IMAGINE YOUR ADVISOR WINNING AN OSCAR

... and the winner is ...

The Academy Awards anoint the year's “best” films. Let’s say your advisor is in the running. What category would apply? Let’s explore a few.

Best Actor/Actress

Actors work from scripts that others have written. Advisors do too but may also improvise. Over the years, they hone their skills. You might not realize that a script is being used because you’re seeing a practiced performance for the first (and perhaps only) time.

You may infer the actor is like the character played in real life. That need not be the case. The nominees are rarely ugly but does appearance imply better skill?

Best Director

Advisors are rarely directors. They're more likely actors. Maybe they are directing you towards a sale? Directors have problems staying within budget — in this case yours. Was the $207 million remake of King Kong in 2005 really necessary? Maybe the 1933 original was enough.

Best Screenplay

On the screen, we see the same stories retold with minor changes. With Netflix, you quickly see the lack of originality. With advisors, that's good. A creative advisor could turn out to be a Bernie Madoff (New York), Scott Rothstein (Florida) or Earl Jones (Montreal). Tried and true works well, unless the script is outdated.

Best Special Effects

Advisors make their offerings look great. Sometimes better than reality. Just because you want to believe doesn't mean you should.

Advisors may use magic like the power of compound interest. Results depend on the assumptions used and human behavior. Investment returns are volatile and we are too.

Best Foreign Language

Does your advisor seem to be speaking a foreign language? If you need a translation, maybe you’re ready for an advisor you understand.
If you easily understand your advisor, you might be facing a different problem: simplification. Life isn't black and white. Just because we understand everything being said doesn’t mean that everything we need to understand has been said.

Best Editing

Editing makes a huge difference. Sometimes the entire story changes. Advisors may leave out the details they don’t see as pertinent to their goals. Maybe you want to see the raw footage and decide for your self what matters.

This re-edit changes Mrs. Doubtfire from a comedy into a horror film.

The Judge

Maybe your advisor is the judge selecting the winner for you. This simplifies your life but results may be suboptimal. We can’t even decide on the best coffee.

… and the loser is …

Links

• Imagine your advisor in the Olympics
• Imagine James Bond selling insurance
• The risk of financial innovation
• Why advisors become advisors
• Do you understand compound interest?
• $1,000,000 after taxes on investment growth
• Do your advisors help with your financial literacy?
• If you have/had/want money, read Pound Foolish

Podcast 208

direct download | Internet Archive page | iTunes

PS Do you really care who wins the Oscar?

IF YOU HAVE/HAD/WANT MONEY, READ ‘POUND FOOLISH’

I wasn't expecting much from Pound Foolish: exposing the dark side of the personal finance industry (Amazon link).

I saw a video interview (which I can’t find) and felt author Helaine Olen was sensationalizing to sell more copies. She was picking on easy, obvious targets like Robert Kiyosaki (did he really have a Rich Dad?)  and David Bach (the latte factor guy who's bad at math). I didn't disagree with her conclusions or assessments but wasn't expecting much more than a book that seeks fame by attacking the well known with sizzle.

Look Closely

To my surprise, Pound Foolish is well researched and contains valuable insights into the world of personal finance.

Have societal issues contributed to the way we are? After all, previous generations seemed to do well financially — even on one income. Are we really that ignorant? Do we really overspend? Or has the world changed in ways that work against us.

Our financial options have become much more complex. We bear more risks (remember defined benefit pensions and job security?). The changes happened quickly ... faster than many can adapt.

You may have sensed something basic isn’t right. Recall the words of Morpheus in The Matrix:

“You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad … [The Matrix] is the world that has been pulled over your eyes to blind you from the truth.”

This book helps you see what the problems might be and why we can’t easily solve them.

To use terminology from The Seven Habits of Highly Effective People, I’ve avoided talking about the circle of concern, preferring to focus on what we can do ourselves. our the circle of influence.

Are Financial Literacy Initiatives Genuine?

Seventy percent of profits in the credit card industry come from people who do not pay off their bills in full every month. Why would the financial services sector support something that has the ability to significantly impact their bottom line for the worse unless they either believed it was not a real threat or believed it to be a lesser threat to their profits than government regulation? — Pound Foolish

The author asks whether the financial sector wants us to be financially literate since that would hurt their profits. Picture Sylvester and friends looking after caged Tweety birds like us. Here are related posts:

• What are you doing about your high investment expenses?
• Do your advisors help with your financial literacy?
• The cost of getting advice from your banker
• Three reasons financial literacy eludes us

Your Views

You may not agree with everything Helaine says or appreciate her use of unnecessarily complicated words like “éminence grise” and "solipsistically". There is also unneeded profanity. Continue reading because Helaine paints an overall picture that’s worth seeing.

Lessons And Reminders

In the world of finance, do not assume that people helping you have your best interests at heart or genuine skill. If you're dealing with a friend or family member, you may actually be at a bigger risk than if dealing with a stranger. When you’re confused or think you’re getting solid advice, you’re more vulnerable. That's just life. Hasn't it always been so?

The author is not totally altruistic in writing her book. However she does say things that are worth our attention. I'm curious to see what she does next. Identifying problems is important. So is helping people with the solutions. Even if there aren't any easy ones.

Links

• Helaine OIen’s website
• The dark side of personal finance (Jonathan Chevreau, Jan 2013)
• Why dumping your coffee habit isn’t the best savings plan (Business Insider, Dec 2012)
• Ghastly gurus (The Economist, Jan 2013)
• Review of Pound Foolish (BusinessWeek, Jan 2013)
• How the personal finance industry preys on the public (ThinkProgress, Feb 2013)
• Why financial literacy fails (Time, Mar 2013) (new)
• image courtesy of chimicherrychonga

Podcast 207

direct download | Internet Archive page | iTunes

PS I taut I taw a puddy tat

IS YOUR LIFE INSURANCE LIKE A SHOVEL, SNOWBLOWER OR SNOWPLOW?

Toronto just experienced the biggest snowstorm since 2008 (Toronto Star). Let’s say a foot of snow fell (30 cm), though drifting made the piles higher.

We can’t accurately predict storms in advance. When the snow falls — and fall it will — how do you clean up the mess?

You have several choices:

• shovel: like term life insurance
• snowblower: like universal life insurance
• snowplow: like whole life insurance

Shovel

A shovel (like term life insurance) is very economical and doesn’t take much space. You get exercise in the crisp, cold air. A shovel is fine as long as the snowfall is light, you’re in good physical condition and you don’t need to get out of the driveway in a hurry.

Otherwise, you may not be adequately prepared. The snow at the end of the driveway isn’t much fun to clear.

Depending on your budget, a shovel may be all you can justify.

Snowblower

A snowblower (like universal life insurance) puts you in charge. The purchase price buys lots of shovels but you get peace of mind. There are ongoing costs for fuel and maintenance.

A well-equipped, well-maintained snowblower has the power and capacity to deliver the results quickly.

SnowPlow

A snow plowing company (like whole life insurance) takes the work away from you … for a price. You normally pre-pay for the season. If you’re a tenant or live in a condo, you likely depend on snow plowing too.

This solution seems ideal. The problem: you’re dependent on an outside party, like Homer Simpson’s Mr. Plow. Everyone wants a clean driveway before they leave for work and before they return home. Despite best efforts, that may not be possible (unless Santa introduces snowplowing).

With whole life insurance, you depend on the insurer to invest wisely and and keep costs low, which translates to premium refunds (called “policy dividends”). You have no voice.

Pearson International Airport has the highest landing fees in the world (atrsworld.org, Jun 2012, PDF). The plowing and deicing is done for the airlines but ...

Just when it was most needed, the de-icing equipment at Pearson malfunctioned Friday. Instead of 30 aircraft being de-iced each hour, only eight could go through the de-icing process, which led to a snowballing effect that progressively worsened. — Toronto Star (Feb 9, 2013)

You don’t always get value for your money.

Too Much?

You can’t tell if you’re w ell-protected against snow until the season ends. Just because you were fine this year doesn’t ensure you’ll be as lucky next year. Insurance can also seem like a waste … until you have a claim. Spending a large sum doesn’t ensure you’re well-protected either.

When To Buy

You’ll save money on shovels and snowblowers after the season --- if anything’s left. With insurance, the products remain in stock and there are no clearance sales. After all, you’re buying a promise that gets printed when you’re ready. Waiting doesn’t save you money. Since you’re getting older, the price keeps going up — if you still qualify for coverage.

When's the best time to buy? Just before the storm … if you can predict accurately and find stock. Since others have the same idea, there may be shortages. The same pattern repeats when there's a blackout. We know we need basics like food, water, batteries and fuel. That doesn’t mean that we have them at hand. You can’t get insurance the moment you decide. The approval process often takes weeks or months. You must prepare in advance.

This Storm

Due to the storm, I used our snowblower for the first time in two seasons. Last year I felt foolish having it. This year too. After all, it's February. Most of winter is over.

I used our snowblower twice yesterday and once today. It started because of ongoing maintenance. It had the power to finish the job without stalling. Most of all, the snowblower provided peace of mind. It’s well worth the cost, though I might not have felt that way the day before or now that the storm has passed. How fickle. How human.

Just as no man is an island, a clean driveway is useless unless the streets are plowed too. As I was finishing on storm day, two city plows cleared our street. The government matters too. The cleanup is costing about $4 million.
Snow melts. If you have time, you can wait. With insurance, waiting doesn’t help you.

Links

• Storm cleanup continues as more messy weather expected (cp24.com, Feb 9, 2013)
• How valid are TV weather forecasts? (Freakonomics, Apr 2008)
• Key findings of global airport performance: 2011, 2012 (atrsworld.org) (PDF)
• The best and worst times to cancel your life insurance
• Does Warren Buffett ‘buy term and invest the difference’?
• The overlooked advantages of universal life insurance
• How to afford the insurance you need
• The perils of whole life insurance

Podcast 206

direct download | Internet Archive page | iTunes

PS How to you clear your snow?

THE BEST AND WORST TIMES TO CANCEL YOUR LIFE INSURANCE

Peter Drucker once said, “Doing the right thing is more important than doing the thing right.”

There’s also value in doing the right thing the right way at the right time. You can cancel your insurance anytime you want. That power comes with risks.

The Best Time

The best time to cancel insurance is before you buy. This is the phase where an advisor makes proposals. You don't have much obligation, especially if you didn't ask for the work to be done.

If you have no intention of buying, perhaps you’re wasting your time or the advisors? If start the process, you may make an unintended purchase. In a chain, one link leads to the next and eventually to your wallet.

The Slippery Slope

You may not qualify for insurance, which means you can’t buy any of the nifty proposals. That’s true. Since the approval process takes weeks or months, your advisor may encourage you to submit a trial application without delay. The proposals can be prepared and changed while awaiting the decision.

Since there’s no cost or obligation to you, why not get “pre-approved”? In reality, you’re likely submitting a normal insurance application.

Once you’re approved, you’re congratulated and a big step closer to buying. You don't want to lose something once you've already got it, especially after the underwriting process. Maybe you had to undergo a paramedical exam. All that for nothing?

Approved

If you’re approved, you need not take delivery of the insurance contract by paying the first premium and confirming that your health hasn’t changed.

If you cancel now, hundreds or thousands of dollars have been wasted by the insurer for the underwriting. These “returns” increase the cost, which get passed on  to other buyers via higher premiums or lower benefits.

If you have no real intention of buying there's not much point going through the underwriting process.

Money-back Guarantee

You can also cancel after taking delivery during the money-back guarantee period (you’re exercising your right of rescission). You typically have 10 days. This gives you time to read the policy contract in detail to make sure that you're getting what you thought.

An insurance contract is a complex legal document that’s not easy to understand. Would  you really read it? If you want to look at the contract, can get a specimen in advance. There's no harm in looking at one and asking your advisor to explain the pertinent elements.

The Worst Time

The worst time to cancel is after you've purchased and had the insurance for a while. Why are you cancelling now?

Is the reason affordability? Perhaps you were sold the wrong product in the first place or the wrong amount of the right product. Maybe you can make adjustments.

Maybe you think you no longer need the insurance. Do you feel that way because you don't think you'll have a claim? If you could predict accurately, no insurer would sell to you since the odds would be against them.

Are you canceling because you've been shown something newer and shinier? It's important to do a proper comparison. You may be giving up more than you think. With a new policy, you face new conditions, new underwriting and possibly worse guarantees.

If you cancel, you’re giving up an asset of increasing value: you're more likely to face the claim as you get older. There maybe other things you can do with your policy. Perhaps you look at it as an investment now --- especially if you are able to keep the coverage for life.

Cancelling insurance is easy. Replacing coverage may not even be possible.

Links

• Test your life insurance literacy
• How to afford the insurance you need
• Reinstatement: trying to get your insurance back
• Does your insurer win when you cancel?
• After-sales service and life insurance
• Beware of ‘exclusive’ financial strategies
• image courtesy of Tferr

Podcast 205

direct download | Internet Archive page | iTunes

PS Make sure your insurance doesn’t get cancelled unintentionally because you missed premium payments.