Riscario Insider

Leaving Your Employer? Get Your Insurance In Place First.

promodcares@gmail.com (Promod Sharma) — Mon, 18 Dec 2017 00:40:00 +0000

When you're leaving your employer — voluntarily or not — you have much to consider about your future. You could easily forget or undervalue the employee benefits you've been receiving.

Unless you put similar protection in place, you are transferring risks to yourself. You have other options.

Health and Dental Benefits

If you act fast, you likely qualify for Manulife FollowMe health and dental without underwriting. You need to apply and pay within 60 days of losing your current coverage (sooner is safer). You can apply for FollowMe through Costco to save money if you don't need guidance.

If you'd like better coverage with fewer limitations, consider Association plans, which are only available through advisors.

Tip: If you're out of time, get FollowMe first and then compare with the Association plans.

Disability Insurance

Your group Long Term Disability (LTD) will likely end. Personal disability insurance is worth considering if you or your dependants would be heavily impacted if you became unable to work due to a sickness or injury. The cost may seem high but the benefits are valuable.

The best time to apply is while you're still working since a discount usually applies. Upon leaving your employer, a well-constructed plan allows a special one-time top-up to replace the group LTD you're losing.

Tip: Group LTD has limitations. Consider personal disability insurance as a top-up even if you're working.

Life Insurance

You likely have a right to a short period to convert your group life insurance to personal coverage (e.g., 30 days) after your employment ends. Your employer may not emphasize this option because the insurer charges them a penalty on the assumption that some of those who convert are in below-average health. Personal life insurance is likely cheaper but takes time to put into place.

Tip: If you're out of time, convert your group life and then compare with personal life insurance.

Be Ready

When you're starting out on your own and uncertain about the future, insurance brings stability and peace of mind. Waiting until you're established brings risk.

Reminder: simplified for clarity. For specific answers to your personal questions, arrange a private chat.

WHY DO I NEED INSURANCE? | QanA #1

promodcares@gmail.com (Promod Sharma) — Sat, 28 Feb 2015 17:25:00 +0000

This blog is switching to a video-first format with a new YouTube series called Question an Actuary (QanA). You can read the transcript (this blog post) or watch the video (embedded at the bottom). You lose nothing and get more choice.

Question: Why do I need insurance?

Answer: Because bad things happen. Even if you’re good. Even if you prepare. Insurance transfers risk.

You — yes you — always have insurance. Even if you don’t want any. How good is your protection?
As a minimum, you are your own insurance company. This is called self-insurance. You transfer the risk to yourself. You might set money aside in a bank account for the projected claims. For instance, you could build a fund to repair broken appliances or to cover expenses during a disability. Self-insurance is riskier if you live alone by choice or because a til-death-do-us-part relationship collapses.
Beyond this, you have OPM: Other People’s Money. That’s terminology from The Millionaire Next Door by Thomas Stanley. Here you transfer the risks to others, often family. Parents, grandparents, siblings. Your rich aunt or uncle. They may willing and able to help. Don’t count on them being happy, though. You may pay them back in other ways: they now have power over you … and may like reminding you and anyone else who listens about their generosity. Charity begins at home. Arguments too.

You may be able to transfer some risks to your employer. Perhaps basic medical, dental, disability and life insurance. Employers often dislike self-insurance and transfer some risk to an insurance company. Employers often pay some or all of the costs. Whoever pays decides what you get. Insurance from your employer is called group insurance.

There’s another source: an affinity group where you're not connected by work. You could qualify through an alumni association, professional association or other group. Do you think affinity groups self-insure? At work, you have no say in what you get. Same here. At work, your employer helps with the costs. With an affinity plan you pay every penny — rarely guaranteed. Part of your premium goes from the insurance company to the affinity group. Employers don’t usually add a markup since they're already profiting from you.

The next stage is personal insurance. This you buy from an insurance company. Now you’re in charge and pay the premiums, which may be guaranteed. The protection stays with you if you change jobs voluntarily or involuntarily. Here you pay the stipulated predictable premiums. In exchange, you get a contract which states the benefits you get.

Insurance companies don't like self-insuring. They transfer risk to re-insurers who may transfer risk to retrocessionaires.

The insurer of last resort is the government. You may think they self-insure but we taxpayers pay. You may think you’re entitled to benefits because you pay taxes. Other taxpayers may not agree. Also, you don’t have control over what’s available. Rules change.

Do you need insurance?

Yes. The question is who insures you. Since we’re not good at assessing risk, we tend to be optimistic. That’s why people buy lottery tickets and get remarried.

We don’t need car insurance because we’re safe drivers. We don’t need disability insurance because we’ll remain healthy (or think we have enough coverage from work). Who needs long term care insurance? If we need money, we can borrow against the growing equity in our house (if the banks are still lending) or get help from our kids (which means a smaller inheritance for them). There’s the government too. We paid taxes for ages. They owe us!

What if you’re wrong? That’s when you’ll truly know if you need insurance. That’s also when you can’t get any. Sorry. Insurance companies also bet. To minimize their claims, they want low risks. If you’re eager to buy, they’re suspicious. Do you know something they don’t?

Even if you have insurance, you might find you don’t have enough if you have a claim. And feel you have too much if you never have a claim. Maybe something is better than nothing?

If you never have a claim, would you like your money back? This option is sometimes available for an additional cost. The refund takes place at cancellation or death. It’s as if you earned a zero percent return. You’re protected whether you have a claim or not.

You always have insurance. Have you explored your options and optimized your decision? The best time is now.

Do you need insurance? What do you think? Share your thoughts and ask your questions below. For private personal attention in Toronto, reserve time to Learn About Life.

Reminder: These answers aren’t a substitute for personalized financial advice. The general information isn’t tailored to your unique situation.

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

promodcares@gmail.com (Promod Sharma) — Sun, 21 Dec 2014 17:48:00 +0000

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

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

Not Perfect

There are various criticisms of the book, such as

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

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

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

Tony’s Advantage

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

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

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

Differently

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

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

Overall, what he did is fine.

Free Meals

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

Caution

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

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

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

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

Links

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

UNDERSTANDING THE INGREDIENTS OF LIFE INSURANCE (TERM AND PERM)

promodcares@gmail.com (Promod Sharma) — Sun, 14 Dec 2014 23:26:00 +0000

Michael James wrote a thoughtful post comparing temporary (term) life insurance and permanent life insurance. Like our canine friends above, both are similar, yet different. The best choice depends on different factors. A winner on one scale loses on another. As Michael’s analysis shows, comparisons can be misleading or omit important elements (like inflation).

Typical Plans

A temporary plan like Term 10 is often

renewable to extend coverage for another 10 years for a higher-but-guaranteed premium
convertible to permanent insurance without underwriting up to a maximum age

Since a permanent plan lasts for life, there’s no need for renewal or conversion options. Here are typical plans.

Temporary Life Plan	Permanent Life Plans
Term 10 (renewable, convertible)	Term 100
Term 20 (renewable, convertible)	Whole Life
Level term to age 65	Universal Life

We won’t be looking at which form of insurance is better. We’ll be looking at how they’re different.

First Principles

Mortality rates underlie all life insurance. The mortality rate is based on the true probability of someone like you (same gender, age, smoking status and health) dying during the year. Your mortality rate increases annually because you’ll die eventually (based on current medical science and how we define life).

Your retail premium rate is based on your wholesale mortality rate with margins added for expenses and profits. Your premium is the premium rate multiplied by how much insurance you’re buying. There may be additional loads for premium tax and Investment Income Tax (IIT).

One Year At A Time

When you buy insurance, you are getting one year of protection at a time.

Comparing With Property Insurance

With your car and home insurance, the insurer will usually offer you coverage for another year under similar conditions. Your new premium depends on factors such as their claims (actual vs. projected), expenses (actual vs. projected), investment earnings (actual vs. projected), capital requirements and profit targets.

The insurer could refuse to insure you next year or change the contract provisions (e.g., weaken protection for water damage). You could decide to switch companies.

The Additional Guarantees With Life Insurance

Life insurance also protects you a year at a time but usually

you have the right to renew your coverage until a maximum age (even if the insurer stops new sales)
your premium rate scale is fully guaranteed (e.g., you keep your nonsmoker rates if you start smoking or stop exercising in the future)
your insurer can’t modify the contract unless the change is an improvement

You get this extra protection because you may not be able to switch insurers if your health has deteriorated. You might even become uninsurable.

Yearly Renewable Term

The building block of all life insurance is Yearly Renewable Term (YRT), which is sometimes called Annually Renewable Term (ART).

Do you see the problem?

Your probability of dying during the year increases from 0.01% to 1% to 10% to 80% to 100%. This means your YRT rates will increase every year and become increasingly unaffordable as claims becomes more likely. That’s not good for you or your beneficiaries.

There is a solution: prefunding. Suppose you need insurance for 22 years. You could average the premiums and put that amount into a savings account every year and make withdrawals to pay the YRT premiums.

You could have the insurer invest for you instead. With Term 10 life insurance, you pay a level premium for 10 years at a time. The insurer does the averaging and bears the investment risk. At the extreme, Term 100 life insurance has a level premium for life (and is really permanent insurance and often continues beyond age 100 without further premiums).

Whole life insurance uses YRT rates (which might not be guaranteed). Universal life usually offers two guaranteed scales: YRT and LCOI (Level Cost of Insurance).

Start With The Need

Is your need for insurance temporary or permanent? If you’re addressing the risk of dying while you have financial obligations (e.g., children, a mortgage, a spouse or ex-spouse, other family members), life insurance is the ideal way to create or enhance your estate — if you’re insurable. How else can you get a specified tax-free lump sum at death?

For a temporary need, term life insurance is ideal. You get the most protection for the lowest price.

What If You’re Wrong?

A need which initially looks temporary may last longer than you expect. For instance, a child may have a lifelong disability due to an accident. If you guess wrong, term life insurance gets expensive. You can often renew coverage up to a maximum age without underwriting but the premiums shoot up each time.

Compared with renewing, you may be able to save money by buying a new term plan with new underwriting.

Conversion

Term life insurance often allows you to convert to permanent protection without underwriting up to a maximum age (e.g., 65). You pay the premiums for your age at the time of conversion (your “attained age”).

Example: Suppose you buy Term 10 at age 32. If you convert eight years later, you pay the permanent premium for a 40 year old. This will be more than the permanent insurance premium at 32 and may be more than what a newly underwritten 40 year old would pay for permanent insurance.

Why Permanent Insurance?

You might want permanent life insurance for estate planning. You may not see the need now because you’re not thinking of your legacy. Maybe you will in your 50s or 60s.

The tax-free insurance proceeds can be an inexpensive way to pay taxes at death, leave money for heirs or help a charity. Coverage is available in a cheaper form called Joint Last To Die (JLTD), which insures you and your spouse. The money gets paid when the longest living spouse dies. That’s when the bulk of taxes are due.

Some younger people buy a small amount of permanent insurance for their legacy and a large amount of term insurance for their temporary needs.

An Appreciating Asset

Why does permanent life insurance have a savings component? Further, why do the savings grow on a tax deferred basis? The government doesn’t give valuable advantages without reasons. There are ways you can benefit with planning.

Permanent life insurance grows in value every year because the payout becomes more likely — especially if your health has deteriorated. Your insurance contract could easily have a market value which is much higher than the cash surrender value. An investor may want to buy your contract, pay the future premiums and get the death benefit. That’s called a life settlement. They are legal in the US and several Canadian provinces (but not Ontario).

Permanent life insurance gives you the opportunity for tax-deferred savings. Universal life provides the most guarantees, flexibility and transparency. You could

invest more (limited by the Maximum Tax Actuarial Reserve (MTAR))
select the investments
stop paying premiums (e.g., in 20 years or at age 65), though not always guaranteed

Having more options helps with tax planning, especially for incorporated businesses.

Affordability

You can offset the cost of your insurance by reducing your coverage as

your financial responsibilities drop (e.g., children older, mortgage smaller, spouse’s income)
your assets grow (e.g., savings, pension)

Before you do, consider inflation which decreases the value of money. Also, your financial obligations could grow (e.g., new children, divorce, health issues).

Conclusion

Temporary life insurance gets compared with permanent life insurance but both cover different needs and timeframes. Since advisors get paid much more for selling permanent insurance, they may have biases they don’t even realize. Explore different scenarios before deciding and re-evaluate your needs over time.

For general questions, ask below. I'll answer what I can here or on Question an Actuary (QanA). For personalized answers, reserve time to Learn About Life.

HOW CAR BRANDS CAN IMPROVE THE SHOPPING PROCESS

promodcares@gmail.com (Promod Sharma) — Mon, 08 Dec 2014 01:34:00 +0000

We’re looking for a new vehicle. There are lots of options. Prices usually start under $25,000 and easily reach $40,000 with the features we want (AWD, heated rear seats, navigation, keyless ignition), taxes and other charges.

Each manufacturer makes compromises. You might get better materials but less features. Or many features but a disappointing engine. You’ll find lots of useful information online, including many YouTube videos. There’s less about improving the process for customers.

The buying process still involves visiting dealerships for test drives and talking to the salespeople. Manufacturers can raise the standards. Let’s look at our actual experiences with various brands in Toronto area. The dealerships aren’t identified and your experience would likely vary.

Acura

Tell salespeople to leave their videogame consoles at homes, not in their offices. Tell them to phone customers back when promised, not three days later. Remind them that a test drive with a nearly empty gas tank doesn’t inspire confidence.

BMW

Tell dealerships to make sure the vehicles run. An engine that shuts down during a test drive does not encourage a return visit. Walking back to a dealership was good for cardio, though.

Chevrolet

Make sure the salespeople have a passion for their product and know basics about the marketplace (e.g., the CX5 is not a Honda). Tell them to only give brochures on products which interest the customer. If customers dislike ample use of cheap hard plastic, a glossy brochure won’t change their minds.

Jeep

Tell salespeople to refrain from asking customers where they were born and the colour of vehicle they want to test drive. Don’t put customers in a vehicle with a manual transmission without asking since they probably want automatic. Let them go on the highway if they want. Tell salespeople that being new to the dealership doesn’t excuse ignorance about what they’re selling.

KIA

Tell salespeople to provide printed quotes upon request, rather than telling customers to write information down on the back of a business card. Have brochures that explain the optional 10 year / 200,000 km extended warranty. Ditto for the non-KIA protection plan for undercoating, tires and rims. Putting the prices online would save time and reduce the feeling that the finance manager makes up the numbers.

For test drives, put the customer in a higher trim level if the dealership doesn’t have the right one. This might even be a way to upsell. How is a customer judge a touch screen navigation or sound system from an explanation? Make sure the website works:

Lexus

Tell the dealership to make customers feel welcome. The place looked dead an hour before closing. No one was at the reception desk. The three salespeople alone in their offices saw us but didn’t offer any help. Maybe the boss was away (unless one of them was the boss).

Mercedes-Benz

Tell smaller dealerships to put desirable vehicles in the showroom. Who aspires to a

B250 ($43K) with no power seats
GLA250 ($47K) with no sunroof

Make sure the test drive vehicles work. The backup camera in our GLK250 showed a blank screen, though the vehicle had been driven 493 km and had been backed into its parking spot.

Subaru

Tell salespeople to stop whining about how few Foresters and Outbacks they have. Supply chain problems don’t concern customers. The allocation between dealerships isn’t our concern either. Have dealers put accurate inventory information online, rather than this:

Toyota

When a customer shows up for a scheduled test drive, don’t tell them another salesperson went home with the demonstrator. Wouldn’t a successful dealership have another vehicle to test drive? Sorry won’t do. Neither will saying that some customers buy without a test drive because we don’t.
Don’t tell customers who want to test drive on the highway to go another Toyota dealership but return to buy. (Yes this really happened).

Volkswagen

Make sure the salespeople know how blind spot detection works even if your vehicles lack this safety feature. Asking the customer is unusual. The best answer to why doesn’t the Tiguan offer a diesel engine isn’t to blame government regulations. When the competition offers a power trunk closing, adding that feature to your top trim makes more sense than having salespeople quip there’s less to break with a manual system.

If you’re promoting a $4,000 cash discount off the negotiated price of the outgoing model, discontinue the promotion if there are no vehicles left. We were told the dealership ran out months ago. Better still, have a substitute offer. Otherwise customers may feel they were tricked.

Lessons

The car shopping process remains poor. Buyers have more information than ever but the dealership experience remains disappointing. The manufacturers could help by mystery shopping and enforcing higher standards.

Links

PS We visited the dealerships and quiet times and only waited a few minutes for a salesperson.

KEEPING PROMISES: CORPORATE GOVERNANCE 2014 IN CANADA

promodcares@gmail.com (Promod Sharma) — Mon, 01 Dec 2014 00:09:00 +0000

We can’t predict the future but can take steps to put the odds on our side.

Corporate governance is a measure of companies keeping promises. Since life and health insurance is a long term promise that may last decades, isn’t that important?

Unlike car/home insurance, well-designed protection for mortality, morbidity and disability tends to have premiums guaranteed for life. That provides peace of mind since you can’t easily switch insurers: you’re older and your health may have deteriorated. In addition, newer products may fewer options and weaker guarantees. If the government changes the rules governing insurance, old policies may be “grandfathered” (exempt from the changes).

Similarly, financial advice can have lasting implications even when of high quality.

Lucky 13

The Globe and Mail has compared corporate governance for 13 consecutive years. Board Games 2014 includes 247 major companies in a searchable table. Data was prepared by the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto.

Not much changes, as you’ll see by looking at results for 2011 and 2007.

Selected Rankings

Let’s look at the financial sector, which historically ranks low in trust in comparisons like the annual Edelman Trust Barometer. Here are the banks, insurers, mutual fund manufacturers and advice givers. You’ll likely recognize the names.

Rank	Company	Score
1	Bank of Montreal (includes BMO Insurance)	98%
2	Sun Life Financial	97%
3 tie	Bank of Nova Scotia	96%
3 tie	Royal Bank of Canada (includes RBC Insurance)	96%
6	Manulife Financial	95%
8	Intact Financial Corp (belairdirect, Grey Power, Jevco)	94%
13 tie	CIBC / National Bank / TD Bank	93%
30	Industrial Alliance Insurance and Financial Services	89%
62	Western Canadian Bank	81%
69	Laurentian Bank	79%
81	CI Financial Group (CI Investments, Assante Wealth Management, Stonegate Private Counsel)	76%
185	Power Financial Corp (Great-West Lifeco, IGM Financial)	58%
197 tie	Canaccord Genuity Group / Fairfax Holdings Inc	55%
197 tie	IGM Financial Inc (Investors Group, Investment Planning Counsel, Mackenzie Investments)
205	AGF Management	54%
221	Great-West Lifeco (Canada Life, Great-West Life, London Life)	48%
231	Dundee Corp	46%
237	Power Corp of Canada	44%

Look at the range. Some companies are at the very top with near-perfect scores. Others are closer to #247 (Fortuna Silver Mines, scoring 35%).

Missing Companies

You may be dealing with companies which aren’t rated. That doesn’t mean they’re “bad”. How would they score f they were included? That’s very tough to say. You can’t really tell. You can ask them if they are ranked by credible independent parties in a transparent way. You may get measures of financial strength. Maybe that shows they’re great at making money but doesn’t mean they’re great at keeping promises.

As usual, buyer beware!

CAREER ADVICE FOR GRADE 8 STUDENTS

promodcares@gmail.com (Promod Sharma) — Sun, 23 Nov 2014 13:00:00 +0000

I’ve got a newfound respect for educators after guiding 30 lively Grade 8 students through the Junior Achievement Economics for Success program with Dana Mitchell for Advocis during Financial Literacy Month. Thanks to teacher Maureen Deeney and Principal Julie Aube at Christ The King Catholic School for the opportunity.

Here is career advice for students to consider.

Look For What’s Missing

Spotting what’s missing is more valuable than seeing what’s there. What’s missing leads to opportunities. Searching hones your detective skills and helps you stay curious. You get better at spotting distractions and identifying the real clues. You’re not looking for Waldo. You’re looking for where Waldo isn’t --- and wondering why.

Observe the challenges other people face and look for solutions.

Do they have trouble with deadlines? Learn to meet them. Do they start studying too late? Start earlier. Do they forget assignments? Find a system that works for you. You’re then building skills which are scarce and hence valuable.

Develop The Habit Of Saving

Saving means putting something aside now to have more later. Money is an example but not the only one. What about

saving time: you can do some things more efficiently (which may mean investing time in developing a process) and stop doing some things which don’t need to be done (note: leaving your room untidy may not be an acceptable idea).
saving health: we have only one body for life. Exercising, eating well and sleeping enough build resilience and help preserve what may be your most valuable asset.
saving attention: with all the demands and distractions around us, we’re tempted to multitask and prioritize. Both are exhausting. Cutting out stimuli simplifies life. Maybe you’re too knowledgeable about happenings in sports and music. Entertainment is important but maybe less would do? (extreme example: years ago, I stopped watching TV, listening to the radio and reading the newspaper.)

Be Generous

We can each help others for free. We can give of ourselves, our time, our attention, our caring. You’re then making the world better in your own unique way. You’re also changing yourself. You’re thinking in terms of abundance (giving) rather than scarcity (hoarding).

You’re helping change the world since some of the people you help will follow your leadership and help others too.

Develop Portable Skills

You’re unlikely to stay in the same role forever. You’ll likely advance in your career and might even change careers. The cause might be opportunity or necessity. Either way, you’re better prepared if you keep developing your skills.

A portable skill stays with you and helps regardless of what you do.

For instance, communication is essential. Are you improving your ability to read, write and speak? Are you mastering new media? For instance, you write differently for school assignments, blogs and tweets. Other portable skills include managing your time, getting along with others and finding problems to solve. How can you lose by getting better?

Build Your Network

Success requires willing support from the people you know and — more important — the people they know.

You already have a network. How well do you plant seeds, nurture and prune? Consistent generosity gets noticed and can be free (e.g. the gift of information). Most people feel obligated to give back. Reciprocity is the #1 universal principle of influence.

If you’re in Grade 8 now, you’ve lived your entire life with the Internet. Connecting, sharing and staying in touch is easier than ever via social networks. In-person contact still matters, though.

Market Yourself

You can’t expect the world notice your brilliance without your help. You need to stand out (or at least be good). You need to be remembered. You need to be findable. The Internet makes this easier for those who bother.

Persist

The path to the future includes drudgery. Persist. To quote Zig Ziglar:

When you do the things you ought to do,
When you ought to do them,
The day will come,
When you can do the things want to do,
When you want to do them.

Best wishes for a wonderful future.

DEALING WITH BIASED FINANCIAL ADVICE

promodcares@gmail.com (Promod Sharma) — Sun, 16 Nov 2014 23:27:00 +0000

You won’t find the type of warnings on alcohol or tobacco applied to

sugary drinks: cause of about 180,000 deaths a year globally
credit cards: 30% of customers don’t payoff their entire balance each month and 93% of the credit cards in Canada (257 of 275) charge 11.25% to 30% interest according to a handy government comparison tool.

The onus is on us to learn, evaluate and decide. Attempts at consumer protection (e.g., banning sugary drinks in school vending machines or capping credit card interest rates at prime+5%) get challenged. How dare we lose our freedom to harm ourselves!

Which Side?

Sellers claim to be on our side, but are they really? We’re encouraged to

drink responsibly (but still drink)
follow the rules of the road (but buy vehicles which break them in commercials)
eat a healthy breakfast (but include Nutella)

Since shareholders have different interests than buyers — and rightly so — don’t count on voluntary transitions to better guarantees, more transparency and lower prices. Look at MasterCard/Visa credit card transaction fees in Canada, which are among the world’s highest. They’ve increased 25% in the last two years. Now MasterCard/Visa will make voluntary reductions of about 10%, leading to a typical charge of 1.5%. This is considered a victory, but for whom?

Money Madness

The financial sector promotes financial literacy … but profits from our ignorance, inertia and limited choices. That’s not as effective as improving the products. We could be prevented from paying heavily on unpaid credit card balances if interest rates were lower. We could avoid the pitfalls of mortgage life insurance if poor products were not sold.

Until we live in perfect world, beware.

An Example

We were looking for a video tripod strong enough to support a camera, 15mm rod system, teleprompter and an iPad. The advisor at a well-known specialty store recommended tripods costing $750 or more! When I asked for a cheaper option. I was shown a $350 tripod with weak legs and a poor head. Then another $750 tripod.

Because I did my research, I knew that getting photography legs and a video head separately would be better and cheaper. The advisor — an expert — could have suggested this but maybe she got sales commissions or thought conventionally.

A Strategy

Protect yourself with education. You can often learn the basics online from objective sources. That helps you ask the right questions and spot the wrong answers. You might find better solutions than those presented to you.

WHAT IF INSURANCE WERE FREE?

promodcares@gmail.com (Promod Sharma) — Sat, 08 Nov 2014 18:09:00 +0000

If insurance were free (and there were no catches), how much would you get?

You might

top up your current coverage (e.g., more life insurance)
protect against risks you’ve neglected (e.g., critical illness insurance)
explore types you don’t know much about (e.g., long-term care insurance)

You might be willing to go through the hassle of the buying process. You might encourage your family and friends to follow your path.

Maybe you wouldn’t do anything what’s free (e.g., air) doesn’t seem to be worth much.

Sale Prices

If insurance were on sale, how much would you get? Your answer might depend on the size of the discount. If large enough, you might even buy protection you’ve refused in the past.

What if there were a one day sale? Would you buy then? Insurers avoid discounts because insurance isn’t an impulse purchase. Instead, they tend to have competitive “every-day” pricing. That’s to encourage advisors to consider their products. They may have contests to motivate advisors but you’re unlikely to know.

You don’t gain by waiting to buy. Even if your health and gender don’t change, you’re getting older. Your age affects the price you pay. Also, newer products don’t mean better guarantees.

Reducing The Price

You can’t save money by buying half an iPhone. You can save on insurance by buying less coverage. Granted, you get less protection but is no coverage better? Since insurance requires ongoing maintenance, you can re-evaluate your situation during a future inspection.

Insurance costs more as you age and even more if your health deteriorates. You reduce the future price by acting today. When the asset being protected is a human life, the premiums can often be guaranteed for life.

The Limits

A billionaire bought a record $201 million of life insurance, which required 19 insurers and an annual premium in the millions of dollars. Why not more? There are limits on how much insurance you can get even if you can pay.

Underwriters determine what you’re worth. Let’s say that’s $5,000,000. You’ll have trouble replacing more than that. If you try to buy $2,000,000 from five companies, don’t count on getting $10,000,000 of protection. That’s because each company will ask about your other insurance you already have and are in the process of getting.

Real Life

Insurance isn’t free. There’s no Boxing Day, Black Friday or Cyber Monday sale either. Insurance may look like a luxury or waste until you need it. Unfortunately, you can’t buy insurance at moment before misfortune strikes --- at any price.

Links

PS It’s currently Financial Literacy Month. Follow #FLM2014 on Twitter.

A CHALLENGE FOR FINANCIAL LITERACY MONTH (#FLM2014)

promodcares@gmail.com (Promod Sharma) — Sat, 01 Nov 2014 21:27:00 +0000

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

The Challenge: Current Creators

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

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

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

The Challenge: The Silent Million

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

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

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

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

Case Study

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

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

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

This month, I’m

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

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

Links

PS Money matters every month

WHAT HAVE YOU LEARNED FROM THE LATEST DISASTER?

promodcares@gmail.com (Promod Sharma) — Sat, 25 Oct 2014 17:44:00 +0000

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

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

Looking Back

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

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

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

Mismatched Resources

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

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

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

Looking Forward

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

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

Links

PS Good also happens … sometimes from preparing for bad.

WHY DON’T PERSONAL FINANCE EDUCATORS HAVE A LARGER AUDIENCE?

promodcares@gmail.com (Promod Sharma) — Mon, 20 Oct 2014 11:00:00 +0000

The very first blog post was published over 20 years ago. Newspapers, magazines, books, radio and television started even earlier. The personal finance educators tend to use those media. Yet financial literacy remains a serious problem. Maybe the audience has been shifting their attention elsewhere.

What about the trends towards video and mobile devices? Canadians are big users. According to the 2014 Canada Digital Future In Focus report

video viewing is up 33% since 2012
74% watch online video
viewing time is 1,769 minutes per month – 43% higher than Americans

There’s a huge (and growing) audience on YouTube. How much personal finance information is available there?

As we’ll see from case studies, current approaches to using video for financial education aren’t working well. There are opportunities to experiment and make breakthroughs. If you’re a less established blogger, you might want to focus on video. Ditto if you’re established and looking to evolve.

Case Study: Investor Education Fund (585 views)

You’ll find good videos on the InvestorEDFund channel from the nonprofit Investor Education Fund. Host Rob Carrick conducts short 1-2 minute interviews which are co-branded with The Globe and Mail. The last 15 videos garnered 585 views. The most popular title got 84 views.

Viewership might improve with

Better thumbnails: the current images aren’t always enticing; might show the title, guest and host
Longer videos: short clips tends to simplify and generalize (e.g., 84 seconds on whether to cancel your home insurance); more time might let guests give better, less rushed answers

Case Study: Financial Post (714 views)

You’ll find good videos on the Financial Post channel. I especially like the ones with Melissa Leong. The last 15 videos got 714 views. The most popular had 134 views (an ice bucket challenge).

Viewership might improve with

Better thumbnails: generally good but some don’t look enticing or relevant (e.g., “Can I leave my estate to my pet?” could show an animal)
Start titles with the important information: move the less important like “Save your #@%* money” or “What the what?!?” to the end (e.g., “What the what?!? My husband drives like a…” is incomplete)

Case Study: Money Minute (undisclosed views)

Money Minute with Ashleigh Patterson has good content and lots of visuals. The title is odd since the videos tend to be 3-4 minutes long (a satisfying length). The thumbnails are nicely done.

The basic problem is that the videos aren’t on YouTube. That means you won’t find them with the #2 search engine and there’s a learning curve. For instance, I couldn’t figure out how to improve the playback quality or share a video with Buffer or Hootsuite (each video uses the same URL ca.finance.yahoo.com/video/money-minute). I couldn’t find a way to subscribe either.

Viewership might improve with

Hosting on YouTube: likely a nonstarter but who goes to Yahoo for video?
Transparency: Yahoo hides the number of views and even the publication dates

Case Study: Taxevity (737 views)

Our new Taxevity Insurance Advisory channel features in-person interviews over tea in my office. The last 15 videos got 737 views with less than 50 subscribers. The most popular title had 124 views. The lengths varied from 13:54 to 64:03 minutes. As much as 1,290 minutes of content was viewed on a single day.

The topics are diverse but all relate to money (especially the often overlooked aspect of investing in yourself). The guests are diverse and some wouldn’t be considered conventional money experts. That helps reach people who avoid financial education. The questions and flow are planned with the guest before recording. The thumbnails are going to be redone to include the interview title. Most of the marketing takes place on LinkedIn, the place you’ll find people with money. Canadians are big users --- #5 in the world.

You'll have your own approach.

Your Turn

If you create personal finance content, why not create three new videos? One isn’t enough because of the learning curve.

All you need is a webcam or smartphone, a free video editor and free natural daylight. You can upgrade later (e.g., our recommended gear on Amazon).

You might want to

talk directly to the camera: impromptu or with a script (which you can re-use in a blog post and the YouTube video description)
do interviews: in person or over Skype (Singularity 1 on 1 with Nikola Danaylov uses both) or a Hangout (the Because Money podcast with Jackson Middleton, Sandi Martin and Robb Engen)
get creative: say with a whiteboard, an animated whiteboard or a PowerPoint voiceover. Use your imagination (e.g., the funny series The Tax Man from Allan Madan).

Video has impact and is easy to share. Your tools include visuals, audio, text, music and movement. You don’t have to use them all. Maybe you’ll find that video is more enjoyable for you and more valuable for the vast audience waiting.

Links

PS Have you got a moment to subscribe to the Taxevity channel?

FIVE ESSENTIALS TO BETTER INVESTING (AND INSURING)

promodcares@gmail.com (Promod Sharma) — Sat, 11 Oct 2014 13:00:00 +0000

How can you lose by learning to invest better?

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

You'll find interpretations at

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

Watch

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

An Extension

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

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

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

Links

PS Invest in yourself too. Keep developing marketable skills.

DEALING WITH AN INEVITABLE COMPUTER BREAKDOWN

promodcares@gmail.com (Promod Sharma) — Sun, 21 Sep 2014 19:56:00 +0000

No matter which computer you buy, or how carefully you take care of it, you can’t prevent technical problems. Over the years, I've had machines from ALR, Compaq, Dell, IBM, Lenovo, NEC, Toshiba. In addition, I've had high performance computers custom-made and even assembled two mini-towers.

In recent years, I switched to notebooks because they’re portable, quiet and sufficiently powerful.

The most problematic was a pricey customized Lenovo workstation notebook optimized for video editing. During the latest repairs, the technician said malfunctions are most likely with CTO. That means something like Customized To Order. When you get a computer specially made, there's less quality control and delivery takes longer.

Lesson learned: buy computers "off the shelf" with no customization.

Software

In addition, problems arise when updating operating systems. I no longer bother, preferring to using the computer with whatever was pre-installed. Replacing the whole machine is faster and less aggravating.

Saving Money

Price doesn’t ensure reliability and the technology keeps improving, That’s why I've started buying less expensive computers --- closer to $1,000 than $2,000. They last about two years before getting cascaded to secondary uses.

The Biggest Woes

The biggest problems occur with

enhanced graphics cards: the standard video card in a notebook computer is weak for video editing (and gaming). I usually opt for an second more powerful graphics card. The computer switches between the two as required.

A better and cheaper solution is to get a powerful desktop computer for video editing. You can then upgrade components and worry less about overheating. Either way, the big problem is with video drivers (software which communicates with the hardware). Count on more trouble if you're upgrading your operating system, since the new drivers may have bugs.
hard drives: you need backups of your data. I use an external hard drive and online backup, both via CrashPlan. For additional safety, I put key files in the cloud with Dropbox, Google Drive or OneDrive. You may think SSD hard drives are better because they have no moving parts and cost much more. I've had two fail …

Extended warranties

I'm not a fan of extended warranties but with computers (especially laptops), they can be useful. Even then, repairs take time and you're stuck while waiting. That's why keeping an older computer as a backup is wise. For instance, I have three year next business day service but on Friday, that means Monday. You might have to spend hours on the phone with the help desk first.

Currently, my Dell isn't working. Windows 8 isn't starting. There are no hardware errors. The problem seems to be with the enhanced video card drivers. The recovery options in Windows 8 didn't work. I was sent DVDs to reinstall Windows but drivers for the hard drive couldn’t be found. I was then sent a USB key with Windows 8 and the drivers. The hard drive isn't being detected. Dell is sending a new hard drive which they want me to install under their guidance. Since it's currently the weekend, the shipment won't take place until Monday, which means delivery won’t be until Tuesday or Wednesday. That's nearly a week without a working computer.

While inconvenient, I've continued working with a two generation old Lenovo Windows tablet.
As with risks based on your health (disability, morbidity, mortality, longevity), you can't tell when problems will arise. You can take steps to reduce the financial harm.

Links

PS You can use other devices like tablets and smartphones while awaiting repairs.

TIPS ON BUYING CAR AND HOME INSURANCE

promodcares@gmail.com (Promod Sharma) — Mon, 25 Aug 2014 05:00:00 +0000

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

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

How Premiums Get Set

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

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

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

Cutting Back

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

more exclusions
bigger deductibles
smaller benefit limits

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

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

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

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

Taking Precautions

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

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

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

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

Apples or Avocados?

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

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

Money Saving Tips

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

Look At Corporate Governance

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

Links

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

CHECK YOUR INSURANCE STATEMENTS FOR MISTAKES

promodcares@gmail.com (Promod Sharma) — Mon, 18 Aug 2014 00:49:00 +0000

My client’s annual statement for universal life insurance showed a tax-free death benefit of the face amount ($2,000,000) plus the investment returns ($317,079). Do the math and what’s the total? I get $2,317,079. The insurer showed $3,317,079 — an extra million dollars. I contacted them and got a quick response. They’re issuing a letter of apology and a corrected statement.

Luckily, my client didn’t have whole life insurance where the lack of transparency makes mistakes almost impossible to spot.

Big insurers have big resources but even leaders in corporate governance make mistakes. That’s because computers are programmed and the limited testing is generally done internally. The systems are expected to be 100% functional when launched. In contrast, Gmail was in beta for from April 2004 to July 2009.

Time bombs

When I developed products, we focused on launching new offerings. We maximized our resources by delaying work which could be completed later. For launch, we needed

marketing tools: an announcement, PowerPoint presentations for the marketing directors to use with advisors, computer-based tools for advisors to prepare proposals for their clients
administration support: printing the policy contract (basics like accepting premiums, paying compensation etc were already part of the administration systems and rarely required major modifications)

To speed up times, we minimized printed materials like marketing guides. They looked nice but added costs and created delays. We then had leeway to make “last-minute” changes.

Month-to-month, universal life insurance policies operate much like bank accounts with deposits (premiums, investment returns) and withdrawals (mortality charges, administration charges). The major calculations took place on policy anniversaries. That meant we had almost a year to get ready.

Other capabilities like inforce illustrations (projecting performance after purchase) could be delayed for years. Manual calculations could be done in the interim, if necessary. I once got approval to add two unbudgeted head count. During a hiring freeze. That’s because we could no longer defer some work.

The Human Element

Staff leave. Staff forget. Staff are under pressure to meet deadlines. Miscommunication occurs. Documentation may not be comprehensive enough or clear enough.

Administration systems change. Older products might be on legacy systems. Migrating them to the latest system is much more difficult than upgrading from a version of Windows (see challenges in trying to upgrade to Windows 8 or from 8 to 8.1).

Be Vigilant

Mistakes occur. You might not be sympathetic but you can be vigilant. You don’t need a PhD in mathematics or to be an actuary (though both help). Instead, be a detective. Question what looks odd or what you don’t understand. You’re entitled to ask.

Links

PS Your advisor should be looking for mistakes on your behalf.

PRICE MATCHING BY BUYERS AND PRICE MISMATCHING BY SELLERS

promodcares@gmail.com (Promod Sharma) — Sun, 10 Aug 2014 18:15:00 +0000

The price match should have reduced the price by a dollar from $7 to $6. Instead, the cashier reduced the price to a dollar --- a reduction of $6. The customer noticed but didn’t say anything. This wasn’t for her personal benefit but to protect the cashier from getting in trouble for the mistake.

That’s noble, but would the customer in this real-life example have been concerned about the cashier if the price were higher than expected?

Justification

We’re great at justifying to get advantages. Have you heard or used arguments like these

stores overprice
you didn’t make a mistake
you had to do extra work to get the price match
the store doesn’t lose money overall because unaware customers are paying their higher price (the store didn’t lower their price even when you showed them they were charging more)
the store should train their staff properly
if the store had the lowest price, there would have been no need for a price match

What’s The Real Price?

You can only compare prices when different retailers sell the same product and publish their prices. They’ll often match prices when you provide proof. Sometimes they’ll reduce their prices temporarily to match a competitor (e.g., when we ended 10 years without a TV).

Mismatching: When You Can’t Compare

When you’re buying financial products, what’s the lowest price? The options might be tailored to you, which makes comparisons difficult. There’s rarely an easy way to check online. Prices might not be negotiable, even if you have proof. While you may not be able to much about the price, you can get better value by selecting a better advisor.

When you can’t compare make good comparisons, you risk getting poor options. For instance, Freakonomics found that real estate agents encouraged clients to buy/sell quickly, rather than wait for a better price … but left their own properties on the market for longer and sold for higher prices (see the video in tips for first-time homebuyers).

Sellers have ways of justifying their actions

the higher margin choice isn’t necessarily “bad”
selling takes work and maybe you took extra time
showing more options might confuse you and stop you from buying (see the jam experiment)
you’re better off buying what they have in stock
you’re not forced to buy

Both buyers and sellers have ways to justify their actions. Buyer beware. Seller beware too.

RETIREMENT PLANNING FOR SMALL BUSINESS OWNERS AND INCORPORATED PROFESSIONALS

promodcares@gmail.com (Promod Sharma) — Sat, 02 Aug 2014 20:45:00 +0000

There’s more to retirement planning than RRSPs. If you’re a small business owner or an incorporated professional in Canada, you might want to explore

IPPs (Individual Pension Plans)
PPPs (Personal Pension Plans): a blend of defined benefit and defined contribution
RCAs (Retirement Compensation Arrangements)

Clark Steffy knows about retirement planning. He’s the Regional Vice President, Sales for Atlantic Canada, Ontario and Western Canada at Industrial Alliance Insurance and Financial Services. . You'll find more about Clark on LinkedIn.

I worked at IA years ago but our paths didn’t cross because I was in the world of personal life and health insurance. He was in group savings and retirement. We got introduced through David Peck, the first guest on Tea At Taxevity.

The Interview

Other Considerations

Universal life insurance can provide tax-free retirement income later and protection today (see the overlooked advantages). Since disability could impair your ability to earn the money you’d save for retirement, consider income replacement insurance.

Links

PS Before acting, consider your options.

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

promodcares@gmail.com (Promod Sharma) — Sat, 26 Jul 2014 17:05:00 +0000

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

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

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

The Interview

Here’s the quote from Albert Einstein:

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

EXPERIENCE THE BEAR CREEK EXOTIC WILDLIFE SANCTUARY (@tigersanctuary)

promodcares@gmail.com (Promod Sharma) — Sun, 20 Jul 2014 22:43:00 +0000

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

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

What You See

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

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

The Highlight

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

Book A Group Tour

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

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

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

ENDING 10 YEARS WITHOUT A TV

promodcares@gmail.com (Promod Sharma) — Sun, 13 Jul 2014 23:54:00 +0000

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

The Signals

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

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

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

The Next Screen

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

TVs Today

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

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

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

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

The Purchase

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

Samsung UN32EH5300 32” Smart TV (2012)

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

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

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

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

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

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

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

There are several drawbacks:

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

The are advantages too:

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

The Next 10 Years

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

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

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

WHY DO YOU CARE WHAT YOUR INSURANCE ADVISOR GETS PAID?

promodcares@gmail.com (Promod Sharma) — Mon, 07 Jul 2014 23:20:00 +0000

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

We Balk At The Unfair

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

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

The Insurance Dilemma

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

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

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

Secrecy

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

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

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

Perceived Value

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

Sales success comes more from prospecting than technical skills.

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

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

Links

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

MAKE SURE YOUR INTERNET SERVICE IS RUNNING AT THE PROMISED SPEEDS

promodcares@gmail.com (Promod Sharma) — Sat, 28 Jun 2014 23:23:00 +0000

Internet service isn’t cheap. How do you know if you’re getting the speeds you’re promised (and paying for)? You can’t tell unless you monitor regularly. You then have a baseline for comparison.

Your Own Tests

You can run your own tests with Ookla SpeedTest from your browser or as an app on your mobile device. For better results

measure via a wired Internet connection (Plan B: use a wireless device close to your WiFi source)
disconnect all other devices accessing the Internet (Plan B: accept lower results)

Note: The speed over WiFi is lower, fluctuates and varies by room. One reason to get a faster plan is to accommodate these drops. (Related: How to get your wireless Internet working)

If the results are far from what you expect, call your provider to find out what’s wrong.

Detailed Monitoring

Rogers is the only Internet provider in Canada with certified speeds. We’re part of the independent monitoring via SamKnows. Our service is monitored 24/7 and we can see the detailed reports ourselves. That’s how we find out and verify problems.

Speed Today

Our Rogers Ultimate unlimited plan promises 150 Mbps downloads and 10 Mbps uploads. We routinely get faster downloads (about 190 Mbps) and slightly faster uploads (about 11 Mbps). Since our service is reliable and stable, we don’t routinely check the performance.

Our speed today is much lower than usual — about 100 Mbps (blue line in graph below) instead of 150 (the red line). That’s too big difference to ignore.

Speed This Month

This month, our service started deteriorating on the 10th. That’s when the blue line dropped below the red line below. We noticed but didn’t notice because our service was still fast. That’s another reason to get a faster plan.

Anomalies happen and are usually fixed quickly. I called Rogers. They said our Internet signal strength has dropped to marginal levels. They’re sending a technician tomorrow.

Speed This Year

Overall, Rogers is excellent at delivering consistent fast speeds. This graph of speed year-to-date shows this. The last slowdown was minor, months ago and quickly fixed. At that time, there was apparently a problem affecting the neighborhood, perhaps caused by the polar vortex.

Lessons

Just because speeds are independently certified doesn’t mean you’re getting them or will keep getting them.

Without monitoring, we might not have called Rogers. It’s easy to think that slowdowns are caused by other users, including family members. If we checked the monitoring more regularly, we would have had a fix earlier.

Links

PS We upgraded our unlimited plan from 150/10 plan to 250/20. Is Hybrid Fibre better? I’ll share details once our service is fully functional.

SIX QUESTIONS TO ASK BEFORE SELECTING AN INSURANCE ADVISOR

promodcares@gmail.com (Promod Sharma) — Sun, 22 Jun 2014 15:34:00 +0000

If you're looking for an insurance advisor, you’ve got lots of choices. Before picking one, interview several and ask questions, including these six.

1. How Did You Get Into The Insurance Business?

This is an indirect way of asking why they decided to sell insurance. Who grows up aspiring to get into commissioned sales? Are they part of a family business? Couldn’t they find another job?

One advisor may look much like another. When you start with why (see Simon Sinek’s TED Talk), you often find big differences.

2. What Products Are You Licensed To Sell?

Many advisors are reluctant to "leave money on the table". They may sell a range of products like life insurance, health insurance, employee benefits, mutual funds, segregated funds, annuities and mortgages. You'll often see what they provide on their business cards and websites.

Did you buy your last TV at a department store?

One-stop shopping may look appealing but can an advisor really master everything? You could hire specialists instead. A plumber, electrician and painter each have much more practical experience than a handyman.

3. Which Companies Do You Have Contracts With?

A captive advisor is like a commissioned employee and only allowed to sell what that company permits — which may be less competitive and less flexible. The advisor’s business card often has the name of the company, rather than their own brand.

An independent advisor can have a contract with most insurance companies. To get business, the insurers must be competitive. Since products and procedures differ, an advisor cannot realistically know them all well. Advisors often do most of their business with several insurers.

Variants: which companies’ products do you not sell? Why?

4. What Designations Do You Have (And What Do They Mean)?

The world of life insurance is especially complicated because you're dealing with risk, accounting, investing and law. Assessing your needs and developing optimal solutions takes skill. Yet selling insurance requires little more than passing a multiple choice exam.

The better advisors take the time to earn designations that require some effort. Look for a CFP (Certified Financial Planner), or — better still --- a CLU (Chartered Life Underwriter). These designations impose additional standards of conduct on their members. For instance, there are requirements for continuing education.

Ask advisors what their designations mean, how much continuing education is required and why they matter.

5. What Associations Do You Belong To?

There's no self-regulating association to which insurance advisors must belong. There are for accountants, actuaries, doctors, engineers and lawyers. The associations can investigate and discipline members for misconduct. The processes may not be perfect, but they're well intentioned.

Insurance advisors aren't required to belong to any association. In Canada, the main association for advisors is called Advocis. It’s reasonable to expect advisors to belong, though some prefer the Independent Financial Brokers (IFB). Advocis has an sister organization for top advisors called Conference for Advanced Life Underwriting (CALU). There’s also the Million Dollar Roundtable (MDRT).

Associations promote the interests of their members. Yet some advisors won't join. They get the benefits from the lobbying the associations do without spending a penny. What moochers! If they'll take shortcuts like this, be wary.

6. Where Is Your Blog?

Advisors often acknowledge they should have a blog but they don’t have time, they don’t know how, they aren’t convinced of the ROI, …

Advisors can create and publish their original content through a blog (or podcast or video). LinkedIn is an excellent, easy-to-use platform. How often do they publish? How much do they publish? When did they last publish?

There are many advisors but only one you. Why not take the time to find the right advisor for you?

Links

PS For fun, ask “are you a fiduciary with a legal obligation to put my best interests first”?

READ THIS BEFORE GIVING REFERRALS TO AN INSURANCE ADVISOR

promodcares@gmail.com (Promod Sharma) — Sun, 15 Jun 2014 18:44:00 +0000

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

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

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

Before giving a referral, consider these questions.

Do you understand the strategy?

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

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

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

What if the advisor is wrong?

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

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

What makes the new advisor a better choice?

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

What makes the advisor a true expert?

The only source of knowledge is experience.
— Albert Einstein

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

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

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

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

Does the advisor claim to have unique strategies?

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

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

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

What are the potential side effects?

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

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

Who is the supporting the advisor working?

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

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

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

How forthright is the advisor?

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

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

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

What does Google say?

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

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

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

Why does the advisor need your help?

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

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

Who backs the promises?

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

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

What’s your reward?

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

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

Links

PS Buyer beware. Referrer beware too.