The Financial Procast

We love paid-up additions. We have gushed over them for years now, but we’ve made a little misstep in terms of being so broad in our discussion about them. We’ve noted in the past that while life insurance as an asset class is a really really great thi...

I'm quite sure there's a collective gasp from our audience when they hear us say that life insurance is not the answer to everything. Yep, we said it and we're gonna stand by it today. Life insurance is a fantastic tool and one that we both think is...

I'm quite sure there's a collective gasp from our audience when they hear us say that life insurance is not the answer to everything. Yep, we said it and we're gonna stand by it today. Life insurance is a fantastic tool and one that we both think is super swell for a myriad of reasons. ... Keep Reading

The life insurance industry has been very slow to embrace modernity and adopt systems that allow it to move more nimbly through the information age. As an industry it has blamed it’s lack of keeping up with the times as a security/compliance concerned ...

The life insurance industry has been very slow to embrace modernity and adopt systems that allow it to move more nimbly through the information age. As an industry it has blamed it’s lack of keeping up with the times as a security/compliance concerned coupled with an economic disincentive to spend a large amount of money ... Keep Reading

The banking industry excitedly moved into financial services in the early/mid 90’s when Congress pulled down the Glass-Steagall Act and removed the barrier that had kept the banking industry out of insurance and investments for decades. Now it seems an industry that loves to binge on transactions is scaling back and looking to expand into a much slower paced segment of the personal finance advice market. Would you Like Managed Money with that? Recent research from Fidelity shows us many large banks (and even many small ones) are ramping up their focus on managed money services in a big big way. What does that mean? Essentially, your bank would now like to manage your investment portfolio and have you pay them an asset based fee for the priviledge. It seems as though the gold plated doors leading into the wealth management/private client section of the building proved to most major banks that there is money to be made in keeping an eye on someone’s money and they’d like to expand their reach down to the more common man (and women). In fact, big names like Bank of America, JP Morgan Chase, et. al. are so focused on this new expansion as an industry movement that they have convinced themselves that their biggest threats regarding competition are each other. That’s right, your friends at Citi are more worried about the wealth management services offered by US Bank than they are at the real wealth management shops who have been doing this (and excelling at it) for years. But why is such a shift in everyday business operations at your local bank such a big head scratcher? The Impulse Buy Aisle of Financial Products I’m not trying to demean banking (not too much at least), but the entire industry’s approach to selling financial products is much more Dollar General in nature than it is being lead through the buying process by a trained professional who can deliver quality advice and service. Banking has largely focused on quick transactional business and not lengthy question riddled products and/or services like managed money. And truthfully it doesn’t need to adopt a more hands on approach to providing financial products. Just like Lori Grenier’s hawking cheap crap on QVC. They too make a lot of money selling products we could live without, but choose not to. So it’s weird that an industry that can make a lot of money on this business model would want to make a 180 degree turn and venture into a business vertical that requires so much more effort. Protect the Baby Or maybe profits aren’t the motivation. At least not in a direct sense. The likelihood that any bank will create a wealth management service that rivals the profitability of its lending unit is practically zero. However, all banks know when it comes to this sacred cash cow, people have options. And they don’t need you or I talking to the guy or gal across the street about what he or she could do for us the next time we need to borrow money because we went across the street to talk to the wealth management department. In other words, maybe—just maybe—the move into this market place (that is probably more annoying to banks than anything else) is a defensive measure to ensure that long time borrowers don’t start talking to the competition about their tangential offerings and learn that their loan rates are better, too. Whatever their motivation, we can be pretty sure when we suggest that banks aren’t really interested in competing with most professional wealth management shops (they’ll get destroyed trying to compete there). Instead, they simply want to ensure that if Jim, the average guy stops in to make a deposit and asks about the bank investment advisory services, the teller doesn’t have to disappointment him by letting him know he’ll have to go elsewhere to look into those services.

We like life insurance and more specifically we like cash value life insurance. Doesn’t really matter which type of cash value life insurance it is, whole life insurance universal life insurance truth is both accomplish some magnificently great things....

We like life insurance and more specifically we like cash value life insurance. Doesn’t really matter which type of cash value life insurance it is, whole life insurance universal life insurance truth is both accomplish some magnificently great things. But neither Brantley nor I started our careers with the appreciation we now have for life ... Keep Reading

Following up on a theme we’ve discussed before about certain people having access to trading options that you—the retail investor—do not, we figured we’d talk today about the Securities and Exchange Commission and its approved practice of insider trading among its employees. You see, at the SEC, insider trading is not only allowed; it’s required. The Rule Employees at the Securities and Exchange Commission cannot own stock in a company that they are about to investigate. According to the SEC, this creates a conflict of interest that would incentivize the SEC employee to less aggressively conduct the investigation and possible ignore securities law infractions knowing that he or she owns stock in the company and bring such violations to light could possibly cause their stock to go down. So, to avoid this alleged conflict of interest, the SEC requires that all employees who are about to conduct an investigation on a company, sell any direct ownership they have in the company prior to commencing the investigation. On its face, this might make sense. We do, after all, want to have attorneys and what have you at the SEC approaching their job as regulators with just as much veracity as they would under any circumstances. However, simply announcing an investigation will almost surely drop a company’s stock price and if you or I knew of a pending SEC investigation in any company in which we owned stock, and we sold prior to the announcement of that investigation, we’d be committing a violation of securities law. You see, lots of people are in possession of non-public information about a certain company (or several) and we have laws in place that stop them from taking advantage of this privileged information even if pretending like they know nothing is going to cost them money. The SEC should be bound by the same rules we all are. Others have the Same Predicament There are other people who have access to non-public information that could be tied to financial incentives and doing their job could be influenced by their financial incentives. Journalists are a good example. For many of these people, the answer to their ethical quandary is to simply not directly own public stock, or make use of blind trusts. The SEC has claimed that enforcing a rule the prohibits its employees from owning stock in publicly traded companies would place a huge disincentive on working at the SEC and would make requirement more difficult. I’d argue that most SEC employees do it for the employment clout they pick up while working there for a few years but ignoring this for a minute there are other options. The blind trust option is a good one and one that should be used more commonly among government officials and employees. Surprisingly not many government employees beyond the President actually use one. The concept is simple. An individual places money into a trust and a trustee (generally with a professional investment background) makes trading decisions based on basic direction from the individual. The SEC could simply set up a service to its employees that would allow them to own public stock without having direction knowledge or influence on those investments. Ultimately employees are the SEC are not all that unique in their access to insider information. And trading based on that information is illegal as the law the already states. For the SEC to impose an internal rule that is in direct violation of the law under the claim that it avoids conflicts of interest is an imposition of authority not granted to the SEC and such a policy needs revision.

Following up on a theme we’ve discussed before about certain people having access to trading options that you—the retail investor—do not, we figured we’d talk today about the Securities and Exchange Commission and its approved practice of insider trading among its employees. You see, at the SEC, insider trading is not only allowed; it’s required. ... Keep Reading

Being a financial advisor or insurance agent isn’t all champagne wishes and caviar dreams. In fact, it’s a lot of misery for a long time and then maybe, just maybe, a ray of sunshine breaks through a seemingly endless dark cloud that rains prosperity down on a persistent individual. That all sounds rather dark I ... Keep Reading

Being a financial advisor or insurance agent isn’t all champagne wishes and caviar dreams. In fact, it’s a lot of misery for a long time and then maybe, just maybe, a ray of sunshine breaks through a seemingly endless dark cloud that rains prosperity d...

We’ve definitely not shown a lot of love and admiration for the old 401k Plan around here. While  there may be circumstances where contributions to a 401k make sense (though relatively few circumstances) we would be remiss not to point out that 401k’s and their sister products (e.g. 403b’s, 457’s, etc.) aren’t the only wholesale ... Keep Reading

We’ve definitely not shown a lot of love and admiration for the old 401k Plan around here. While  there may be circumstances where contributions to a 401k make sense (though relatively few circumstances) we would be remiss not to point out that 401k’s and their sister products (e.g. 403b’s, 457’s, etc.) aren’t the only wholesale retirement product that can let you down. No, I’m afraid one of the most respected retirement vehicles that many would love to see gain a resurgence in the employee benefits market place can also be just as disappointing for a number of reasons. I’m talking, of course, about traditional pension plans. For those who need a quick refresher, a bona fide pension is a retirement benefit afforded to an employee that guarantees a certain retirement income benefit after a certain number of years worked based upon that employee’s income while working. For those who want an even deeper explanation, we detailed precisely what a pension was almost two years ago in this article. The Good So the cool thing about pensions is the fact that they guarantee a retirement income benefit. This means they completely remove the need to figure out how one will go about taking the money they have and turning it into a lifetime income stream (an elusive idea to many people). And not only can a pension provide a guaranteed lifetime income, but it can also tell an employee exactly what his or her income will be once they reach retirement given a set of pretty reasonable assumptions. The Bad Unfortunately, though, pensions have also instilled a false sense of security among many Americans regarding their retirement prospects and have also instilled a value that looks to an employer to take care of the an employee’s retirement needs. While this might have been a really nice perk from many years past, it’s certainly not the paradigm today and Americans have made a very difficult—and mostly unsuccessful—transition into a new reality where retirement planning—and funding—falls squarely on them. In addition, pensions themselves can be a tad complicated and many pensioners are confused about how their benefits work, and as a result they frequently make poor choices about their pension benefits. The Ugly Pensions are—essentially—a contract between the employee and the employer (or pensions itself). And, like everything, pensions do come with a degree of varying risks the most significant of which is counter-party risk. Counter-party risk is simply the chance that an obligated party will fail to deliver on its promise to another party. For example, bond holders undertake counter-party risk each and every day. It’s the risk that the borrower will fail to repay the debt that it owes to the bond-holder (lender). Pensions face the same scenario. The guaranteed benefit of a pension comes with significant financial risk to the entity that offers the pension benefit as it must fund the pension to be able to make the benefits a reality to the pensioners. And, unfortunately, many companies often find themselves in a situation with a pension that has a funding shortfall. And the current economy has accelerated the number of pension plans that have funding crises. In fact, the Pension Benefit Guaranty Corp. (an independent agency of the United States Government that insures against pension failure) has stated that current funding of the guaranty corp. will likely exhaust all of its funds in about 15 years based on the number of pension failures for which it has had to bail out and likely will in the future. The Answer? While there is no quick and simple answer, the overarching theme for a solution is pretty simple, we all need to shoulder much more responsibility when it comes to retirement. I understand this requires a large degree of sacrifice that many Americans are probably not willing to undertake, but the truth is we all have a limited amount of resources to allocate to life,

Life insurance policy loans are a long standing feature of cash value life insurance. And this feature can be a very powerful financial tool at your disposal when used correctly. I would even argue that this feature should be the focus of such books as Bank on Yourself® and Be Your Own Banker®. Having a ... Keep Reading