by email along with a copy of what you've already been shown. What the advisor does may delight or disturb you. At least you'll know now.

The fine print taketh away. So does the lack of fine print.

Podcast (3:47)

September 12, 2009

Toodledo does more than Remember The Milk

You can't risk forgetting tasks. Maybe you’re a student back in school or a business wrapping up your fiscal year. Either way, you need a system to remember.

Last year, I looked at web-based task managers and picked Remember The Milk (see The Friendly Way: Remember The Milk and Everything Else). This year, I didn’t renew. What happened?

I switched to Toodledo instead. Here’s why.

Remember The Milk (RTM)
RTM feels friendly. You almost feel like organizing. The clean interface deceives you with its hidden power but never feels intimidating. You can even use RTM offline with Google Gears and synchronize when you’re back online. You can add tasks by email, voice (using Jott or Dial2Do), or your iGoogle homepage. You have access via your mobile phone. Some features are available only in the Pro version which costs a modest $25 US/year --- peanuts for you but bananas for mascot Bob T Monkey.

So why switch?

In real life, a task may have several steps or subtasks.

Say you want to brush your teeth but can't. You ran out of toothpaste because you didn't use an organizer before. You first need to buy toothpaste. Maybe you floss before brushing. Here's your task list
Brush teeth
a. buy toothpaste
b. floss
Get the idea? A simple sequential hierarchy helps.

RTM users have asked for subtasks since 2005. Nothing has been done and there's no workaround. Other organizers have subtasks, which puts RTM at a competitive disadvantage, but nothing was done last year.

If you’ve ever managed a project, you know there are tasks within tasks within tasks. For a big project, you might use Microsoft Project, but that’s excessive for most of us.

Enter Toodledo
What a weird name. It’s easy to say but hard to read and type Your eye sees “too”, “led” and “do” but tooledo isn’t the name. Maybe the creators were being clever and converted “to do” into “toodle do”?

Get past the name and you’re confronted with a cluttered, ugly interface. It looks like the work of engineers rather than designers. Yet there isn’t a handy search box to help you find tasks easily. Functionality over elegance.

But what functionality! Toodledo has subtasks if you upgrade to Pro for just $14.95 US/year. Here's their comparison of To Do lists.

Toodledo has a timer which helps you track time painlessly. You may have allocated 30 minutes for something and find that your estimate was grossly off. This sytem lets you see how much time you really spent. You can't access tasks offline, but there's a workaround: you can print your tasks as a booklet by folding a normal page in a clever way. You can create goal chains, a technique Jerry Seinfield uses to keep writing jokes.

Which Suits You?
You can use most features of web-based task managers for free. This helps you pick the right one for you. Do you prefer Remember The Milk, Toodledo or something else?


September 5, 2009

Reasons To Stop Avoiding New York City

The city streets burst at their seams
And flood the earth with people's dreams
— Stan Ridgway,
Our Manhattan Moment

The search for opportunity pulls some west towards Los Angeles. Others are drawn to New York City, the topic of this post.

The Unforgettable Fire
In 1987, I went to the United Nations to see The Unforgettable Fire, paintings made by survivors of the atomic bombs that struck Hiroshima and Nagasaki. This haunting art inspired U2's earlier album of the same name.

Back then, even Manhattan didn't feel safe enough. Times Square felt decrepit. The subways were sprayed with graffiti. Aggressive panhandlers would ask you for money inside stores. The radio casually reported that a gang doused a homeless man with gasoline and set him ablaze in Central Park. One street looked inviting and the next frightening. Add crowds, noise, grime and smells. Contrast that with my hotel where an attendant handed you soap, hand lotion and a cloth towel.

Yet the appeal of the Big Apple remained. I thought of moving there and had the opportunity through the generosity of Metropolitan Life. However, I wanted to finish my actuarial exams first and stayed in the Ottawa office.
I like the rush
The pushing of the people --- I like it all so much
Such a mass of motion --- do not know where it goes
I move with the movement
--- Peter Gabriel,
I Have The Touch
You could find the best of the best and the worst of the worst in Gotham. Sometimes within walking distance.

I moved to Toronto in 1991 and now have a family. I wanted them to experience the magic of New York City but had concerns about the impressions. So we waited until now. Manhattan feels much safer. Here's why:
  1. genuine improvements
  2. greater police presence, including video surveillance
  3. experience with big city life
New York City feels cleaner. There's less graffiti, fewer panhandlers, cleaner buses and subways, less noise ($350 fines for honking). The air is reasonably breathable. The smells lingered in some areas due to humidity but the wind and rain from two hurricanes freshened the air during our week-long visit.

Video cameras spy everywhere, inside and outdoors. You'll find airport-style security at many attractions. Police are everywhere too. You'll find about 36,227 of New York's Finest. Compare that with 9,976 for Los Angeles and 5,710 for Toronto. It's unnerving to see some police with rifles, helmets and bullet-proof vests. The "fix broken windows" approach works: punish minor crimes to reduce larger crimes.

Big City Life
I grew up in London, Ontario. This city had a population under 200,000 and is midway between Detroit and Toronto. Those cities seemed so intimidating. Who would want to live in such busy, crowded places? Who would want to breathe polluted air and spend hours upon hours travelling?

Bigger cities have their appeal, though. While life is tougher, there's so much to do and see. Some survive. Others thrive. The rest leave.
He cried out in his anger and his shame
I am leaving, I am leaving, but the fighter still remains
--- Simon & Garfunkel,
The Boxer
Living in a larger place like Toronto changes you. The city has 2.7 million residents, the largest city in Canada and 5th largest in North America. You get used to the buzz of round-the-clock activity. With 8.3 million residents, New York City has taller buildings, bigger museums, larger crowds and greater contrast between wealth and poverty.

Your reaction to New York City will depend on where you've lived. We found the transition fairly easy and returned home more confident.
If I can make it there,
I'll make it anywhere.
— Frank Sinatra, New York
Podcast (5:36)