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

• official website: MoneyMasterTheGame.com
• Tony Robbins doesn’t quite master the game of money (MarketWatch, Nov 2014)
• Tony Robbins responds to critics (WSJ Video, Nov 2014)
• Do celebrities give better financial advice?
• Do financial doctors make as many mistakes as medical doctors?
• Dealing with biases financial advice
• If you have/had/want money, read Pound Foolish
• Why billionaires by life insurance
• $1,000,000 after taxes on investment growth (2007)
• Your life expectancy exceeds 1 billion seconds (2009)
• How Honest Ed turned $212 into $100 million
• The Wealthy Barber returns with more wisdom
• The wealthy reveal how their financial advisors fail them
• Why do you care what your insurance advisor gets paid?
• Disaster-proof your life: the first rule for financial freedom from Preet Banerjee
• The A-B-Cs of 1-2-3
• How to protect your money from Goliath

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

FIVE ESSENTIALS TO BETTER INVESTING (AND INSURING)

How can you lose by learning to invest better?

Steadyhand Investment Funds sells no-load low-fee mutual funds directly to investors.
They've prepared an easy-to-read report called Five Essential Elements To Being A Better Investor (PDF). The focus is on sound, timeless basics rather than trendy quick-fix tips.

You'll find interpretations at

• My Own Advisor by Mark Seed
• Retire Happy by Jim Yih
• CPA Magazine (co-written by Steadyhand’s Tom Bradley)
• The Globe and Mail (by Tom Bradley again)

Watch

You can also watch my chat with David Toyne, their Toronto-based Director of Business Development on Tea At Taxevity (interview #20).

An Extension

The steps to becoming a better investor also apply to becoming better insurance buyer. The following list shows the Steadyhand recommendation in bold and my interpretation for health or life insurance in italics.

1. Be realistic: risk happens even if you’re optimistic and we have a knack for worrying about the wrong risks
2. Have a long-term plan: prepare for your financial risks during your working years (disability), retirement years (longevity), throughout (morbidity, mortality) and at death (taxes!)
3. Commit to a routine: if your insurance gets cancelled because you missed premium payments (e.g., cheques bounced during a long vacation), you lose your protection.
4. Prepare for extremes: that’s precisely what insurance does by transferring unpredictable financial risks from you
5. Act as the CEO of your portfolio: be proactive to make sure you get the service for which you're paying. Without regular checkups, you risk having the wrong amounts of insurance and perhaps the wrong types of insurance.

The Steadyhand report is well-worth reading. You might even want to invest with them.

Links

• Steadyhand website
• David Toyne: LinkedIn and @jdavidtoyne
• The two drawbacks of investing in life insurance
• The pros and cons of financial leveraging
• Losing ground: saving for retirement
• The CBC’s hidden camera investigation of investment advisors
• How an actuary invests

PS Invest in yourself too. Keep developing marketable skills.

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.”

Links

• Tea At Taxevity: YouTube playlist, details
• Joe Barbieri: JoeTheInvestor.ca, @JoeTheInvestor
• Exploring the inner worlds of investments and insurance
• 12 timeless tips for wise shopping
• Three steps to keeping financially solvent
• Do celebrities give better financial advice?

PS This was our first interview with three cameras. That’s why my filing cabinet and shredder sometimes show …

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.

Links

• 12 timeless tips for wise shopping
• The right way to view Netflix in Canada
• Are you more like Apple, Google or Microsoft?
• image courtesy of dharder

PS Life without the Internet would be tougher to survive.

THE WEALTHY BARBER RETURNS WITH MORE WISDOM

My parents gave me a copy of The Wealthy Barber around the time I started working. I couldn’t read it. The story got in the way. Besides, there’s wisdom everywhere if we’re willing to listen. Why place more credence on what a celebrity says? We can learn from a real barber and other people we know and meet.

David Chilton wrote The Wealthy Barber Returns, which dispenses with the barber. I bought the book shortly after its release and deferred reading it until now. I wish I hadn’t delayed. The new book is well worth reading.

David has a deep understanding of the financial world. More important, he understands the irrational ways we behave. Most important, he’s funny. Very funny. What a powerful and useful combination.

This post features selected experts from the book.

Financial Marketing

One of the biggest reasons that it’s so difficult to save is that … almost everyone wants you to spend as much as possible … our instant-gratification-oriented minds aren’t putting up much resistance … There are really only three Canadians who want you to set aside some money — your future you, your financial advisor and me.

A new study from the US government’s Consumer Financial Protection Bureau (CFPB) finds that 25 times more is spent on financial marketing than  financial education. In the US, that’s about $17 billion on marketing versus $0.7 billion on education. If the marketing didn’t work, would the companies spend the money?

Unfortunately, the financial sector is the least trusted in the world according this year’s Edelman Trust Barometer. What’s good for the industry is bad for us. Education and changes in behaviour are the antidotes.

Peer Pressure

It’s hard to overstate the impact our “reference groups” have on our spending decisions. We consciously and unconsciously take in their consumption cues. Their lifestyles intoxicate us and when partnered with the great enabler — easy credit — lead us to act richer than we are, “act” obviously being the key word.

The antidote is to “expand your reference group as much as possible … not only to include the less fortunate throughout the world, but also to encompass those who have gone before us … Many Canadians are completely out of touch with how much our lives have improved over time.”

David says that "when people ask you to do something, you’ll have to reply, ‘I can’t afford it’ … We can’t possibly d o and buy everything we want. There’s no shame in that. Accept it.”

He’s right but can you resist? I prefer the terminology “I choose not to” because there are things I can afford but which aren’t good value. I don’t often say this out loud but think it to myself.

As a vegetarian, eating out has a lousy ROI when the bill is split evenly. Buffets are the same way. My next one is $26 per person plus beverages. There’s no way to get my money’s worth (without gaining weight).

Conflicts of Interest

"I phoned the loan officer. I asked him, point-blank, why he gave a huge line of credit to a customer who hadn’t requested it and who had admitted that she has a significant spending issue. His answer was succinct, honest and illuminating.

“It’s my job,” he said. Banks are a business and, like all businesses, they sell something … it’s no longer only about providing credit to those who need it, now it’s also about convincing people they should want it. 

That young loan officer had a true conflict of interest … what was best for the client and what was best for his employer weren’t aligned. He went with the paycheque and it’s hard to blame him.

Too few realize that they receive financial advice which doesn’t put their interests first. More financial education would help.

Investing

To outperform the market’s return, you have to outperform the majority of others who are also trying to outperform the market’s return … When you hand over your hard-earned savings to a professional money manager you deem smarter than yourself, be careful … it’s irrelevant if he or she is smarter than you. Instead, what matters is whether he or she is smarter than most of the other people who are smarter than you … we can’t all outperform. We need a bunch of underperformers to balance the scale.

We can’t beat (or cheat) the math of markets but “it’s estimated that Canadians do, in fact, try to beat the market with well over 80 percent of their stock-market money.”

What Are You Paying Your Advisor?

The financial-advice business must be the only business in the world where most customers aren’t told what they’ve received or how much they’ve paid for it. Performance and costs matter. But to evaluate them, you need to know them.

Do you ask what you’re paying?

There’s another problem I see almost as much as bad advice — no advice. I’m very frustrated by the number of people I meet who are paying advisors handsomely through their mutual-funds’ MERs, yet almost never hear from them … … we have a wacky number of financial products in Canada that are too expensive by any common-sense measure. For example, I see some mutual funds with MERs in the area of three percent. Anybody who thinks that’s a fair deal for clients has a fundamental misunderstanding of arithmetic, markets’ returns or both

Do you get value for what you’re paying? If not, consider other options. If you need help understanding, consider hiring an independent fee-only advisor.

David leaves us with hope.

Over the next few years, the costs of financial products and financial advice are going to go down significantly. Competition is heating up and consumers are becoming better educated — a powerful combination.

You don’t have to wait. Get better educated today.

Links

• David Chilton: wealthybarber.com and @wealthy_barber
• If you have/had/want money, read Pound Foolish
• CPFB study underscores need for financial literacy (Accounting Web, Dec 2, 2013)
• Do your advisors help with your financial literacy?
• Will you have financial freedom at 35, 55 or 75?
• How would Mike Holmes fix the financial sector?
• Do you have a financial dream or a financial nightmare?
• How to tell if your advisor is independent
• Do advisors put their interests first?
• What does your advisor drive?
• 12 timeless tips for wise shopping
• Why we get bad advice
• image courtesy of Colin Jones

Podcast 249

[instead of using Audacity, created with Cyberlink AudioDirect 4 for the first time; using M4a instead of MP3]

direct download | Internet Archive page | iTunes

PS If you already have The Wealthy Barber Returns, maybe it’s time to re-read it?

EXPLORING THE INNER WORLDS OF INVESTMENTS AND INSURANCE

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

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

Background

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

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

The Interview

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

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

Format

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



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

What other questions do you have?

Podcast 189

direct download | Internet Archive page | iTunes

Links

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

PS Who wants to interview me next?

ACTUARY INVESTS IN HIMSELF: BEYOND THE GLOBE AND MAIL INTERVIEW

Welcome new readers (and hello to regulars).

Maybe you found me from The Globe and Mail article actuary invests in himself, which Larry Macdonald wrote in the Me And My Money feature. Thanks for dropping by.

Surprised

I was pleasantly surprised to get published. Someone interviewed me in 2008 but my answers were too boring to print (see how an actuary invests).

Larry MacDonald writes Me and My Money, blogs and tweets. He asked a list of standard questions about investing. As I answered, I realized that my biggest investment was in a nonfinancial asset: me.

Dare I give unconventional investment advice?

I did. Larry asked probing questions for clarification and wrote an article that’s much better than my raw answers. I hope you'll see the merit of improving your skills to increase your earning potential and employability.

Why You?

The financial sector is messed up and remains the least trusted in the world (Edelman 2012 Trust Barometer). We keep seeing why

In the two months post-IPO, Facebook has dropped to half the price and now admits to some 83 million fake accounts (Irish Independent). The Libor scandal has cost Barclays $451 million for interest rate manipulations (Bloomberg). HSBC is facing $2 billion in penalties for money laundering ($700 million) and mis-selling financial products ($1.3 billion) (The Guardian). In Canada, mutual funds have high investment expenses.

We have concerns but can’t do much about them. Keep investing but also look at what Stephen Covey calls your circle of influence.


When you invest in yourself, you've got complete control. You can learn for free online. How can you possibly lose when you’re improving your skills and apply them where others can see?

An Example

Opportunity prefers the prepared.

In my case, blogging made a huge difference in finding newer and bigger revenue streams. Actuaries aren’t trained to communicate but I decided to learn. That lead to speaking opportunities (see YouTube), media attention and clients. Getting nominated for a 2011 Business Excellence Award from the Toronto Board of Trade doesn’t hurt either.

All this arose from investing in myself. Your mileage may vary.

My Story

I’ve worked exclusively in the world of life and health insurance. I designed products (10 years) and then helped advisors sell them (5 years). I saw --- maybe you do too --- that advisors vary immensely in

• their skill to do the work 
• their will to put your interests first

Who was protecting you? How could you spot a great advisor?

I thought advisors could  demonstrate their skill and commitment to serving you by blogging regularly. To show them how, I started Riscario Insider in Feb 2007 when blogging was relatively novel in the financial sector. Years have passed. Where is your advisor’s blog?
 
Readers started asking me to review and fix their life and health insurance coverage. That’s the sole focus of Taxevity, launched in 2009.

Selected Posts

You may like the most-read posts of last year. Here are some from this year:

1. The word advisors imply but dare not say
2. The lure of “exclusive” financial strategies
3. How to spot biased referrals
4. The new prescription for trust
5. Looking beyond TD Bank and the Rothstein Ponzi scam
6. The perils of multilevel marketing and whole life insurance
7. The new list of best/worst jobs
8. Three powerful protectors against corporate misconduct
9. Keeping promises when no one’s watching
10. Why insurance advisors also sell investments
11. Why advisors become advisors
12. What to do about the recent insurance turmoil
13. How to repay a nonfinancial debt
14. When your advisor is on vacation
15. How your brain works against you

Other Resources

If you like what's here, you’ll find @riscario on Twitter and the podcast on iTunes. You can also subscribe to the free newsletter.

If you're interested in marketing, check out the Marketing Actuary blog and @mActuary. The current post is bad business lessons from the Olympics.

If you care about trust, follow @trustandyou --- all trust, all the time. You'll find more about me on LinkedIn and at promodsharma.com.

Finally, if you're looking for an independent review of your life and health protection, join others and visit Taxevity.

Podcast 180

direct download | Internet Archive page | iTunes

PS Investing in yourself is also a risk-free form of leverage.

ELLEN ROSEMAN MAKES FINANCIAL BASICS LIVELY

Understanding the financial basics is important but boring. There’s also the risk of getting biased advice.

As a result, we may not know our 1-2-3s as well as our A-B-Cs (see the key to numeracy). Even if you think you do, a refresher can't hurt.

Where can we go for information we can trust? Bloggers and journalists are excellent sources. Reading isn’t always enough. There’s room for live events too.

Have you heard of the Financial Consumer Agency of Canada (FCAC)? This independent agency of the federal government was established in 2001 to educate and protect us. The FCAC developed the Financial Basics Workshop with the nonprofit Investor Education  Fund. Ryerson University hosted a session this week. We got refreshments and a helpful 50-page workbook with the unfriendly title "Participants' Handbook" (online version).

A boring topic requires an excellent speaker. We were lucky. We got Ellen Roseman.

Ellen Roseman

Ellen is an ideal choice. She's a consumer advocate backed by the clout of  The Toronto Star. I've read her articles and blog posts for years. This was the first time we met in person.

I was surprised that Ellen had so much energy. We needed that. The four hour seminar started at 5:30 PM --- my fourth and final event of a long day. Ellen had plenty of real world examples to supplement the workbook. She also encouraged and got lots of audience participation. We needed that too.

Highlights

Lots of content got covered. Here are three highlights.

Barriers To Financial Goals

Longevity is an easy-to-overlook hurdle on the path to our financial goals: There are challenges with

• not starting to save early enough
• not saving enough (are you saving too much for retirement?)
• retiring earlier (say age 62 instead of 65)
• living longer (see longevity of the last 100,000 years)
• volatile investment returns
• low interest rates

We can't count on stable, secure, well-paying jobs with generous defined benefit plans for our retirement income. We're not helpless but do face big challenges.

Be Proactive

Companies make mistakes but the onus is on us to get corrections made. For example, you might get billed for an extra service you didn't want or thought you'd cancelled. If months or years pass, the vendor is less likely to correct their mistake.
Companies may introduce better deals but don’t wait for them to tell you how to save. The onus is on us to ask.

Loyalty/Retention Incentives

You may have supported some brands for years. You're making them profitable and they want to keep you. Yet special offers tend to target new customers. How do you monetize your loyalty? By negotiating a better deal. When calling, be firm, be polite and have copies of competitors’ offers. Ask for compensation for your time on hold (e.g., for the horror of Rogers “Ultimate” Internet).

Ellen noted that bankers are now like used car dealers: willing to negotiate.

Who Attended?

The room was full. There seemed to be 100-150 attendees. That's excellent, especially on a hot, humid evening. Hooray for air conditioning.

The audience was diverse, ranging from university students and older. Knowledge levels would have varied. They seemed to know of Ellen primarily from her Toronto Star column.

Measures Of Success

Does the workshop make a difference in the lives of attendees? I asked an FCAC representative. There isn't a good way of telling. There's a plan to ask attendees in the future.

Good intentions are easy to forget. Ongoing motivation takes effort. Perhaps attendees can get a newsletter with ongoing tips and reminders. There may be apps that help too. Peer support is probably the best. A 12-week program like Pick Four may be ideal if you have weekly check-ins.

Ultimately, what you get depends on your commitment and discipline.

SUMMER SCHOOL

The summer is a great time to build good habits. You can save money and improve your life by

• walking or biking more
• eating healthy, locally-grown fresh food (perhaps from your own garden)
• finding ways to reduce or larger expenditures

You might want to attend a financial basics workshop the next time one’s offered near you.

Links

• Ellen Roseman: blog, Twitter, Moneyville, Toronto Star
• Fight back against corporate trickery with Ellen Roseman's insider tips (new)
• There’s no such thing as a free lunch (Ellen Roseman, Jun 15, 2012)
• Financial Consumer Agency of Canada: website, @FCACan, YouTube, Wikipedia
• The ABCs of 1-2-3: The key to financial literacy/numeracy
• Host your own Financial Basics Workshop
• image courtesy of Mitarart

Podcast 174

direct download | Internet Archive page | iTunes

PS Here’s a surprise: the FCAC YouTube channel has 3,116 views while mine has 3,790 views.

INSIGHTS FROM CARL RICHARDS AND HIS NAPKIN DRAWINGS (@behaviorgap)

"It only takes one big, bad mistake in a decade to blow your returns."
--- Carl Richards

Have you seen those nifty napkin drawings with profound insights? They are by Carl Richards. You may have seen them in the New York Times or his book, The Behavior Gap.

Carl was on his first Canadian tour this week. PWL Capital sponsored it. I got tickets from blogger Canadian Couch Potato, who attended in person along with Preet Banerjee. Carl spoke at The Academy of Spherical Arts.

Overload

I've seen too many presentations on investments over the years. That's a downside of being an insider in financial services.

The content tends to present a world view that's biased to what the sponsor sells. That might be commercial real estate, undeveloped land, foreign exchange, green, oil or an investment philosophy.

The risks get downplayed. The speaker is essentially giving an infomercial and saying nice things about the sponsor. Buyer beware.

Different

Carl is different. He talked about investing but gave no investment advice. That's refreshing. Instead, he helped us understand basics that get in  the way of results. How we behave, for instance.

Carl has a knack for making things simple. As his drawings show, he takes out as much  as possible. This takes skill and skill takes practice. He said, "People like to argue about the numbers and miss the point."

His solution is to remove the numbers.

Complexity

Carl understands the power of simplicity. He said:

We have a complex in our industry. We think complexity is a sign of an intellectual gift. When you propose that advisors should make things simpler, they sometimes get lost and wonder "What am I for"? They don't realize that people would rather pay to have things simplified. 

The old sales model said: I'm going to dig you a hole and throw you a rope so that you can get out. Sometimes advisors are uncomfortable with this idea that making things really simple is really valuable. It takes some time for them to get their heads around that.

I’ve observed the same tendencies towards incomprehensibility, especially from the advisors with no meaningful designations. They think adding complexity shows their intelligence. If they’re that bright, why couldn’t they first earn professional designations and then learn how to simplify?

As Einstein said, “If you can't explain it simply, you don't understand it well enough.”

The Wrong Questions

During the question period and afterwards, some audience members asked for investment advice (e.g., signals for when to sell a mutual fund, how to identify the top/bottom of the market). Unlike children, adults like being told what to do even when there are no foolproof soundbite-worthy answers. Unfortunately, we can only spot the right investments in hindsight. Unfortunately, there are advisors who look convincing even to the non-gullible.

Trust

No one asked how to pick an advisor you can trust. I asked Carl privately. He said this is the most common question he receives at the New York Times. Maybe that's not surprising. He said that people want checklists but there aren't any.

Not everything can be made risk-free and drawn on a napkin. At least not yet.

Links

• Carl Richards: website (behaviorgap.com), blog (New York Times)
• How to make smarter financial decisions (Advisor.ca, May 23, 2012)
• How to stop doing dumb things with your money (Macleans.ca, Jan 2012)
• A few things to ask your financial adviser (New York Times, April 2012)
• How to pick a financial advisor (Forbes, Sep 2011)
• Keeping promises when no one’s watching
• 13 questions to evaluate an investment that’s “too good to be true”
• Why insurance advisors also sell investments
• Looking beyond TD Bank and the Rothstein Ponzi scam
• The four steps in wealth management
• How an actuary invests
• Be proactive within your circle of influence
• Einstein quotations (Sparkinsight wiki)

Podcast 170

direct download | Internet Archive page | iTunes

PS I've glanced through Carl's book, The Behavior Gap. It looks like a great read.

WHY INSURANCE ADVISORS ALSO SELL INVESTMENTS

Would you go to a doctor who also does dentistry, or an accountant who also prepares Wills? Their professional bodies may protect you by banning the overlap.

Investments and insurance are very different but cross-selling occurs. Many insurance advisors also sell investments like segregated funds and perhaps mutual funds. This puzzled me. How can one person master such different product category?

These generalists don’t want to "leave money on the table". If markets are bad, they focus on selling insurance. When markets are good, they earn nice trailers from the investment portfolios they administer. They are also "building walls around their clients" by becoming a one-stop shop. Some go further and offer even more services.

What about investment experience? Financial literacy is a problem for advisors too, but recommending balanced funds doesn’t take much skill.

Cross-selling makes business sense for an advisor but you as a client lose. You're paying a premium for advice that a generalist doesn’t have.

WHOLESALERS

Insurers hire wholesalers to entice advisors to sell their products. Insurers tried to save money by having insurance wholesalers promote investment products too. This flopped. The products were too different and difficult to learn well. Also, compensation structures tended to favour one product line (typically insurance).

Insurers then hired investment-specific wholesalers. This worked better. The challenge was to get these investment people (who may have worked at mutual fund companies) to understand and cross-promote insurance.

Are you with me? Insurers decided that investments and insurance are so complex that different wholesalers promote them … to advisors who usually sell both.

FINER

Even within insurance, there are vast product differences. Advisors are often more comfortable with life insurance (term, whole life and universal life) than living benefits (income replacement, critical illness, long term care). The wholesalers had similar issues.

When I was designing critical illness plans in the 1990s, I felt out of my depths (having focused primarily on life insurance). Luckily, I was able to assign the work to an actuarial associate who had experience from a previous employer. My wholesalers were clamoring for critical illness plans ... but had difficulty understanding the products when launched. In turn, they had trouble explaining to advisors who then had trouble explaining to you. Other insurers had the same problems.

Sales of critical illness insurance languished and you didn't get valuable protection. The pattern repeated with Long Term Care insurance.

Why not have wholesalers who specialized in living benefits? Sun Life tried this. These specialists --- often nurses --- could do much of the work for the advisor. This seemed ideal but last year, Sun Life disbanded this initiative.

Consequences

Your advisor might sell investments, life insurance and living benefits. And extras like group insurance. And more. I met one last week who also does free insurance reviews. He didn’t have a single designation, though. Maybe that’s because he’s busy sending spam. The next day, I got an email with poor grammar and weird formatting.

Who helps advisors understand and select suitable options for you?

Any advisor can get support from insurers but that's limited to the products that company sells. Some advisors get specialized support from their connections or the intermediaries through whom they sell insurance. This support is much better than what an insurer can provide. As independents, these specialists are not confined to using products from a specific company.

Blend

You could choose to have separate advisors for

• investments (maybe you self-manage)
• life and health insurance (backed by separate specialists in life insurance and health insurance)
• employee benefits (also called group insurance)
• other products

Using specialists doesn't cost more but you get more expertise working for you. Isn't that good value?

Links

• Sun Life axes LTCi model (advisor.ca, Nov 30, 2011)
• Where does your insurance advisor get advice?
• Two types of insurance you may have but can’t own
• Why critical illness insurance remains unsuccessful
• The word advisors imply but dare not say
• image courtesy of PhotoXpress.com

Podcast 168

direct download | Internet Archive page | iTunes

PS Insurance advisors may work with investment advisors to give you a one-stop option but dealing with complete independents may be better.

LOOKING BEYOND TD BANK AND THE ROTHSTEIN FLORIDA PONZI SCAM

In a Ponzi scheme, money from one set of investors gets paid to another set of investors. That’s illegal because participants are getting duped about the source of the money.

Former lawyer Scott Rothstein has been jailed for 50 years for his $1.2 billion scam in Florida. You'll find details on Wikipedia.

Fooling people is easier when you've got credible parties involved. Accountants. Lawyers. Banks.

Settlement

TD Bank has set aside $255,000,000 to deal with their role in the Rothstein Ponzi scam.  In January, a jury ordered TD to pay $67,000,000 to Coquina Investments. This week. TD agreed to pay the Razorback Group an estimated $170,000,000.

This post isn't about a particular bank but big financial institutions in general. One bank seems like another. There’s no solid reason to think that a different bank would have acted differently.

Imagine

Imagine if financial institutions became advocates for the victims and set things right quickly. Imagine if they told us what went wrong and the new precautions they are now taking.

That wouldn't be good for business. Or would it?

Warren Buffett admits his mistakes (Forbes). In this video he confesses to a $200 billion blunder.


Imagine if such candor were common.

Employee Fraud

Large institutions have vast resources, sophisticated systems and other safeguards. Their employees still manage to commit fraud — sometimes for years. Here are examples from a quick web search:

• BMO Nesbitt Burns: rep gets penalties of $43,000 for misappropriating funds from an elderly client
• RBC DS: Two brokers fined $350,000 for outside business activities from 1991 to 2005 [now working for CIBC World Markets]
• TD Waterhouse: rep fined $1 million for misappropriating $1.4 million from a client

Employee fraud may be a much bigger problem than a rare external Ponzi scheme.

Legal

There’s a region between advocacy and fraud. What’s legal may not be quite right. Look at the Rogers/Bell attack ads. That’s big business versus big business. What about big business versus you?

When large institutions are selling to you (say investments or insurance), who is safeguarding your interests? If problems arise, what can you do? If there's a big problem that also affects other clients, the media may become interested. If the activities were illegal, the courts can step in.

In real life, what happens if you alone have a dispute with a large institution? Who's looking out for you then?

Links

• Warren Buffett admits mistakes (Forbes, Feb 28, 2012)
• Convicted con man Scott Rothstein tells all (BusinessWeek, Jan 26, 2012)
• TD wants deal on Florida Ponzi scheme kept private (The Globe and Mail, Feb 2012)
• Jury says TD Bank owes $67M to victims of ex-lawyer's enormous Ponzi scheme (Yahoo News, Feb 14, 2012)
• TD Bank wants settlement with victims in lawyer’s Ponzi scheme kept confidential  (Washington Post, Feb 28, 2012)
• TD Bank played ‘critical’ role in Ponzi scheme, Rothstein says (Toronto Star, Dec 23, 2011)
• Dumb money 2009: what went wrong?
• Three steps to keeping financially solvent
• The cost of getting advice from your banker
• The dread of going to a bank for a loan
• The new prescription for trust
• image courtesy of melodi2 (New Zealand)

Podcast 158

direct download | Internet Archive page | iTunes

PS Are you concerned more about Ponzi scams or employee fraud?

WHAT ARE YOU DOING ABOUT YOUR HIGH INVESTMENT EXPENSES (MERs)?

We're not ostriches and in winter there's no soft sand to hide our heads. We might cover our ears with hats or wear headphones but we can't pretend we don't know what's going on around us.

Still, we love fooling ourselves and doing nothing while we’re being harmed slowly. Like lobsters in a pot.

In honesty, can you claim you don't know that Canada has extremely high investment expenses? Especially after this week’s extensive media attention?

Compound interest is the secret ingredient in investment growth. The Management Expense Ratio (MER) is the enemy. Yes, we need to pay something but the more we pay, the worse our returns. Since the MER is often deducted on a daily basis, the effect of the cost is compounded too. The damage builds over time. Plus, in absolute dollars, you pay more as your investments grow.

The Facts

Let’s start with research and reports from credible sources.

Morningstar Global Fund Investor Experience (Mar 2011)

“Canada is the only country [out of 22] in the survey with TERs [Total Expense Ratios] in the highest grouping for each of the three broad categories [equity funds, fixed-income funds and money market funds] … These costs cannot be explained by pointing to unique features of the Canadian fund market.” (page 22)

“Positively for fund investors, sales and media practices are excellent and disclosure is very good. Unfortunately, these benefits are counterbalanced by steep taxes and the highest fund costs found in this survey …  Nor does it [Canada] offer fund investors the protection of a board of directors.” (page 24)

“ … the Canadian funds community is the only funds groups to claim last year’s Global Fund Investor Experience report was methodologically flawed in its treatment of fund expenses … A final claim is made that Canadian mutual fund costs should not be compared to those of the United States, because the U.S. marketplace is much larger and therefore enjoys greater economies of scale. This argument has some merit, but it does not explain why Canadian fund expenses are significantly higher than those in other countries with modest population bases, such as Belgium, Australia, Sweden, Norway, and Hong Kong, to name a few.” (page 58)

Here's a link to the full report (PDF)

Financial Post

Jonathan Chevreau wrote: “I doubt any objective advisor would counsel against buying the iShares ETF through a discount brokerage though my bet is quite a few would counsel against buying Investors [Group] Dividend Fund for the simple reason it’s overpriced … when a far cheaper alternative exists. It’s beyond me how the firm can countenance this stance while also trying to wrap themselves in the rhetoric of their alleged efforts to improve financial literacy. — OK, Investors Group, now the gloves are off on your financial literacy stance (Dec 1, 2011)

“Has there been a sea change in consumer attitudes to fees and the dramatic contrast revealed by the surging ETF industry? Or are we so helpless as investors that we willingly turn over 2.7% in management fees to companies like Investors Group to make our decisions for us?” — The MER Debate (Dec 6, 2011)

Investment Executive

“Outside of deposit accounts (held by 90%), affluent Canadians are most likely to invest in mutual funds (held by 56%). This is one of the highest levels of mutual fund ownership of all countries surveyed.” — Affluent investors in Canada rely on professional advisors: survey (Dec 8, 2011)

The Globe and Mail

“The Canadian Foundation for Advancement of Investor Rights (FAIR Canada) complained that under the current regulatory environment, there’s limited price competition and demanded that Ottawa look into the high cost of investing. Federal Finance Minister Jim Flaherty said he would ask the Senate national finance committee to investigate.” — Canadian Investors ‘gouged’ by fees (Dec 5, 2011)

“Given that Canada has some of the highest mutual fund fees in the world, we are used to seeing fees of 2.4 per cent and higher. Investors Group, however, stands out among fund companies in Canada because their fees often hit around 2.7 per cent. This is but one of the red flags.” — Investors Group mutual fund fees among the highest in Canada (Dec 6, 2011)

“It is beyond pathetic that no mutual fund company in this country wants to make low fees a key part of its marketing pitch to investors. Our fund industry abides. It’s insular, complacent and arrogant. It too often charges high fees for lame funds that investors buy through advisers who provide no advice.” — The no-gouge way to better investing (Dec 7, 2011)

Canadian Labour Congress (CLC)

An online calculator shows what happens when you invest a lump sum of $10,000 and earn a compound return of 5%. With a mutual fund charging 2.5% guess what happens after 30 years? You have under $21,000 and your advisor has over $22,000. This is a win/lose and you’re on the wrong side.

After 45 years, the results continue to compound against you. You have less than $30,000 and your advisor gets over $60,000.

With low fees of 0.5%, you win. After 45 years, you have over $72,000 and your advisor gets less than $18,000. Don’t cry for your advisor. You aren’t their only client and the investment was entirely yours.

Disagreement

The Canadian investment industry doesn’t see a problem. Surprised?

They argue that we lack economies of scale. That makes for sense for physical things like installing fiber optic cable or paving roads. An investment is an electronic transaction, and computations keep getting cheaper.

Another argument is that you're paying for advice. Perhaps but there are questions too

• how good is the advice? what are the objective measures of quality? what are the penalties for bad advice?
• how much are you paying?
• how much does the advice cost? Is this cost dropping?

Has your advisor ever told you how much you pay for their advice? In the world of for-fee advice, you would. Since that model is rare, you probably don't know.

How meaningful is advice without guarantees or penalties?

If you've been burned by bad investment advice before, do you still believe your advisor has a magic crystal ball? Do you believe you get the same quality of advice as the big investors like pension funds, insurance companies and banks?

If you're not getting amazing advice, maybe your best option is to lower your costs.

Why Hide?

Why is the cost of advice hidden from you? Maybe that's because you wouldn't pay for the advice if you saw the bill. Maybe you would demand more for your money or demand to pay less for what you are getting. Maybe you’d look for better advice even if that cost more. After all, most advisors are close to average, which impairs the advice they are capable of offering.

The Real Purpose Of MERs

I've been to nonpublic seminars where investments are introduced to advisors. There's a standard pattern. The presenter shows how the new investment team beats the gang that just got turfed. We see carefully-constructed examples of amazing past returns that no one actually achieved. Advisors are shown the point-of-sale material. Who needs skill when you’ve got nice coloured charts? The best is last: slides on how high the compensation is. Now go out and sell sell sell!!!

I've never seen a slide that shows the portion of the MER intended for advice. As an investor, have you?

A big portion of the MER is a sales commission. Advice is the cost of making the sale, an attempt to show the expertise of the advisor.

The MERs are high because we continue to buy. Would lower MERs increase the investment manufacturer’s market share? Probably not because of buyer inertia and since competitors can quickly copy. It's like gas prices. There are different chains but the prices match. You get a sense of the margins when you see how much less Costco charges for gas.

Unbundle

Bundles often have compromises that boost profits. Who really eats the ketchup chips in the variety pack? How good is the headset that came with your smartphone?

When you invest, you pay for advice and administration (including transactions and record keeping). You won't know how much unless the components are separated. You might then be surprised and decide to do something. Not now, but later. Until then your inertia costs you a bundle.

Links

• The hole the mutual fund industry has dug for itself (Financial Post, Apr 2013) (new)
• Mutual funds: would we buy them if we knew the costs? (Financial Post, Apr 2013) (new)
• Mutual funds: the Rule of 40 (MoneySense, Nov 5, 2012) (new)
• Morningstar 2012 Stewardship Grades (Oct 10, 2012) (new)
• John Bogle: A mutual fund master, too worried to rest (Aug 2012, New York Times) (new)
• OK, Investors Group, now the gloves are off on your financial literacy stance (Financial Post, Dec 1, 2011)
• Canadian investors ‘gouged’ by fees (Globe Investor, Dec 5, 2011)
• The no-gouge way to better investing (The Globe and Mail, Dec 7, 2011)
• Investor Group mutual fund fees among the highest in Canada (The Globe and Mail, Dec 6, 2011)
• Mutual fund industry holds its ground (Financial Post, Dec 7, 2011)
• The problem with mutual funds (The Globe and Mail, Dec 9, 2011)
• The MER debate (Financial Post, Dec 6, 2011)
• Straight talk on RRSP and mutual fund management fees (Canadian Labour Congress microsite)
• This tax shelter scam was a $10,000 lesson (Moneyville, Nov 24, 2011)
• Is the best advice free or for-fee?
• The key to financial literacy
• What's $1,000,000 after tax on the investment growth?
• Do you understand compound interest?
• image courtesy of Nico Hogg (London England)

Podcast 147 (12:37)

direct download | Internet Archive page | iTunes
   
PS Remember that tax hurts too …