Riscario Insider

KEEPING PROMISES WHEN NO ONE’S WATCHING

promodcares@gmail.com (Promod Sharma) — Sat, 19 May 2012 14:14:00 +0000

When I ran a department, my team of 10 met every second Friday morning with whoever was present. I wanted the meetings to continue when I was away unavoidably. Instead, they would get canceled. Perhaps my staff saw the meetings as an imposition they wanted to avoid.

At work, we don't have a choice.

When you voluntarily join a small nonwork group that meets regularly, you do. There will be temptations to cancel meetings when a member is unavailable. The reasons vary: sickness, holidays, weather, conferences, clients, ...
Sometimes the reasons are unavoidable. Sometimes canceling is due to laziness or "not feeling like it".

Commitment

A meeting is a commitment and a commitment is a promise. That promise is to you as the promisor and to the rest of the group. Break a promise and you break a chain. Trust decreases.

I look for ways to keep promises, even when that's inconvenient. I sometimes go to a meeting even if other attendees cancel. If you show up, you've achieved a victory. You've planted another sequoia acorn in the forest of your character.

Zig Ziglar said, "If you do what you ought to do when you ought to do it, the day will come when you can do what you want when you want to do it."

Going to a meeting may not be the most enjoyable thing you can do at the moment, but maybe that's what you ought to do?

Fellow Victors

If some of the others show up too, you've strengthened a bond. The discussions are invariably better than with full attendance. There's more time for each participant to speak. The discussions go deeper. There may be unexpected tangents. You might get to know more about each other's personal lives. You build trust.

The "show up" pact works in public (e.g., blogging regularly). It also works in private when no one else know. In both cases, you know. And you're worth it.

The Others

Problems arise when others break promises. Say your advisor. You know they've failed you but in their minds, they not even know there's a problem. Maybe they're consistent in failing to deliver. Maybe you learn the pattern and make allowances. Isn't that rewarding misbehaviour? What will that get you?

If the offender is a family member or boss, you've got complications. Even then, you can focus on your Circle of Influence (yourself). By keeping your own promises to yourself, you'll build a habit that helps you keep other promises. Maybe you can nudge others to keep theirs. Or ditch the promise breakers.

Podcast 169

direct download | Internet Archive page | iTunes

PS This is the May long weekend but this post still shipped …

WHY INSURANCE ADVISORS ALSO SELL INVESTMENTS

promodcares@gmail.com (Promod Sharma) — Sun, 13 May 2012 00:14:00 +0000

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?

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.

THREE POWERFUL PROTECTORS AGAINST CORPORATE MISCONDUCT

promodcares@gmail.com (Promod Sharma) — Sat, 05 May 2012 17:30:00 +0000

We don’t live in a perfect world. On any given day, you’ll find reports of businesses behaving in ways that are less than noble. We have reasons to be cynical. We can’t rely on superheroes to save us. Litigation is risky, expensive and slow. We aren’t powerless though.

We're protected against corporate misconduct by the combination of

Regulation
Competition
Publication

This trio isn't perfect but can be effective. We’ll use financial services as an example

Regulation

The regulators focus on keeping financial institutions solvent. They set rules and specify minimum capital requirements. When capital gets set aside, it's typically invested in conservative investments for security. There are likely restrictions on the types of investments permitted, which means lower (but safer) returns. Tying up capital is not attractive for investors but protects buyers.

Canada escaped the financial meltdown and the regulations were certainly a reason.

Competition

In the world of gadgets, market share is an important consideration. When there’s a clear market leader like the iPad, it’s tough for competitors to charge more (or even the same price). Lowering prices also increases the size of the market.

In financial services, profits seem more important. When I was designing insurance products, there was always pressure to boost profits but without losing market share. That’s virtually impossible. At any given time, some competitors will be more interested in market share.

Overall, competition is your friend and augments regulation.

Publication

Regulations may be followed and competition may be effective. There can still be problems. For instance

That's where publication comes in. The media can investigate and report. Bloggers can bring scrutiny too. Wikipedia is a living repository reminding us of what happened. You can do your part through social media too. Your messages reach the world instantly.

Awareness helps everyone who pays attention make better decisions. You’re still free to make mistakes you later regret but you can avoid them too.

What’s stopping you from buying from a good company? When you do, you punish a bad one at the same time. That’s an ideal win/lose.

Podcast 167

direct download | Internet Archive page | iTunes

PS What do you do if you see misconduct?

FROM BUCKET LIST TO BALK-IT LIST

promodcares@gmail.com (Promod Sharma) — Sat, 28 Apr 2012 13:00:00 +0000

It's tempting to wait until the last minute.

Consider filing your taxes. Here the deadline is real. You face penalties if you're late. There's media attention. You know what you have to do, even if you'd rather not. Help is available whether you want to Do-It-Yourself or pay someone do it for you.

Silent Deadlines

Most deadlines aren't well known. You may not face an immediate penalty for missing them. The onus is on you to be proactive.

Think of farming. You can't plant crops five minutes before dinner. Even pizza delivery takes longer. Since you know you must eat, you know you need to prepare in advance.

Think of saving for retirement. The magic of compound interest takes time. Delaying is very expensive. Since no one is forcing you to save, it's easy to delay, save less or both. The pain comes later. You might not be able to save if become disabled and are unable to work. Or if you don't take steps to remain employable.

Think of health. Our bodies are accommodating ... until they're not. We can't go back in time to exercise more, eat better or drink less.

Health insurance and life insurance purchases have silent deadlines. When you are likely to claim, coverage may not be affordable or available.

The Easy Solution

There isn't one. The important but non-urgent things are easy to delay when the unimportant but urgent beckon.

A Bucket List is a place to itemize what you want to do before you die and then start doing them. The list often contains exciting goals like travel.

Balk-it List

A Balk-it List is different. Here you jot down the things you don't want to do but need to do someday.

Here’s how. Set a timer for 15 minutes and start writing. Feel free to continue if the ideas are still poring out of you. Pen and a small paper notebook work well. You can add more items later simply and quickly. You may prefer your smartphone or tablet.

Next, organize your list by priority and timeframe. Electronic tools might help here (e.g., Remember The Milk or Toodledo). Finally, work on reducing your list. This is a situation where the Pick Four 12-week goals program may be just what you need.

Stop Balking

We don't know when our last minute will expire or our state at that time. We know where we are now. Are you where you want to be?

Podcast 166

direct download | Internet Archive page | iTunes

PS You could add your Balk-it List to your Bucket List

IS THE PICK FOUR GOALS PROGRAM RIGHT FOR YOU?

promodcares@gmail.com (Promod Sharma) — Sun, 22 Apr 2012 01:45:00 +0000

I just finished the 12 week Pick Four goals program. Is it right for you? Let’s explore. To start, here is how this program from Zig Ziglar and Seth Godin works.

Overall

Overall, I'm relieved. The program works well but was tougher than I expected. I'm not used to working on the same goal each day for 12 weeks. For years, I've been planning by the month/quarter/year and scheduling by the week.

I made progress on all my goals.

Ask for business (3 times a week): I have and the process helped me clarify the need for an Actuarial Insurance Review (AIR). There are now three variations: corporate (CAIR), family (FAIR) and personal (PAIR).
Improve health (daily): I made reasonable progress, especially in eating better. I still need to exercise regularly and sleep earlier [my original goal was too narrow: “Exercise (3 times a week)”]
Declutter (daily): my blue bin was fed well but this remains my biggest struggle. There’s a reason I didn’t include a photo of my desk …
Ship video (once every two weeks): I did. I’ve overcome mental obstacles and now feel comfortable editing video. You’ll see the results here. I have yet to record myself talking directly to the camera but now feel I can.

Four goals may not seem like much, but they are.

The Peers

It's very difficult to find groups without slackers or members with ulterior motives. The other three members in Pick Four were exceptional. They were committed and supportive. We showed up on time. We felt guilty if when we fell behind in a goal.

Even after 12 weeks, I don't feel that I know much about the other members. I don't understand basics such as what they do, how they picked their path or what they want to achieve in their lives. Those details weren't necessary for Pick Four but would have added context.

To use an analogy, think of going to walk-in medical clinic. Your symptoms get treated but are you really get cured? That takes longer and requires deeper probing. Perhaps you need to modify your thinking or priorities. Maybe your goals are too modest. Outside perspectives help.

Success Elements

Even if you're good at setting goals, you'll get better results when you're in a support group.

We met weekly except for a couple of times. Once we had a conference call. That saved time but was less enjoyable.

The meetings were structured and lasted an hour. Each member reported on their progress. The rest of the group asked questions and made suggestions. That’s fine but there was no time for the magic that happens outside a formal meeting.

Areas To Improve

I don't like writing on paper. I would have preferred an app with web-based synchronization (e.g., via Dropbox). An app would allow nifty analytics like graphs and also nagging reminders.

Prior to starting the program, prospective members could meet for a couple of hours to get to know each other. That would help with bonding and could weed out incompatibilities.

Would you travel over an hour to attend an hour-long meeting? I did but would not like to do this indefinitely. A Skype video conference might be a workable solution but in-person is best.

After the meeting dates are set, life will intervene --- sometimes in tragic ways. What if you can’t attend? It’s tempting to reschedule (which is difficult with four busy calendars to address) or cancel (which is easy). The fairest solution is to continue the meetings with whoever can show up.

The Schedule

We met in downtown Toronto at 6 PM. If you're driving, you get to battle "rush hour" traffic. You also get to pay both the daytime parking rate and the after-6 PM flat rate. The earlier you show up, the greater the penalty.

My monthly mentoring/mastermind groups start at 7 PM and run two hours. That feels more relaxing and allows time to eat before attending. A 7 PM start time wasn't practical for Pick Four because of busy schedules.

The meetings took place on different days and at different locations. This was inevitable because of our schedules. I would have preferred a fixed day of the week but that was impractical, even for me.

Since I plan my weeks Monday through Sunday, I readjusted Day 1 to start on Monday. That may seem minor but was important to me.

Ideal?

Pick Four may work very well for you, especially if you’re in the right group. To start, order the Pick Four workbooks. When they arrive, start looking for participants.

Overall, I prefer monthly peer mentoring with a variable end time. That structure allows deeper discussions. The monthly frequency allows time to meet goals despite the disruptions life hurls our way.

Bonus

My group is meeting for a wrap-up dinner. We'll give each other a 360 degree evaluation. That will be very valuable since we can't see ourselves. What we do looks unremarkable and routine to us but might awe others. The outside perspectives would help us value ourselves and see areas for improvement.

THE NEW “BEST/WORST” JOBS LIST AND YOU

promodcares@gmail.com (Promod Sharma) — Sat, 14 Apr 2012 20:00:00 +0000

CareerCast has released the list of the Best Jobs Of 2012. Actuary is #2 (up from #3 in 2011). Oh no. Studies like this create interest in becoming a actuary, whether as a student or by switching careers. Picking a job based on a ranking may not be the best choice.

The Winners And Losers

Here are the 10 best and 10 worst jobs.

#	The Best	The Worst
1	Software Engineer	Lumberjack
2	Actuary	Dairy Farmer
3	Human Resources Manager	Enlisted Military Soldier
4	Dental Hygienist	Oil Rig Worker
5	Financial Planner	Newspaper Reporter (new)
6	Audiologist	Waiter/Waitress
7	Occupational Therapist	Meter Reader
8	Online Advertising Manager	Dishwasher
9	Computer Systems Analyst	Butcher
10	Mathematician	Broadcaster (new)

You’ll find the full official list here.

Varies

In any job, workers range in skills, with most close to average. You're not a "big fish in a small pond". You're a normal-size, normal-looking fish. What sets you apart? If you're studying or changing careers, years may pass before you're ready to work. There's no guarantee that you'll get a job ... or like the job.

Value comes from demand and demand comes from scarcity. Rather than becoming one-of-the-many, you want to be one-of-the-few. How? Develop portable skills and apply them where they're rare.
For example, an actuary in an insurance company Head Office is a commodity. An actuary outside of Head Office is a rarity. Guess which is worth more?

Where would your skills be valued more highly?

"Best"

What's best for you needn't be best from the perspective of your clients. Financial planners are ranked #5. They're happy but customers have little trust in financial services. Win/lose. Since anyone can label themselves a "financial planner", buyer beware.

Job Security

There is no job security any more. Picking what's "best" today provides little assurance that demand will remain when you're trained to do that job. There are blips.

Y2K created high demand for programmers and that meant good money for them. That didn't mean companies kept them any longer than needed.

Ideal For You

The ideal job is easy to define but hard to find. The ideal job is a hobby for you and valuable for clients. Imagine working at something you'd do for free and getting paid well while you enjoy. How can you have competition when your motivation is the joy of doing and the pleasure of honing your skills.

Strategy

If you're always learning, you're better able to adapt to what's next. Stay alert to what people might want and where they may need help. Be aware of trends.

By 2020, over half the US workforce may be self-employed. That creates opportunities. What will these people need to do to get jobs? Can you help them? If you’ll be competing with them, can you get started now to get ahead of them? Maybe you show your expertise by starting to blog. Stick with it and you'll build a huge lead over the laggards. Your advantage will grow word by word, post by post. Perhaps you start investing in additional learning now.

Case Study

I started as a conventional actuary working in the Head Office roles. By 1993, I saw that actuaries were virtually interchangeable. They thought in similar ways. If you can predict what someone will say, they are easier to ignore and replace.

I started looking for what actuaries would not do at all or could not do well. I saw that technical people are good at knowing how. That makes them easier to replace. I decided to become the one who knew why. That's more valuable. Soon start asking "why not". That's the most valuable if you can explore the opportunities without undue reliance on others.

Science

Actuaries are trained to measure and manage risk using the tools of statistics and probabilities. Those skills are valuable inside multibillion dollar insurance companies. Since risk is everywhere, those skills are even more valuable outside where they're rarely applied.

Few actuaries have this perspective: actuarial science is a true science with hypotheses and results. A lab coat is optional.

In science, you experiment. You build prototypes and analyze. You get comfortable with ambiguity. You learn to separate the trend lines from the random deviations. You develop an intuitive sense of what might work, even if you can't explain why.

These skills are portable. In 2005, I left Head Office to help advisors make more money. In 2009, I left them to help you make better decisions about insurance. That's a nontraditional path.

Your Path

What can you do to build on your unique skills in ways that most others are overlooking?

If you've got one of the "best jobs", congratulate yourself but don't become complacent. If you're thinking about switching to one of these "best jobs", best wishes.

Podcast 164

direct download | Internet Archive page | iTunes

PS Where does your job rank? Do you agree with the positioning?

TIPS FOR FIRST-TIME HOMEBUYERS

promodcares@gmail.com (Promod Sharma) — Sat, 07 Apr 2012 13:00:00 +0000

Buying your first home is such a wrenching experience, especially if you're newly-married or starting a family.

Job 1

The biggest challenge is finding the right real estate agent. This is very difficult. Experienced agents tend to sell more expensive properties and deal with repeat buyers. That means you're stuck with beginners, less successful agents or agents who put volume ahead of service.

1991

We first bought in 1991 during a hot Toronto real estate market. We had difficulty finding a real estate agent who would bother with us. Eventually, we met George (not his real name) at an open house. He committed to finding us a place if we were serious about buying. We were. He understood our needs (safe neighbourhood, spacious, near public transit, near schools, good resale value) and budget (not much but all we had). He concluded our best opportunities were condos near the west-most Kipling subway stop.

George understood our needs well. We bought the first place he showed us --- but not just then. We didn't realize it was right for us until we looked at several other places.

Oops

We were also fooled. George seemed successful but the summer was hot and George's air conditioner didn't work. That we could accept. This is where the trouble started. He took us to a mortgage broker who offered a convoluted blended rate from no-name lenders on terms he was unwilling to explain. Plus the broker wanted to charge us hundreds of dollars for processing. All we had to do was sign here, here, here. And here. Even if we didn’t understand what we were signing.

Since we were confused, we asked questions. Foolish us. Rather than explain, the mortgage broker started shouting at us --- yes, shouting --- for wasting his time. He told us to sign. We declined.
George took us for coffee and berated us. Weren't we serious? Mortgages aren't complicated but George didn't understand what the mortgage broker was doing either. As best I could tell, he was blending a fixed rate mortgage with a pricey second mortgage with rates that increased after six months.

George hadn't understood the mechanics and was also miffed when I explained my interpretation. He arranged cheaper conventional financing through an out-of-town Canada Trust branch. The rate was 13.5% for a six month open mortgage, which was a good rate at the time.

Tough Parts

Buying a house is a time of emotions. It's often difficult to afford what you want (or your parents own). You'll have lots of questions and face self-doubt.

You're dealing with two commissioned salespeople, yours and the seller's. The agents have their own goals. A fascinating section in Freakonomics (original edition) shows how their interests take precedence over getting a better deal for you. Agents encourage clients to buy/sell quickly, rather than wait for a better price. However, agents left their own properties on the market for longer and sold for higher prices.

Forewarned

You're not helpless. Use the Internet to do your own research. You're probably looking for a neighborhood where

where you feel safe
property values are growing
your house isn't the most expensive one

Ask other homeowners, ideally experienced ones.

Compromise

Be willing to compromise. We picked smaller places in better neighborhoods with good schools. You may have other priorities.

Don't stretch too much. Unexpected expenses are likely. Our furnace broke down during the first cold spell when our son was just two weeks old. Luckily, our mortgage came with free home protection insurance that covered most of the replacement costs. That was a welcome surprise.

The Advisor

Selecting the right advisor is essential but difficult. We found their most important skill is negotiation and this is hard to assess.

What they drive is a measure of their success. They might have a nicer car than they warrant but be wary of someone who drives a cheaper car. That may be all they can afford.

Congratulations!
You're making your biggest financial decision (besides marriage and raising children). Be sure that you and your spouse are in harmony.

Podcast 163

direct download | Internet Archive page | iTunes

PS Home inspections don't catch everything.

UNINTENDED LESSONS FROM THREE ENTREPRENEURS

promodcares@gmail.com (Promod Sharma) — Sat, 31 Mar 2012 19:53:00 +0000

If you want to win the lottery, you've got to buy a ticket. These three entrepreneurs didn’t put the odds in their favour. One is established, another is starting and the third is planning. Let’s look at the impressions and lessons they provided without even knowing.

The Established Entrepreneur

The 50-something entrepreneur was speaking on a panel. She had 25+ years of experience in different ventures. Afterwards, a fellow speaker asked for her business card. She had none left. Why? She didn't bring many.

She didn't even ask for the other speaker's business card. He may have been a potential client or centre of influence. We never know who knows who. Or who needs what when.

Impressions: this entrepreneur didn't look prepared or interested in getting new business. That's hardly a model to follow.

Lessons: carry extra business cards. If you don't have any left, get business cards from people asking for yours and send them an email afterwards. (I didn’t say these lessons are tough.)

The Newbie Entrepreneur

These days, entrepreneurship looks glitzy and perhaps more stable than working for a megacorp. This 20-something newbie MBA was exploring an international market niche with promise ... and established competitors. What made her different and trustworthy? This wasn't clear.

Age can be a handicap. Young may signal inexperienced. Old may signal outdated. Or the other way around. For instance, you might prefer a young social media whiz but an older advisor.

If you're on the wrong side of a stereotype, you need to find a way to show why you're the one to choose. Otherwise, you might educate but not get business.

This newbie had no business cards ... yet. She's not on LinkedIn. She has no visible digital tapestry. If Google can't find her, how can potential clients? Why would they bother?

Impressions: Properly printed business cards are cheap and still essential. If you're starting out, all you need on them is your name, phone number, email address and where to find you online (e.g., your personal website or LinkedIn profile). No business card = not serious.

Lessons: get your own business cards. Get enough that you feel compelled to hand them out because you have such a stock. I order 1,000 at a time.

The Future Entrepreneur

This 30-something MBA is working at a major bank and wants to make the transition from employee to entrepreneur. However, he had no business ideas. Not a single one.

We exchanged business cards. I offered to connect on LinkedIn but he's afraid to put a profile there. He thinks company policy forbids that. Is that possible? A LinkedIn profile is your personal resume. Would you want to work for a place that controlling?

Impressions: If you can't spot an opportunity, are you really an entrepreneur? If you chose to work in a megacorp rather than a smaller, more innovative company, perhaps you're too risk averse to succeed on your own.

Lessons: Keep your eyes open for a competitive advantage. Ideas are cheap. What can you do that makes you the best in the world? For success, you need to pick a niche that's small enough for you to dominate. If you're removed from the world of entrepreneurship, find a way to get closer to entrepreneurs. Learn from what they do. You may need to change your job and take on risk. Entrepreneurship requires sacrifices.

Room For You?

These entrepreneurs gave us lessons that they themselves haven’t mastered. Be alert and you’ll find lessons abound. As Yogi Berra said, “You can observe a lot just by watching.”

Podcast 162

direct download | Internet Archive page | iTunes

PS What are your thoughts on entrepreneurship?

THE PERILS OF WHOLE LIFE INSURANCE

promodcares@gmail.com (Promod Sharma) — Sat, 24 Mar 2012 22:49:00 +0000

Opinions on whole life insurance get fiery. Advisors who sell it tend to be older. Whole life was probably the first product they sold. They've learned how to position it and deal with objections. They've convinced themselves of the merits. Criticize whole life and you're in for an argument.

Over the years, advisors have said that whole life pays higher compensation than any other life insurance product. Let’s ignore that. Let’s get to the core question: why do you buy insurance? To transfer risk to the insurer.

Whole life transfers risk back to you. Is that what you want?

Rejoice?

Tax refunds feel nice but why do you get them? Because you overpaid. Insurance dividends feel nice but why do you get them? Because you overpaid.

With participating whole life insurance, you pay more than the insurer needs. The insurer conservatively projects mortality claims, expenses and investment earnings. If actual mortality claims are lower, you get a dividend. If expenses are lower than projected, you get a dividend. If investment earnings are higher than expected, you get a dividend. That's nice but there's the other side.

Your dividends could be lower than you expect. Here are three examples.

AIDS: in the 1980s, AIDS became a concern for insurers who sold guaranteed products. There was no problem with par whole life since higher mortality claims simply meant lower dividends. If Hollywood is to be believed, there are epidemics and scourges waiting for us. With whole life, you get to share in the cost.
Y2K: upgrading computer systems was pricey. With whole life, higher expenses simply mean lower dividends. Who knows what might lead to higher expenses in the future?
Investments: with whole life, you're stuck with the returns on the investments the insurer selected. Maybe you wouldn't have done better but you would have had choices. If you’re not good at deciding, your advisor is there to help you.

Rather than return your premium overpayments to you, your advisor may encourage you to spend on more insurance. If you'd like to cancel your coverage, you'll be offered "nonforfeiture options", which are other ways spend your money the insurer instead of getting it back.

The Evolution

Whole life is an expensive black box. Clients and their accountants were looking for products which were transparent and cheaper. The solution was universal life, a combination of life insurance and investments. In essence, you're "buying term and investing the difference". You're also getting guarantees. Typically, you know the mortality rates and expense charges. As with whole life, the investment returns are unknown but now you and your advisor get to choose from the choices available. Premium tax rates may not be guaranteed.

With universal life, you win if actual mortality rates or expenses are higher than projected. The insurer wins if mortality rates or expenses are lower. Doesn't this give insurers an incentive to guarantee inflated rates?
They can try, but there's competition with other insurers, whole life and "buy term and invest the difference". Also, mortality has been improving and technology reduces costs. The projected savings can be factored into the guarantees.

In Canada, most insurers have stopped selling whole life insurance. Instead, the market has shifted to term life and universal life.

Trust

With tax, you or your accountant can calculate the costs. You're cannot verify or calculate a dividend. You're trusting the insurer, possibly for decades. Do you? The financial sector is the least trusted in the world … again.

Some insurers selling whole life rank low in corporate governance, a measure of keeping promises. I have a fondness for London Life because their coveted London Life Actuarial Scholarship helped pay my way through university. However, 1.8 million policyowners have not fared as well. In a class action, Great-West Life and London Life were ordered to pay $455.7 million for violating the Insurance Company Act and general accounting principles. An appeal court confirmed the decision but reduced the settlement to $220 million.

Companies change their behaviour. This week, RBC and TD announced they are ending free bank accounts for their older clients --- even if they’re been clients for decades. It's easy to change banks accounts. Right now, BMO, CIBC and Scotiabank still have free ones.

With insurance, you can’t easily switch. You undergo new underwriting and may face tax on the cancelation of your old plan. All that assumes you’re still insurable.

Stay Away?

Whole life insurance may may sense in some situations. If guarantees are important to you, ask an advisor you trust for other options before you decide

Podcast 161

direct download | Internet Archive page | iTunes

PS What are your thoughts on whole life?

THE PERILS OF PYRAMIDS AND MULTILEVEL MARKETING (MLM)

promodcares@gmail.com (Promod Sharma) — Sat, 17 Mar 2012 20:01:00 +0000

Pyramids look wonderful … as you get to the top. But

there’s not much room at the top
the journey isn’t easy
not everyone likes heights

The masses at the bottom do the work and hold up the structure. Why? Perhaps they’re drawn by the lure of riches. Perhaps they’re forced as in Orwell’s 1984.

If you’re a slave, you may wish to be the master. That won’t end slavery or the plight of the slaves. You might not enjoy the riches unless you ignore the source.

Something For Nothing

A high civilization is a pyramid: it can stand only on a broad base; its primary prerequisite is a strong and soundly consolidated mediocrity.
--- Friedrich Nietzsche

We know of people who are much more financially successful than we are. They seem to enjoy pleasant lives and probably do. Their rewards look outsized. Why can’t we make a fortune … without the risk and hard work?

CHAIN LETTERS

They say the Pharaohs built the pyramids. Do you think one Pharaoh dropped one bead of sweat? --- Anna Louise Strong (1885-1970)

Did you ever get caught up in a chain letter? You send a dollar to someone higher up, add your name to the letter and send copies to your connections immediately. Eventually your rank in the pyramid grows and you start receiving dollars too. At least that’s the promise. Those who don’t participate get bad, bad luck. The chain has both carrot and stick. Did you earn enough to cover the cost of postage?

Pyramids are based on false expectations of rewards. The risks get downplayed. The work looks trivial. Besides, you’ll get trained. Success seems guaranteed. We look like fools if we don’t participate (and perhaps like fools if we do). All we need is a credit card. We’ll earn the money back in no time.

Even big institutions get fooled. TD Bank has set aside $255 million for the pyramid-like Rothstein scam.

Multilevel Marketing

The current legal version of pyramid structures is often called multilevel marketing (or less descriptively as network marketing or referral marketing).

“MLM companies have been a frequent subject of criticism as well as the target of lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price fixing of products, high initial start-up costs, emphasis on recruitment of lower-tiered salespeople over actual sales, encouraging if not requiring salespeople to purchase and use the company's products, potential exploitation of personal relationships which are used as new sales and recruiting targets, complex and sometimes exaggerated compensation schemes, and cult-like techniques which some groups use to enhance their members' enthusiasm and devotion.” --- Wikipedia

Does any of that sound familiar?

The real rewards often come from recruiting. That takes real work and is difficult to sustain. Yet we want to believe we have a reserved spot on an express escalator to the top of the pyramid. That makes us vulnerable and later less trusting. And less trusted.

Podcast 160

direct download | Internet Archive page | iTunes

PS You may have better luck with a franchise or lottery tickets.

INTERVIEWED ON LIQUID LUNCH

promodcares@gmail.com (Promod Sharma) — Sat, 10 Mar 2012 18:58:00 +0000

"To get an autograph, get back in line."

I'm practicing that sentence to deal with my soon-to-grow legion of fans.

This week, I was interviewed on camera for the first time. The clip is about the length of a TED Talk. The program is Liquid Lunch with Hugh Reilly and Sandra Kyrzakos on ThatChannel.com. The show runs from noon to 2 PM on weekdays. You can watch live or on YouTube later.

First Time

I haven't been interviewed on camera before. The idea used to scare me. This time last year, I couldn't bear to see myself on camera.

All that changed because of Goodyear Toastmasters. I'm glad I finally joined. That's where I practiced and got the feedback I needed to improve. My confidence grew.

This week, I also did my 10th and final speech in the Competent Communicator manual — exactly 15 months after my first speech.

All Revved Up

I was ready to get interviewed but where?

Hugh and I were panelist at Networking For Entrepreneurs and Freelancers last month. These quarterly events are hosted by fee-only financial consultant Neil Jain at Money Life Skills (website) and Paulina Lysy (LinkedIn profile) of Southern Exposure Renewable Energy.

Our topic was social media. As a blogger and podcaster, I'm a strong believer. Hugh took a contrary view, which lead to an excellent discussion. Afterwards, Hugh invited me on Liquid Lunch. Opportunity welcomes the prepared.

The Interview

I want to get better at video production. I've volunteered to help at Rogers Community TV. There's a one year commitment … and a long waiting list.

If we meet and you'd like an autograph, please be patient. And get back in line.

Podcast 159

direct download | Internet Archive page | iTunes

PS To improve your speaking, read the Goodyear Toastmasters blog where I'm the editor and a contributor

LOOKING BEYOND TD BANK AND THE ROTHSTEIN FLORIDA PONZI SCAM

promodcares@gmail.com (Promod Sharma) — Sun, 04 Mar 2012 01:59:00 +0000

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?

Podcast 158

direct download | Internet Archive page | iTunes

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

THE NEW PRESCRIPTION FOR TRUST

promodcares@gmail.com (Promod Sharma) — Sat, 25 Feb 2012 14:00:00 +0000

Financial services is still the least trusted sector on the planet (Edelman Trust Barometer 2012) but that’s where I work. Maybe that’s why I think about ways to help you spot trust. My definition keeps evolving. I thought I had the foolproof measure of trust in Nov 2010 ... but got fooled. Here is the latest — and ideally final — prescription.

Original (Feb 2007)

I first thought trust consisted of Chemistry and Credentials. Here’s why.

Chemistry

This is the instant snap judgment which Malcolm Gladwell discusses in Blink: The Power of Thinking Without Thinking (official website).

If you don't like the other person (let's say an advisor), why would you use their services? You usually have other choices. There's little point giving your tough-to-earn money to someone you don't feel good about.

Successful salespeople are masters at creating chemistry. That's an important skill in today's competitive world. That doesn't mean they can do the actual work. If they delegate, you might get stuck with someone you didn’t select and wouldn’t like.

Credentials

Mastery takes time and deliberate practice. This is the "10,000 hour rule" from Outliers (Malcolm Gladwell).

Ultimately, you're paying to get something done. The work takes skill. That’s why a handyman is cheaper than an electrician or plumber. You can get the basics done but that might not be good enough since complications can arise during the process. More duct tape, please. If you don't value skill, you might as well trade down to the lowest price. Otherwise, you may trade up for quality (see getting what we want by distorting our spending).

Credentials could come from experience rather than diplomas or certificates. Yet formal learning shows a commitment to go through a rigorous (boring) process. That's an accomplishment. You needn’t learn everything in courses. Einstein said, “Education is what remains after one has forgotten everything he learned in school.”

Once you learn to learn, self-study is an excellent option. The results are more difficult to measure. Without discipline and monitoring, it's easy to get sloppy.

For instance, I became an actuary through a formal process of accreditation and apprenticeship. I now learn through self-study (mainly audiobooks, videos, books, magazines, blogs).

Version 2: Generosity (May 2010)

From working with advisors, I saw that Chemistry and Credentials were not enough. Advisors could be greedy and secretive. They wouldn't share what they knew. Upon digging, I'd often see they didn't know much (and were afraid of getting found out). Or they were afraid that competitors would steal from them. That's odd since they probably “borrowed” the ideas they claimed to have originated. I saw an example just days ago.

Trust required more. How about adding signs of Generosity. The formula becomes Chemistry, Credentials and Generosity.

Advisors who freely share the best of what they know show

an abundance mindset (rather than win/lose scarcity thinking)
continual learning (dated thinking shows)
better knowledge (since teaching is an ideal way to improve learning)

Social media gives free tools to share text (blogs), voice (podcasts) or visuals (video). Advisors with the desire to share can.

Let’s Get Real (Nov 2010)

I came across a two element definition: trust is Expertise and Intent. That's from a book called Let's Get Real by Mahan Khalsa. If you take Chemistry as an essential starting point, this formula looked fine.

In essence, Expertise means Credentials. Intent means showing that you're acting on your clients best interests on an ongoing basis. That's like Generosity.

This definition isn’t quite right either. It's better to make Chemistry an explicit requirement.

The Missing Element

Congruence is the missing element. It means, consistency, walking your talk, having no flaws of character, above suspicion, passing the "smell test", harmony.

We've been fooled so many times (at least I have) that we're sensitive to incongruity. Children are masters at detecting hypocrisy. Try telling a child to eat broccoli when you won't. Or to stay away from drugs when you can't function without coffee after coffee. Or to get off the computer when you're plopped in front of the TV for the rest of the evening.

Generosity and Intent are elements of Congruence but they aren't enough. For instance, an advisor on a nonprofit board looks generous but be hovering there to get business. A diabetic may lack the self-control to resist dessert, which may signal compromises elsewhere. If they break promises to themselves, would they remain true to you when times get rough?

The New Prescription (Feb 2012)

Here's the new definition of trust: Chemistry + Credentials + Congruence. Trust is at the intersection of

Chemistry: how do we feel about them initially and over time? Salespeople excel at building relationships and are not burdened by fiduciary responsibilities.
Credentials: do they have the technical skills to do the work? They may not be current in the newest developments and you might not know.
Congruence: do the clues show that your interests take priority. Look for ongoing generosity and advocacy.

Test

Think back to when you've been fooled. Would the new prescription for trust have helped you?

Podcast 157

direct download | Internet Archive page | iTunes

PS How would you improve the new prescription?

WHERE IS YOUR ADVISOR’S BLOG?

promodcares@gmail.com (Promod Sharma) — Sat, 18 Feb 2012 21:03:00 +0000

The global 2012 Edelman Trust Barometer ranks financial services at the bottom again (even worse than banks). In this environment, how do you know if your financial advisor is looking out for your best interests?

The same study shows that social media has had a dramatic 75% increase as a source of trusted information. Granted, the base was small but that’s a major increase.

Blogging is an excellent way for advisors to continually show they're on your side. Does your advisor have a blog? If not, why not?

Questions

Here are some questions to ponder.

When did your advisor’s blog start? [Why not earlier?]
How many posts are there? [Why not more?]
How often are new posts added? [If less than weekly, why?]
When was the last post published? [If more than a week ago, why?]
Does the content educate you or sell to you?
Who writes the content? [If not the advisor, why?]
Is the content worth reading? [If not, why?]

Advisors continually look for more clients — even they claim to work “by referral only”. Blogging is a way to stand out.

Excuses?

I've been telling advisors to blog since mid-2007. They have many excuses for doing nothing. Three of the most common are: not allowed, no time and not able to write.

Not allowed

Large organizations rarely permit advisors to express opinions in public without pre-approval ... and maybe not even then. Policies can prevent online activity like posting links to articles, expressing opinions in groups or leaving comments on blog posts. Internal restrictions might even ban testimonials to outsiders on LinkedIn.

How bland.

Since bland doesn’t bring ka-ching, the organizations leave a loophole. Advisors are allowed to make questionable claims in seminars and meetings. Why? There's no proof of what took place. It's easy to claim that what you inferred, they did not imply.

Advisors who want to express themselves and show they put clients first could leave and start their own businesses. If that's too drastic, they could go through the process of getting their content pre-approved. While the results may look boring and generic, they can still do something.

No Time

Advisors make time for what matters to them. Shouldn't that include clients?
An advisor who doesn't have time might be unproductive. That's where Pick Four or other programs help. Perhaps the advisor's business has grown and requires more staff. That's a good situation unless the problem is retaining staff.

Can’t Write

Not everyone can write but they can learn. It's not as if we were born walking, talking or cycling. Written communication skills are essential and well worth mastering. Nothing bad could happen from improving. Help is available.

Excuse Busters

How do you explain amateur financial bloggers? They could use the same excuses as advisors but found solutions instead. They have the additional handicap of being outsiders. They need to spend time learning before they know enough to tell you. An insider has a huge edge.

Anniversary

This month marks my fifth anniversary of blogging. That's over 500 posts and 250,000 words. I had no training and “talent” is a myth-conception. We learn by doing.

I’ve been encouraging advisors to blog since 2007. I thought that advisors with the courage to share valuable free content on a regular basis would learn how and stand out. In return, they’d attract more clients, retain more clients and raise standards for laggards.

Podcast 156

direct download | Internet Archive page | iTunes

PS What do you think about advisors blogging, podcasting or creating video?

HOW TO SPOT BIASED REFERRALS

promodcares@gmail.com (Promod Sharma) — Sun, 12 Feb 2012 02:30:00 +0000

Once we got a flat tire on Highway 401 at night. We got towed to a tire shop that the tow truck operator recommended. Did he receive a financial incentive?
While site-seeing in India, our driver took us to see silk comforters at a particular store. Did he receive a financial incentive?

Fruits

When you go to an Apple store, you won't get advised to buy an Android tablet. You already know this. You wouldn't expect a bias at a place like Best Buy which sells both. You'd be annoyed if you found out that hidden inducements came ahead of your best interest.

When you’re referred to someone else for help — accountant, lawyer, coach, investment advisor, insurance advisor, financial planner, plumber — could hidden incentives bias the recommendations?

Some networking groups expect members to refer prospects to each another. This requirement may not be visible or disclosed. This is also a reason to be skeptical of testimonials on LinkedIn, but there spotting overlaps may be easier.

Financial Services

In financial services, there are many one-stop shops — perhaps where you bank or invest. They offer everything except carpet cleaning. That’s convenient for you and more profitable for them. However, your results might be suboptimal compared with hiring independent specialists who are good enough to have their own brands.

See Spot Run

Asking questions like these helps you uncover biased referrals.

Where would you recommend I go?
If they can't or won't recommend anyone, be wary since they lack courage. A list of options falls in this wimpy category. If they say they're recommending the best place, be wary. “Best” may mean for them ...
Where else have you recommended that others go?
You may find that referrals keep going to the same place. This is especially true in a one-stop shop. There are probably much better choices outside but only internal referrals are allowed.
How long have you known them? How did you meet? Why did you select them?
Here the goals are to find out about the depth and nature of the relationships.

Ask in a conversational tone. The answers and delivery will help you gauge the value of the advice.

Buried

In some situations, hidden incentives may influence the recommendations you get. As a minimum, there are probably cross-referrals: I'll recommend you if you recommend me. Money might change hands. This is more likely in smaller organizations. The bigger places are more likely one-stop shops, which has other drawbacks. Even if you're informed about the payments, there may be an element of bias in the recommendations.

You may be comfortable with referral fees (or "affiliate marketing") as long as the payments get disclosed clearly ... in advance ... without you asking.

Recently, I've been looking for better ways to back up my data online. Some providers got glowing reviews but mainstream sites never even mentioned them. Maybe some incentive is affecting the recommendations?

The Fairest Way

At their core, referrals are fine. You probably give them already. If you know a good advisor (for example), why wouldn’t you send a friend or acquaintance to them? You all win.

You know your own motives. When you receive referrals, be wary. Even when you think you trust the source.

Podcast 155

direct download | Internet Archive page | iTunes

PS Have you been fooled in the past?

THE LURE OF “EXCLUSIVE” FINANCIAL STRATEGIES

promodcares@gmail.com (Promod Sharma) — Sat, 04 Feb 2012 22:59:00 +0000

A log by any other name is still a generic section of wood from a tree. How do you sell that? You need the power of marketing.

Salespeople like having an edge like exclusivity or innovation to stand out from their competition.

The consumer world places a premium on the exclusive or innovative. The special edition. Limited quantities. Get it first.

In the financial world, deviating from convention has consequences. We already looked at the risk of financial innovation (podcast 142). This time, we’ll explore the lure and allure of “exclusive” strategies using examples from the world of insurance.

Examples

Advisors like wrap product configurations into packages called strategies. For instance,

the family cottage preserver: use life insurance to pay the capital gains tax due upon the death of both parents
the retirement asset conserver: use life insurance to pay the tax on RRSP savings at death
the investment multiplier: instead of investing in interest-bearing investments, buy the biggest death benefit possible

We looked at the top five insured strategies earlier also how to turbocharge them by adding investment leveraging. Different companies will have their own names. Some advisors create their own names too. While the name may not be available anywhere else, the exclusivity is an illusion.

A Rose

A rose by any other name would smell as sweet
— William Shakespeare

When you buy a strategy, you ultimately get a normal life insurance policy from one of the few insurers left (ideally one good at keeping promises). You could buy the identical coverage without a strategy. When you receive annual statements from the insurer, you rarely find references to the strategy.

Advisors may be unable to show you how the strategy works when it matters most — years after you’ve bought. There's little incentive to service policies already sold unless there's a good chance of selling more insurance. Also, the tools are designed to make the initial sale. Later, when real life interferes with the alluring projections, there isn’t much help available.

Generic

While a strategy may look unique, the tools used often come from an insurance company or third party. This means that other advisors can often produce the same results.

This is good.

Strategies rely on numbers which depend on formulas and assumptions. Mistakes are easier to make than spot and correct. Even mainstream applications like Windows contain bugs. Your advisor won’t have the resources of Microsoft.

Exclusive

Who says that what you're seeing is one-of-kind? Besides the salesperson and their team.

Steve Jobs was able to draw people into his Reality Distortion Field and have them believe that whatever he was then promoting was the best thing ever. Your salesperson may not have quite the same charisma but there are parallels. We want to believe. We want to feel special. That makes us vulnerable. What if you’re being fooled?

Risk

Ice cream comes in many flavours but vanilla remains the most popular (29%) followed distantly by chocolate (8.9%) and butter pecan (5.3%). You might want to try chocolate marshmallow salsa almond crunch that only one place sells. That’s fine. Go wild.

For financial strategies, do you really want something unique? You might get more peace of mind and better results with the boring and proven.

Podcast 154

direct download | Internet Archive page | iTunes

PS If an advisor asks you to sign a Nondisclosure Agreement, back away.

REACH YOUR GOALS WITH PICK FOUR FROM ZIG ZIGLAR AND SETH GODIN

promodcares@gmail.com (Promod Sharma) — Sun, 29 Jan 2012 01:02:00 +0000

Goals, goals, goals. Many systems help you reach them. By experimenting, you'll select or create system that suits you. To succeed, you need to get started and keep going.

Seven Habits

Over the years, I've used elements of the Seven Habits system (and used to buy the paper-based calendars in the days before smartphones). With this approach, you plan by the week. We have many roles (e.g. parent, employee, spouse, student).

You schedule the relevant ones for the week into your calendar. For instance, as a parent you may want to help your child practice a speech on Tuesday evening from 7 PM to 8 PM. As an employee, you may allocate 1 PM to 4 PM on Thursday to catch up on email. Once you schedule the essentials, other activities fit around them. (For more, see Scheduling your priorities the Seven Habits way)

Getting Things Done

Several years ago, I started using the Getting Things Done approach to get things out of my head and into a system I trust.

I'm using PersonalBrain (see review) to track for big things. The drawback is that I can only use it on my Windows computer. There's no edit/sync with Android or iPad.

For To Do items, I use Toodledo for a web-based repository that's connected to Pocket Informant on my Android phone and iPad. I have the Pro version so that I can create subtasks. This works well.
For client-related items I want to track long term, I use a web-based CRM system, Batchbook. There's overlap but that's manageable. (for more, see Three big lessons from Getting Things Done)

What's Missing

My current approach is 100% independent. No one else is involved and the goals are private. Some goals slip ... but at least no one else knows.

Pick Four

Enter Pick Four. This is Seth Godin's update of Zig Ziglar's low tech process for reaching goals over 12 weeks.

Pick Four combines three elements

a mind dump of your life goals (like Getting Things Done)
identifying roles and goals (like The Seven Habits but for the full 12 weeks, not week by week)
peer support

Most of the workbook is a diary in which you make notes about what you did for each goal each day. You also mark whether what you did was enough.

Form A Team

Amazon sells these workbooks in four packs. We paid $30, which works out to $7.50 each.

At the time of writing, the US price is $20. In Canada, the price is $135.04, which must be a mistake.

The inviting open-me cover looks reminds me of Dr. Seuss and Tim Burton. The paper looks cheap because it's not smooth or bright white. Looks deceive. The paper is good quality. I'm using a gel pen and ink doesn't bleed through the paper.

Rules

I'm in a quartet of high-calibre participants I met recently. We barely know each other but are all committed to meeting our goals. When you're working in a team, members must agree to (obvious) rules like maintaining confidentiality and keeping commitments.

Why 12 Weeks?

Twelve weeks feels right. That's long enough to achieve reasonable goals but short enough to motivate. By the end, we should have built habits that

keep us from quitting those goals
encourage us to set more goals

What's Missing?

Pick Four is only paper-based. I'd much prefer an iPad app. That saves trees and helps with privacy. As with a diary, I wouldn't want anyone looking at what I'm writing.

Since the spiral binding is on the left instead of the top, writing on the left-hand pages is tougher for neat freaks. Maybe there will be more options in the future. Since I don't like throwing things away, I'd like an iPad version that lets me print to a PDF for archiving.

You only get five days per week. That gives you two days off. I like that but would prefer a seven day calendar to be consistent with today's lifestyles. For instance, you might have goals that include weekends but that doesn't mean you're a workaholic.

Picked Four

Here are my goals:

Ask for business (3 times a week): I make myself available to clients who decide on their own that they'd like my services. That's pressure-free but not proactive.
Exercise (3 times a week): I turned 50 last year and must pay more attention to my body. This category also includes sleeping earlier.
Declutter (daily): don't ask. I've got stuff piled up on flat surfaces. I have closets and boxes filled with stuff I'll never use and would have trouble finding.
Ship video (once every two weeks): this involves getting better with editing and talking to the camera without my mind going blank.

Each goal is a stretch and was reviewed by a peer mentoring group and my Pick Four goalmates.

I'm on Day 2 and will report back in 12 weeks on April 21, 2012.

Podcast 153

direct download | Internet Archive page | iTunes

PS Don't wait for my findings. Keep working on your goals.

CAN AN ADVOCATE SERVE TWO MASTERS?

promodcares@gmail.com (Promod Sharma) — Sat, 21 Jan 2012 19:38:00 +0000

In a game of strategy, you can’t play on both sides at the same time. If you switch allegiances, who can trust you?

Near the end of 2011, I had an epiphany. I realized that I wasn't putting your interests first as well as I could.

Product Design

When I designed health and life insurance products for a decade, I knew there were compromises that boosted profits.

Example (skip if you don’t like statistics): universal life might have a contingent bonus that rewards you if your investment returns are high. For instance, you might get a 2% bonus if you earn 5% in a year. That looks appealing but research showed the bonus would only pay 60% of the time. That reduced the projected payout to 1.2% (= 2% rate x 60% probability). To cover costs, the investment loads were increased by 1.2% (say from 1.8% to 3.0%).

I was okay with this because other insurers had similar designs and sales were made through independent advisors. Buyer beware looks fair when you have an impartial advisor with the will and skill to help you make sound choices. I didn’t realize that advisors also suffered from the plague of innumeracy (low financial literacy).

One For All

When I spent 5 years helping top advisors sell insurance, I saw a more troublesome issue. Since I was working for an insurance company, I could only promote their offerings. No company in any business can have the best product for every situation. That's because companies make different compromises. For instance, clients at younger ages or buying smaller policies may be charged more to subsidize older clients buying larger policies. Why? There's more competition for the wealthy, which means better prices for them.

Representing a single company creates a conflict between what you’ve got and what's best for the client. I rationalized. I was supporting independent advisors who could deal with different companies. They decided what to offer their clients and I was there to help them. Never mind that compensation or other incentives might influence the recommendations. Since the advisors were really salespeople, they were not required to put your interests ahead of their own (see the insurance loophole).

All For One

Since 2009, I've been saying that I've been serving you directly, bypassing the salespeople. At least that’s what I said. That wasn't 100% correct. In some cases, I was still collaborating with advisors to serve their clients. This is often called “splitting cases” since the revenue gets shared. That looked like a win/win:

advisors had clients but needed more credibility or expertise
I had both but, as a startup, needed more clients

This time, I had access to products from different companies, which allowed the better solutions to be presented.

There was a bigger problem.

Oh No

Since the advisors "owned" the clients, I had to meet their interests first. This lead to conflicts since I would not concede. Too often, these advisors wanted to sell products with

more coverage than necessary
higher compensation than conscionable, or
strategies with more sizzle than substance

There was reluctance to provide after-sales service, since revenue came primarily from new sales.

Example: You know mutual funds have high investment expenses. You may not know — but probably guessed — that investments inside life insurance have high investment expenses too. This is normally hidden, but I told you in 2008 (see two drawbacks of investing in life insurance). A salesperson might not feel compelled to inform you but an advocate for you must ...

What if an advisor doesn't provide full disclosure? There's the sin of omission. It's not the same as telling a lie but now the onus is on you to pose questions you might not think to ask. Even if you do, what answer can you expect?

What's worse than fooling a client? Fooling their tax advisor into recommending a strategy. When clients find out what happened — which may take years — the tax advisors get blamed since they were more trusted.

Conundrum

Do you see my conundrum? Serving you with life and health insurance is my calling. It's the only thing I've done in my entire career. This is not my Plan B or Plan C.

How could I serve two masters, the salespeople and you?

I couldn't find a way to overcome the troubling conflict of interest. There's a time to take sides. That's why I've stopped sharing cases with advisors who make their living by selling health or life insurance.

I've terminated every single arrangement by the end of 2011. I can't serve them and you.
I choose you.

Podcast 152 (6:51)

direct download | Internet Archive page | iTunes

PS I still collaborate with hand-picked specialists like accountants, lawyers, fee-only financial planners, investment-only advisors and employee benefit specialists.

THE WORD ADVISORS IMPLY BUT DARE NOT SAY

promodcares@gmail.com (Promod Sharma) — Sat, 14 Jan 2012 13:04:00 +0000

There’s nothing wrong with selling but salespeople don't want to be seen as salespeople.

Impressive titles like "advisor", “consultant”, "planner" and “specialist” sound better even though anyone can use them (more examples). Designations look impressive unless you explore and conclude they are sales-oriented too.

Regardless of title, advice has little value if biases (real or perceived) are built-in. Surveys routinely rank advisors among the least trusted professions.

Fiduciary

Do advisors use the word "fiduciary" to describe themselves? A fiduciary is legally required to put your interests ahead of their own. A salesperson does not have that burden. Buyer beware.

Becoming a fiduciary is not the answer. If something goes wrong, even fiduciaries can have trouble proving they acted properly. That's the consequence of hindsight, selective memory and emotion. Lawyers play a role too.

Advocate

What about “advocate”?

An advocate is on your side. An advocate educates you. An advocate makes a stand in public — even when that conflicts with their industry. An advocate points out what the fine print really means to you. Seller inform.

An advocate isn't a rebel who wants to "tear down the walls from the inside" and tell-all. An advocate wants to make improvements within the system. That takes more skill but leads to better, faster results for you. Experience as an insider helps an advocate help you.

What's stopping advisors from becoming advocates for you? They may already belong to organizations which are advocates for them.

Proof

Anyone can call themselves an advocate but no one can prove they are one.

At best, an advocate can demonstrate they are on your side with their actions. Since an advocate could get corrupted, look for

what they’ve done in public, and
what they continue to do in public.

What’s done in private doesn’t count since there’s no public scrutiny.

When Turtles announces a return to the "original recipe", you might wonder if that’s because they tried to sneak in cheaper ingredients … and lost. When Fido mobile announced “now easier to speak to a real person”, perhaps that’s because they cut service … and lost. There was a time when Enron was trusted. Before the financial meltdown, long-established companies like AIG were considered solid too.

Advocacy might be a ploy but that’s tough to fake for years.

Price

A salesperson often works for "free", which means for sales-based commissions, bonuses and other incentives. How does an advocate get paid? Probably by charging for the advice. Would you pay?

“Fiduciary” is a scary word for advisors and “salesperson” is scary for you. “Advocate” looks ideal. Just make sure you select a real one.

Podcast 151 (4:21)

direct download | Internet Archive page | iTunes

PS Are an advocate for whoever you serve?

YOUR FAVOURITE POSTS OF 2011

promodcares@gmail.com (Promod Sharma) — Sat, 07 Jan 2012 13:30:00 +0000

Welcome to 2012. As usual, let's start by reviewing what you read here on Riscario Insider in 2011.

Overall

After nearly five (!) years, blogging feels like a normal part of life.

The Top 20 Posts

Normally, we only look at the top 10 posts. As in 2010, five of the ten are repeats (this time #1-4, 7). To show more variety let’s look at the top 20 instead.

Here's what you read most.

Insurance was the most popular top with six appearances (#2, #11, #13, #15, #16, #19). Napoleon Hill made the list three times (#3, #10 and #12). Actuarial items are there three times too (#5, #17 and #20).

Work A Peek

Here are the 2011 posts categorized for your convenience.

Career

Various

Insurance

Financial

The Top 5 Podcasts

If you prefer, you can listen to podcasts. Here are the top five.

Does billionaire Seymour Schulich help you "Get Smarter"? (#1 in 2010)
"The Snowball" rolls into Warren Buffett (#2 in 2010)
The three major obstacles to growth according to Brian Tracy (#4 in 2010)
Outliers by Malcolm Gladwell: Mastery plus Opportunity trumps Talent (#5 in 2010)
Warren Buffett’s touch career choice: actuary or billionaire

The Top 3 Countries

You read from 138 countries (up from 128).

United States: New York, Chicago, Los Angeles, San Francisco, Houston (#2 in 2010)
Canada: Toronto, Vancouver, Calgary, Ottawa, Edmonton (same order as 2010)
United Kingdom: London, Kensington, Manchester, Edinburgh, Lambeth

For the first time, the US is the leading country for traffic. For 2007-2010, Canada was #1.

Sources of Traffic

Search engines: 69% (up from 43%)
Referring sites: 14% (down from 22%) [main sources: LinkedIn, Taxevity, Twitter]
Direct: 17% (down from 20%)

For the first time, social media is the main source of referrals.

Keywords

Here are the top keywords typed into search engines to get here.

7 habits of highly effective people quotes (#1 in 2010)
seymour schulich (#2 in 2010)
quotes from 7 habits of highly effective people
seven habits of highly effective people quotes
career change actuary
the 7 habits of highly effective people quotes
warren buffett life insurance
quotes from the 7 habits of highly effective people
napoleon hill
6 basic fears

Notice the variations of "7 habits" and "quotes"? Different paths lead to the same destination.

Browsers Used

Internet Explorer: 37% (down from 44%)
Firefox: 25% (down from 32%)
Chrome: 20% (up from 12%) [was 2% in 2009]
Safari: 14% (up from 9%) [was 2% in 2009]

Operating Systems

Windows: 76% (down from 83%)
Macintosh: 12% (up from 11%)
iOS: 7% (up from 3%)
Linux: 1% (down from 2%)

Screen Resolution

1280x800: 19% (down from 20%)
1024x768: 12% (down from 18%) [was 35% in 2008]
1366x768: 12% (up from 5%)
1440x900: 8% (unchanged)
1280x1024: 8% (down from 13%)

Mobile Devices

In 2011, 9% visited with mobile devices (up from 3.5%). Apple devices still rule (76%) followed by Android (18%) and Blackberry (5%). The iPhone is the most popular device (25% of mobile visits) followed by the iPad (20% and the longest visits).

Podcast Episode 150 (9:45)

direct download | Internet Archive page | iTunes

PS Back to regular posts next week

THE MOST SPECIAL TIME OF YEAR

promodcares@gmail.com (Promod Sharma) — Sat, 24 Dec 2011 22:25:00 +0000

It's Christmas Eve. Whether you celebrate or not, snow makes today special and there isn't any.

As a child, Christmas was the most special time of year. It wasn't our festivity but we celebrated just the same. There was joy in the air. People were happier. Everything was delicious and nothing had calories. The decorations looked wonderful. The snowmen, the lights, the sounds, the stockings, the cards, the music. Pa, rum, pa, pum, pum. Me and my drum.

The joy and wonder. Santa Claus is coming to town! The magic even changed Scrooge and The Grinch.

Wonder

We had an artificial tree with shiny silver branches. Like any good child, I believed in Santa and was rewarded. How did he get in when we had no fireplace and the chimney led down to the furnace?
Since the real Santa was busy at the North Pole preparing for his annual visit, he sent mall Santas to get our wishes. This was more convenient than writing a letter in those pre-email days. Plus we got a sweet treat. Joy to the candy canes! The lineup was worth the rewards.

We had a black & white TV with one over-the-air channel. This was in London, Ontario. That was fine. We watched uplifting old black & white classics. Year after year.

Boxing Day

When I became a teen, Boxing Day mattered more than Christmas. On December 26th, I'd head downtown to Sam The Record Man where everything was on sale. This was the time to buy imports or expensive back catalog records (yes, the vinyl ones). The popular titles were discounted at other stores.

In those days before websites and home computers, you couldn't do your “Boxing Day” shopping on December 24th or 25th. Now we can. What "progress"! Can’t we get any break from shopping? We have to rely on our self-control, which can be weak.

If you still like shopping in person, Best Buy and Future Shop now open at 6 AM on Boxing Day. Even 7 AM was too early.

I remember lining up in 2001 to get our first digital camera: a Fuji FinePix 6800Z with a body designed by Porsche. Having photos felt important since 9/11 ended innocence a mere three months earlier. The normal price of $1,000 was now reduced to $700. That was for 3.3 megapixels, shutter lag and a noticeable pause between shots. A 64 MB memory card was pricey but necessary accessory. The “good old days" weren't for gadget lovers. The store only had four but I got one and still have it.

Hot Chocolate

As a child, we never needed to travel for Christmas because we were already together. When I started working, travel added stress because the weather was unpredictable whether driving or flying. Sacrifices.
We didn't have global warming concerns in those days. Since we were in a snow belt, we could count on lots of the white stuff. That's a wonderful excuse for hot chocolate.

We didn't have treats regularly. That made the shortbread cookies and boxes of chocolate so much more delectable. This year we have Costco sized boxes that last months.

Why Not?

We live in such a complicated world. On this day in 2008, we were at the hospital emergency ward. We deserve to remember lighter times at least once a year. This is the best time because so many others are looking back and enjoying too. We also have time to think and try new things. Since the New Year is about to begin, this is also a great time to act on new resolutions.

Will it snow tonight?

More than once, we've gone to bed with green grass and awakened to snow. There's such a lull when you open the door. Snow dampens the sounds and makes the day even more special. Even the shoveling is fine when you return to a nice warm house with delicious aromas wafting from the kitchen.

This is the final post of 2011.

The best to you and yours during the holidays.
May your 2012 be swell, swell, swell!

Podcast 149 (6:05)

direct download | Internet Archive page | iTunes

PS If this post is just nostalgia talking, I'm still listening. How about you?

KEEPING PROMISES: CORPORATE GOVERNANCE 2011

promodcares@gmail.com (Promod Sharma) — Sat, 17 Dec 2011 22:34:00 +0000

Corporate governance is a measure of how well companies are run and keep their promises. The Globe and Mail has done an annual study for the last 10 years. Here are some of the biggest scandals: Enron (2001), Worldcom (2002), Nortel (2003), Parmalat (2003), Tyco (2005), HP (2006), RIM (2006-2007) and Olympus (2011). Do you remember why? For highlights, check out this slideshow.

We last looked at the 2007 rankings. It's time for an update.

Lots has changed since 2007. That's when the iPhone was introduced. That novelty is gone and the devices are commonplace. Not all changes have such happy evolutions.

We have endured financial turmoil. Major companies have had difficulty keeping promises. Countries too. Financial services are especially important since they are intangible. You can't touch the return on an investment or feel the quality of an insurance policy by holding the contract.
Canadian companies have proved resilient. That’s a sign of being well-run. The regulators deserve credit for setting high standards and ensuring they are enforced.

Trends

The best 15% of boards did well before Enron and would have done well without any reforms. The 70% in the middle have benefitted most from the governance revolution, and the 15% at the bottom are unchanged.
— TD Bank chairman Brian Levitt (Corporate Canada sees a quiet revolution in governance)

Corporate governance has improved. We’ll focus on financial services. In 2007, only 12 companies scores 80% of more. Now there are 16, despite the tough times and higher standards.

Rankings

Here are the five highest ranked companies in financial services:

Manulife (#2 overall, down from #1 in 2007)
Scotiabank (#4 overall, up from #18)
Sun Life (#7 overall, up from #8)
tie: BMO (#10 overall, down from #5) and TD Bank (#10 overall, down from #3)
tie: CIBC (#12 overall, up from #18) and Industrial Alliance Insurance (#12 overall, up from #21)

The Bottom

As in 2007, Power Corporation of Canada is at the bottom at #237 (a drop from #178). This group owns companies like Canada Life, Great-West Life, Investors Group, Investment Planning Counsel, Mackenzie Financial and London Life.

For more details, click on the table. You’ll find much more about corporate governance on the Board Games 2011 microsite. The University of Toronto prepared the data at the Clarkson Centre for Business Ethics and Board Effectiveness. How do you fit that on a business card? You can download the full results in a spreadsheet to do your own analysis.

No Guarantees

We can't predict the future until tomorrow becomes yesterday. That doesn't make us helpless. We can take steps to put the probabilities on our side. You might want to support larger companies which rank high in corporate governance — especially leaders in 2007 and now. Thanks to competition, you rarely pay more but get extra peace of mind. What’s the downside?

Even well-run companies may have products with poor promises. For instance, you’ll find pitfalls in mortgage life insurance and investments with high expense loads. You might do better as a shareholder than a customer.

Corporate governance is also a way to gauge whether your advisor is putting your interests first. If you were sold or shown products from companies with low scores, did you get tires with less tread? On a warm sunny day, you won't notice the difference but freak storms strike. When the roads get treacherous, it's too late to change your tires.

Nothing stops companies from scoring high on corporate governance. Do they? Nothing stops advisors from recommending those companies. Does yours?

Podcast 148 (6:39)

direct download | Internet Archive page | iTunes

PS How good are you at keeping your promises?

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

promodcares@gmail.com (Promod Sharma) — Sat, 10 Dec 2011 22:34:00 +0000

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.

Podcast 147 (12:37)

direct download | Internet Archive page | iTunes

PS Remember that tax hurts too …

WHERE DOES YOUR INSURANCE ADVISOR GET ADVICE?

promodcares@gmail.com (Promod Sharma) — Sat, 03 Dec 2011 22:09:00 +0000

"The Canadian life and health insurance industry is witnessing some dramatic developments. Barely a day after Standard Life’s announcement that it would discontinue its individual life insurance and critical illness products, there is word that Sun Life Financial has dismantled its long term care insurance (LTCI) specialist model."
— advisor.ca (Nov 30, 2011)

Following that article, this exchange took place on LinkedIn.

Promod Sharma: For years, I've seen insurance advisors struggle to understand the different types of products: life insurance vs living benefits (disability, critical illness, long term care) vs investments. Clients lose when they aren't offered products which are suitable and well-configured. Having experts certainly helps but has a cost ...

Byren Innes (LinkedIn profile): Agreed. Unfortunately we live in a very complex product world today even though the 'product' shelves are much narrower than the past. As many advisors broaden their own offerings it becomes increasingly difficult to understand - not just the basics but the specific and sometimes complex and subtle details. I'm waiting for a smart entrepreneurial firm to step up and fill this gap. Who will it be?

To date, Byren’s challenge has gone unanswered. This post proposes solution.

The Past

When your condition exceeds your doctor's expertise, you get referred to a specialist. You get better care and doctor avoids malpractice issues. Insurance works differently. Advisors need no real training. Once they pass a simple multiple-choice exam they are free to work on cases beyond their capabilities.

Since insurance advisors are commissioned salespeople, their primary goal is finding prospects. That tough role gets well-rewarded. When advisors elect to get technical help they have three choices:

insurers
intermediaries, or
independents

Each source has pros and cons. As Bob Dylan said, you gotta serve somebody. That's true even when you think they are serving you.

Insurers

Insurers provide free support. The price is right but the advisor then has an obligation to sell that company's product. Say bye to independent advice.

Since insurers are cost-conscious, they hire average specialists. Despite the impressive credentials, you get average advice. These experts often have "field experience". That means they failed at selling and are happy to get a salary and employee benefits instead.

Intermediaries

Managing General Agents (MGAs) are the intermediaries between the insurers and the advisors. The larger organizations provide internal support. This can be better than what's available from the insurers. Recommendations can now be independent but there's an indirect cost: the advisor usually gets lower compensation.

This model looks good. There's no upfront cost to the advisor, which is ideal since not every case closes. However, advisors often begrudge the cost. For reasons I've never understood, they'd rather get 100% of nothing or compromise with the free support from insurers.

Independents

Some technicians realize they can't sell and some salespeople realize they can't do the technical work. They form formal alliances or work together on selected cases.

These technicians can be very good but they aren't cheap. They typically get a split of the revenue (e.g., 25%-50%). No sale means no money, which may tint their advice.

To show their value, technicians tend to make matters look more complicated than they really are. If they simplify, the advisor might soon realize they can use free or cheaper resources.

The Ideal

Can an advisor who tries to do everything be great at anything?

The ideal is to have a team of independent specialists. Each masters their niche and gives referrals outside their expertise.

In practice, few advisors specialize because that means leaving "money on the table". For some reason, that's a problem. The other challenge is trust. Advisors want you to trust them but they have immense difficulty trusting other advisors.

An Extra Step

Commission-based sales create conflicts of interest. The solution is for you to pay for each service even if you decide against proceeding.

Is this radical?

You already pay your lawyer and accountant for their services. You pay a home inspector even if you don't buy the house. What do you think?

Podcast 146 (6:15)

direct download | Internet Archive page | iTunes

PS Just because advisors can get help to sell you a policy doesn't mean they have help to provide ongoing service.

INCOME REPLACEMENT: A GUIDE TO DISABILITY INSURANCE

promodcares@gmail.com (Promod Sharma) — Sat, 26 Nov 2011 23:17:00 +0000

In this week’s Globe and Mail, Preet Banerjee investigates the financial aid available to the disabled. I’m quoted. The interview took place via Bluetooth while I was driving to the sold-out Toastmasters conference. (There, Jonathan Holowka and I showed ways to turbocharge clubs with social media.)

Disability is a dreary subject and you avoid buying insurance, but the topic is popular this week. Advisor.ca, has articles to help salespeople clear the sales hurdle and pitch disability coverage. There is even a script for them to use on you. If you start getting contacted in the near future, maybe that’s why.

This post gives you more insider thoughts about disability insurance, which is sometimes given the glitzier name of income replacement insurance.

Statistics

There are many eye-popping statistics about the high risk of disability and how long income can be lost. Here is a recent video from PPI Solutions.

You probably know people who are disabled at least partially.

Differences

Death is something an actuary can calculate fairly easily and accurately. Predicting who will become disabled is not so easy. It is a calculation based on chance.
— New York Times, April 2011

Life insurance pays a fixed amount upon death. Critical illness insurance pays a fixed amount upon diagnosis of a covered illness. Within reason, you decide how much coverage you want.

Disability insurance is different. It only replaces a portion of your lost income. If you were able to replace your full income and get indexed benefits, where is the financial incentive to return to work? If the economy is bad and layoffs are pending, getting disabled may look like an exit strategy.

To counter abuse, insurers have ongoing checks to make sure you still qualify. With life and critical illness insurance, you're only checked at the time of the claim.

Disability has subjective elements. Insurers have leeway in deciding who qualifies for benefits. There are three key ways to getting your claim paid.

Nortel

You can't rely on disability protection from your employer even if you pay the premiums. We already looked at the two types of coverage you may have but can't own.

Nortel is a sad example. Instead of getting real insurance, the company decided to insure employees themselves. Since Nortel is bankrupt, their promises mean nothing. The disabled lost their benefits. If real insurance were used, then benefits would have continued. If the insurer failed, Assuris protection would step in.

In British Columbia, the government is not paying legislated benefits to thousands of disabled people.

If you can't rely on an employer or government, can you rely on yourself? If you don't have your own DI coverage, you are your own insurer. Since you cannot tell if you're going to become disabled or for how long, self-insuring can prove very costly unless you're independently wealthy.

Problem

Statistics Canada reports that 1 in 7 Canadians are disabled. The rates increase with age. Not only is disability common during your working years, the benefits could be paid until age 65 and might even be indexed. While the protection is worthwhile, it's pricey. It has to be. That’s why some people buy critical illness insurance instead. That's valuable coverage but hardly a substitute.

The perceived problem is that you can spend lots of hard-earned money on insurance and never get a long term disability. Isn't that better than having a claim? You had peace of mind and your health.

Podcast 145 (hmm)

direct download | Internet Archive page | iTunes

PS Relying on your employer for your pension is also risky. Defined benefit plans are becoming rare in the private sector and we're living longer than ever.

Riscario Insider

KEEPING PROMISES WHEN NO ONE’S WATCHING

Commitment

Fellow Victors

The Others

Links

Podcast 169

WHY INSURANCE ADVISORS ALSO SELL INVESTMENTS

WHOLESALERS

FINER

Consequences

Blend

Links

Podcast 168

THREE POWERFUL PROTECTORS AGAINST CORPORATE MISCONDUCT

Regulation

Competition

Publication

Links

Podcast 167

FROM BUCKET LIST TO BALK-IT LIST

Silent Deadlines

The Easy Solution

Balk-it List

Stop Balking

Links

Podcast 166

IS THE PICK FOUR GOALS PROGRAM RIGHT FOR YOU?

Overall

The Peers

Success Elements

Areas To Improve

The Schedule

Ideal?

Bonus

Links

Podcast 165

THE NEW “BEST/WORST” JOBS LIST AND YOU

The Winners And Losers

Varies

"Best"

Job Security

Ideal For You

Strategy

Case Study

Science

Your Path

Links

Podcast 164

TIPS FOR FIRST-TIME HOMEBUYERS

Job 1

1991

Oops

Tough Parts

Forewarned

Compromise

The Advisor

Links

Podcast 163

UNINTENDED LESSONS FROM THREE ENTREPRENEURS

The Established Entrepreneur

The Newbie Entrepreneur

The Future Entrepreneur

Room For You?

Links

Podcast 162

THE PERILS OF WHOLE LIFE INSURANCE

Rejoice?

The Evolution

Trust

Stay Away?

Links

Podcast 161

THE PERILS OF PYRAMIDS AND MULTILEVEL MARKETING (MLM)

Something For Nothing

CHAIN LETTERS

Multilevel Marketing

Links

Podcast 160

INTERVIEWED ON LIQUID LUNCH