RISCARIO INSIDER: financial risks

Showing posts with label financial risks. Show all posts

December 21, 2014

GET/GIVE TONY ROBBINS NEW BOOK “MONEY: MASTER THE GAME”

There are lots of reasons to read a book about money and there are lots of books about money. Tony Robbins has a new one, Money: Master The Game.

Unfortunately, not many people read books. Even fewer read nonfiction. Only a small sliver read books about money. Be an exception and join them.

Not Perfect

There are various criticisms of the book, such as

an outsider: but being outside the traditional financial community gives Tony a different perspective
contradicting advice: but that’s common in life. He interviews 50 money experts with varying views.
over-simplified: but isn’t that better than over-complicating and confusing? Complexity can be added once the A-B-Cs (or 1-2-3s) are known.
conflicts of interest: Tony recommends companies in which he might have financial interests (see dealing with biased financial advice). That doesn’t mean the choices are bad but they but warrant more investigation.
too long: yes … I got the audiobook which runs over 21 hours and sped up the playback by 30%
US-centric: yes but the general ideas apply everywhere

Tony responded to some criticism in this interview for The Wall Street Journal.

At the other extreme, you’ll find gushing praise.

Tony’s Advantage

Do celebrities give better financial advice? Maybe not but Tony reaches the unreachable — people who get missed by conventional financial education. Even when Tony says things you’ve heard before, you might be more likely to believe them now. For instance, I’ve covered things like

$1,000,000 after taxes on investment growth (2007)
Your life expectancy exceeds 1 billion seconds (2009)
Why is financial planning ignored? (2009)
The Globe and Mail on Canada’s insurance loophole (2011)
How to protect your money from Goliath (2013)

We often know the keys about money (e.g., spend less than you earn, disaster-proof your life, save for the future). That doesn’t mean we do. Tony helps people change. He might get you to change too. He has a knack for making financial education engaging. He explains his terms and uses many examples.

Differently

Instead of writing a book, Tony could have created videos and an app. That’s what I thought before getting the book. I don’t see videos, but he has a free app (if you’re willing to give your contact information).

Instead of using a conventional publisher, Tony could have self-published. He could have made the book cheaper. He could have narrated the full audiobook, rather than portions.

Overall, what he did is fine.

Free Meals

Tony is paying for 50 million free meals. Besides donating all his book royalties, he’s made an additional personal financial contribution. That’s rare. Chances are good that you’ll end up on his mailing list, though. That gives him the opportunity to sell you his other stuff with the money you’re saving.

Caution

Tony tackles tough topics such as the conflicts of interest rampant in the financial sector. He gives solutions too. Think before you leap.

The stories from successes like Richard Branson are interesting but may not provide much practical guidance (e.g., how Honest Ed turned $212 into $100 million). Look for patterns rather than a guaranteed formula to financial independence.

I wasn’t expecting much from Tony’s book but because he’s popular, I knew that I had an obligation to read it. Overall, I’m impressed and highly recommend Money: Master The Game. There’s lots of practical advice.

Money books get stale. Tony’s book is new, which means now is the best time to read it.

Links

PS Another must-read (or re-read) is Warren Buffett’s biography, The Snowball

November 1, 2014

A CHALLENGE FOR FINANCIAL LITERACY MONTH (#FLM2014)

November is Financial Literacy Month in Canada. Getting attention during the busy period between Halloween, Black Friday, Boxing Day and New Years Day isn’t easy. According to Google Trends, interest in financial literacy has been growing. That’s great news. Kudos to everyone helping create awareness.

"financial literacy" - Google Trends in Canada

There’s more to do.

The Challenge: Current Creators

If you already create ongoing financial education, Thanks! Why not try something new:

change your format: you likely prefer text, audio, video or photos. Try a different one.
go live: e.g., hold a Hangout On Air, speak at an event or have a Twitter chat
adjust your frequency: create more content or cut back to make time for something new
alter the length: you could make your content longer or shorter
experiment with a different platform: are you using the LinkedIn Publishing Platform or Pinterest?

You might reach a new audience and feel more enthused to create more content.

The Challenge: The Silent Million

According to Statistics Canada, 1,122,300 people worked in finance, insurance, real estate and leasing in 2013. That’s 6.3% of the workforce (1 out of 16 people). How many of them publish their own original content to help the public understand money better? Now’s an ideal time.

If a mere 2.7% published a single article during Financial Literacy Month, we’d have 30,000 new articles --- 1,000 a day. And 100,000 articles only requires 8.9% to volunteer for a worthy cause which their employers likely support.

Others know about money too. For instance, accountants, entrepreneurs, executives, lawyers, professors, retirees and teachers. Include them and 1,000 pieces of fresh content a day looks even more feasible.

If each creator promotes to their connections, imagine how many new people could be reached and helped.

Case Study

I’ve been looking for ways to engage people who aren’t especially interested in learning more about money.

For last year’s Financial Literacy Month, I organized Money 50/50: Insider Advice For Today’s Topsy-Turvy Times at the University of Toronto (like TEDx plus Q&A). November got postponed to February and the Ted Rogers School of Management (see recap). Since TEDx Talks become videos, I decided to skip a live event and interview these insiders who might have been speakers:

How much money do you need before getting financial advice? (Joe Barbieri)
Financial independence at 31 (Sean Cooper)
The Capital Gains Exemption isn’t a gimme (Mark Goodfield)
Insights from an advisor to the insurance industry (Ross Morton)
Reaching the unreachable (Jonathan Chevreau)
Investing outside the markets (Vikram Rajgopalan)
Five essentials to being a better investor (David Toyne)
Planning for aging (Gary Hepworth)
Demystifying SR&ED (Julie Bond)
Retirement planning for small business owners and professionals (Clark Steffy)

This month, I’m

guiding Grade 8 students through the Economics For Success via Junior Achievement
sharing Business Strategies For Taxing Times at the Toronto Regional Board of Trade
launching a series of short educational videos called QanA (Question an Actuary)

Thanks to past, current and future creators of money-related content. Thanks also to everyone who invests in learning.

Links

PS Money matters every month

October 25, 2014

WHAT HAVE YOU LEARNED FROM THE LATEST DISASTER?

Life keeps breaking bad. Floods. Plane crashes. Shootings. Bombings. Diseases. Power outages. Forest fires. Computer viruses. Sometimes bad happens to strangers in a distant continent. Sometimes to people we know or places we’ve been. Good happens too, but gets less attention. Who would watch The Walking Alive, The Empire Doesn’t Strike Back or Breaking Good?

Many headline-grabbers fall into what Stephen Covey calls our large Circle of Concern. We can only make a difference in our smaller Circle of Influence which lies within. Do we do what we can?

Looking Back

When we look back, mistakes looks “obvious”. They weren’t at the time. No one can take all precautions all the time. Right Maleficent? Situations also change. A locked barn door doesn’t protect against leaks, tornados or termites.

Our priorities shift. One day we want lower taxes and convenient access. Another day we want more services and strict security.

At a personal level, memories fade. We forget to prepare (or stay prepared) for next time to the extent we intended.

Mismatched Resources

When disaster strikes outside our homes, society at large can help. Billions of dollars can be committed. There’s an outpouring of support, sometimes from other countries.

click to watch the The The Three Little Pigs on YouTube

When disaster strikes within our homes, we can’t count on the same help. We can take precautions

We can also transfer the financial risks in advance. That’s precisely what insurance does. Because there’s a price and underwriting, we can’t buy an unlimited amount. We’re forced to evaluate the risks, which can be difficult on our own. We tend to fear the wrong risks (e.g., sharks or terrorists) instead of higher probability risks (e.g., disability and longevity).

Looking Forward

To paraphrase Jim Rohn’s dad: You can’t fix the roof when it’s raining. And when it’s sunny, you don’t need to.

What will you do with what you know now? It’s easy to become desensitized (and do nothing) and hard to mobilized (and take action steps within your control).

Links

PS Good also happens … sometimes from preparing for bad.

August 25, 2014

TIPS ON BUYING CAR AND HOME INSURANCE

was the dog the driver? pickup truck + ditch + winter = accident

When you’re looking for insurance on your home or vehicle, you may be tempted to pick the lowest price or buy from a convenient place. More important is whether your claim will be paid.

When disaster strikes, you find out how good your car or home insurance really is. Many customers were shocked after Hurricane Sandy and the Western Canada floods. They found they didn't have the protection they expected. Some insurers stepped up to make exceptions. That's the type of insurer you want if you ever have a claim.

How Premiums Get Set

Actuaries make guesses ("projections") of future claims based on past data and future trends. If actual claims are higher, profits are lower. That leads to pressure to restore profits. (Factors like expenses and investment returns also affect profits).

Raising rates isn’t easy unless competitors do too. Another solution is to quietly cheapen the ingredients.

Example: Since strawberries are expensive, Starbucks coloured their Strawberry Frappuccinos with natural red dye from cochineal beetles. Consumers found out and weren’t pleased. Starbucks wasn’t prepared to use real strawberries but compromised by switching to dye from tomato extract.

Cutting Back

Insurance gets cheapened by cutting back on the protection --- transferring more risk to you. Coverage which was solid last year might deteriorate this year. For car and home insurance, the terms can often change each year when you renew your protection. You might face

more exclusions
bigger deductibles
smaller benefit limits

The Alberta floods showed that premiums may have been similar but some insurers were denying claims their competitors covered despite similar contract wording. Now insurance policies changing after the $1.7B in flood payouts --- even for customers who weren't affected.

Note: Life insurance, disability insurance, critical illness insurance and long-term care insurance are different. Rates are often guaranteed for life and contract wording can’t be changed.

After Hurricane Sandy, about 23% of claims led to no payment. The two main reasons: exclusions and high deductibles. Did these buyers know they weren’t covered? Who advised them?

Since insurers decide which claims to approve and how much to pay out, they can improve their profits by denying claims and/or reducing payouts. Since each claim is assessed separately, trends are difficult to spot. You may recall Hurricane Sandy victims getting short-changed on their flood insurance benefits by the claims adjusters who the insurers trained and employed.

Taking Precautions

There are three keys to getting claims paid for any type of insurance: select an independent advisor who works through an independent distributor and offers products from insurers which keep promises.

If you buy directly from the insurance company, who’s on your side during a dispute? You might get stuck dealing with a by-the-script call centre representative located far away.

If you buy through an association (or group), don’t count on lower prices, stronger guarantees or more lenient claims adjudication. The association likely receives big financial incentives since insurers compete to get access to the members. As the association becomes dependent on the revenue where are their loyalties?

Bank of America had buying power with QBE Insurance but inflated the cost of insurance they forced homeowners to buy. The result is a $228 million settlement. Other banks had similar schemes and also got caught.

Apples or Avocados?

Unless you're very patient (or a lawyer), you may have difficulty comparing one insurance contract with another. How do you know what's left out or what's weak? An independent advisor can help. You can contact more than one.

Generally speaking, prices are similar among companies when you're making a fair comparison. Be wary if you find big price differences. What are you giving up for the apparent savings?

Money Saving Tips

With property insurance, there is a component to protect you from liability claims. If you have both home and car coverage, you're getting liability coverage in both places. You may save money by getting both plans from the same insurer, reducing the liability coverage and buying an umbrella policy for the liability.

Look At Corporate Governance

When disputes occur, you benefit from having an insurer that ranks high in corporate governance (a measure of keeping promises). They’re more likely to treat you well and make exceptions. For example, TD was reversing decisions on Alberta flood claims and lost $170 million. That's better for customers than shareholders.

Links

PS As the summer driving season ends and schools re-open, please pay attention to the most dangerous part of driving.

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.

June 15, 2014

READ THIS BEFORE GIVING REFERRALS TO AN INSURANCE ADVISOR

Insurance advisors love referrals but why would you bother giving them? They sell the same products from the same insurance companies at the same prices. What really sets an advisor apart?

The potential advisor must show they are significantly better or different to overcome the client's inertia. As with other consumer goods, packaging helps.

A common approach among insurance advisors is claiming to offer “exclusive” financial strategies. There’s a risk with financial innovation but there’s an allure too. The advisor might sell something different, but at least they got to meet the prospect. The “10-8” insured leveraging strategies were often used as door-openers, though the 2013 federal budget reduced their appeal.

Before giving a referral, consider these questions.

Do you understand the strategy?

If you can't explain it simply, you don't understand it well enough.
— Albert Einstein

Just because you don’t understand a magic trick like levitation doesn’t mean you can believe your eyes. Insurance strategies are designed to look appealing and plausible. Advisors are trained to look knowledgeable and sincere.

Results which look too-good-to-be-true, might be. Assumptions and interpretations affect the results in ways that may not be obvious.

What if the advisor is wrong?

You likely aren't an expert in what the advisor is selling. You might not be especially interested in the details. If the advisor is wrong, what's the worst that could happen?

You're a steward with an obligation to protect your connections. What happens to your relationships and credibility if you make a bad referral because you didn’t do enough checking?

What makes the new advisor a better choice?

Unless the new advisor seems better, why go through the hassle of switching? The new advisor might appear more innovative, more knowledgeable and better at providing ongoing service. That doesn't mean you get what you see. Advisors are trained at prospecting. The successful ones get very good at building rapport and getting business.

What makes the advisor a true expert?

The only source of knowledge is experience.
— Albert Einstein

Advisors get rewarded for selling. Success requires being good at that. Once they've found a prospect, they can bring in other people to help them. I was a resource for them when I worked for insurance companies.

It's unrealistic to expect an advisor to be an expert in the technical details, the substance. They are rewarded for creating the sizzle that marks the start of the sales process and the closing at the end. They get help in the middle.

Think of buying a car. You start with the salesperson, talk to a service advisor for maintenance, have the work done by a technician and pay the service reception desk. This division of roles is more efficient and provides you with better service.

To get more than sizzle. Who taught the advisor? Who supports the advisor?

Does the advisor claim to have unique strategies?

The secret to creativity is knowing how to hide your sources.
— Albert Einstein

If an advisor claims to have have something unique, you may not be getting the whole story. The only difference may be in the packaging. Ultimately, you get the same product from the same insurance company at their normal price.

When I was the product actuary at National Life, we created white label products like MD Life Plan (sold to doctors) and TD Universal Life (sold to bank clients). These products performed better than our normal products because the compensation was lower. Other advisors who sold our products were not pleased that we were helping their competition. Sales suffered. Lesson learned. Future white label products had our normal street pricing and differed only in packaging (e.g., exclusive investment choices in UL).

What are the potential side effects?

A fiduciary like a doctor, lawyer or accountant has a legal responsibility to tell you about side effects from a recommendation. Salespeople need not unless you ask.

For instance, when I got my first SUV, I wasn't told the tires only lasted 40,000 km and that replacements cost $500-$700 each! I wasn’t told how pricey the scheduled maintenance was either. Caveat emptor in action.

Who is the supporting the advisor working?

Advisors need help with complex strategies. Asking for help creates obligations to

sell higher compensation options to "feed" the extra mouths
sell products from a specific insurer if getting help from them
close sales to get the revenue

If an advisor claims to be working alone, be wary. That’s unlikely. Life insurance combines the specialized worlds of risk, accounting, investment and law. How well could one person know all of them?

How forthright is the advisor?

"It's the words that we don't say that scare me so."
— Elvis Costello, Accidents Will Happen

A forthright advisor tells you what you ought to know before you ask.

Have you been given adequate information about the advisor's hidden incentives (e.g., commissions, bonuses, conventions), the downsides, the reasonability of the assumptions used or the alternatives? You may have difficulty figuring out what's left out, which makes it tougher to ask the right questions and gauge the responses.

What does Google say?

Experts publish and get interviewed. Is the advisor an expert?

Do a web search for the advisor’s original content. In particular, look at their LinkedIn profiles. What have they published there? How recently? How many readers do they have?

Nothing stops advisors from creating and publishing quality content continually — except themselves. Their digital tapestry shows the past and may predict future performance.

Why does the advisor need your help?

If you bought what the advisor wants to sell to your connections, you have a reason to tell the ones who might benefit.

If you didn't buy, you don't have direct experience with the advisor’s full process. That’s a reason to be more cautious. The post-sale service might not meet your pre-sale expectations.

Who backs the promises?

Things can go wrong. What then? What is the advisor guaranteeing? The fineprint often tells you to get independent advice, which is a way to transfer responsibility from your advisor.

If you're using standard strategies backed by mega-insurance companies with solid corporate governance, they have incentives to fight on your behalf. For 10-8 insured leveraging, insurers fought all the way to the Supreme Court. If you're buying an “exclusive” for-your-eyes-only strategy, who can you count on?

What’s your reward?

Advisors might pay you a referral fee if a sale occurs. This is illegal in Ontario but still happens. If you're getting rewarded for giving referrals, your objectivity may suffer --- even if you think you're unbiased. It's tempting to believe what makes us money. It's not as if people are forced to work for tobacco companies or today's equivalents like processed foods.

Would you make a referral for free? If not, should you for money?

Links

PS Buyer beware. Referrer beware too.

June 8, 2014

FIVE MONEY LESSONS FROM JACK BAUER AND 24

We can learn valuable lessons about money from Jack Bauer (Kiefer Sutherland) and others in the Counter Terrorism Unit (CTU) . Here are five.

1. Communicate Clearly

When time is tight, every word and second matters. In 24, you know what’s said and what’s meant. Simple questions get asked if there’s a need for clarification or confirmation.

Does your advisor have a clear understanding of what you want? Your goals and priorities may have changed since your last meeting. Advisors are not mind readers and may not be proactive. Tell them.

Conversely, your advisor also has an obligation to communicate clearly with you. If you don’t understand, ask. Since you’re paying, you’re in charge. Get your money’s worth.

2. Trust With Caution

The world of 24 is filled with mistrust. You can't tell who’s telling the truth or how long the honest will stay truthful. The stakes are very high and human motivation is complicated. There are conflicting interests. The losers don't accept defeat willingly.

Defiance harms trust. When people think they're doing right, they may bend rules, violate direct orders and tell blatant lies. The bad people have an advantage because they aren't constrained by rules of law.

Building relationships is a key strategy for advisors. Relationships help retain you as a client and make you more receptive to advice. As the years pass, you can become more vulnerable. For instance, Tom Hanks got cheated by his insurance advisor but the process took years. In 24, the process is much faster.

3. Each Moment Is Unpredictable

The world of 24 is filled with twists and shocks. We don't know what’ll happen in the next moment or next hour. That’s true in real life too.

On 24, we know Jack will overcome setbacks and achieve the key goal. Our lives have drama but don't come with the same assurances. Unpredictable events like injury, sickness or death are rare in our working lives (low probability) but can cause serious financial hardship (high severity). Insurance is a cost-effective way to transfer the risks.

4. We All Need Help

Jack is the main character but he relies on help from many others. Sometimes he asks the wrong person but things eventually work out. Diligence is important. Keep inspecting what you're expecting.

Since each organization has different strengths and limitations, Jack gets help from different places (CTU, FBI, the NSA, the President). If you rely on advisors from the same firm, you get convenience but risk unknown compromises. You get more options with independent outside advisors.

Sometimes Jack can’t get the help he needs because the providers havce conflicting interests. The good of the many can take precedence over one life. That makes sense unless you’re the one. That’s when you need to look out for yourself.

5. Be Flexible

Events don’t happen as expected. When a plan fails in 24, Jack and team make instant changes with minimal discussions based on the little information they have.

Our own lives often lack the excitement a viewing audience demands. That's good. Precautions like insurance reduce the drama further.

After all, Jack Bauer and CTU are forms of insurance — well worth the premiums.

Links

PS We never watch 24 before. Thanks to Netflix, we’re well into the third season.

February 22, 2014

MONEY-SAVING TIPS FOR CAR SHOPPING TODAY

Looking at shiny new vehicles is fun. You’ll find lots at an autoshow or by visiting different dealerships. The problem comes when buying. Emotions and wallets get involved. Spend a little more, a little more, a little more, …

We’ve been looking for a replacement for our three year old leased Mercedes-Benz ML 350 Bluetec diesel. A comparably-equipped current model costs $7,000 more …

Key Factors

When deciding on a vehicle, look at

the cost of maintenance: This is “free” with BMW. Audi and Mercedes let you prepay. Lexus uses the old pay-as-you-go model.
the options: While 20” rims look nice on an SUV, the tires don’t last long (heavy vehicle, not much rubber). I replaced a set at 40,000 km for $2,200. That was an unpleasant surprise.
the lease rate: varies by term. Often lowest for 36-48 months. There may be unadvertised discounts. For instance, Mercedes offered a reduction of 1.5% (0.75% loyalty bonus + 0.75% as an autoshow special)
your initial outlay: how much money do you pay when you take delivery? The dollars can add up quickly. When comparing vehicles, make sure this matches.
the residual value: when leasing, you’re financing the difference between the purchase price and the estimated depreciated value at the end of your lease. A high residual (55% on our current Mercedes after 36 months) reduces your costs. A cheaper vehicle with high depreciation could cost you more than a pricier vehicle with lower depreciation.

Do look at all costs after tax.

Skip The Autoshow

We went to the Canadian Autoshow for the first time, thanks to free tickets from Mercedes. We chose the first Sunday and arrived shortly after opening. What a zoo! There are lots of vehicles but you can’t do much more than wait your turn to sit in them. I thought we’d see lots of autoshow specials but they aren’t advertised here.

Rather than paying for tickets, parking and food, visit dealerships for test drives. The showrooms tend to be close together, which saves you time. We tend to go on weekday evenings after dinner and past the ‘rush hour’ traffic. Avoid Saturday (though that might be a good time to negotiate).

Do Your Research

You’ll find lots of information online. You might start your search here. The best site for comparisons is US News & World Report. They amalgamate reviews from other sources such as Edmunds and Kelley Blue Book. They also rank vehicles by category. That’s a nice time saver.

Because it has the best combination of positive reviews, price and long-term ownership costs in its class, we named the 2014 Lexus RX 350 the Best Luxury 2-Row Midsize SUV for the Money.
— US News & World Report

The Cost of Ownership

What are the costs of maintenance, repairs and fuel? Motor Trend does a cost breakdown over the first five years and includes other categories — another time saver. Your actual results will vary. The example below shows a Mercedes diesel SUV is rated excellent compared to similar vehicles. The costs are still high, especially in years 4-5. If you’re leasing for three years, that won’t matter. If you’re buying or considering buying after your lease ends, you will.

The above information is for the US but is good for relative comparisons.

The Value of Your Current Vehicle

If you’re trading in your current vehicle, how do you know what it’s worth? Get a free estimate with Canadian Black Book. Rather than trading, you might get better results by selling the old vehicle yourself.

When negotiating, you’re at a disadvantage when you disclose too much. It’s wise to get the best price for your new vehicle before saying you want to get rid of your old one.

Buy or Lease?

Unless you must have the latest model, buying looks like an ideal choice. That might not be the case unless you have an affordable mechanic you trust. Even then, you’re still at risk. Cars are packed with technology that must endure extreme conditions such a temperatures that range from freezing to boiling. That makes the repair costs are difficult to predict. The blind spot sensor in my three year old Mercedes failed. The replacement was $1,800, excluding labour, tax and inconvenience. The warranty covered the costs but a surprise like that could happen later too (unless you don’t have this useful feature).

Our solution is to lease our primary vehicle for 36-48 months while the manufacturer’s warranty applies. That provides peace of mind. We also have a Toyota minivan we bought years ago. Selecting a vehicle with low service costs also helps.

If you drive more than 24,000 km/year, leasing may not be feasible. If you buy, do consider an extended warranty. They’re cheapest at the time of purchase. You get peace of mind and increase the resale value.

Get Discounts

You’ll save money if you’re flexible.

You get the best deals when you buy what isn’t selling well. You’ll get an idea from the lease rates. For instance, BMW leases the 535i xDrive Grand Turismo at 3.9%. Last year’s model drops to 0.9% for terms up to 48 months and benefits from generous discounts that get better as inventory drops. Hyundai is leasing last year’s Genesis sedan at 0% but paying cash saves you $11,000.

You save more when you get a low mileage demonstrator. These models tend to have more features and bigger discounts. They’ve been well maintained. Plus, you don’t pay for Freight and PDI costs get waived, which can save you $2,000.

Negotiating

What’s a fair price to pay?

Get a free price quote from Unhaggle. In exchange, you provide your name, email and phone number. This goes to a dealership. I tried their service for three vehicles. Two dealerships called within 30 minutes. That’s okay since you now have someone to answer your questions on the phone. Unhaggle will also negotiate for you for $99 without identifying you. If you get a better deal, they'll refund their charge. Maybe they’re worth a try?

Links

PS Good luck with your hunt!

February 8, 2014

HOW TO CHANGE YOUR BEHAVIOR

At Insider Advice for Today’s Topsy-Turvy Times (which went well, thanks for asking), participants asked how to change the way they behave. That’s an essential but overlooked aspect of mastering our money — and our lives.

We often know what to do (e.g., payoff credit card debt, stay employable, get insurance). We may even know how (or can ask Google). That doesn’t mean we will do anything.

There’s a big gap between knowing and doing. Three steps make the difference: wanting, starting small and getting help.

Want IT

Those who have a ‘why’ to live, can bear with almost any ‘how’.
— Viktor Frankl, Holocaust survivor

Without a compelling goal, will you invest the effort needed after your initial enthusiasm wanes? You must want — really want — the outcome. That’s the second of the seven habits of highly effective people: begin with the end in mind. A strong why defeats an inconvenient how.

What do you want enough to take action now? Put other items on your bucket list or balk-it list for the future.

Example: I want to improve my general health now to prevent problems later on. I’m not a morning person but selected a 16 week yoga class which meets on Saturday from 7 AM to 9 AM. Today was week six and I’m keeping up.

Start Small

If we take on too much, we’re likely to fail. If we take small actions, they soon become automatic and faster. We can then add more.

Do you remember the transition from a trike to a bike? We already knew how to pedal, brake, turn and ring the bell. Now we learned to balance, first with training wheels and soon without. We had scrapes along the way but our desire to ride a bike helped overcome them. Help from our family and friends did too.

Example: In each yoga class, we repeat what we’ve already learned and are taught new items (theory, demonstration, practice). This understand-watch-do process and gradual pace makes progress easier.

Benjamin Franklin and the 13 Virtues

Benjamin Franklin wanted to cultivate 13 virtues, such as Frugality, Humility and Cleanliness. That’s a lot to remember and manage. It’s easy to deplete our willpower and falter. Ben had a solution. He worked on only one virtue per week, which works out to four times in a year. Doesn’t that look more manageable?

Suppose this is the week for Silence (“Speak not but what may benefit others or yourself; avoid trifling conversation”). That’s not an excuse to abstain from Cleanliness (“Tolerate no uncleanliness in body, cloaths, or habitation”). Instead, you maintain the other virtues at their current levels, which improve with each cycle.

Get Help

It’s very easy to break a habit and much tougher to restore it. Think of exercising. Do you remember Newton’s first law of motion? Objects in motion tend to stay in motion. Objects at rest tend to stay at rest. Changing from motion to rest is easy. Changing from rest to motion is tough. Restarting may be toughest of all because we know we failed (even if we have reasons).

We often need a little push or guidance to keep us in motion.

People are good motivators but people are busy. If you can’t find anyone, consider using apps. You likely have your smartphone near you. Your device can remind you, instruct you and track your progress.

Example: Yoga students sign an agreement to attend classes and practice. We get group instruction and personalized tips. Attendance is marked each time. There’s support and monitoring. In between classes, I use the general purpose Trello app to keep track of the instructions.

January 25, 2014

DO CELEBRITIES GIVE BETTER FINANCIAL ADVICE?

Celebrities have mass appeal. Learning about money doesn’t. Maybe the solution is to get financial advice from celebrities such as billionaires, authors, journalists, bloggers or TV personalities.

Maybe.

Advantages

Whatever causes us to pay attention to money helps us.

Celebrities have the power to create awareness, build interest and provide motivation. Since they get promoted and already have audiences, they have a powerful advantage when spreading messages. Besides, we often like they way they talk and look. That makes us more receptive.

Pitfalls

We listen when Warren Buffett speaks about anything: life, philanthropy and career choices (“Warren had even considered actuarial science — the mathematics of insurance — as a career”). Yet Warren is from a different era and financial stratosphere. His tips may be valuable but aren’t tailored to your unique situation, unless your name is Bill or Melinda — and they don’t need much help.

In Pound Foolish: Exposing The Dark Side of the Personal Finance Industry, Helaine Olen gives numerous examples of questionable advice from the likes of Robert Kiyosaki, David Bach, Suze Orman, Jim Kramer and Dave Ramsay. We must be careful.

Repetition

“I’ve heard it all before. You’re saying nothing new.”
— Supertramp, Child of Vision

As you delve into the financial world, you'll notice huge overlaps in the advice provided. Have an emergency fund. Ever heard that one? Pay yourself first. Is that a new one for you?

We get the same messages over and over told in slightly different ways (much like Hollywood movies). Why do we continue to pay attention?

we need help or reminders
we don’t want to miss something new
we want confirmation that what we’re doing is sound

Going Beyond

We often need more than than financial advice. Good habits take time to build and effort to maintain. Maybe that’s where we need the real help. Can celebrities provide personal attention? If you want to have ongoing discussions, they aren't your best choice. They're busy. They may be traveling. They may not know or want to the liability from getting involved.

Regular Folks

There’s no monopoly on common sense or money advice. I’ve been collecting stories for the What I Learned About Money project. The lessons are sound, even when they’re from “regular folks”.

Over-reliance on celebrities works against you. They are like us. Their biases, beliefs and motivations tint what they say and what they see. For example, opinions vary on the pros and cons of financial leveraging.

What do celebrities leave out? What do you filter out? Confirmation bias gets in their way and ours. You win by embracing different sources, thinking and comparing.

Procrastination

Since celebrities are busy, you have fewer chances to see them. Don’t make that an excuse to procrastinate. Get started where you are with what you have. Books make a great source, if you like reading (some titles).

You can't beat live events — even if that means going out on a chilly dark evening (say to Money 50/50: Insider Advice for Today’s Topsy-Turvy Times). Ask questions. Talk to other attendees. You don’t know who you’ll meet or how you’ll change.

January 12, 2014

DISASTER-PROOF YOUR LIFE: THE FIRST RULE FOR FINANCIAL SUCCESS FROM @PreetBanerjee

“Most people don't want to learn and read about money but we must to a certain extent.” — Preet Banerjee

Preet Banerjeee quit his job the day after we first met. That’s coincidence. He was an investment advisor for a bank and I did advanced marketing for a life insurance company. We also met just before he started writing for The Globe and Mail, while he was filming Million Dollar Neighborhood, and other times too. He’s followed a squiggly career path.

The financial sector is filled with two kinds of people: salespeople (know how to sell) and technicians (understand what’s being sold). Preet stands apart. He’s very likable. Even better, he has a deep insider understanding of how the financial sector works, provides objective advice and says what needs to be said.

Stop over-thinking and get Preet Banerjee's book at Amazon.ca

Preet spoke at Rotman about his new book. I already read and recommended Stop Over-Thinking Your Money: The Five Simple Rules of Financial Success (review on GoodReads). I attended to support him. The quotes in this post are from his live talk and have been lightly edited for readability.

Rule #1: Disaster-proof Your Life

“The risk of running out of money is important and something you need to address. But if retirement is potentially 40 years away, there are a lot of risks that exist between now and then. Your future income is your single biggest asset.. Protecting it is one of the most important things you can do.

What are all the different ways you can lose that income?

If you die, clearly you're not going to have any income and your family's lifestyle may be put in jeopardy
If you become disabled, you're going to lose your future income
If you lose your job, you're going to lose your income"

How true.

1. Life Insurance

“Life insurance is boring if you are not in the industry. Even if you're in the industry it's pretty boring.”

I find insurance exciting, but I’m an actuary. What else provides a predictable lump sum tax-free at an unpredictable time of need? That’s peace of mind. I designed products, helped advisors sell them and use that insider knowledge to help the public review their protection.

We’ve changed. We understand the consequences of dying with financial obligations remaining but don’t always prepare. Term life insurance is inexpensive but life-changing events no longer trigger insurance purchases. For instance, the birth of a child creates expensive responsibilities. Yet 60% of parents don’t get life insurance within two years of their family addition. Does that surprise you? Maybe there are challenges affording the insurance.

If you’re single and without dependents, you might think you don’t need life insurance (but read this). Regardless, you likely agree you need insurance to replace your income if you become disabled.

2. Disability insurance

Disability insurance is complicated (see the guide to disability insurance, which includes links to an article and video by Preet). If you work for a company, you may think you have proper coverage. How do you know? Products are complex and life insurance literacy remains low.

How do you do you gauge

the stinginess of the definitions
the generosity of the benefits
the quality of the guarantees

At work, you’re stuck with group coverage, one of the two types of insurance you can’t own. That puts you at risk because your employer has full control and likely wants to reduce expenses.

Your benefits aren’t guaranteed even if you pay part of the cost. Remember Nortel? The long-term disability insurance covered 50% of pre-disability income. Would that be enough? Many employees didn’t think so and topped up coverage to 70%. Unfortunately, Nortel went bankrupt leaving the 357 disabled with only 35% of their expected benefits. Could you live on that? How would you feel knowing that lawyers and other professionals have already received over $1 billion in windup fees?

If the Nortel employees got independent advice, they might have purchased personal disability insurance that Assuris guarantees will pay at least 85% of the promised benefits if a member insurer goes bankrupt.

If you’re self-employed, don’t you need disability insurance too?

3. Job Loss Insurance

You can’t buy job loss insurance. That doesn’t stop you from taking precautions to bulletproof your career, following the eight steps to getting a job today or taking a Krypton course.

You can self-insure against job loss by establishing an emergency fund once you decide on the right size. Yet 45% of Canadians have no savings for emergencies. How’s that for optimism?

Act

Knowing isn’t doing.

Disaster-proofing your life isn't glamorous. The process takes time. Preet tells readers to get started by contacting suitable advisors immediately: “Put down the book and book the appointment. You do not know when these [unpredictable] things could happen. Do it. Get the ball rolling.”

An author telling us to stop reading? At least Preet didn’t tell us to leave his talk. That’s advice we would have ignored. What advice will you act on?

January 4, 2014

THE 2013 POSTS FROM RISCARIO INSIDER

Here are all 51 posts from Riscario Insider from 2013. You can select them by image or by category.

By Images

The title of the post shows when you hover your cursor over the image. Click to read the post.

THE BEST AND WORST TIMES TO CANCEL YOUR LIFE INSURANCE

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

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

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

BLACKBERRY’S CONFUSING MESSAGE AT THE 2013 TECH LEADERSHIP CONFERENCE

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

THE BATTLE BETWEEN TEMPTATION AND PERSONAL RESPONSIBILITY

DO YOU HAVE A FINANCIAL DREAM OR A FINANCIAL NIGHTMARE?

THE UNWELCOME LESSON FROM THE RBC-iGATE SAGA

LIFE CHANGING EVENTS NO LONGER TRIGGER INSURANCE PURCHASES

TIPS FOR FIRST-TIME LIFE INSURANCE BUYERS

(MAILBAG) SWITCHING INVESTMENT ADVISORS: BAD TO WORSE?

SHOULD YOU CHANGE ADVISORS WHEN YOU MOVE?

HOW TOM HANKS GOT CHEATED BY HIS INSURANCE ADVISOR

CHOCOLATE, PRICE-FIXING AND SALMONELLA POISONING

ULTIMATE UNLIMITED INTERNET? HOW ROGERS FOOLED US THREE TIMES

HOW WOULD MIKE HOLMES FIX THE FINANCIAL SECTOR?

WHY ARE WE FLOODED WITH BAD WEATHER FORECASTS?

HOW HONEST ED TURNED $212 INTO $100 MILLION

CTRL ALT DELETE: MITCH JOEL’S EIGHT STEPS TO GETTING A JOB TODAY

A REVIEW OF ROGERS UNLIMITED INTERNET (AND HOW TO USE IT)

HANDCUFFED: COMPARING MOBILE PHONES AND LIFE INSURANCE

HOW TO GET YOUR ROGERS INTERNET WORKING OVER WIFI

AT AGE 7, BOOMER ESIASON LEARNED NO ONE IS GUARANTEED A TOMORROW

CASE STUDY: SELLER BEWARE vs BUYER BEWARE

#KRYPTONTUESDAY: JOIN A GENUINE INNOVATION IN FREE LIFELONG EDUCATION

MONEY 50/50: THE PERFECT LIVE EVENT TO MASTER YOUR MONEY

NETFLIX FOR LEARNING: UNLIMITED ACCESS TO eMAGAZINES, eBOOKS, AUDIOBOOKS

HOW TO TELL IF YOUR ADVISOR IS INDEPENDENT

HOW TO SCREEN YOUR SOURCES FOR FINANCIAL LITERACY EDUCATION

WILL YOU HAVE FINANCIAL FREEDOM AT 35, 55 OR 75?

THE WEALTHY BARBER RETURNS WITH MORE WISDOM

By Category

You’ll find all the 2013 posts arranged by category and then in chronological order.

Advisors

Behavior

Careers

Insurance

Financial Planning

Health

Money

Tech

Trust

Miscellaneous

That’s 2013. The Riscario Radio podcasts stopped after 250 episodes. Look for more video instead — though not weekly!

PS Thanks for reading for another year.