A while ago, I authored a post to remind the you (my loyal readers) that there were some misleading practices being offered by some VERY visible companies regarding access to your credit reports.  This morning, @andreamyers re-tweeted a post from another well known Twitter-hero (@skydiver) who found this little ditty below:

Please allow me to add my wave of gratitude to the Federal Trade Commission for taking on these other “knuckleheads” who claim to be doing the general public a favor, when in fact, they are selling them an unnecessary product by taking advantage of their fears.

Next, let’s fight back against those “companies” who want to charge parents to fill out the FREE Application for Federal Student Aid! (Goodness, people!  It’s in the title of the document, FREE!)  [HINT: For info you can completely trust about the College Financial Aid process, check out this site from Making It Count!

Why I Don't Like Suze Orman's Advice (Or, Why Variable Annuities CAN Work)

My speaker’s intro includes something about my self-description of being a “recovering financial advisor”. It’s true. I was in the business of giving financial advice for over 8 years, during which I saw some amazingly interesting market events – good and bad.

One of the most consistent things I saw, though, was a number of media-described “experts” on financial matters, who often gave blanket, broad-brushed advice that didn’t always tell the entire story. While I can’t say that everything she has ever said is bad, generally speaking, I don’t care too much for the scrubbed-for-the-lowest-common-denominator-sound-bite-media advice dished out by people like Suze Orman.

First here’s a clip of her somewhat infamous bad call from a show on CNBC from a few years ago. Before the days of YouTube, it circulated among emails of many financial pros as a laughable example of her being called out by a viewer….just note how angry her face gets when she realizes what the screener didn’t screen out….

Then, today, I received an email from an industry trade group with further proof that NO SINGLE INVESTMENT is ALWAYS BAD (or good) – see this article. As the old saying goes, I guess “Every Dog (truly) Has His Day”. Go figure – then, get with a true financial pro to find a plan that works for YOU.

Can General Motors Pull This Off?

If you think I’m bit nuts today, blame Larry Winget! This guy has the intestinal fortitude of a giant, and I have to say I agree with more of his recent blog post than I don’t. (CAUTION: It contains some stronger language than is comfortable for some, so if you’re squeamish, skip it…If you can handle it, HERE IT IS). [For the record, I still like LeBron James, but I get Larry’s point.]

On to MY post:

As you may know, I spent the 10 years or so of my professional life working with investments. First as a bank trust officer who helped install new 401k and other employee benefit plans into companies of all sizes, then later as a personal financial adviser. Over the years, I have found that most people in the general public simply don’t take time to stop and truly think about their investments. Instead, they simply rely on what other people tell them to be the truth. Therein lies the issue.

Financial advisers are the people who are left to help when a widow has earned their title. For the “traditionalist generations” (those born ahead of the Baby Boomers), too often these “blue haired ladies” would be handling their financial affairs the way their deceased spouse had told them to. Though they never told me, their actions said their spouses had said to them:

  • You can always put money into a Certificate of Deposit (CD) at the bank, because it’s FDIC insured if something should happen to the bank
  • Cash is king
  • The “Blue Chip” stocks in our investment account will always be there.

If I may, I’d like to respond to these facts.

  • On CDs: Yes, you can always put money into a CD, but sometimes there are other VERY SAFE INVESTMENT OPTIONS that can offer you a better return without much more risk. Sure, you may not have FDIC coverage (something instituted by the federal government during the Great Depression), but that’s not always a bad thing.For example: If your only criteria is “FDIC Coverage”, you are limited to bank deposits as an investment. The banks know this, and often offer very low rates of return in exchange for using your money to make more for themselves. I’m not against banks making money, but know that your ENTIRE INVESTMENT PORTFOLIO might serve you better if some of that money is invested in something else like a FIXED Annuity. When used correctly, these can prove to be a nice CD complement or alternative.
  • On Cash: If you plan on living off of your investments for some time, you need one of two things: a large account full of money or a diversified portfolio. I can’t tell you how many times I’d see someone come up to me in a 401k enrollment meeting or into my financial adviser office saying “I’m going to retire next year, what do you think?” Then they’d show me an account with a balance of about $30,000. When I asked, “How much money do you think you’ll need to get through a year?”, the reality would set in and these folks would look at me as if they’d never considered that question. In short, to get where you want to be LONG TERM, investments in something other than cash are going to prove VERY important…unless you happen to start with or fall into a very large bucket of money.
  • On Blue Chip Stocks: “Blue Chip” stocks are those that are typically thought of as the larger, more established companies that “should always be around”. Often times, these are exemplified by the stocks of the Dow Jones Industrial Average (DJIA), an index used to represent the “overall market”. Here’s a fact too many people don’t know: the components (or stocks) used to calculate the DJIA CHANGE! Sure, some companies like General Electric have been a DJIA component since 1907…But, two of the component stocks (General Motors, since 1925 & Citigroup, since 1997) are being replaced on June 8, 2009. Earlier this year, other victims of the financial and economic meltdown were also replaced in the DJIA.

This morning, I ran across a website dedicated to the “re-invention of General Motors“. While I know there is a tremendous amount of pride in this, one of the “big three US automakers”, there is much to be done to pull this one off.

Somewhere along the way, I say a LONG LONG time ago, General Motors ceased operating as an automobile manufacturing company, and became “a large pension plan that happened to also make cars”. I’ll save my complete diatribe for another posting, but the point is this. General Motors (along with other over-sized companies) fell victim to its own success. Somewhere along the way, decisions were made likely based more on emotion than facts, pressure from unions vs. other labor options, and arrogance over intelligence. For those investors who didn’t take time to keep up with the health of the companies in which they were invested, GM’s recent bankruptcy filing was a rude awakening, as all of that former “blue chip stock” almost immediately dropped to a value of pennies on the dollar.

Can GM pull off this “re-invention” and save itself as it claims in this video? I don’t know. But to the millions of people who have learned that “doing what you’ve always done won’t always get you what you’ve always gotten” the hard way…let’s hope so!

How to Fix Your Credit

In a timeless skit from NBC’s Saturday Night Live, here’s an infomercial regarding a new book for those who seem to be struggling with debt:

I’m thinking about creating a similarly titled e-book. What do you think?

Stimulus Shim-ulous…It's the System, Stupid!

Today’s Wall Street Journal article Credit-Score Pitfalls of the Wealthy , in my opinion, seems to shed some light on the problem of our current state of the economy, though it likely wasn’t the intention of the author. In short, wealthy people who believe that “cash is king” and don’t regularly use credit don’t get the best deals…and therein lies the problem. To that I ask, “What?”

My Bachelor of Science Degree in Business Administration centered my studies around Finance and Commercial Bank Management. I did pretty well in my “money classes” and worked in the financial industry first as a banker & trust officer, then as a licensed financial adviser for over 12 years. For those who don’t know anything about finance, you at least know that “with risk, comes reward”-at least, academically.

That’s what puzzles me. According to this report, college students, on average, may receive up to 4-6 unsolicited offers for credit cards…EACH WEEK. Students who don’t have any money (for the most part). In the presentations I deliver to high school students, we’ve been telling students that the most valuable asset you have your first five years out of high school is TIME. Reflecting on my own college experience, I’d say that is a true statement. It certainly wasn’t money! From the start, we’re programming the public that you MUST have and use credit.

Which leads me to the absurdness of the reality that moneyed people don’t always have good credit scores not because they don’t have cash, but because they don’t typically borrow anything. Stick with me here for a minute…You see, when a business applies for a loan, the inquiry is routed through a credit analysis process during which the company’s cash flow is scrutinized against it’s own past performance, industry peers, and overall risk on a case-by-case basis. A business with the luxury of being cash rich will have a high coverage ratio – the number of times “free” or available cash could cover the debt payments. If there’s a high coverage ratio, presuming that multiple is not a function of some one-time windfall of good fortune, there’s no reason to deny the loan or ask for overly aggressive terms. When a person applies for one, we look at an overall profile of what people have typically done overall…not so much that individual person, regardless of their means to repay the borrowed money based on some kind of “profile”… Um, the last time we separated common sense from the loan underwriting process we wound up with a country full of bad mortgages…Gasp! Is THAT what we’re trying to “fix” with this band-aid of a Stimulus Package?

According to the WSJ article cited above, however, and the information I’ve gleaned from some of the sources mentioned in that article – the same does not appear to be true for individuals. For that, we’ve dumbed it down into a “credit score” that is some seemingly arbitrary, digestible number that “allows” for consumer loan underwriters to count on a third-party calculation of the likelihood that a person should be able to repay any debts they may take on (cars, boats, mortgages, etc.). [By arbitrary, I mean: Does anyone REALLY know what that “equation” looks like?]

As President Obama often begins an explanation, “Look…” If people WITH money suddenly decide to access credit (for whatever – likely economic- reason), they SHOULD get the best rates. Instead, we’re busy shucking out credit cards, 72 and 86 month car loans (seriously?), and arbitrarily cutting available credit via credit card limits to small business owners for unexplained reasons because we’ve become a nation of debt-hungry consumers.

And now, we’re injecting ANOTHER $700+ Billion into “the system” to avoid catastrophic failure…um, respectfully, the system has already failed us in the name of progress.

For those who find themselves seeking a return to personal financial success in these challenging times, I suggest the following:

  1. Put yourselves on a CASH BUDGET. If you don’t have it, don’t spend it. Sure, it may cramp your style a bit.
  2. When money comes in, STICK SOME IN A SAVINGS ACCOUNT. Yes, I know that the rates aren’t great, but wait until you start bouncing checks and receiving those aggregious fees on even the smallest of overdrafts.
  3. BE HONEST WITH YOUR LENDERS. If you are in a pinch and can’t make the payments, give them a call before they call you and let them know what’s going on. Often times, if you will simply schedule payments to automatically come out of your account (at a level YOU are comfortable with, NOT one set by the creditors), you can often cut down or even eliminate those calls that do nothing but remind you of the financial pickle you’re in.
  4. FOCUS ON THE TASK AT HAND. Sure, they will talk about how you’re going to “hurt your credit score” by closing this account or that one, or making less than the minimum payment….However, when you ask them if they’d like SOME payment or NO payment from you, it’s funny how their tone changes.
  5. RE-EVALUATE your needs vs. wants. Yes, television is an inexpensive entertainment option, but did you know you can actually get channels over-the-air FOR FREE? Hey, with the switch to digital television broadcasts, those new shows and channels will look EVEN BETTER than via cable or satellite when you watch them on the HD-TV you financed at 27% on your credit card. Turn off the cable….

Take this opportunity to re-value what’s important to you and your family’s financial future. Take charge of it. Pick up some books from Dave Ramsey! It’s going to be alright.

When $700 Billion Isn't Enough

One visit to my website, and you know how I feel. Today was simply VALIDATION when I found these two articles at the Wall Street Journal’s website:

The latter of these two articles backs up the message I’m on a mission to remind bankers: “Your customers don’t need you anymore!”

No one needs to be reminded the crisis our country is in today. (Been “off the grid” all year? Read these posts from Oct 14th & Aug 19th.) While there is plenty of blame to spread around, our nation’s financial system neared collapse earlier this year prior to the U.S. Government’s stepping in to provide a $700 billion “bailout” package. The harsh reality is that it is going to get worse before it gets better. Please fasten your seatbelts and place your tray tables in the upright position!

The U.S. unemployment rate for October, as reported by the Bureau of Labor Statistics, was reported at 6.5%, up from 6.1% in September. Mortgage foreclosures are happening at rates not seen in this country since the real estate implosion of the late 1980’s. Despite the fact that the United States has a new President headed to the White House and a power shift in Congress, those new elected officials won’t be in office until late January 2009.

In all fairness, it’s not really the smaller, community banks who are to blame for this financial debacle in the mortgage and banking sectors. In fact, many of those banks represent the viable option for consumers who seek someplace safe to keep their money. Should the trends reported by the Wall Street Journal articles above filter down to these community banks, however, I don’t know why ANYONE would want to continue doing business with ANY bank!

The regulatory environment that governs many of the overall policies to which commercial banks are subject has done much to “protect” our banking system and consumers. While I’m not a fan of over-zealous, government regulation, I simply believe there are many predatory practices banks engage in every day that add BILLIONS to their bottom lines to which the regulators simply look the other way. We’ll get into some of those in some upcoming posts, so keep coming back! You won’t BELIEVE what they can do to you!

Consumers: You deserve ANSWERS, TRANSPARENCY, and COMMON SENSE from the financial institutions whose services you employ. Keep coming back to this blog, and you will learn valuable tips your financial institutions don’t want you to know about.

Bankers: You’d better get your act together, because the public is weary of your ways, and frankly, have alternative ways of obtaining the services for which you used to have a lock on delivery. Do the right thing. Get ahead of the wave and do what’s right. You just might be rewarded with more customers than you’d ever imagined. (Shameless plug: This Consultant Can Help)

Chicken Little Gets Job at CNN

Open message to the popular media: Please STOP adding such sensationalism to EVERYTHING. Seriously, we’ve all seen video of some idiot driving off with the gas pump still hanging out of the car. It’s happened before. It will happen again.

“Wall Street bracing for a dismal start!” – Seriously? The reporter I’m watching AS I WRITE THIS is saying, effectively, “WE’RE ALL GOING TO DIE!” Look, the financial situation of late is dicey, but let us not all lose our minds.

Ms. Talking Head, you’re (most likely) someone who is pleasing to the eye when on a television screen . [Come on, I know I’m not the only person to have noticed this phenomenon. ] I was a financial professional for over 12 years. So here’s the real story: If it all goes to hell, we’re all in it together, and we’ll find a way out. Don’t believe me? Call your grandfather. Mine remembers the Great Depression, and he is STILL ALIVE (at 92, thank you very much)! It’s though every news outlet is now trying to predict the future, so they can lay claim to being the source who “brought it to you first”–even if it wasn’t true yet when it was reported. I’m SO over it!

As a society literally BOMBARDED each day with such overblown sensationalism over what MIGHT happen….no wonder we live amongst people who have lost all hope when all they need to do is pull up their big boy pants and take some accountability for their own well-being. Haven’t you people ever heard of Chicken Little?

p.s. By the time I could get this posted online, the market (measured by the Dow Jones Industrial Average) had closed…Down 215.05 from Thursday’s close at 8476.20. Hardly the “worst financial day ever”.

Three Card Monte

We’ve all seen the game, Three Card Monte. On a side note, I actually saw some vice cops take down a game that had attracted quite a gathering around it on the Las Vegas Strip. I guess you have to have an actual gaming license in the State of Nevada to actually rip people off….but that’s not my point today.

On the television screen at the gym a few days ago, I watched the mainstream media following the latest on the U.S. financial markets and how they were reacting to the passage of the $700 Billion bailout bill. I was listening to some of my favorite guitar players on my iPod at the time, but just watching the pictures on the screen had me asking, “How in the world get we get into this mess?” Then, immediately, the answer came to me as if in a song, “Greed.” What else?

As a “recovering financial advisor” I have to say all of this madness isn’t all that shocking to me. Don’t get me wrong, as a self-employed person who can’t just take a copy of a paystub down to the local mortgage shop and get a home loan (they still do those, right?) I know it’s going to be a while before I will be able to buy another house….Frankly, that’s okay with me.

It IS the alleged American Dream to own the house you live in…but is all the stuff we see in the mainstream media just financial pornography for the masses?

Somewhere along the way, Americans seem to have shifted from a curious public to public unsaddled with the burden of responsibility, wise judgement, and just knowing what the heck we were getting ourselves into. “It’s okay,” say many. “Someone will come along and bail us out if we really screw this up. Besides, what are the odds this is really going to happen anyway?” [If that last comment intrigues you, here is some recommended reading: The Black Swan: The Impact of the Highly Improbable]

I love this country. I’m also a fan of capitalism – even though it has it’s dark side. Because of the fundamentals (yes, they ALWAYS matter) on which the United States of America was built, we DO have a nearly unlimited ceiling of opportunity for anyone willing to work hard. The problem of it all, though, is when it becomes so difficult to know who you can honestly trust, and who you can’t.

There are a number of financial advisors in this world who truly DO CARE about their clients. I’ve had the priviledge of working around some of them during my tenure in the business. Unfortunately, when you start moving up the food chain toward the top of so many of Wall Street’s operations, there appears to be a real disconnect between what is “right” and what is “right now”. Big finance is driven by deals (a la capitalism), but it’s also driven by greed. When those two are shuffled, dealt, and flipped over on a piece of cardboard on the side of the road by a huckster, all that remains is a house of cards.

There is more than one way to work through this financial crisis we’re all paying for today, and how we got here is another story (read “Don’t Hate the Player, Hate the Game“). I’m personally nervous that Congress has put into play a $700 Billion “bailout” plan for our economy.

Did something have to be done? Yes. Might there be a better way? Yes. Is it time for the United States to have it’s leveraged head handed to it for pushing too close to the financial edge of the world? Maybe.

Let’s just make sure we’re not playing a high stakes game of Three Card Monte.

Don't hate the player, hate the game!

I’m one of those people who reads various Business Journals to keep a finger on the pulse of our country ‘s business climate. On any given day, I might browse up to five different city-specific editions to see what’s going on in markets like Phoenix, Atlanta, Nashville, or Denver. Each email summary typically has a link to the “Question of the Day”, which today got me thinking….

Today’s Poll (from the Phoenix edition) was soliciting input on who was to blame for our country’s current mortgage crisis. The choices provided were as follows:

  1. Wall Street for bundling sub-prime securities
  2. Lenders for pushing risky loans
  3. Homebuyers for borrowing beyond their means
  4. Federal regulators lax oversight
  5. Other

As a “recovering financial adviser”, I’d like to think I know something about all angles of this issue. In a somewhat lengthy (on the record) rant on this colossal failure of the mortgage-lending system in America, let’s address these point-by-point of the choices given to this question:

  1. Wall Street– Of course. Anytime there is a huge financial hiccup it’s easy to point fingers at the very institutions that best represent the capitalism which makes this country (and the world) so wonderful. That’s odd, coming from me – for she is the same financial machine, fueled by the greed of Wall Street, I’ve so intimately dated over the years–and our relationship hasn’t exactly been roses. Wall Street (and banking, for that matter) works on the notion of leveraging OPM (Other People’s Money) to create enormous profits for the middle-man. It is the same machine that has built efficient markets for selling bonds, stocks, and other securities over the years that have generally built a lot of wealth for ordinary, passive investors over the years. I can’t really fault “the street” for just doing what they do best, making money by creating markets to trade supply and demand.
  2. Lenders, for pushing risky loans– Hmmm, we might be on to something here. In the addiction recovery business, these people are called “enablers”. As a finance major in college, the key fundamental element of finance I learned is the correlation between risk and reward. The more risk one takes, the greater the anticipated reward for taking said risk. That works well when someone is risking their own capital. In this case, though, the concept of OPM comes into play once again. You see, in order for Wall Street to create bundles of smaller, less attractive individual loans for the consumption by larger, institutional sized investors, those smaller loans must first be made. As the demand for the bundled securities rose, so did the demand by the middle-men for those loans. Well, at some point, as the networks of the mid-tier players in the securities “food chain” became unable to support the demand, they simply began dishing out cash to borrowers of lesser and lesser quality through a further expanded network of mortgage brokers and specialty lenders. You might even be suprised to learn that your local bank actually holds very few of the mortgages it provides to it’s own customers, instead offering to accept a commission from these “upstream” institutions while at the same time, dodging any potential risk of default by the borrowers.

    Did you catch that? Now you have institutions making mortgage (investment) decisions based solely on what information was being collected by third and fourth party gatherers (read: those farther from the ramifications of poor risk analysis) versus their own people. While it’s not really an issue for those borrowers with great credit history, raise your hand if you think this is a good idea when dealing with borrowers with a declining ability to repay borrowed funds. (If you just raised your hand, you must now check yourself into a twelve-step program for those addicted to poor choices.)

  3. Homebuyers for borrowing beyond their means- The last time I checked, the way most people buy a home is to a) gather up personal financial information b) take it to a lender c) see how much they will lend you 4) go buy a house. I can remember the first mortgage application my ex-wife and I ever filled out. When the lender came back to us with the amount they were willing to lend us, I had to be picked up off of the floor. Without much hesitation, the mortgage company was willing to lend us about twice (measured by payment amount) what we were comfortable with. Had we not both been keenly aware of our own responsibilities associated with taking on a mortgage, we could have easily been suckered into a commitment far beyond our means. For the millions of Americans struggling to get by, I think a system fueled by greed put too much faith in Joe Paycheck turning down too large of a loan in an effort to continue fooling his family that everything was better than ever.
  4. Federal regulators lax oversight– Unfortunately, it’s because of a series of unfortunate, repeated, ill-thought-through decisions, the political repercussions of this mortgage meltdown will likely result in a “cure” that will swing the pendulum far in the opposite direction, likely slowing down the number of people taking steps to own a piece of the “American Dream” of home ownership for a while.
  5. Other -Okay, to the people who didn’t choose any of the above options…seriously, what the heck could be “other”?

In the style of the late Bernie Mac, I say, “America, why can’t we all just make responsible decisions and do the right thing. You know people are always going to push to see how much they can get away with!”

Just Fill Out The Form!

If you are a student or parent of a college-bound student, no doubt you have asked yourself the question about whether or not you should apply for student aid to help pay for the experience of a lifetime.

Odds are, you live in one of two camps: “I will never figure out these forms, so why bother?” or “I/we make to much money, so why even fill out the form?” The answer to either question is: TO GET THE FREE MONEY, THAT’S WHY!

A couple of weeks ago, I was called to a meeting in Dayton, OH for training and certification as a speaker for Monster’s Making It Count (MIC) program for College Financial Planning. As an independent contractor for Monster, I will be delivering presentations in a number of high schools, speaking to parents and students on this very subject. Now, I’m not the end-all-be-all of college financial aid planning gurus, but I consider myself fairly knowledgeable in this area.

Everyone’s situation is different. Best of all, there is no one “right” or “wrong” way to go about the aid process, so with your permission, here are some resources to get you started smart:


If you want a shot at free money (need or merit based), or just make sure you aren’t leaving anything on the table, get to filling out that FAFSA right now! In many cases, the FAFSA is the form that sets up the student for consideration of need-based and merit-based scholarships along with other aspects of financial aid.

So there it is. A few ideas to start the process. There are no failures, only opportunities!

Oh, if you want to have either me or one of the other presenters nationwide (United States & Puerto Rico) deliver Monster’s Making Financial Planning Count at your local high school, email me and I’ll pass it along to the good folks at Monster!