THE BATTLE BETWEEN TEMPTATION AND PERSONAL RESPONSIBILITY

It's all your fault. You’re not a baby.

If you're eating too much, that's your fault. No one is shoving food into your mouth. If you're saving too little, that's your fault. No one is telling you how to spend your money. If you're gambling, that's your fault too. No one is dragging you to the casino.

We are adults. We make our own decisions. We accept the consequences. Unfortunately, there are big forces working against us. They don't take responsibility because we are supposed to have the education how to choose wisely.

On the money side, we have financial literacy but does the financial sector make more money when you make better financial decisions (see do your advisors help with your financial literacy and Pound Foolish).

On the food side, we have eating guidelines. On the gambling side, we have warnings.

The Other Hand

Unfortunately, we also face temptation wherever we look. Isn’t that the purpose of marketing, advertising and sales? There are ways to manipulate us and deplete our willpower (see Dan Heath explain the radish experiment). Our decisions suffer.

Food companies earn more when we eat more. Unfortunately obesity rates keep increasing. In the US, 35.7% of adults are already obese and the trends aren’t changing (Reuters, Sep 2012). Food consumption has increased 600 calories a day since 1970 and bagels have doubled in size since 1990 (Reuters, Sep 2012). In Canada, adult obesity is at record highs (Toronto Star, Feb 2013). Maybe food is a factor?

Financial companies earn more money when we buy high margin products like mutual funds. Casinos and governments win when we gamble.

Shareholders demand profits. You expect them to but there are consequences. Since habits start young, even children get targeted. Within three years of a new 1988 campaign, 90% of six year olds knew about Joe Camel (Seattle Times, Dec 1991). Market share among underage smokers grew from under 1% to over 32% (Wikipedia).

Big Food advertises to children and the offerings are not always healthy choices. Taco Bell proposed a fourth meal between dinner and breakfast — and not fruit or veggies (AlterNet, Nov 2012).

Better Decisions

Rather than waiting for the world to change, we need to make ourselves understand how the world works. That helps us make better decisions. Since we are responsible for the outcome, we might as well learn how to decide better. Decisive, the new book from Chip and Dan Heath may help (my blog post).

Lots of research goes into how we make decisions … and gets used against us. It's worthwhile understanding how irrational we are. Dan Ariely is running a free course over the next 6 weeks on Coursera: a beginners guide to irrational behavior. Sign up here.

Links

• Why we get bad advice
• Where there’s willpower, there’s a way
• Do your advisors help with your financial literacy
• If you have/had/want money, read Pound Foolish
• What’s worse than fine print?
• Why advisors become advisors
• Unethical email? Do advisors put their interests ahead of yours?
• How advisors fool you (and what you can do)
• image courtesy of Francois du Plessis

Podcast 213

direct download | Internet Archive page | iTunes

PS This weekend, the Easter Bunny is making temptation tough to resist.

BUDGET 2013 PUNISHES THE INNOVATION OF “10-8” INSURED LEVERAGING

Ernst & Young’s most recent research shows 88% of global survey respondents across a wide number of industries agreed that innovation was the one genuine differentiator and advantage they have over the competition.
— The Globe and Mail (Mar 22, 2013)

It’s Spring. One of the saddest songs is Flowers Are Red. It’s not just because Harry Chapin died early but because innovation gets punished. A child starting school gets forced into conformity. What a loss.

The 2013 federal budget punishes innovation in life insurance by wanting to remove the tax advantages of “10-8” insured leveraging strategies which were first introduced in the 1990s.

The Problem

Besides a tax-free death benefit, life insurance offers other advantages such as tax-sheltered growth (to learn why, see How Pink Floyd’s insights on mortality help you). Unfortunately, investing inside life insurance has consequences.

With term life, you can’t invest. With whole life, you can’t choose the investments (among the perils of whole life insurance). With universal life, you pick the investments but face two major drawbacks: limited choice and high investment expenses like mutual funds (see what are you doing about your high investment expenses?).

If only you could invest in the “real world” with options like ETFs, stock, bonds and real estate.

Leverage

Insured leveraging provides a solution:

1. Deposit cash into a universal life insurance policy (tax-sheltered growth)
2. Borrow against the savings (secure collateral that continues to earn tax-sheltered growth)
3. Invest the proceeds (investment flexibility)

This process allows tax-sheltered growth on the loan collateral, the flexibility of investing in the “real world” and deductions on the loan interest. If your investments earn more than the after-tax cost of the loan, you’re ahead.

There’s a risk. The gap between what you pay on the loan and earn on the collateral fluctuates. With “10-8 leveraging”, the gap is guaranteed at 2%.

Several insurers introduced “10-8” strategies (RBC Life, BMO Life, National Life, Industrial Alliance, Transamerica). Before becoming independent in 2009, I worked for two. The strategies were endorsed by leading accounting firms and sold by top advisors across Canada.

Flagship

Insurance products are essentially commodities (similar designs, similar prices, similar compensation). Strategies (packaged solutions to specific needs) offer a competitive advantage to the insurers. Since there are oodles of advisors, the ones who master new strategies have an edge too. Innovation brings rewards.

“10-8” strategies became the flagship offerings for the life insurance sector — much like the S-Class in automobiles (see Mercedes’ next flagship does the commuting for you in Wired, Dec 2012). Few advisors had the skills to sell “10-8” or suitable clients. Even so, the attraction of “10-8” opened conversations. There was demand for presentations that insurance advisors, accountants and clients could understand. Communication became the battleground for innovation.

CRA

Strategies which help you can hurt tax collections. The Canada Revenue Agency was unhappy about “10-8” strategies. This lead to legal challenges which ended in 2011:

During the court proceedings, the CRA was forced by the court to produce some documents of its own — material revealing that the CRA, apparently in conflict with some of its public statements, believes that 10/8 products probably conform with the formal requirements of the Income Tax Act, if not its spirit. — CRA rebuked for ‘fishing expedition’ (Investment Executive, Dec 2011)

The future of properly-implemented 10-8 strategies looked good, though Jamie Golombek warned, "We have to wait and see whether Finance issues a comment, announces legislation or just stays out of it." (Investment Executive, Dec 2011)

The 2013 Budget

Two days ago, the March 2013 federal budget proposed changes to eliminate the appeal of “10-8” leveraging and leveraged insured annuities. You’ll find the details in Investment Executive.

The Future

Vast resources were committed to “10-8 leveraging” prior to the introduction and ever since. I invested years and did countless presentations to advisors, accountants and clients. I prepared many proposals too.

When innovation gets punished, there’s less innovation in the future. We all lose. We soon see flowers as red and leaves as green. To quote Harry Chapin:

There’s no need to see flowers any other way
Than the way they always have been seen.

Links

• Test your life insurance literacy
• Where does your insurance advisor get advice?
• The lure of “exclusive” financial strategies
• The pros and cons of financial leveraging
• How to leverage your philanthropic giving
• Key changes for 10-8s and leveraged annuities (Investment Executive, Mar 21, 2013)
• What small business should know about the 2013 federal budget (The Globe and Mail, Feb 22, 2013)
• Party’s over for tax-advantaged investing (Advisor.ca, Mar 21, 2013)
• What to do about the insurance turmoil
• Secret 7: The best tax sheltering in Canada
• Five signs you may have bad insurance (Thicken My Wallet, Jul 2009)
• image courtesy of Jane Sawyer

Podcast 212

direct download | Internet Archive page | iTunes

PS Do you have a fave Harry Chapin song?

STOP BLAMING YOUR PARENTS

It's easy to blame your parents for how you turned out. It's also unfair. Mistakes get made but we can learn from them and change.

We’ll focus on your financial life.

That Was Then

Maybe your folks weren't good at saving or paying off credit card balances. Maybe they bought on impulse. Perhaps the fine print fooled them. Maybe they were too trusting of salespeople who didn’t have their best interests at heart. Perhaps they didn’t budget or have a financial plan. Maybe they believed the myth of financial freedom at age 55.

Now

Yesterday is history. Yesteryear is ancient history. You're living today. You can do better. Extract lessons and let the past go. Make a better future: where there’s willpower, there’s a way.

Maybe

Your parents may not have made the right decisions but they probably had noble intentions. That makes them much like us. We tend to judge others by their visible actions and ourselves by our invisible intentions. That's inconsistent.

Parents also do wonderful things. They raise us and protect us. We see good news in the case of Leslie Bibb and Lamar Odom. In contrast, Buddy Valastro, the Cake Boss got tragic news but learned to do better.

Dwell on the negatives or mistakes and you'll mess up your life.
Earl Nightingale said, “We become what we think about” and Brian Tracy later said, "We become what we think about most of the time."

What are you thinking about? Positivity and optimism are much better fuels than negativity and pessimism.

Is Our Future Written?

We cannot predict what will happen — bad or good.

Counter-examples

There are often convincing arguments for doing the opposite of what we think is "right".
Should parents pay for your university education? If the family pays, the student has less financial stress but may not value the investment or study hard. If the student pays, the financial stress may reduce grades, create resentment towards the parents … or build character.

Successful

The successful people don't have a specific background. They can easily come from broken homes, lack higher education and have no money (in the beginning). Yet they are often optimistic, risk taking, passionate and driven.

Blaming Others

You can't blame your teachers (learn on your own), friends (replace them), a bad economy (some segments thrive at any given time), the government (the people voted for them ... except for the ones who abstained) or disasters like Superstorm Sandy (prepare for next time).

We can blame ourselves, but that’s not productive either. Let’s learn and change.

Links

• Where there’s willpower, there’s a way
• What’s worse than fine print?
• If you have/had/want money, read Pound Foolish
• Fight Back with Ellen Roseman’s insider tips
• Reminders from disasters like Superstorm Sandy
• The lure of “exclusive” financial strategies
• How to afford the insurance you need
• Why is financial planning ignored
• image courtesy of Anna Karwowska

Podcast 211

direct download | Internet Archive page | iTunes

PS If you’re not already, you might be a parent one day too …

BLACKBERRY’S CONFUSING MESSAGE AT THE 2013 TECH LEADERSHIP CONFERENCE (#TLC13)

BlackBerry 10 looks like a huge accomplishment, well beyond expectations. The company may have a future even if sold.

President/CEO Thorsten Heins spoke at the 2013 Tech Leadership Conference. He spoke well, smiled and took audience questions. I listened but couldn't understand what he was saying and kept hearing what he left out.

Choice

Thorsten claimed that mobile providers want a choice besides Apple and Samsung. Maybe, but Windows Phone could be the answer. Choice paralyzes. We manage to live with duopolies like Coke/Pepsi, Windows/Mac, Google/Bing. Isn't the real question what the end users want? As buyers, we have lots of choices already.

Mobile Computing

Do you know what mobile computing is? Apparently, that's what really sets Blackberry 10 apart. The devices are mobile computers. This is apparently a paradigm shift.

Since I'm drafting this blog post by voice into web-based Trello (my review) on my Galaxy Note 2 while walking around the room, am I not engaged in mobile computing? I use my notebook computer and tablet in different places. Isn’t that mobile computing too? Perhaps the paradigm shifted years ago when free WiFi became available in coffee shops.

Multitasking

Multitasking is touted as another advantage of the new Blackberry. I didn't understand this either. I think I already multitask on my phone and tablet. Maybe there are technically superior options, but I don't see what's missing. I'm not compelled to seek another solution.

Besides, research shows that we’re lousy at multitasking (Wikipedia). We waste more time and make more mistakes. Imagine a device that helps us focus. That would be a breakthrough.

Jeans And Tie

Apparently BlackBerry is optimized to run our business and personal lives on the same device. Maybe that’s like playing Solitaire on your company computer or wearing runners with your suit.

It's easy enough to have 2 devices: one from work and one of your own. That also helps with work/life balance.

If you're working for a company, you don't know how long you'll be there. Having your own phone with your own phone number has merits. You then have privacy from corporate snooping and control of your contacts. Nowadays, there are good plans at affordable rates, especially if you use a smaller carrier.

Blackberry seems to think their customers are the intermediaries: the mobile phone providers and corporate IT departments. Apparently, you cannot copy/paste from a personal email to a corporate email. That's good if you don't trust your employees. It's inconvenient if you're doing real work. There are probably simple workarounds such as copy/paste to an online Word document. If you have another phone, you can always take a photo or dictate the text. Pen and paper works too.

The Future

BlackBerry is an important company. I'd like to see them rebound but not enough to switch back from iOS and Android (see the perfect smartphone). There was no compelling reason that I could understand. If you're already a Blackberry user, you may be very happy with the changes. Feel free to share your thoughts below.

Links

• The perfect smartphone: Bye bye Blackberry
• Customers behave like Pinocchio too
• Why we get bad advice
• How TEDxToronto has changed
• How your brain works against you
• How to spot biased referrals

Podcast 210

direct download | Internet Archive page | iTunes

PS Are you planning to switch?

FIGHT BACK AGAINST CORPORATE TRICKERY WITH ELLEN ROSEMAN’S INSIDER TIPS

Fight Back; 81 Ways to Help You Save Money and Protect Yourself from Corporate Trickery is a tough book to read. It's filled with example after example after example of businesses behaving badly  towards their own customers. Unfortunately, this isn’t a work of fiction.

Author Ellen Roseman has an unusually good sense of what goes on in real life. She’s a consumer advocate for readers of The Toronto Star and her On Your Side blog.

Repeat When Necessary

My brain gets overwhelmed when shown 81 ways of doing anything. I start looking for patterns and principles that usually work. Here are five steps to fight corporate bullies:

1. Read before you sign (and ask questions)
2. Keep records (including steps you taken with the company)
3. Follow up
4. Stay calm (and polite)
5. Be persistent

The first step is a big problem. Who reads before they sign? The terms and conditions are difficult to read and understand. They might change later. Take-it-or-leave-it. Even worse than fine print is what’s left out. You can’t evaluate what’s missing unless you know what ought to be there. Even a pizza flyer isn’t straightforward. At least you’re not signing a multiyear contract with cancellation penalties.

More Is Less

Fight Back has multiple authors and 81 tips. Both lead to some overlap. Sometimes I felt I was reading what I’d already read. Though, that helps show how widespread basic problems are.

Perhaps Ellen means for us to read the section that matters to us at the time. For instance if your current concern is your high phone bill, you don't need to read tips on fighting your bank just yet. Perhaps you use the book as a reference.

Very Different

Normally, a business wants you to keep you as a customer since that’s more lucrative than finding a replacement. When new customers are enticed with incentives, they are less profitable. Maybe they’ll leave when the normal terms take effect. Your “loyalty” (or inertia) gives you leverage — if you ask.

Life and health insurance is very different (and outside the scope of Ellen’s book). If you cancel your coverage, the insurer makes money. That's because you've been paying premiums and didn't get any back (though you did have peace of mind). New products come with new conditions and higher rates.

With offerings like banking and Internet service, you experience what you're buying regularly. You can detect changes in performance and price. Even if you don’t, others might. That’s an advantage of buying a commodity-like offering. Combined voices are more powerful when singing in harmony. Social media spreads outrage quickly, which helps get results. Look at what we’ve achieved as Internet users through OpenMedia.ca.

With insurance, you get the financial benefits at the time of the claim ... which may never happen. If you cancel your coverage, you may face big penalties (much larger than for mobile phone contracts). If you buy again, count on paying more since you're older. Depending on your health and finances, you might not even qualify.

With insurance, the key is getting your claim paid, should you have one. You increase your odds with the right purchase since changes may not be possible later.  Each life/health insurance case is unique and subject to privacy issues. It's difficult to show widespread problems and get mass support. In many ways, you’re on your own.

Imagine

Imagine living in a world of trust where the sellers put our best interests first. Until then, buyer beware. Thanks to Ellen, for fighting on our behalf for years and now giving us tools to fight back on our own.

Links

• Ellen Roseman: website and Fight Back launch article
• Ellen Roseman makes financial basics lively
• The dread of going to the bank for a loan
• Interview: Fighting Back on CBC Radio (Mary Ito, Feb 23, 2013)
• Interview: Fighting Back on WhereDoesAllMyMoneyGo.com (Preet Banerjee, Jan 25, 2013)
• If you have/had/want money, read Pound Foolish
• Three keys to getting your insurance claim paid
• Check your pizza literacy
• Worse than fine print
• The word advisors imply ... but dare not say
• Three powerful protectors against corporate misconduct

Podcast 209

direct download | Internet Archive page | iTunes

PS How do you fight back?