Comments on: Desperate Times

By: 3.0 Speed Blade | Modern Glass Art Supply

3.0 Speed Blade | Modern Glass Art Supply — Sat, 18 Apr 2009 13:59:56 +0000

[...] Comment on Desperate Times by Gemini [...]

By: Gemini

Gemini — Wed, 18 Mar 2009 06:03:37 +0000

Thanks Marie for the advice. I wish I knew if there were any rules for this situation. Not contacting a client but forcing them to contact you is not my way of building a client base or credibility in the marketplace.

My insurance agent made a copy of this agreement (one signature and 10 initialled clauses) and talked about it in his firm. He is tied to making yearly visits to all his clients and no one escapes the visit. Otherwise, he’d be drawn and quartered which is something I’d like to see for this advisor. Unfortunately, my mom only had $50,000. to invest with him. He probably doesn’t worry about such small fry and his vision is maybe more of a gambling vision for people who want to invest. My mom was left to junior people who obviously didn’t clean the accounts up properly and since the money was tied up for so long, all she got were yearly letters asking the clients to inform the advisors of changes in their profiles. It had to come from the client to ask for whatever advice or help in changing the goals. My mom just collected the paperwork and stored it. Why call when you can’t do anything but lose real money by touching it.

The funny thing is that in the last three months there have been three requests for updating her profile (since we called about the date for the full amount returning to mom from the bad investment). Unfortunately, they sent out the same forms with the same profile info and highlighted all the spots to initial – which also had yellow arrows pointing to the place where she is to initial. No calls – no conversations over the phone. Just fill out the forms and return them (which probably means – we need our asses covered – so just send it in without query).

Sad world.

By: Marie

Marie — Tue, 17 Mar 2009 21:54:19 +0000

I would not be surprised if a bank can cancel a LOC at will. It must be written somewhere in the fine print. Your emergency money is yours!

By: Gail says...

Gail says... — Tue, 17 Mar 2009 20:51:13 +0000

Alex, the point of an emergency fund is to get through the emergency in tact financially. If your essential monthly expenses are $2500 and you lose your job and are out of work for 5 months, using a LOC as an emergency fund means you’ll be $12500 in debt when you’re done! ditto if the roof blows off, the car gives up the ghost or your partner throws your butt out and you have to find a new place to live. Having cash in the bank is a real safety net.

By: Geoff

Geoff — Tue, 17 Mar 2009 20:11:12 +0000

Alex – Gail has covered this before – it’s because a LOC, unlike an emergency saving account – has specific requirements to be paid back and you will pay interest until you do so. Paying a $5000 car repair out of $5000 in savings doesn’t necessarily mean you have to rebuild your emergency fund absolutely as soon as possible (in fact, if you think about it, it actually will take a while) but pulling the same $5K out of a line of credit means you should repay it right away. Now that said personally I have an emergency fund that is much smaller than my (untouched) line of credit but I do hope to have equal amounts in both in the future.

By: Alex Givant

Alex Givant — Tue, 17 Mar 2009 19:39:35 +0000

Gail,

Thanks for your article, can you explain a bit more why you thing that LOC (line of credit) is a bad replacement for emergency fund?

Thanks.

By: Geoff

Geoff — Tue, 17 Mar 2009 17:58:28 +0000

Marie – averaging doesn’t necessarily make your odds better, it does however flatten the spectrum between no returns and high returns — so you the peaks aren’t high but the valleys aren’t quite so low. The ultimate winner in these products is the banks, who get most of the upside and the only downside is they may have to return the original investment you provided, but not adjusted for inflation. It’s pretty easy to bet coming up with $20,000 in the future is going to be easier than coming up with it today. But to each their own, If I were that smart I’d be rich after all!

I have a no problem with a traditional GIC ladder, just these products are somewhat predatory in how they gloss over important details. I still think its better to separate your fixed income products from equities (and I know people are wisely cautious of equities, but my basic rule is if I buy products from this company regularly, I’ll buy stock of it too — coke, gas, banks, etc). I’m just not willing to bet yet that tommorow I’m going to wake up in a mad max world gone mad scenario like some anti-stock people seem to be

By: Marie

Marie — Tue, 17 Mar 2009 16:20:10 +0000

Geoff:
Different banks calculate the return differently (some average, so your odds are better). Laddering is an important toll to use against the drawback of calculating returns based on two specific days.
Like I said, it is not perfect but it varies your risks

By: Geoff

Geoff — Tue, 17 Mar 2009 13:28:28 +0000

@ Marie — yes I see that this is slightly different, they do give 100% of the index return but its capped at 20%; this means that you get a maximum annual return of 6.5%. This means that relative to the market, your maximum upside is +0% while your downside is -6.5% (in other words, your guaranteed return if the market performs well doesen’t increase, but if it doesn’t your guranteed return decreases). Combine this with the other points + the basic fact that your gic comes due the day it comes due with no input from you (ie selling this week versus selling last week) and it’s a terrible product and I’ll go to my grave saying so. You can build your own PPN — basically on the same day buy a GIC and invest the interest you’ll earn on that GIC in the future into equities for a better approach where you have more control if you’re that interested in a PPN + get dividends too with no cap.

Re: Gemini – a sad but all too common story. Until the financial industry starts taking accreditation and accountability seriously it will never be considered a true profession in my opinion.

By: Marie

Marie — Tue, 17 Mar 2009 00:52:07 +0000

Gemini:
That is horrible! There must be an office to which this advisor should be reported. Licences are needed to sell some products and it might be worth a good conversation with a person with power! Get hold of the profile questionnaire she answered at the time of purchase.

By: Gemini

Gemini — Mon, 16 Mar 2009 23:58:43 +0000

I read Gail’s blog and saw my mother’s situation in her writing. I don’t know if anyone in this club has a parent whose savings got put into the equities market by an advisor who said that there was low to moderate risk involved. When I showed what the advisor’s firm had called low to moderate to another person – my insurance agent – he just went off on the fact that it wasn’t low to moderate risk – it was high risk. Of course, the market just kept eating up her money (paper losses). The only thing that was good about it was that the fund was insured to pay out the principal if no profits existed. This was a segregated labour sponsored fund – notorious for disasters and why he suggested it I don’t know. The fund ties up money for 8-10 years so there was no interest to be seen but there was a considerable loss of capital over those years. At 75 and not too savey, she was sold on equities – hoping that the market being good that there would be some interest to be seen – way back then. It never appeared. Two months ago, the advisor’s company wrote (no phone call nor visit requested) that she consider talking with them when the money came in this month. They provided the same profile to her as she had signed 15 years ago. She was to sign and then to initial repeatedly – 10 times on the document after all their various clauses and return it to them before the meeting. Her profile was the same as 15 years ago! She had signed for low to moderate risk – Equities (potential) growth market for monies to be invested over 5 years maximum for 10 years ago. Unfortunately, low didn’t mean the same to the advisor as it did for my mother and I wonder how she would have known better? I guess you never put trust in advisors who don’t think about money the way you do. If they think that money is something that you should be able to lose when you give it to them, then you’re in the wrong office setting – probably a horse track would be as good a choice. Mom didn’t like GICs paying such low interest and wanted something but what she didn’t want to lose was all her capital – even if it was on paper. I guess you ask many people about the choices suggested and you walk out of the office and say I’ll think about it. Now, most sales people know they have lost you when you leave, so what was my mother’s problem? Being too polite, too unaware of all the products, too risk oriented, too naive, or hoping to believe what she was told? My mother is now nearly 86 and not as good at anything anymore. When she received the forms and looked at them, she thought to hand them to me. I was shocked. How could an advisor’s company think that equities for growth with at least 5 years time to acquire such growth would be appropriate for an 86 year old with only a little time left to live? I blew my top and called my insurance agent and we got her money out of those people’s hands immediately. Mom may not have had income from her investments but she does have some of her capital still intact. She’s better off than most people who put their retirement funds into the market.

By: Edgarella

Edgarella — Mon, 16 Mar 2009 22:58:45 +0000

It’s not strange – someone who has trained for years in one type of work may not be able to do or suited for just any job. That rude taxi driver might be a brilliant engineer in another circumstance. A naturally outgoing people-loving store clerk could be a disaster working an assembly line…
Plus, even though good honest work is just that, it would be hard for some people who have commitments like childcare, other dependents, debt etc. to simply move into a minimum wage job and make that work for them – often it makes more financial sense to pull the kids out of child care and not have that cost if the work that is available won’t even cover it. And work is about more than just bills you have to pay, you spend most of your life working and there is an emotional and professional side to things – one has to be happy in what one does, and for some that means a longer wait for employment that suits them both financially and in terms of well-being – so you can commit to the job, do it well, progress, regardless of what type of work it is. I think every job is perfect for someone and someone is perfect for every job. It’s just getting the match that is tricky…

By: Pol*

Pol* — Mon, 16 Mar 2009 22:34:58 +0000

About that last tidbit….
I have an open question to Gail and all the readers out there.
This summer I saw help-wanted signs everywhere (you could be a slack jawed brat and still find work, and quit every 3 weeks if you wanted ’cause there was a help-wanted sign next door too). Now it seems that the people that have lost their jobs to this “economic downturn” can’t find work! HOW did it happen so fast? Where did all these jobs go? The stores are still open around here with the same hours, people are still buying gas, buying food, etc…. ? It’s all a little strange to me.

By: Marie

Marie — Mon, 16 Mar 2009 21:40:35 +0000

Geoff:
TD Market Growth GIC, see FAQ point #7 for calculation of the return.

By: Marie

Marie — Mon, 16 Mar 2009 21:34:16 +0000

Geoff:
your point #1: I agree!
your point #2: TD Market Growth GICs (not the PPN website of TD Securities… I see the formulas for PPNs… It requires some thinking). When I bought the first product, I asked about how the gain is calculated (because some banks have a ‘PF equivalent’ that you mentioned) and I was told that it was the index itself. If that is not the case, my advisor has A LOT of ’splainin’ to do. (Thanks for the reference.) Now I have to go check the fine print just in case!
your point #3: That’s part of the cost of a guarantee. I remember people comparing exchange-traded-fund and the dividend effect and there was a claim that a company that pays good dividends will be in demand and their stock value will go up as well… I wish I could see some numbers for comparison!
This is NOT a perfect product and I expect the bank to make money off me or they would not offer the product! There is a compromise on both parts!