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Tuesday, May 27, 2014

Trees can grow into outer space

Even though all the numbers look great, most folks on the ground will tell you things just don't feel right.  At least those of us paying attention.  In terms of money & finance, I refer you to the graph below:

You would have to be nuts to not see a pattern here.  Note especially that in 2009 the index was worth 1/3 its current value.  That's only five years ago.  Do you think a "correction" is impending?  I do.  Trees don't grow into outer space.  If I'm right, wouldn't you like to avoid it?  And if I'm wrong wouldn't you like to not miss out on continued growth?  Yes.  You can eat your cake and have it too (an oft misstated aphorism).

Sunday, May 18, 2014

Always Talk To Seniors as if They're 8 Years Old

Again, I remind you that these post headings are Myths.  And, again, this is one propagated by AARP's financial entertainer, Allan Roth(UPDATE:  since the publication of this blog, AARP removed all reference to equity indexed annuities from Mr. Roth's online article.  But if you have the paper version, please refer to it.)
In the April/May issue of AARP's newsletter, Mr. Roth lumps equity indexed annuities (EIAs) in with "5 Bad Money Moves" such as oil drilling partnerships, time shares and private REITS.  Really?
I take issue with this ignorant and astoundingly inaccurate portrayal because I frequently recommend EIAs for a variety of  excellent reasons, reasons that dramatically separate them from the other risky investments mentioned:
  1. In today's low interest environment, the minimum guaranteed interest rates in fixed annuities can equal or exceed other fixed interest alternatives, such as CDs or money market accounts.  For example, I just got a glossy postcard in the mail from a bank, bragging about its 1.75% 5 year CD.  Annuity company, Sentinel, has a 5 year fixed annuity paying 3.2%.
  2. And unlike CDs, the interest is tax-deferred and remains inside the annuity compounding interest until withdrawn.
  3. Principal protection.  No, annuities are not guaranteed by the FDIC.  But even better, in my opinion:  Because EIAs are issued only by insurance companies they are backed up by each state's guarantee association (be sure you understand your state's requirements and limitations).  No, Mr. Roth, the guarantees are not "mostly illusion".
  4. Which is because they are regulated by each State rather than any Federal window-dressing regulator like the SEC, at the beck and call of the very industry it's supposed to "regulate".  Oregon is one of the toughest.  If an annuity product is available here, it's probably pretty good.
  5. Flexible and customizable income guarantees.  None of the other "bad" products Mr. Roth mentions include these essential planning characteristics.
  6. Liquidity.  No, most annuities do not have 100% liquidity from day one.  That's why fiduciary advisers use them for long term money, much like a personal Social Security account.  Virtually all are 100% liquid after 10 years.  And virtually all allow 10% penalty-free withdrawals before then.
  7. The ability to participate in market gains while avoiding the losses.  If an investor only received 30% of the S&P500's gains, but avoided all the losses, he would beat the S&P500.  Not losing money matters.
That's for starters.  Of the $84.9 billion investors placed in fixed annuities in 2013 only $8.3 bil. were fixed immediate annuities (the worst ones, which Mr. Roth likes because they are "simple".  And maybe also because AARP sells them?)  $39.3 bil. were equity indexed annuities:

Courtesy of  Insured Retirement Institute

 Mr. Roth goes on to characterize those of us who use EIAs as greedy snake oil salesmen pursuing gigantic commissions through itinerant bait & switch seminars & classes.  If we eliminated all transactions that made a profit for someone, commerce would grind to a halt.  We don't mind paying a 10,000% markup on bottled water, a 90% markup on the coffee we drink nor a 3.5-7% real estate commission.  Every savings and investment option also has pros and cons, costs and benefits.
As a fiduciary adviser, I have to be able to demonstrate that my recommendations are the best for my clients.  And we're talking about long term, face-to-face relationships, Mr. Roth, not a mass audience that will forget your article in a week (in this case, fortunately).  Believe me, if insurance companies could sell their annuities online, by mail or through financial entertainers they certainly would.

Which brings me to the title of this blog, "Always Talk To Seniors as if They're 8 Years Old".  In his five "Warning Signs" Roth astoundingly states, "My rule is never to buy anything I couldn't explain to an 8-yr.-old" because everyone- even educated adults -should avoid that high-falutin' "fancy language".  Yes, I know.  That is the prevailing journalistic standard.  It really is.  (Which explains a lot about the dumbing-down of Americans.)  But I would never treat a client the same way I would treat an 8-yr.-old child.  How pompous and insulting.  Many of my clients are professionals; lawyers, doctors, engineers, professors, carpenters, CPAs, managers.  They are capable of understanding the best options.

I do tell my classes and my clients to never make a financial decision without the two elements of TRUST:  evidence and understandingFame (such as appearing in the AARP newsletter), a nice suit and hair, toothy smiles, etc. are evidence of nothing.   Make your adviser explain everything you doubt or don't understand.  Insist on evidence for all claims.  There are no stupid questions.  You deserve better than Mr. Roth.  Sometimes complexity is superior.  Otherwise we would all use horses instead of cars.

Thursday, May 15, 2014

Why Insurance and Investing Often Don't Mix

(A reminder:  The titles of these posts are financial myths.  Unless otherwise stated, they are MYTHS.)
This latest Myth is the title of an AARP blog by corporate-sellout hack, Allan Roth, whose main purpose seems to be to attract bankster advertising and products rather than protect his readers' finances.  Although I'm a member I have to say AARP is, after all, little more than a giant marketing organization promoting apparently very profitable but second rate products, services & information.
To their credit, AARP offers this caveat in Mr. Roth's bio:  His contributions aren't meant to convey specific investment advice.  But guess what.  Individual readers do take his baseless claims as individual and specific advice.  They take it to heart and it affects their actions.  That's human nature.
In this latest post Roth can't even seem to make up his own mind:  Yes, insurance is good for protecting "valuable assets, such as your car or your home".   But it is not good for protecting other more valuable assets like your income, bank accounts, IRA or retirement savings.  Huh?  Can you spell FDIC?
The truth is, for holistic fiduciary advisers who take the time to know their clients and examine their futures from now to the ends of their lives, Insurance and Investing always mix.  ALWAYS.
The reason is that risk management (aka "insurance") is always appropriate in some form, whether it involves actual insurance company products, or, tax/volatility/interest rate management in a portfolio.
As a holistic, fiduciary, Oregon-registered investment adviser I am concerned with reality.  I focus on what is best for each client, not on what makes good bumper stickers.  Check any adviser out at  I'm there.  You'll notice Allan Roth is not.

Monday, May 12, 2014

The Best THings in Life are Free

Well, I actually believe the title of this post. 
But the next-best things in life are not free.  That's why I've revised and filed with the Oregon Department of Finance & Corporate Securities my new contract and fee schedule, effective the end of March.  (Which is also on my website at
I strive to keep expenses as low as possible and to provide exceptional benefits.  (It is that ethic that has turned Vanguard into the largest fund family.)  That's why I work out of my home & use a virtual network of back office support staff & specialists.  That's why I don't have a glass, brass & mahogany office with Persian rugs & rare art on the walls.  But, after 36 years in financial services I've learned a thing or two.  My time & knowledge are valuable.  And I make every minute you spend with me as worthwhile as I can!

Friday, May 2, 2014

A Fool is Born Every Minute

I believe the heading of this post is a myth because it's more like every second that a fool is born.  Take the Utah case of American Pension Services Inc. and its CEO (Crook Ex-Officio) Curtis DeYoung.  This succinct article in The Trust Advisor magazine drives home the importance of receiving your account statements from a fully vetted third party, not from your adviser.  That third party should be a well-known and independent custodian or trustee.
According to the SEC, Mr. DeYoung lost over $22 million of retirement account assets, all the while sending his clients phony, inflated account statements.  And then, to top it off, he charged fees based upon the fake account values, even after they were totally worthless!
One might argue that this is a case of just desserts, since both Utah's senators voted against Dodd-Frank & its consumer protection provisions, including adequate funding for the SEC.  But nobody in Utah deserved this, despite voting for Mike Lee & Orrin Hatch.
We had a similar case here in Oregon with our own Wes Rhodes.  Talk about a whole bagful of warnings that investors ignored.  Entrusted with upwards of $40 million, Rhodes actually invested only about $4 mil. using the rest to pay off earlier investors and fund his lavish lifestyle.  His $1.6 mil. car collection was quite public and well-known yet set off no red flags.  To avoid Federal mail fraud charges, he hand delivered his phoney statements to his clients' homes, a service they found endearing.  Rhodes is currently serving 10 years in Texas.
My exasperated question is this:  Why are investors attracted to $1000 suits, expensive cars, offices, Persian rugs & secretaries who look like Vogue models?  Who do you think is paying for all that??  Do you really believe the guy is simply a market genius, benevolently sharing his golden touch with you?  This delusional thinking is how Bernie Madoff executed the grandest heist in history, fleecing otherwise wealthy, sophisticated investors.
That is why I dress casually, work from home, drive a Leaf, utilize virtual back office services and a national network of other experts and support systems.  This keeps my overhead low.  I am walking my talk, that costs matter.  What kind of message does it send to squander money on fluff and bling?
THE TAKEAWAY:  If your statements are coming straight from your adviser, run in the opposite direction.  Be sure to grab your money first.