WHERE THERE’S WILLPOWER, THERE’S A WAY

Success comes from self-control. If you're not getting done what you want to get done, your willpower may be the problem.

Obstacles like freshly-baked chocolate chip cookies have no sympathy.

One of the best uses of self-control is to build habits. Once you establish a habit, you reduce the decisions you need to make. [Getting married does too, but getting told what to do brings stress.]

Routinize The Routine

"You'll see I wear only gray or blue suits. I'm trying to pare down decisions. I don't want to make decisions about what I'm eating or wearing. Because I have too many other decisions to make." — Barack Obama

Think about that. President Obama preserves his willpower by letting others make smaller decisions for him. That lets him focus on more important decisions. (see boring is productive, Harvard Business Review).

Steve Jobs kept inventing and updating products but not his clothing (Gizmodo). He bought 100 black turtlenecks (Gawker), which even removed the step of reordering.
I had more trouble dressing on Casual Fridays. The other days, I'd wear a suit with a white shirt.

"I got sick and tired of having to decide what kind of dessert I was going to have at the restaurant, so I decided it would always be chocolate ice cream, and never worried about it again." — Richard Feynman

Barack became President and Richard won a Nobel Prize. Your mileage may vary.

Little habits help too. I always put my keys in the same place, which eliminates the last moment panic of finding them. Caution: You don't want to become eccentric.

The Radish Experiment

Willpower is also essential for change. Dan Heath explains in this video.

Recent research shows that our willpower is limited and gets exhausted easily. You replenish willpower with glucose. Willpower is like a muscle that you can strengthen without sugary drinks. Building habits is one way.

Learn More

To get better results, get and give these books: (Amazon, non-affiliate links)

• The Willpower Instinct: how self-control works, why it matters and what you can do to get more of it by Kelly McGonigal. Practical tips. You're getting a week by week course.
• Willpower: Rediscovering the greatest human strength by Roy Baumeister and John Tierney. This book is more theoretical.
• Switch: how to change things when change is hard by Chip and Dan Heath. Filled with examples of how to change others too.

This is the final post of 2012 — just in time for your New Years Resolutions.

Best wishes to you and yours during the holidays.
May 2013 be the best year you've seen!

Links

• Reach your goals with Pick Four from Zig Ziglar and Seth Godin
• Conserve your willpower. It runs out. (Wired, Oct 2012)
• The science of willpower (Kelly McGonigal, IDEA Fit, Jun 2008)
• All about self-control (Psychology Today) [many links]
• Why willpower matters (The Guardian, Feb 2012)
• Stanford marshmallow experiment (Wikipedia)
• Steve Jobs always dressed exactly the same. Here’s who else does too. (Forbes, Oct 2012) 
• 2011 final post: The most special time of year
• 2010 final post: Got 59 seconds for your gift list?
• 2009 final post: The gift of networking
• 2008 final post: Christmas in the emergency ward
• 2007 final post: Give your greatest gift
• image courtesy of Kelly Kramer

Podcast 200

direct download | Internet Archive page | iTunes

PS Mind those calories!

WHY WE GET BAD ADVICE

We often get misled even if we pay for the advice. Whose fault is that?

Hindsight

Sometimes we can't tell if advice is bad until much later. If your advisor tells you to buy or sell an investment, you'll eventually know if that advice is sound … when you can’t do anything about it.

If the advice is more general, say to accept/reject a job offer. You’ll never know what was better because you can only take one path. Computers are powerful but can't accurately simulate the path not taken. This type of you-never-know-if-it's-right advice is easy to get (and give). If something goes wrong, you might get blamed for not following the advice properly.

There's also "obvious" advice. We often know what we're doing wrong. Perhaps we need to eat better, upgrade skills or exercise more. Knowing isn't doing. One more reminder may be just what we need to act.

Skills

“Too bad that all the people who know how to run the country are busy driving taxicabs and cutting hair.” — George Burns

It's easy to give black/white advice without understanding the nuances. If only the player or mayor did fill in the blank. It's easy to give advice to people who'll never hear or heed it.

You might be getting advice outside of the giver’s expertise or experience. The advice might still be right by coincidence.

The Intent

You may have difficulty figuring out the motivation behind the advice. Maybe you're getting a disguised sales pitch that brings your advisor a big gain while causing you (and others like you) a minor pain.

You may sense that you're getting bad advice but refuse to admit you chose the wrong advisor. We're great at fooling ourselves.

Conflicting Advice

Ask around and you're bound to get conflicting advice --- even from the same person at different times. Every decision has pros and cons. You benefit from differences in opinion even though consensus feels nicer. Blockbuster and Kodak had plans but became extinct. Not taking action can lead to the same outcome as taking the wrong action.

Ignoring advice simplifies your decisions but doesn't make them better.

Shooting The Messenger

Know to listen, and you will profit even from those who talk badly.
— Plutarch

Even if you get bad advice you develop your cognitive skills by wading through the murky options. You might find good excellent advice in the process.

You also get insights into the giver. Stephen King said there's a little of us in everyone. That means there's a little of everyone in us. Understand others a bit better and you understand yourself better too.

Neo: Morpheus. The Oracle, she told me I'm...
Morpheus: She told you exactly what you needed to hear, that's all.
— The Matrix

The advice may be just enough to get you moving on the right path, even if you don’t realize this at the time.

When you show you're open to advice, you'll get more advice. Better advice. Better advisors. There's little point helping people who don't change. Show you have the courage and you'll get more help. Thus ends my advice.

Links

• Most advice is bad advice (Seth Godin, Dec 14, 2012)
• Is the best advice free or for-fee?
• The cost of getting advice from your banker
• Where does your insurance advisor get advice?
• The word advisors imply but dare not say
• How to get free help from a stranger
• Career advice for students
• image courtesy of Thomas Pate

Podcast 199

direct download | Internet Archive page | iTunes

PS Do you take advice as well as you give it?

REINSTATEMENT: TRYING TO GET YOUR INSURANCE BACK

If you miss a premium payment, getting your insurance coverage reinstated takes more than money.

Even with pre-authorized payments, you might miss a premium. Maybe you change banks or your account runs low. You might not notice because you’re on an extended trip. You could be in the hospital for an extended stay.

On Purpose

If you're short of money, you may decide to stop paying your insurance premiums temporarily. That’s gambling. You never know when you need coverage.

In 2012, we lost Sage Stallone (36, heart attack), Rodney King (47, accidental drowning), Whitney Houston (48, accidental drowning), Michael Clarke Duncan (54, heart attack), Sally Ride (61, pancreatic cancer), Donna Summer (63, lung cancer) and Tony Scott (68, suicide).

Your health could change. This week, Malcolm in the Middle's Frankie Muniz got a mini-stroke for his 27th birthday (see ABC interview). He’s recovering but has affected his chances of getting insurance in the future.

The Process

A reinstatement is not automatic. You've broken the contract, which means you're not entitled to any special treatment. If you want your coverage back, the insurer is naturally suspicious. Maybe you've got a reason to think you're likely to make a claim. What do you know that they don't know?

Here’s what usually happens (your policy contract will have the specifics for you). When you miss a premium payment, the insurer mails you a notice. You get a grace period of a month to pay.

However, you may not get the letter if you've moved and your mail isn't getting redirected properly. Maybe you forgot to provide a change of address or the redirection period expired. The letter could also go astray. The letter might arrive but you could be away.

Key Dates

You can only request reinstatement within 24 months (say) of the lapse.

If your coverage is reinstated, the two year contestability period restarts. The suicide exclusion clause restarts too. This means there’s extra scrutiny since early claims are not expected. Maybe you know something you didn't disclose.

The Cost

You're often asked to repay the premiums you missed plus interest. Wait, you say. Why should you pay for the months you weren't covered? If a claim had occurred then, you wouldn't have been paid.

True. But you wouldn't qualify for coverage now either.

Consider payment of back premiums as a penalty. The insurer spends money on the re-underwriting and might not pass the costs on to you. There's also a deterrent element to stop you from stopping/restarting your coverage whenever you want.

If you think a reinstatement is like buying a new policy, you're right.

Why Bother?

Why wouldn't you buy a shiny new policy instead of reinstating the old one? Say you bought the original policy when you were 41 and now you're 44. If you reinstate, you pay the premiums of a 41 year old. If you buy new, you the premiums of a 44 year old. That's because you're older. 

Your old policy could be an excellent deal because newer policies have been increasing in price for reasons unrelated to your age and health (see three reasons life insurance premiums are shooting up).

The Winners

The insurer wins if you can cancel your coverage after a few years. You've been paying them money and they've paid nothing to you. That’s profitable. If you buy a new policy, the rates are higher since you’re older. The guarantees may be reduced too.

Some policies like Term 100 have been priced to be "lapse-supported", which means the insurer makes money when you cancel than when you stay. Don't expect an insurer to make exceptions to help you restore your coverage.

Your advisor also wins. If you cancel coverage in the first 24-36 months, your advisor may be forced to pay back part of the compensation. After this chargeback period, the advisor earns more by selling you a shiny new policy.

Protecting Yourself

Your advisor may not be informed if you skip a premium but only after coverage has  lapsed. It's then too late to get the insurance back without going through the reinstatement process.

To make sure your insurance stays in effect, pay the premiums. The onus is on you. Examine your bank statements to ensure the premiums are getting deducted. If you use Mint.com, you'll get notified of deviations from your normal spending patterns.If you’re spending less than usual on insurance, investigate why.

Term Insurance

You can’t prepay your term insurance (life or health). If you pay monthly, you’ve got 12 chances to miss a premium each year. If you pay annually, you can only make one mistake a year. You also get a discount.

Permanent Insurance

Universal life insurance has a savings component. If you pay more than the minimum, you build up tax-sheltered savings. You can then skip premiums as long as the savings remain. Whole life insurance (wiki) doesn't let you skip premiums but may allow an Automatic Premium Loan against the savings to keep coverage going.

Cancellation

If you think you no longer need insurance, do talk to an advisor you trust. You might be making a decision that’s expensive and not reversible.

Links

• Insurer cannot deny claim after reinstating a policy unintentionally (Canadian Insurance Law Blog, May 2011)
• Does your insurer win when you cancel your coverage?
• Three keys to getting your insurance claim paid
• image courtesy of FrankU

Podcast 198

direct download | Internet Archive page | iTunes

PS You’ll find lots about insurance on the Riscario wiki  at riscario.com

DO YOUR ADVISORS HELP WITH YOUR FINANCIAL LITERACY?

Who decided that November is the right time for Financial Literacy Month? We need skill with numbers all year round.

Besides, financial literacy is boring  compared to Black Friday and the latest Apple iDevice. Maybe that’s why we need a special month.

You Already Pay

You pay for advice for financial decisions relating to banking, financial planning, investments, insurance and tax. Thirty days hath November.  How did your advisors specifically help you improve your financial literacy?

Maybe you received generic information from them or the financial institutions they represent. That doesn’t count. Maybe you received sales pitches disguised as advice. That doesn’t count either.

You are paying — directly or indirectly — for advice. What are you getting? Do you get emails from advisors telling you that instead of sending you a holiday card, they’re donating an undisclosed amount to a worthy charity? That’s fine but how charitable are they being to you? Information is free. Emails are free. Videos are free.

Your advisors don’t even need to create fresh, original content, They can send you links for free. What did they send you?

Too High A Price

As you become more educated, you become more discerning and demanding. Will that make your advisor more money? If not, don’t expect much help. We saw how a pizza flyer deceives. Financial offerings are far more complex.

You pay a higher price when you don’t take the initiative to learn on your own. If you’re passive, you might get advice which is better for the giver than for you. How would you know? By improving your skills, you can ask better questions, evaluate the answers, and spot what’s left out.

Your Advocates

When you’re ready to learn, you’ll find help. Here are three excellent free sources:

1. Your Financial Toolkit on the Financial Consumer Agency of Canada  website
2. Get Smarter About Money from the nonprofit Investor Education Fund
3. Canadian Money Forum from bloggers Million Dollar Journey and Canadian Capitalist

You can also visit the Riscario wiki which started in 2006 and accompanies this blog.

Caution

There are other sources of information with potential conflicts of interest. For instance, VISA offers  Practical Money Skills. You won’t find standard debt-fighting advice like

• pay off your credit card balance every month
• borrow from less expensive sources (if you must borrow)
• cut up your credit card

Instead, there’s an example of paying 18% interest on a $3,000 loan. If you pay the monthly minimum of $60, you pay an astounding $2,870 in interest. If you pay $110 monthly, you pay “only” $1,070 in interest —  a “saving” of $1,800. Wow, let’s borrow $6,000 to “save” $3,600.

Similarly, there’s a cost to getting advice from your banker.

Noble Intentions

We get in the way of our own plans. You might need outside help or discipline. If you have a spouse, friend or colleague with the same goals, support each other. A 12-week Pick Four goals program may be ideal: each member has their objectives (may not be financial).

Your paid skilled advisors can certainly help you improve your financial literacy. That doesn’t mean they will. You can also improve without their help. That doesn’t mean you will. Will you?

Links

• Riscario wiki (riscario.com)
• Forget financial literacy: check your pizza literacy
• Is the best advice free or for-fee?
• The cost of getting advice from your banker
• How to replay a nonfinancial debt
• Fraud protection and your bank card
• Protecting against identity theft
• Jim Flaherty on the economy and financial literacy
• Canadian Consumer Protection for Financial Institution Failures (website)
• Six math-free ways to financial literacy (Rob Carrick, Nov 19, 2012)
• image courtesy of Dave

Podcast 197

direct download | Internet Archive page | iTunes

PS How do you learn?

FORGET FINANCIAL LITERACY: CHECK YOUR PIZZA LITERACY

Don't get too worried about financial literacy. Improve all forms of literacy. Compare what’s said with what’s implied. Seek to understand the fine print. Look for what’s left out.

With practice, you can.

It's Financial Literacy Month. It's also Pizza Month. Let's combine both and look at your Pizza Literacy. We’ll examine a flyer I received. The name of company doesn’t matter since you’ll find similar approaches taken by others.

Any Size

You can get any size of pizza for $14.99 (including three toppings, two cans of Coke and one dipping sauce). Tax and delivery is (as expected) extra.

Merriam-Webster says that ANY means EVERY: “used to indicate one selected without restriction; <any child would know that>.”

Here ANY SIZE means Small (10”), Medium (12”) or Large (“14”). Extra-large (16”) costs $15.99 and Party Size (15”x21”) isn’t available. How’s that for playing with words?
If you’re paying $14.99, you get the most value with the Large pizza. If you buy Medium or Small, you overpay. Why would the pizza chain make this inane offer? Perhaps some customers get fooled and get a Small for the price of a Large. What’s left over, you can reheat and eat later.

Say you pick Large. You can’t tell how much you’re saving because the regular price isn’t shown anywhere in the flyer. Our Costco has nice 18” pizza with three toppings for $13.99.

No Toppings For The Price Of One

Here’s another offer.

This time you have a choice of pepperoni or cheese for $4.99 (walk-in only). Since pizza comes with cheese, they're saying you have a choice of one topping or none. If you get cheese, you're paying more — unless they pile on more cheese.

Trans fat

Saying "no added trans fat" is not the same as "no trans fat". Maybe there's already trans fat in some of the ingredients. If so, how much? Why can't that trans fat be removed too?

Also, making the pizzas fresh doesn’t mean the ingredients are fresh, organic or free of preservatives.

True Price

Grocery stores show the price per unit. Say dollars per pound or per 500g. That helps you compare different packages.

With pizza, there's no unit price. There’s no standard size for a slice. The flyer shows that a Small pizza has 6 slices (13.1 square inches) while a Large has 10 (15.4 square inches). In the offer, the smaller slice costs $2.50, while the larger slice costs $1.50.

Fine print

The offers are subject to expire without notice. Why? If a pizza chain runs out of pizza, they've got big problems. Maybe they're saying that if mistakes that hurt them are discovered, the offer gets pulled.

The coupon implies you can get chili for $1 but the fine print says you’ve got to buy one chili at full retail price first. There’s no mention of how much chili you get or the price.

The coupon is valid from Monday to Sunday. Doesn't that mean everyday? Maybe not. The Beatles sang about Eight Days A Week. Maybe there's an extra day we don't know about.

Donations

Companies like to show they’re doing some good with the money we give them.

This chain has raised over $1 million. That’s great, but over what time frame? Over a month is much more impressive than since inception, which could be years or decades. Saying “proceeds will be donated” implies the money was raised now. Maybe the money was raised in the past but never paid out.

Generosity is better measured based on what you give from what you have — donations as a percentage of pretax earnings. Among US companies that give the most in 2010 (Forbes), Kroger is #1 with 10.9% and Whole Foods is #10 with 3.4%.
There’s no mention of how much gets donated per purchase.

Hungry For More?

The pizza flyer leaves out important information. Wouldn’t you like to know the ingredients, calories, sodium, cholesterol and fat? Maybe those details are (buried) on the website.

The flyer raised other questions but you get the idea. It’s easy to get less than you expect if you don’t pay attention. Imagine what happens with complex financial products like investments and insurance.

“the quality of advice you get from a financial adviser is likely to be tied directly to your financial literacy” — SmartMoney (Apr 2012)

Get more literate.

Links

• The ABCs of 1-2-3: the key to financial literacy / numeracy
• Why we accept airport security but deny our financial security
• A short quiz about your financial foibles
• Repairing your computer vs fixing your finances
• Where are the customer ratings for advisors?
• The cost of getting advice from your banker
• Is the best advice free or for-fee?
• Do you understand compound interest?
• $1,000,000 after taxes on investment growth
• The fine print taketh away
• American companies that give back the most (Forbes, Oct 2011)

Podcast 196

direct download | Internet Archive page | iTunes

PS I feel like having pizza

IMAGINE JAMES BOND SELLING INSURANCE

Now see James Bond in his most deadly role ever, INSURANCE AGENT: No one gets out alive.

In the 00 section, the mandatory retirement age is 45. What happens then? Sherlock Holmes became a beekeeper. That doesn’t look like the fit for James Bond.

A secret agent knows about life and death. Why not become a life insurance agent? You may think that’s too boring but Ian Fleming said:

“I wanted Bond to be an extremely dull, uninteresting man to whom things happened.” (Wikipedia).

Surely insurance is dull enough. Let’s examine the fit.

Training

James is extremely well-trained and resourceful. He's required to  stay fit and up-to-date. That's how he got his 00 designation and keeps it.

Advisors can get designations but are allowed to sell without them. For life insurance, the test has multiple choice questions. Even then, too many fail. Primerica has a novel solution: make the tests even easier (Wall Street Journal, April 2011). Imagine M asking for less skilled agents.

Support

James gets gadgets from Q and learns how to use them. He also has support from M (unless he's disavowed and getting shouted at).

An advisor gets presentation tools that make what's sold look ever-so-enticing. There are even iPad apps. When there's a live case, there's lots of support available to help with the closing. The only tough part is getting the prospect.

The Real Boss

James is an agent for his employer MI6. Although he's paid by the taxpayers, he doesn't work for them directly. His cheques are signed by M. James is a fiduciary for M.

An insurance advisor is an agent for the insurer. Although you pay, the cheques are signed by the insurer. An advisor isn't a fiduciary.

Results

James has a license to kill. He’s ordered to get results by any means, even if questionable.

An advisor has a license to sell. Results mean getting the sale. The methods may be questionable. Tom Hanks' agent had a clever approach: charge Tom more than list price, send the insurer the right amount and keep the difference (in addition to the regular compensation).

Secret agents and insurance agents can be double agents.

Secrecy

The world of MI6 is secret. James knows the inner workings but we don't. This is for our benefit.

The financial world — especially life and health insurance --- is opaque. The sellers still know more than the buyers. Try figuring out how a dividend for a  whole life policy got calculated. You'd benefit from transparency.

Overall

James does what he's told even if he disagrees. He's not to question why. That’s ideal in selling too.

Given the similarities in work, wouldn't James Bond make a great insurance agent? With his skills, he can also thwart the actuarial mortality tables and hasten death claims — a real boon for beneficiaries.

Caveat

Age is no guarantee
of efficiency.
— Q (Skyfall)

In the movies, the actor playing James Bond keeps changing. As the actor ages or loses appeal, he's gone but the character goes on. The replacement is more suited to the times.

In insurance, the actor playing an advisor can keep that role until retirement (and there’s no mandatory age). There's no real judgment of current skill even though mental faculties may deteriorate. Is your advisor still suited to the role.

Links

• Imagine your advisor in the Olympics
• How musicians and advisors evolved since the 1980s
• Why advisors become advisors
• Unethical email: Do advisors put their own interests first?
• California broker charged with defrauding Tom Hanks, ex-Police musician (Insurance Journal, Nov 7, 2012)
• Dealing with the staggering cost of dementia
• Is an executive physical worth the bother?
• Are you saving too much for retirement?
• image courtesy of Bryan Lee

Podcast 195

direct download | Internet Archive page | iTunes

PS An insurance agent would have a much tougher time becoming James Bond.

REMINDERS FROM DISASTERS LIKE SUPERSTORM SANDY

Don't it always seem to go,
that you don't know what you've got
til it's gone?
— Joni Mitchell, Big Yellow Taxi

Superstorm Sandy. Blackouts, Ice storms. Hurricanes. Tsunamis. Fire. As disaster looms, we change our priorities. The email can wait. Laundry too. Safety of our families and ourselves becomes the priority.

Do we have food, fuel, heat, water? Do we have flashlights, batteries, a radio and our mobile phones?

We can't stop the devastation but can take steps for our protection. You may find you’re not as ready as you thought. At home, we encountered issues which caused us greater harm than Sandy.

Immobilized

Sometimes we don't know what to do. In groups, the bystander effect (Wikipedia) leads to inertia.

The northeast blackout of 2003 affected 50 million people (Wikipedia), I was working at National Life in downtown Toronto. We were told to go home. I checked to make sure my floor was clear first. I found staff in one department huddled with a radio, unsure what to do. We figured out ways to get them home. I didn’t know how I’d get home. Luckily, the President was still there and lived in my neighborhood. I got a ride — much better than walking 18 km home in dress shoes.

Scientific American looked back at the mega-blackout five years later and found little changed. Where is the “smart grid”? Blackouts affecting 50,000+ people remained as frequent as before. Another mega-blackout could happen each 25 years.

Afterward

At the time of turmoil, we know what we’d do differently. Scientists have suggestions for how New York can prepare for the next Sandy (Scientific American, Nov 5, 2012). Perhaps insurers can also help by demanding higher standards and more protection (Wired, Oct 31, 2012). Will much really change once routine life returns?

We’re not good at preparing for serious-but-rare outlier events (“black swans”). What do we overlook, discount or delay at the personal level?

Preparation

Advance preparation is a form of insurance. Insurance is a form of advance preparation. Coverage is often mandatory for our vehicles and strongly encouraged for our homes.

We aren't required to insure our health or lives. Not everyone has income replacement insurance, critical illness insurance, medical expense reimbursement insurance or life insurance. Affording all types gets costly. We often need to compromise.

Qualifying

There's also the problem of qualifying. When insurance is optional, the insurers get suspicious of motivated buyers. They worry about “anti-selection”: you know more than you tell the insurer, which leads to more claims. A study of denied critical illness claims found that in 40% of the cases clients misrepresented the facts.

Timing

You can’t easily buy a generator and fuel the day of a big storm (even if you get to the store). You can't get insurance the moment you want it either. You must apply in advance before anyone can tell there may be a claim.

Claim

You may never make a claim. That's ideal because money can never replace a loss. There are three keys to getting your claim paid.

Surprises

When disaster hits, we find out how well protected we really are.

Insurance contracts have exclusions. Sometimes riders can add what’s missing. Other times, we're stuck and bear the risk ourselves. Deductibles save premiums but also increase our out-of-pocket expenses at a less-than-ideal time. Trade offs.

Following Sandy, 1/2 to 2/3 of homeowners found they were underinsured (San Francisco Chronicle, Nov 3, 2012). That can’t be fixed now. A homeowner policy may not cover flooding without flood insurance. Also, “many insurers have added hurricane and wind deductibles that can run as high as 5 percent of the covered value of the home” (Insurance Journal, Nov 2, 2012).

Life insurance and critical illness insurance don't have deductibles. Disability insurance does. Any of these plans could have exclusions. It’s best to find out in advance. Maybe you can strengthen the protection.

Sometimes disaster strikes without warning. The scale can be large (like 9/11) or confined to our families. We can’t tell but can prepare. If not now, then when?

Links

• What would you grab if your house was on fire? (Squawkfox, Sep 2012)
• Greater harm than superstorm Sandy
• 9/11: the end of innocence
• 9/13: prepare your disaster recovery plan now
• income replacement: a guide to disability insurance
• critical illness insurance: the basics
• image courtesy Life Goes Through: lighthouse, taxis

Podcast 194

direct download | Internet Archive page | iTunes

PS How have you prepared better after the last disaster?

“FINANCIAL DOCTOR” JASON HEATH (CFP) INTERVIEWS “INSURANCE DOCTOR” PROMOD SHARMA (ACTUARY)

Jason Heath, a fee-only financial planner at Objective Financial Partners, interviewed me on the Objective Financial Hour (which does not run a full 60 minutes).

You may know Jason from his articles in the Financial Post (list). A recent column spurred the post, what does your advisor drive? (podcast 190).

Jason Heath

Jason is an Certified Financial Planner (CFP) who has spent more than 10 years preparing fee-only plans. He doesn’t sell any products, which brings objectivity to his recommendations. That's rare.

You can easily find financial planners who prepare plans for "free" because they get paid from the sale of products. The question is whether the best advice for you is free or for-fee.

What’s Discussed

You’ll find out about a range of topics related to insurance, investments and financial planning. The program has three segments.

Segment 1

General

1. what does an actuary do? (see me an actuary?)
2. fee-only financial planning (see why financial planning is ignored,  how to spot a fake fee-only planner and Preston Manning on financial planning)

Insurance Reviews

1. the uniqueness of fee-only insurance reviews
2. the reasons for getting a review
3. the three-step process (see Taxevity)
4. the types of changes that can be made after you’ve bought a policy
5. how an insurance pharmacy differs from a medical pharmacy

Trust

1. the biggest issue (includes slides)
2. sources of information and advice
3. ratings of honesty and ethics
4. more: who can you trust and what you like/dislike about your trusted financial advisor

Segment 2 (starts at 0:17)

Insurance

1. the core of insurance
2. the importance of the mortality curve (see insights from Pink Floyd)
3. why life insurance offers tax advantages (see secret 7)
4. the drawbacks of investing inside life insurance (see the two drawbacks)
5. the flaw in “buy term and invest the difference” arguments (see what would Warren Buffett do?)
6. selling the sizzle instead of addressing a need
7. the RRSP preserver
8. using life insurance to pay tax liabilities

Segment 3 (starts at 0:33)

Life insurance

• life insurance as an investment
• life insurance for estate planning
• who benefits from buying life insurance for estate purposes
• more: the top five insured strategies,

Income replacement insurance

• if you think or hope you won’t get sick, why buy coverage?
• a component of retirement planning
• how good are the definitions of disability? (get “own occ”)
• more: a guide to disability insurance and losing your livelihood: insuring against the risk

Critical illness insurance

• what is it?
• how can the benefits be used?
• more: the basics of critical illness insurance

Long-term care insurance

• when are benefits payable?
• when’s the best time to buy?
• the misguided view of public health care
• see long term care takes planning (Financial Post, Oct 2012),  do you care about long term care? and the staggering cost of dementia

The fiduciary question

• is an insurance advisor a fiduciary?
• most advisors are well-intentioned but problems occur
• see the word advisors imply but dare not say, the new prescription for trust, where does your advisor get advice and The Globe and Mail on the insurance loophole 

The Interview

For the first time, I’m using several slides during an on-camera interview. That spares you from watching Jason and me for the full show. Now grab your popcorn and beverage. Here’s the interview.

That’s all.

Links

• Jason Heath: LinkedIn, Financial Post, Objective Financial Partners
• Exploring the inner worlds of investments and insurance
• Why insurance advisors also sell investments
• The six basic fears identified by Napoleon Hill
• The six financial fears of Canadians
• How to leverage your philanthropic gifts
• Three reasons the rich get richer
• The four financial risks

Podcast 193

direct download | Internet Archive page | iTunes

PS What other questions would you like answered?

HOW TEDxTORONTO HAS CHANGED

There are plenty of speaker events but TEDxToronto is called the city’s premier speaker series (The Globe and Mail). If you’re not familiar with the world of TED and TEDx, here’s a primer.

The TED tagline is Ideas Worth Spreading but only the chosen get to attend TEDxToronto. The rest get free live streaming or watch later when the talks get posted on YouTube.

I apply every year. I've only been accepted in 2010 and now in 2012. The world has changed in-between. I have too.

2010

In 2010, TEDxToronto was small and intimate (see highlights).

• limited attendance: the Glenn Gould Studio — one of my favourite venues — seated 341
• a crunchy lobby: you’d see speakers, organizers, volunteers and other delegates during breaks. That helped make connections. (The SMB Exchange achieved a similar result earlier this month.)
• long breaks: the gaps were designed to encourage discussions, which made the day much more valuable than a conventional speaker event

The overall experience was excellent.

Looking back, I especially liked the videos by BizMedia, a finalist for a 2012 Business Excellence Award from the Toronto Board of Trade (I was a 2011 nominee and am now on the organizing committee). The well-crafted videos blended music and visuals in a way that helped me see that I live in a special place.

2012

This year’s event took place yesterday at the Sony Centre For The Performing Arts. Attendance was 1,200 or 1,300. That's a huge increase. I'm glad that more attended but missed the intimacy.

I didn't talk to a single speaker because I didn't see a single speaker off-stage. We didn’t get contact their contact information either. The conversations stop before they even start. In contrast, TEDxIBYork 2011 put speakers in different rooms during breaks, which was ideal. 

Tall Tales?

The sculptor produces the beautiful statue by chipping away such parts of the marble block as are not needed — it is a process of elimination.
--- Elbert Hubbard

I joined Goodyear Toastmasters to hone my speaking skill. I've learned how speeches get created. The content isn't quite true. The speakers make changes to increase their impact and meet the time constraints. A typical speech in Toastmasters runs 5-7 minutes. That's much more restrictive than the 18 minutes in TED.

Meeting the time constraints requires extreme editing, which in turn leads to unintended or unavoidable distortions. As with a sculptor, there’s skill in removing what doesn’t belong. There are consequences.

The New E

We’re in a world of low trust and keep seeing bad examples (see @trustandyou). This year, the likes of Jonah Lehrer and Lance Armstrong got nabbed for dishonesty. Besides, we don’t have perfect memories. In this environment, how much can you believe a speaker?

TED is an acronym for Technology Entertainment Design. For me, E meant Education. Now it's Entertainment because it's difficult to tell what's really true. I'm paying more attention to what the speakers left out and the implications. For example, a speaker touted the merits of flax seeds as a replacement for oil. Interesting but what about the downsides?

The Curse Of Practice

Speakers practice and practice and then practice more. The speaker is an actor. The challenge is to look like you're not acting. That helps the audience believe you mean what you're saying at the moment. Think of movies. You know Brad Pitt is acting but if he's good, you suspend your disbelief.

The deep challenge comes when the speaker is telling the tale of something deeply personal --- especially when the event occurred years ago. They may have told that same story to many other audiences. I now wish they'd just put their story on YouTube and move on. Tell us something new.

Originality

I've heard it all before, you're saying nothing new.
— Supertramp, Child Of Vision

Since so many TED Talks are online, the formulas emerge. There are the TED Commandments and even Sebastian Wernick’s talk on creating the perfect talk:

The TED/TEDx world, includes repetition. There’s sometimes a feeling that what you're hearing you’ve heard before and told better.

Where's The Alchemy?

When I think of alchemy — this year’s theme — I think of the melding of words and music. Maybe that’s because of Live Alchemy from Dire Straits (Wikipedia) or Orson Welles reading Edgar Allan Poe (YouTube) over the music of Alan Parsons:

"Since the comprehension of sweet sound is our most indefinite conception, music, when combined with a pleasurable idea, is poetry. Music without the idea is simply music. Without music or an intriguing idea, colour becomes pallor, man becomes carcass, home becomes catacomb, and the dead are but for a moment motionless."
— Edgar Allan Poe

The day’s highlight was musician Steve Page. He decomposed a song he performed for us, The Chorus Girl. The tune wouldn't leave my head. Here’s a live recording from the 2009 Vancouver Folk Festival.



Maybe alchemy is about Music Worth Humming.

I’m glad that TEDxToronto is flourishing. I’m finding that I prefer smaller events with easy access to the speakers. I will still apply to attend in 2013 and hope to get accepted.

Links

• Comparing TED to TEDx to TEDxToronto
• Comparing TEDxIBYork and TEDxToronto
• Highlights from TEDxToronto 2010
• How TEDxToronto became the city’s premier speaker series (The Globe and Mail, Aug 3, 2012) 
• Getting rejected as a speaker by a conference like TEDxToronto (Goodyear Toastmasters blog)
• How TEDxToronto speakers prepare (Toronto Star, Oct 23, 2012)
• Sissy’s Magical Ponycorn Adventure creator Cassandra Creighton (Metro, Oct 24, 2012)
• Shawn Micallef: Downtown vs. the suburbs (Toronto Star, Oct 26, 2012)
• Make your presentation better than a TED Talk (Marketing Actuary, Feb 2012)
• Highlights from TEDxToronto 2012 (blogTO, Oct 27, 2012) (new)
• Three lessons for speakers from TEDxToronto 2012 (Goodyear Toastmasters blog) (new)

Podcast 192

direct download | Internet Archive page | iTunes

PS If you want more great ideas, read Wired

HOW MUSICIANS AND ADVISORS EVOLVED SINCE THE 1980s

Have you noticed how the music business has changed since the 1980s (assuming you’re old enough)? The life insurance industry has followed a similar path.

Coalition Music manages performers like Our Lady Peace, Finger  Eleven and Simple Plan. Eric Lawrence and Rob Lanni explained the evolution from when they started to today. They spoke at the Small Business Forum 2012 from Enterprise Toronto this week.

Then

“Tell him this is last chance to get his daughter in a fine romance
Because a record company, Rosie, just gave me a big advance.”
— Bruce Springsteen, Rosalita

In the 1980s, record labels invested heavily in promising performers. They gave them large advances — even hundreds of thousands of dollars — to record albums and cover living expenses. The money would be recovered from future record sales.

In those days, many advisors worked directly for the insurers (“captive agents”). The companies invested heavily in promising advisors. They gave them free training and money for living expenses. The money would be recovered from future product sales.

There used to be many record labels and insurers. There was an established way of doing business.

Now

These days, there’s less need to buy music. Besides YouTube, there are subscription streaming services like Grooveshark, Rdio and Spotify. Why buy music when you’ve got instant access to millions of tracks on demand for free or a monthly fee?

The big investments on promising performers are gone. Labels want proven successes. Luckily for performers, it's easy and cheap to record music now. Software compensates for mistakes and low skill. With the gatekeepers gone, there’s much more music than ever. The performers are responsible for standing out.

Few insurers invest in training advisors these days. They want the proven successes too. Luckily for potential advisors, getting a license to sell insurance just requires passing a multiple choice exam. Software helps compensate for low skill by doing the calculations and creating nice spelling-checked presentations. The advisors are responsible for standing out.

Standing Out

We like winners. Standing out means having an audience. We can easily spot performers who do by looking at their views on YouTube, Twitter Followers and Facebook Fans. We can also sample the music for free and read the lyrics. We can read and write comments.

Here’s the difference with the financial sector. The social era has not been embraced in the same way.

Advisors rarely have a visible audience. Try finding advisors anywhere they can be ranked objectively against other advisors. Try finding free samples of their work. Try finding anything written by their fans (clients).

Guarantees

In the “old days”, financial backing gave performers advantages but success was never guaranteed. Factors like radio airplay and fan tastes could not be assured. Now unlimited airplay is free. The gatekeepers are gone. Entry is cheap and easy. There are more  challenges but in many ways there are more opportunities.

Advisors now face the challenge of getting found and appreciated. They have influence over getting found part.

We can't explain our musical preferences but listening to a song won't cause much harm. The wrong advisor can and switching isn't as easy as jumping to the next track. Maybe you’re better off with an advisor who — like today’s musicians — has a visible audience.

Podcast 191

direct download | Internet Archive page | iTunes

Links

• Where is your advisor’s blog?
• Imagine your advisor in the Olympics
• What does your advisor drive?
• Why advisors become advisors
• Why insurance advisors also sell investments
• The word advisors imply but dare not say
• The inner worlds of investments and insurance
• image courtesy of AdogCOLOMBIANO (YouTube)

PS Where do you find your music these days?

WHAT DOES YOUR ADVISOR DRIVE?

Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway. — Warren Buffett

The investment advisor wore sunglasses and drove a BMW M6 convertible with the top down. The insurance advisor had a big black Mercedes. The client had pricey cars too and a gated house that reminded me of a prison. I felt out of place.

In his Financial Post column, fee-only financial planner Jason Heath (LinkedIn) advises us to think again before buying a luxury car. We may be further ahead saving for retirement. Boring but practical.

Advisors tend to have nice cars because that looks like a sign of success. Don’t you want to hire a winner?

Example

When we bought our current house in the 1990s, we considered two real estate agents. One had a Lincoln Town Car. He looked successful but maybe he had a side job as a limo driver. The other one had a Dodge Intrepid with broken air conditioning. He joked that someday he'd have a car that worked. He looked like a loser but maybe he was a better negotiator.

We picked Mr. Lincoln. 

WANNABE

I've seen advisors who put their keys (and smartphone) on the table during meetings. Look at me! Look at me! They had pockets, purses or bags but were showing off.

The car keys were often for a BMW 3-series or Mercedes C-class. Entry level, but they felt special and thought clients would be impressed.

Established

Successful advisors might care less about what they drive. Maybe they had their dream cars and got comfortable enough to take them for granted. One advisor switched from a BMW 7-series to a Hyundai Genesis, which he claimed was better. Maybe this ad swayed him? Maybe he could no longer afford more.

Warren Buffett drives a Cadillac DTS. No chauffeur-driven Rolls for him. He doesn’t get his advice from Wall Street or Bay Street either. An advisor driving an M6 might not impress him.

Remember

We can (and do) judge a book by the cover. The risk is low. We can (and do) judge advisors by their cars and other props like clothing. That’s riskier.

Successful advisors have the ability to sell. That doesn't mean they have skill or interest in doing the actual work. What drives them matters more than what they drive. That we can’t easily see.

Links

• Think twice before buying that luxury car (Jason Heath, Financial Post, Oct 6, 2012)
• How to save on your next Audi, BMW or Mercedes
• The best buying experience: Audi vs BMW vs Mercedes
• The BMW Innovation Drive and the new 5-series
• BMW gives reasons to be cynical
• Hyundai vs BMW: The rationale for irrational behaviour
• Is your car built to last?
• What to do when your car lease ends
• What kind of car should your financial advisor drive? (Quora)

Podcast 190

direct download | Internet Archive page | iTunes

PS If your advisor takes the bus, get off at the next stop.

EXPLORING THE INNER WORLDS OF INVESTMENTS AND INSURANCE

You probably know more about investments than insurance. What if two insiders compared and contrasted for you? That’s what happened on Qb, a talk show about money.

You’re sold nothing except the merits of fee-only advice.

Background

The host, Joe Barbieri, has insider knowledge of the investment world. His LinkedIn profile shows where he’s worked. Recognize any of the companies? Joe now does true fee-only financial planning as Joe The Investor. “True” means he sells no products.

I designed life & health insurance products and helped advisors sell them  (see LinkedIn for the companies). Now I perform fee-only Actuarial Insurance Reviews. You can take the prescription to your old advisor, find a new one or use the Taxevity pharmacy.

The Interview

In the wide-ranging 45 minute interview, Joe asked a series of well-considered questions. He also shares his perspectives from the investment world. 
We covered topics like

• the cost of “free” advice
• high investment expenses for mutual funds
• the effect of advice on your returns
• why after-sales service is poor
• active vs. passive investing in life insurance
• buying term and investing the difference
• why investing in life insurance costs more
• the merit of getting your insurance contract reviewed before you sign
• advisors who sell insurance and investments
• why life insurance allows so much tax-sheltered growth
• whole life insurance
• the lure of glitzy strategies
• the importance of corporate governance
• what insurers can do to your investment choices
• the marketing acumen in the financial sector
• insurance price hikes: (i) the reasons, (ii) advisor inertia and (iii) what to do

Format

You've got your choice of video or podcast. Since there's nothing to see besides two people talking, you won't miss much by listening. For the podcast, I reduced the background noise, adjusted the volume and did some editing.



I’ve only been interviewed on camera once before. I still don’t know where to put my   hands. That’s partially because I didn’t know what would show in the recording.

What other questions do you have?

Podcast 189

direct download | Internet Archive page | iTunes

Links

• Joe Barbieri: Joe The Investor, LinkedIn profile, The Qb Talk Show
• Want objective advice? Use a fee-only life insurance advisor (Money Over 55)
• 13 questions to evaluate an investment that’s “too good to be true”
• The insurance loophole: what else is wrong?
• Interviewed on Liquid Lunch (Mar 2012)

PS Who wants to interview me next?