RISCARIO INSIDER: July 2014

July 26, 2014

FINDING VALUE IN UNEXPECTED PLACES WITH JOE BARBIERI (@joetheinvestor)

Saving money is like making money but better: you’re keeping more of what’s already yours. Could value be lurking in places you aren’t looking?

Joe Barbieri, a true fee-only financial planner gives tips in the new series, Tea At Taxevity. The short conversation encompasses:

simplifying your finances
why people don’t already consolidate their accounts
the place for joint accounts
the risk of too few accounts
the time/money conundrum
finding the best choices
tax strategies
the right place to put investments
the ROI on learning
the risk of oversimplifying

The Interview

Here’s the quote from Albert Einstein:

“Everything should be made as simple as possible but no simpler.”

July 20, 2014

EXPERIENCE THE BEAR CREEK EXOTIC WILDLIFE SANCTUARY (@tigersanctuary)

feeding a tiger ice cream - don't try this at home!

What happens to unwanted, abused or injured exotic animals like lions, tigers and wolves in Canada?

I hoped that animals used in movies, research or zoos would receive pensions to fund their retirements. Instead, they’re often killed or given to sanctuaries. Since 1989, the non-profit Bear Creek Exotic Wildlife Sanctuary has taken care of some. It’s located near Barrie --- perfect for a day trip from Toronto or en route to the cottage.

What You See

Mary Barros guided us patiently and told us about the animals. She answered many questions. We visited on a perfect day: overcast with temperatures in the mid 20s. There were mosquitos but didn’t apply the bug spray provided.

The sanctuary has many different types of animals. You’ll probably never get closer to likes of tigers or wolves. We got to pet several safer animals, including Bob the Bobcat.

The Highlight

For years, I’ve wanted to attend a Public Wolf Howl at Algonquin Provincial Park where wolves sometimes respond to imitation howls from the park rangers. These events have become big. The most recent one, #116 had 566 cars and about 2,260 participants. At Bear Creek, we heard wolves howling twice without any trickery, which saves us a trip to Algonquin.

Book A Group Tour

Invite your friends and family. You can only visit the sanctuary as part of a group walking tour which lasts about three hours. We had a group of seven. Arrive on time and wear comfortable shoes.

Your ticket is a donation. The price may seem steep (minimums of $50 for adults and $25 for children) but you get a memorable experience and help people who care run the sanctuary.

If you can’t go in person, visit the Bear Creek website. They accept donations and you can “adopt” an animal.

July 13, 2014

ENDING 10 YEARS WITHOUT A TV

We bought our last TV on Boxing Day 2000. The 56" Panasonic widescreen rear projection TV (not shown) supported 720p and 1080i. That was the largest size that would go down the stairs into our family room. The “blowout” price was $4,500 plus $250 for an extended warranty (4 years total) plus tax. We waited days for delivery. Once connected to our powerful Yamaha / Paradigm 6.1 sound system, we had a great home theatre. The remotes were a hassle. There were separate ones for the TV, amplifier, DVD player and VCR. A pricey Harmony unified remote helped but glitches were common.

The Signals

We were never big TV watchers and cancelled our basic cable in 2001. We preferred movies on DVDs we

borrowed: the library had a surprisingly large selection
rented: Blockbuster had free helium balloons for kids and a speciality store had free popcorn while browsing
bought: especially new releases, classics and box sets

Our TV required repairs several times to fix alignment problems which caused blurriness or cutoff part of the picture. Shortly after the warranty ended, the TV stopped working. We didn't bother with more repairs. Two summers ago, we dragged the TV outside. It was gone in minutes, perhaps to be stripped for the metal or parts.

The Next Screen

We switched to using a business-grade projector connected to a computer. The wall made a huge screen, though we eventually got a real screen. We still have that setup but don't use it often. Instead, we've been watching Netflix on computer, tablet and smartphone screens. That's convenient but not the same. Maybe it’s time for a new TV?

TVs Today

The world is different today. Gone are the bulky, heavy CRTs. The battle between plasma and LCD is over with LED the winner. There are many options ranging from 2D/3D, 1080p/4K, flat/curved, regular/smart. There are numerous screen sizes from 32" up. How do you decide?

Since TVs keep improving and 4K is on the way to the mainstream, getting a pricey model didn't look prudent. There are excellent choices at much lower prices than we paid in 2000.

I wanted a TV small enough to move from room to room. A 32" smart TV with 1080p resolution looked like a good choice and is apparently the most popular size in the UK. While the screen may seem small, you can compensate by moving it closer to you.

Google Chromecast turns any TV with two free HDMI slots into a Smart TV. Unfortunately, many modern TVs take shortcuts by having only two HDMI slots. Having the smart capabilities built-in seemed better, depending on the extra cost.

The Purchase

You’ve got flexibility if you’re not stuck on a particular brand. Costco makes buying comfortable and risk-free. You get fair prices, sound choices, a 2-year warranty (extendable to 5 years) and 90-day returns.

Samsung UN32EH5300 32” Smart TV (2012)

I got a 32" 1080p Samsung Smart TV plus the $30 extended warranty. It was light enough to carry and small enough to fit in the trunk. That wasn't the case with our 27" Sony XBR Triniton in 1987.

Did we really need a TV after many years without on? I left the TV in my vehicle for a couple of days and floated the idea with my family (see #7 of the 12 timeless shopping tips). They had mixed feelings. I used the "puppy dog close" — let's try it and see if we like it. They say they weren't fooled.

The TV has excellent quality. It's a 2012 design (though manufactured two months ago) and looks a little dated. The setup was quick. The main pain was connecting to our WiFi network and Netflix because inputting passwords is a hassle without a keyboard. The picture quality is excellent and the sound is good. There are three HDMI ports. The main drawback is the long startup speed. It's as if you're booting up a computer, which in a sense you are.

We soon found the 32” screen too small. How quickly requirements change.

Sony Bravia KDL-48W600B 48” Smart TV (2014)

The new Sony 48” smart TV looks like a good choice when coupled with a $60 five year warranty. We've had numerous Samsung products over the years and they tend to look cheap.

We got the Sony, which is noticeable better. Even the carton shows more thought. Taking a large item out of a box isn't much fun. We normally put the box on its side and slide the item out. Sony has a U-shaped cardboard sleeve that goes around the TV. That's perfect for lifting the TV out. There are better warnings about the dangers to children and a smoother setup. The smart TV is easier to use (perhaps because we have a 2014 design).

There are several drawbacks:

Sony uses an ugly brick with a too-short cord for power (Samsung only requires a cord)
The HDMI and USB are on the back to the left, which makes them tougher to reach with a larger screen (Samsung puts them on the right hand side)
Netflix programs stop, as if the WiFi signal is weak. Further testing shows the cause is likely the Netflix app, which will likely be updated soon.
The remote control isn’t illuminated

The are advantages too:

anti-glare coating reduces reflections
nice design (thin bezel, metal stand)
works well as a computer monitor (text visible from feet away)

The Next 10 Years

Having a smart TV does make a difference. There's lots of content to watch and a larger screen is wonderful for showing detail. We aren't returning to broadcast TV or pay TV. We're only paying for Netflix.

How long will the new TV last? The warranty assures us of five years. We hope to keep the TV longer but even if we can't the overall cost is reasonable since we didn't get a pricey set.

There's more you can do with a TV today, such as viewing photos on a large screen. Thanks to WiFi, we're no longer limited by the location of the cable outlets. Hurray for progress. Plus, if the TV breaks down we know we’ll manage.

July 7, 2014

WHY DO YOU CARE WHAT YOUR INSURANCE ADVISOR GETS PAID?

Life insurance offers solid protection and powerful tax advantages when properly implemented. If buying puts you in a better position, why does the amount of money your advisor gets matter? Logically it shouldn’t. Emotionally, it does.

We Balk At The Unfair

We have an innate sense of fairness from birth. Give a child a cookie and they’re happy … until they see another kid got two.

Let’s say a stranger and you can share $10. The stranger decides on the split. If you’re not satisfied, both get nothing. If you were offered $1, you’re still ahead but would you let the stranger keep $9 (a 10/90 split)? Maybe you think a 50/50 split is fair but would accept 30/70. If you don’t get enough, maybe you’d cancel the arrangement leaving each with nothing. That’s what happens in the Ultimatum Game.

The Insurance Dilemma

Now suppose you don’t know how much money is available. You might might reject $7 if you think the stranger has more than $10 to share. Perhaps the stranger has $20 or even $100 to split.

With insurance, the products have margins built in. Advisors and buyers don’t know how much. Insurers decide on the split in value between the advisor and you. As the advisor gets more, you get less. Insurers who sell through independent advisors must pay compensation similar to their competitors. Otherwise, advisors are tempted to sell products from other companies (even if inferior).

You can’t tell if you’re getting an optimal deal since you don’t know what’s possible. There are different types of products (e.g., term, whole life or universal life), different companies varying in corporate governance and different ways to structure strategies. You only know what the advisor chooses to show you. You don’t know what factors influenced the selection.

Secrecy

If you paid your insurance advisor directly, you could compare what you’re spending with the value you’re getting. The industry fears you wouldn’t pay as much as advisors want. Their solution is to hide the compensation inside the products.

The lack of transparency has a side effect. You may think your advisor gets paid too much.

You probably don’t know what your peers earn and advisors don’t know what other advisors get paid. Compensation can vary by distribution channel (captive agents vs independent advisors vs national chains). While commissions are standardized within a channel, insurers pay varying bonuses (called “overrides”) to intermediaries called Managing General Agents (MGAs). In turn, these MGAs keep a small portion and pay the rest to the advisors contracted through them. Since top MGAs and top advisors get more, the rest get less. That seems fair — pay for performance.

Perceived Value

Becoming an insurance advisor requires little more than passing a multiple-choice exam. People who invested heavily in their careers — say by going to university, getting a professional designation or achieving financial success — may resent advisors making lots on a sale.

Sales success comes more from prospecting than technical skills.

Advisors who’ve been in business for 10+ years know how to sell. They look and act trustworthy. Appearances aren’t evidence of product knowledge or signs that you’ll get ongoing service. Advisors might keep selling what they’re used to selling rather than mastering better options.

When you have doubts about value and fairness, maybe you need more information?

Links

PS When you fill out an insurance application, your advisor finds out what you're paid and what you're worth.