Ben Franklin Was Wrong!

Benjamin-franklin-dollar-billBen Frankin was, without question, a man of wisdom.  He was right about many things, but one area in which I must respectfully disagree with the sage is his insistence that the only certainties in this life are death and taxes.  Of course, taxes and death are hard to avoid, but there are also other things in life that we will most definitely not evade.  In this last of an 18 blog series on the subject matter contained in the book I co-authored with best-selling author, Jim Stovall, we address another one of those certainties and the steps that one must take to adapt and thrive in the face of it.

 From The Financial Crossroads, Chapter 18, “Your Story, Your Plan”:

We have made reference in other parts of the book to the oft quoted phrase about death and taxes.  I enjoy history, so I had to trace its origin.  It appears that Daniel Defoe, in 1726, was the first to make this now famous claim, albeit more eloquently: “Things as certain as death and taxes, can be more firmly believed.”  Much closer to the modern day phrase, however, was Ben Franklin’s redux in a letter to Jean-Baptiste Leroy in 1789, in which he said, “In this world nothing can be said to be certain, except death and taxes.” Regardless of the veracity of this line of thought, I find it all quite depressing.  But I do think that we could turn this into a phrase in which we’d all agree: One guarantee in this world is change.

Do you embrace, reject, resist or retreat from change?  The fact that you purchased this book tells me you probably don’t reject it.  That you read this far tells me you probably don’t resist it.  The question now, however, is whether you will embrace it or retreat from it.  The easier path is to retreat, because as Arnold Bennett tells us, “even a change for the better, is always accompanied by drawbacks and discomforts.”  Regarding the intersection of money and life, there are two different types of change: fundamental change and practical change.  In a perfect world, fundamental change happens first and practical change follows almost effortlessly.  But fundamental change does not always come easily.  Often times, practical change precedes fundamental change as we allow a discipline to shape our view fundamentally.

A fundamental change is seeing the world as a risk manager; practical change is altering your insurance policies.  Fundamental change is shifting from a retirement plan to a fulfillment plan; practical change is taking degree or certificate college courses that could lead to a job change.  Fundamental change is seeing your estate plan as a legacy plan; practical change is updating your will.

Practical change is cutting up the credit cards, your path to more; fundamental change is genuine contentment with enough.  Practical change is beginning a giving program; fundamental change is having less of an attachment to material things.  Practical change is writing your Personal Money Story; fundamental change is realizing its significance.  Practical change is dealing with the dollars and cents in life; fundamental change is life itself.

Selling Snow Cones To Eskimos

The financial services business is… interesting.  It’s not entirely devoid of good intentions and well-meaning people, but there is no question whose interest is the top priority—and it ain’t yours!  To paint you a picture, I’ve included an excerpt from The Financial Crossroads; the story of how I first entered (then temporarily left) “the business.”

From Chapter Seventeen: Everyone Is Biased:

Snow-cone-210x300 “Everyone is biased.”  Those were the words of a mentor of mine shortly after I entered the business of financial advising.  I had already been working in the financial industry for several years, but this was the second time that my idealistic view of the objective, trusted financial advisor received a healthy dose of reality.  The first time was about three years earlier.  I had just finished celebrating my rite of passage into the stock brokerage world—successful completion of the “Series 7” examination that allows one to sell stocks, bonds, mutual funds, options, and various other securities to the public—when I left my entry-level back office job at a reputable brokerage firm to join a successful team of stock brokers at another firm as a “junior broker.”

I showed up the first day, bright and early, in my token blue pin-striped suit, starched white shirt, and bold power tie.  I sauntered into the team leader’s office to await my very first “Morning Call.”  I listened intently and began feverishly taking notes as a man’s voice rang through a small box detailing the economic events and non-events that were expected to influence the stock and bond markets that day, as well as the state of the current “inventory” that the company held.

As the call wrapped up with a dose of encouragement—akin to a team chant before a football game—I took a deep breath, a final swig of coffee, and moved forward onto the edge of my chair, eagerly awaiting the golden wisdom from my suspender-bound leader as I set out to save the populous from their deviant financial ways.  He stood up, glanced out over the magnificent view of the Baltimore harbor visible from his corner office, and invited me to walk across the hall to get comfortable in my new confines.

He grabbed a three-ring binder, six inches thick, and opened it to the first page.  Then he told me to write down the only note he had taken during the morning call:  “BGE 6.5% Preferred.”  My mission was to call the first number attached to the first name (of many) on the first page (of many) and begin a conversation to help bring whoever answered the phone to the conclusion that they could simply not go another day without putting some of their hard earned money to work for them in this bargain basement deal with an unbeatable yield on this new issue of the bedrock Baltimore utility company’s preferred stock.

I was told to start by putting a smile on my face, because my joy would better translate through the other end of the phone.  I should talk and talk and talk until the voice either transitioned into a static dial tone or submitted to my plea to “talk to the resident expert” in house (my team leader), at which point I should put them on hold and alert the big shark that we had a fish on the line (I’m not stretching the metaphors here; that’s really how they talked).

This was my dream??  Several weeks later, driving home from a client lunch with my leader, I got up the nerve to ask him a question, the answer to which I was dying to know:  “What drives you?  A genuine interest to guide a client to the path of financial success or a pure love of the sale?”

I appreciated his honesty as he let out a “hrmph” and retorted, “The sale—of course!  If this business dried up, I’d sell snow cones to Eskimos!”

He was the resident trainer for the company’s new breed of financial advisors that would guide (or pester) the residents of the Baltimore metropolitan area.  I talked to him a few days later and told him that I felt we had a “philosophical disconnect” in the way we viewed the business.  He agreed, saying, “Yeah, some people just aren’t cut out for the phone,” and we parted on good terms.

The celebrated entrance into the business I had dreamt about since the eighth grade ended in disappointment after only two months.

The Most Important Financial Planning Recommendation

Estate_planningWhen I say, “Financial Planning,” it’s altogether likely that the first thing that comes to your mind is either INVESTMENTS or INSURANCE.  And while each of those disciplines are fundamental and foundational to every good financial plan, it is easy for me to say that the most important recommendation that I see in most financial plans does not fall under either of those categories, but instead, in the realm of estate planning.

And, of course, the first thing that comes to mind when I mention stuff like wills, powers of attorney and advance directives is, “Oh, yeah, I know I need to do that.”  You’re in good company if you haven’t; over 80% of people don’t have these documents, and most of those who do, have insufficient or outdated documents.  Why is it, then, that I could suggest that the MOST IMPORTANT recommendations in your financial plan fall under the heading of estate planning?

First, if you have minor children and haven’t yet created wills (or you have children who’ve blessed you with grandchildren), you should stop whatever you’re doing and purpose yourself to contacting an estate planning attorney to get these documents drafted immediately.  Ordinarily, I try to avoid using such dramatic words as best, most and immediately, but I’m not exaggerating here!  The reason this is so important if you have minor children is because you stipulate in your will who the GUARDIAN would be for your children in the case that you and your spouse are both… gone.  Sure, the probability of that happening is very low, but if you don’t determine who should raise your children in your absence through a will, your state of residence will decide for you!

Second, whether you just became a legal adult or have recently gained access into the centenarian club, the time is likely to come when you’ll need someone else to help you with a financial or health decision because you’re unable (through a disability) or unavailable (you’re settling on a house and are out-of-town for business).  You can clear up exactly how these things would be handled with a well written power of attorney document and advance directives.  The former allows someone else to act on your behalf in financial matters; the latter, in decisions surrounding healthcare or end-of-life decisions (like the tragic Terri Schiavo case).

Third, of the very few things you can count on as certainty in this life is that your stay here on Earth will eventually come to an end.  So even if you’ve made definitive plans to join the prophet Elijah, who reportedly left the planet on a chariot of fire sometime around 800 B.C., you’ll likely be leaving someone (and something) behind when you go.  Deliberating over what you intend to leave behind—both monetarily and otherwise—may be seen as not only an opportunity, but an obligation for a life-well-lived.

So why do you think people have a tendency NOT to check-off this big to-do item of having solid estate planning documents created?  People have a tendency to avoid conversations about their own demise, as though they might attract it sooner.  Instead, I encourage you to see this as an incredible opportunity!  Whether your 20 or 120, I encourage you not just to leave an estate, but a legacy.

For more information on HOW to put together a proper estate plan, you’ll find a more detailed explanation in Chapter Sixteen of THE FINANCIAL CROSSROADS.

For more information on WHY, enjoy my CROSSROADS co-author, Jim Stovall’s, best-selling novel, THE ULTIMATE GIFT.

Life Lessons from a Dead Rich Guy

Have you heard about Jean Paul Getty?  He was named the richest living American by Fortune magazine in 1957, but unless you’re a history buff, his name only rings a bell because you’ve probably purchased gasoline from the company that bears his name, Getty Oil.260px-JP_Getty,1944 

Now, Mr. Getty was not right about everything.  For example, he had five different wives and was quoted once as saying, "A lasting relationship with a woman is only possible if you are a business failure." I’m not exactly sure how he kept getting dates with proclamations like that, but maybe it was because he had a way with words… or because he had a lot of money.  Regardless of Getty’s lack of relational skills, he became the richest man in America due to his keen business sense.  Consider this line that seems incredibly applicable to our current economic environment, “In times of rapid change, experience could be your worst enemy.”150px-As_I_See_It 

Is it possible that your comfort – or your advisor’s comfort – with the notion that the market is always going to take care of you led to the deep losses in your investments in recent years?  Maybe you thought that you survived the dot com bubble from 2000 through 2002, so what could be worse than that?  The answer: 2008.  History is still unfolding in this economic crisis at a pace more rapid than Getty could’ve dreamed.  How much more, then, should we heed his advice? 


The number 37.4 probably means very little to you.  But to those who live with Cystic Fibrosis and their friends and family, the number is very significant because the life expectancy of someone with CF is 37.4 years.  What impact would it have on your plans for the future if your life expectancy was rapidly approaching… or if you’d already passed it?  How, for example, would you plan for retirement and allocate today’s material resources?  In the course of writing The Financial Crossroads, I had the privilege of asking my good friend who lives with CF—and also happens to be a financial planner—these very questions.

From Chapter Fifteen: Retirement Fulfillment Planning:

A good friend and associate of mine has a unique posture towards retirement planning in the short, mid, and long term.  Marcus Harris is a Certified Financial Planner™ practitioner and a board member of the Cystic Fibrosis Foundation.  At the age of 35, he is a husband, father, financial planner and one who suffers from Cystic Fibrosis, a life-threatening genetic disease that at this time has no cure.  I asked Marcus how the knowledge of this disease has altered his view of retirement.

He told me that his personal financial planning philosophy took a serious turn about a decade ago.  Up to that point, Marcus assumed that his life would be dramatically shortened—“in 2008, the median predicted age of survival rose to 37.4 years, up from 32 in 2000,” according to the Cystic Fibrosis Foundation website—and, therefore, he had little need for saving for the long and even the mid term.  He was a spender.  But in his mid-twenties, Marcus made a conscious decision that he wasn’t going to live life in the shadow of this disease; that he was going to continue to enjoy life, but he was going to approach it as though the cure was imminent.  And it may be.  This realization opened the door to Marcus entering into serious relationships, and in 2003, he got married.  Now, he and his wife have five-year-old twins, and Marcus is a saver.

I think that his is a situation that offers us all a profound lesson in financial planning.  Especially because of Marcus’s condition, he is very motivated to plan for his family’s future so that it is secure even if Marcus is unable to enjoy it with them.  At the same time, Marcus is reminded daily, with a host of medications that follow him, that he has a disease that could have already taken his life.  You might not know Marcus personally, but you know someone, or you may have experienced something similar personally that screams out that we are all living on borrowed time.

You Need To Know…It’s Wednesday (FRIDAY, actually)

Listen to Tim deliver this YNTK!  Click below:

You Need To Know -Wednesday



This audio essay was initially written and read two days ago—Wednesday—but it’s just as appropriate today!

YOU NEED TO KNOW… that it’s WEDNESDAY (FRIDAY, actually).

Yes, I know that this You Need To Know would appear self-evident, but after the Labor Day induced long weekend, you can’t deny that you’ve had the experience at least for a moment when you had to be reminded that, for all intents and purposes, you’re actually one day ahead of your week?  It’s happened to me a few times this week—most recently with a realization that woke me out of a groggy stupor in the shower this morning.  

When a realization like this hits us, it’s generally a good thing, because you’re basically ahead of the curve, especially if you look forward to your weekends.  What is not such a good feeling is waking up and being given a reminder that you’re behind the curve.  This happens to me occasionally when my four-year-old son plays a trick on me and messes with my alarm clock… the volume’s set too low and I slowly wake—feeling surprisingly refreshed for a mid-week morning—only to realize that I’m now running late. 

These momentary hiccups in our personal space time continuum are fleeting; they come and go and we get on with our life.  But through numerous—often self-preservative—acts of self-deception, events like these take place on a much bigger scale in our lives, and especially in our financial lives.  When we’ve planned properly in advance, a surprise hits and you may realize, “Wow, I’m better off than I expected!”  But often times, and especially in the midst of a tough recession, too many people seem to have one of those record-coming-to-a-screeching-halt-moments when it hits you that you’re underprepared, sometimes woefully so.  Maybe you realize that you simply followed the wrong career path and are now backed into a corner; or maybe you didn’t keep enough in emergency reserves so your job loss now means home foreclosure; or maybe you didn’t save enough and now your options for retirement are severely limited.  

These instances are not fleeting like the alarm clock or getting to the Wednesday [Friday] after Labor Day one day early—but they’re also not irrecoverable either.  And the first step is self-awareness or recognizing where you stand at the moment.  So whether you’re driving, sitting, standing or walking, consider this your wake-up call—your invitation to reality.  Ask some hard questions and know where you stand.  You’ll be glad you did… and that is something YOU NEED TO KNOW.

“This Isn’t Russia.”

Caddyshack-300x225In the midst of a mentoring session with Danny Noonan on the golf course, Ty Webb, Chevy Chase’s character in Caddyshack, instructs Danny, “You don’t have to go to college.  This isn’t Russia.  Is this Russia?  This isn’t Russia.”  Jim Stovall and I thought you may need a bit more instruction than this on the matter, so we dedicated a chapter to education planning and saving for education in The Financial Crossroads.  We’d like to share some of our contrarian thoughts with you for this week’s Crossroads Conversation…

From Chapter Fourteen: If Cost Were No Object:


Amy Skogstrom, Managing Editor at Automobile Magazine said, “When someone asks me what car I’d buy if cost were no object, I pretty much always say the 911.”  Ms. Skogstrom is referring to the Porsche 911, the iconic sports car to best all sports cars.  The magazine was reviewing Porsche’s newest creation, the 2009 911 Carrera 4S.  I can remember as a boy, too young to even drive, having one of those hypothetical daydreams as I thumbed through a magazine of sports cars, picturing a wealthy philanthropist walking up to me and saying, “Hey kid, I’ll buy you any car in that magazine——the cost is no object.”  In that recurring daydream, I too have always answered, “The 911.”  There’s just something about it.  But alas, when it comes to automobiles, cost is an issue, so I’ll not be parting with the $109,000 that would be required to buy the 2009 Carrera 4S, “as tested.”

There are very few things in life for which we could actually say money is no object.  The health and welfare of my family is the first that comes to my mind. But even then, I confess that I certainly have allowed money into my decision-making process.  I have, for instance, chosen a pediatrician who is in my health insurance network.  Is there a better pediatrician that may offer a concierge medical service independent of insurance hassles?  Possibly, but I haven’t explored those options because I know the cost is quite high.  For most decisions in life, money may not be the primary driving force in our decision, but we delude ourselves if we claim that it is a forgotten non-factor.

This is no more evident than in the realm of education.  Does education have a price?  As parents, do we owe our children a particular educational path?  Is a college education an entitlement or a privilege?  Before we jump headlong into this debate, let me clarify a few things.  Learning has inherent value that is incalculable.  Education is one of the primary ways that we learn.  I don’t, even for a second, want you to receive a message suggesting that education is overrated.  I teach on the college level and believe that it is one of the more important things that I do in life, but I don’t believe that any and all education is priceless.

Annuities are Not Bought…They’re Sold!

For those working as financial planners, that we will eventually be humbled by the recognition of a faulty thought process is not just likely, but a foregone conclusion.  One of the financial products that I was trained on intensely was annuities—fixed annuities, variable annuities, equity indexed annuities and immediate annuities.  And it wasn’t until I was in the industry over seven years that my continued research began to reveal that the benefits of annuities to consumers were exaggerated and the drawbacks, downplayed.  As that truth began to settle in, I had to acknowledge that I was wrong.  That was humbling, but I wouldn’t trade my initially faulty thought process for anything, because learning “the hard way” has helped me grow through experience and it makes me a better planner today.  Here’s my confession, which kicks off Chapter Twelve in The Financial Crossroads:

From Chapter Twelve, The “A” Word:

Funny_Sales_Cartoon_sales_callrememberingnames  In the realm of personal finance, no word has been dragged through the mud more times than The “A” Word—Annuities.  Yet, annuities still survive and even thrive.  How they do is not a mystery.  

There is not an outcry on the part of consumers demanding annuity products.  The reason for the continued vibrancy of annuity products and sales is that they pay a big honkin’ commission to the selling broker or agent.  (There, I’ve said it.)  And, as most of the financial sales tactics exposed in this book, I’m especially qualified to make such a statement, because I have sold them myself.  I wasn’t a bad person in those days, conniving to separate prospects from their hard-earned money for my own selfish benefit.  Conversely, every time in years past when I sold an investment product to a client for a commission, I did so thinking it was best for the client.  My recommendations met all the legal requirements of suitability that are required of a broker, but I declare to you now that in hindsight there is no question that my judgment was partly influenced by the amount of money that I could make (or not make) in the sale.  

And how could it not be?  Let’s say you, as a salesperson, had three different products to sell with the following characteristics: one would pay you 1% for every year that the investment continued to be held by the client, one would pay you 5.75% up front followed by .25% each additional year, and another would pay you 12%—all up front.  Which one would you be likely to pick, all things being considered equal?  Hmmmm.  Let’s add to the scenario the assumption that you were selling in the midst of an economic downturn which had resulted in a significant loss of revenue for you and your family.  Is it possible that in that circumstance you may be inclined to favor the product that pays 12% up front over the one that pays 5.75% up front?  And forget about the one that pays 1%, because in tough times, that simply isn’t going to butter the bread.  These aren’t imaginary numbers that I’m using. One percent is a slightly below average amount that a financial advisor may charge for discretionary management of your investment assets; 5.75% is the average commission paid to a broker who sells a mutual fund (A share); and annuity products pay up to—and in some cases over—12%!

The sale of annuities is justified entirely too often because of the massive commissions that go to the broker or agent selling the product.  Powerful organizations have made it their lives’ work to decry this very notion and have built elaborate systems designed to convince themselves, their brokers and agents, and the consuming public to believe in the justness of their actions.  I was a part of one such group and was encouraged—along with a room full of other financial folks who had been invited to San Diego for an all-expense paid trip to hear what this organization had to say—to join the ranks of the “Safe Money Specialists.”  Other people were selling products.  We were selling peace of mind and getting paid 10 times as much!

I repeat: people who sell annuities aren’t bad people.  But, they are sales people.  You expect timeshare salespeople to have an economic bias to sell you a timeshare.  You expect a phone solicitor who interrupts your dinner to keep you on the phone to convince you to buy something before you hang up the phone.  You don’t, however, expect someone who refers to themselves as a financial planner or advisor or professional to have the primary aim to sell you something.  Unfortunately, many of them do.  Your broker or agent may have drank the company Kool-Aid and genuinely believe that he or she is doing the best thing for you, so treat them with respect when you tell them you’ll be moving your business.  As I learned growing up in the Baptist church, we should, “Hate the sin, not the sinner.”  We will be discussing in much greater detail the ways that financial services employees and financial advisors are compensated and what you should look for in Chapter Seventeen.

All Things Considered…Equal???

“The conventional wisdom is often wrong.”  Those were the words of Steven Levitt and Stephen Dubner in their blockbuster hit, Freakonomics, which, by the way, if you haven’t read it is well worth the time and money.  This could be no truer than in the financial services realm and, specifically, the sales of investment products and services.  Indeed, the entire premise that an investment’s asset class—its label as large cap stock, small cap stock, international stock, short- or long-term bond—as the PRIMARY determinant of its risk, must be questioned. 

Here’s how Jim Stovall and I put it in The Financial Crossroads in the chapter entitled, “Portfolio Management: All Things Considered Equal”:

Chart  Have you ever heard anyone say, “All things being considered equal…” and then follow it up with a statement?  They may just be an economist.  It’s like saying, “If everything happens the way I expect it to, I’ll be home on time for dinner.”  It’s really an out.  In economics, enormous models are created with assumptions too numerous to count, and the aforementioned phrase gives the economist an out when circumstances beyond his or her control change.  This phrase is especially important in the management of investment portfolios.   

All things being considered equal, stocks are more risky than bonds.  Growth companies, more risky than value companies. Small companies, more risky than large companies.  International countries and companies, more risky than the United States and companies domiciled here.  In investing circles, each of these categories is called an asset class.  If all things were equal, the above presumptions would hold true.  But, especially in the world of investments, all things are never equal!  They’re in a constant state of flux, and as Mark Twain told us, “History doesn’t repeat itself, but it does rhyme.”

Departing momentarily from theory into reality, consider the notion that instead of risk being determined by asset class, risk is determined by the price of that asset.  The risk of a particular asset is not correlated with its label, but instead, its price tag.


You see, we’re not suggesting that the asset class is irrelevant, but it frightens us that the financial industry seems to have built its foundation for investing on the widely accepted “science” that an investment’s risk is determined by its label instead of its price tag.  This concept is theoretically known as Modern Portfolio Theory or the Efficient Market Hypothesis, but has become broadly known  and presented to consumers as Asset Allocation.  You’d probably know it better from the pretty pie chart that most often is pulled out to describe it.  (All you need to do is “rebalance” between the asset classes when the pie chart gets out of whack and VOILA—a lifetime of investing made simple!)

So if you were one who had wondered if your pie chart wasn’t cutting it, or if you were relying too heavily on market logic that seemed all too illogical, we’d suggest that your common sense might actually trump the behemoth financial institution!    

You Need To Know…Why You Need to Have Your Bubble Burst

Listen to Tim deliver this YNTK!  Click below:

You Need To Know – Bubble


YOU NEED TO KNOW… how important it is to have your bubble burst occasionally. 

How often do you think about your money? How about your career? Improvements on your house? Vacations you'd like to take? As a financial planner, thoughts about money, careers, assets and liabilities are a virtual constant. And sometimes, I’ve noticed that when we are up-to-our-neck in our own stuff, we have a tendency to becoming increasingly self-focused—believing that our own reality is the only reality. Living inside of our own little bubble then has a tendency to lead to many forms of discontent—we see a friend’s new house or car and think, “Well, shoot, I deserve a new house or car!” Before you know it, we, as the king or queen of the bubble in which we live begin to justify all sorts of foolishness—financial and otherwise—and see the world outside as merely a tool to benefit our own personal kingdom.

But then, occasionally, something from the outside world unexpectedly invades our kingdom and our fake reality. Monday, my wife called me to let me know that our friend—a wife and mother of three children just entering college, high school and middle school, respectively—died of an apparent stroke in her home. As that news sunk in, my bubble was obliterated. My dissatisfaction with the leaking air conditioner, old roof and drab siding on our house evaporated. My impatience with falling short on a couple specific financial goals and career aspirations faded, and virtually every ounce of annoyance, frustration and discontent was put into the proper context.

You don’t have to wait until tragic news strikes to be freed from your bubble kingdom that in reality functions more like a prison…and that is something that YOU NEED TO KNOW.