The Banks Are In Bed With The Obama Administration

Normally, I try not to delve into political issues, but this latest injustice is too much to take. Just the other day, businesses across America won a reprieve from the high swipe fees charged by the Banks and Credit Card firms. The swipe fee was $0.44 per transaction. This may not seem like much, but it really hurts small business people who allow their customers to use their debit cards for small transactions.

For example, a retail customer buying only a cup of coffee would take a big bite out of the retail business owner's profit potential. Let us assume the cup of coffee costs $1.99. The retail business owner would have to pay $0.44 cents out of that $1.99 to the Banks and Credit Card firms. This is a 22% fee to the retail business owner for allowing his customer to use the debit card. This is why you have seen some businesses institute a minimum amount of purchase before they will let their customers use a debit card. On a cup of coffee transaction like above, the retail business is most likely losing money on the debit transaction. They cannot continue to do this and stay in business. Something had to change.

The retail business owners successfully pushed through Congress a limitation on the swipe fee reducing it to $0.12. This obviously made the retail business owners very happy, but not the Banks and Credit Card companies. They fired up their lobbying machine and went to work on the Obama Administration.

Today, the Federal Reserve is instituting some kind of special rule allowing the Banks and Credit Card companies the right to charge up to $0.24 for a swipe fee. Keep in mind, legislation was just passed making the maximum fee $0.12. Who cares about the law these days? Obviously, the Obama Administration does not care about it. The Banks and Credit Card companies obviously lobbied the Obama Administration for some relief to this legislation. Does it really surprise anyone to know that the Banks and Credit Card companies have pulled a fast one on the retail small business owners?

Why are we Americans allowing this to continue? These Banks are responsible for the recession that we are in. They are responsible for the federal funds rate being little or nothing so they can borrow free money to shore up their balance sheets for the mistakes that they made. Of course, all this is at the expense of the American public who are earning 0.01% on their money. Now, the retail small business person is getting the shaft on swipe fees, even after getting a law passed in their favor!

The Banks get what they want whenever they want and it is blatantly apparent that average Americans and retail small business owners are handed the bill.

This next election cycle is more important than ever. Do not assume that everyone will show up at the polls and vote the way you would have. You have to show up and vote. Otherwise, more injustice will continue at your expense.

Remember When I Said...

Remember when I said not to buy Non-Public REIT's? Once again, yours truly has proven without a shadow of a doubt that Non-Publicly Traded REIT's have several issues and deserve being on my Do Not Buy List.

Here is an article link from today's Wall Street Journal proving my point.

http://online.wsj.com/article/SB10001424052702303627104576414132610932502.html?mod=WSJ_hpp_MIDDLE_Video_Third

What disturbs me is they always seem to find someone who put in a lot of money into these investments. This particular couple, bless their heart, put in $200,000. Unfortunately, according to the article, this represented a substantial portion of their savings. If only they had read my book, Keep Your Assets. Take My Advice., then they would have known not to ever invest in Non-Publicly Traded REIT's in the first place, especially for retired people with no working income opportunities any more. Further, they would have known not to put more than 20% into any one investment. Apparently, they put way more than 20% into this investment.

The problem here is the business model of FINRA broker/dealers. They are in business to:

1. Generate revenue for the brokerage firm. Did I say this was this first priority? Well, if I did not, it is worth repeating. Their first priority is to generate revenue for the brokerage firm.
2. Generate revenue for the FINRA registered representative. Notice the first two choices neglect the client or investor.
3. Last but apparently least is the client or investor.

Why would anyone want to do business with a FINRA brokerage firm, especially if number 1 and number 2 take priority over clients or investors? It blows my mind after the 2008 Wall Street market melt down.

I keep trying to hammer these three points home. Why? The Wall Street Journal article's last paragraph is telling. These are the quotes from the investor:

"I should know better," he said. "I more or less relied on what the investment people were telling me."


These FINRA registered representatives are only giving advice based on their business model and their priorities listed above. This was all perfectly legal, because these FINRA registered representatives have this "suitability" loophole where they can do this all day long.

Why people do a nickel's worth of business with FINRA brokerage firms and their FINRA registered representatives is beyond me. Especially when an independent registered investment adviser firm will do things in a client's best interest, and who has a fiduciary liability to give their advice in a client's best interest.

Are you learning anything yet? I hope so.

Medicaid & Elder Estate Planning

Nobody wants to end up in a nursing home and nor do they want to spend their money on a nursing home. Sadly, without proper Elder Estate Planning, this happens all too often. Most people make the mistake of assuming that they are just going to keel over one day and that will be how they die. However, the reverse is more apt to happen, where you live longer than expected with an extended illness. These extended illnesses often are unexpected and put a substantial burden on financial assets. People who do not plan for this possibility are likely to see their financial assets gone rather quickly. When you read these numbers, I want you to think about your financial assets or those of your family and consider how long it will last with these kind of expenses. Do not forgot about other expenses that will continue, such as mortgage, utilities, phone, etc. Keep in mind the expenses below are in addition to those.

In the Jacksonville, FL area, these are the Annual Costs for Long Term Care according to Genworth Financial, Inc.:

Home Care
Homemaker Services = $41,184
Home Health Aide = $45,760

Adult Day Health Care
Adult Day Health Care = $ 15,600

Assisted Living Facility
Private, one bedroom = $39,000

Nursing Home
Semi-private room = $76,238
Private room = $89,790

Definitions:

Home Health Aides help those who are elderly, disabled, or ill to live in their own homes or in residential care facilities instead of nursing homes. Typically used when family members do not have the time or resources to provide.

Homemaker Services make it possible for people to live in their own homes by helping them with household tasks that they cannot manage on their own such as cleaning house, cooking meals or running errands.

Adult Day Health Care provides service at a community-based center for adults who need assistance or supervision during the day, but who do not need round the clock care.

Assisted Living Facilities are living arrangements that provide personal care and health services for people who may need assistance with activities of daily living, but who wish to live as independently as possible and who do not need the level of care provided by a nursing home.

Nursing Home Care is for people who may need a higher level of supervision and care than provided by an assisted living facility. Skilled nursing care is provided 24 hours a day.

The Process of Aging

1. Healthy and can take care of oneself.
2. Healthy spouse or other family members takes care of ill spouse or parent.
3. Ill person needs more care than family members can provide, so a Home Health Care Aide comes to the home.
4. Ill person makes the move to an Assisted Living Facility to retain some independence, but still have nurses available for their health care. This option is not available for Medicaid patients.
5. Ill person's condition now requires 24/7 round the clock care provided only by a nursing home.

What is Elder Estate Planning?

This type of planning can only be done in conjunction with an Elder Care Attorney experienced in Medicaid Planning and Veterans Benefits. If you are very wealthy and have $3,000,000 or more in liquid assets, then you can pay for your own Long Term Care Costs. However, if you have limited assets, (less than $3,000,000) you are over age 65 and have done nothing to plan for an unexpected extended illness, then you probably need Elder Estate Planning.

As a Chartered Advisor for Senior Living™, I have specialized training and education around Elder Care issues. Further, I look out for people and their best interests. This is not only true because I am a fiduciary, but it is true because it is the right thing to do.

There are some things that can be done to protect financial assets with Elder Estate Planning. These typically revolve around a few options.

1. If you are healthy, then you may want to look at purchasing Long Term Care Insurance. A new alternative is a new hybrid type of Long Term Care Insurance where you do not lose your money if you never need Long Term Care.
2. If you are not healthy, then you will need to position your financial assets to protect them against having to use them for your Long Term Care needs. This requires significant planning by someone like me and the use of an Elder Care Attorney.
3. If you have plenty of assets that you have set aside, or you have already planned for the possibility of an extended illness and been to an Elder Care attorney and Chartered Advisor for Senior Living like me, then you probably only need an Elder Estate Planning Review.
4. If you are a Veteran, then you may be eligible for VA Aid & Attendance benefits that could qualify a married couple with up to $1,949 per month of tax free funds. A VA Accredited Attorney can help you determine your eligibility.

One thing to know is that Medicaid does not pay for Assisted Living Facilities, if you can even qualify for Medicaid in the first place. Qualifying typically means having less than $2,000 in cash and where you have not given your money away in the last 5 years. The state that you are in can claw back those funds you gave away by way of a penalty. This penalty is essentially a waiting period before the state pays a dime towards your Long Term Care Costs. This penalty period can last up to 5 years, depending on the amount of the gift.

Medicaid qualification is complex and very tricky. You cannot navigate these waters on your own. You must hire a CASL® like me, in addition to a competent Elder Care Attorney proficient in Medicaid Planning and who is also a VA Accredited Attorney. (I can help you.)

I am thinking about doing a Seminar in conjunction with an Elder Care Attorney here in Jacksonville. I think it would be a good educational and informative event for seniors and concerned family members. There is a proper way to do Elder Estate Planning and that is with tender loving care.

If you would like more information about Elder Estate Planning, then feel free to contact me at (904) 262-0888 or you can email me at rick@marianfs.com.

Investor Special Reports

Are you a believer in Solar Wind Power? Do you also believe that investing in solar companies is a good thing? Further, do you believe that you might become rich by doing so? Well, think again.

I received one of those "Investor Special Reports" in the mail from a so-called "expert on solar." This was like a 12 page or so newsletter formatted information sheet on this solar wind turbine maker. It was very convincing how they presented the company. The goal was for investors to rush out and by the company's stock. I am sure many people will, or should I say many people will foolishly do so, because this newsletter appealed to their greed.

Personally, I think it is foolish to invest in one stock. Nevertheless, I thought that I would do some research on the stock to see what I could find. The first thing that jumped out at me is that this was a penny stock trading for less than $0.60 a share. Major red flag.

The second major red flag came when I looked at their SEC filings. Their accounting firm had resigned, because they felt that the company was not "going to make it as a going concern." Another major red flag.

As I shifted through more SEC filings, I discovered that the company has $731.00 in cash on hand as of April 2011. Seven hundred thirty one dollars? Are you kidding me? Final major red flag.

Three strikes and you're out!

What is sad is that most people will make their investment decision based on two things.

1. The price of the stock is so low, then will believe that they can buy a lot of shares and most likely will do so, thinking they can't lose much money.
2. They will make their decision based on the newsletter without spending a minute researching the stock.

This appears to me to be the new twist on an old classic; the "pump and dump" of a stock. The idea is for the newsletter to bring in the greedy fools. The insiders wait a little while, then dump their stock at a profit. After that happens, then the stock crashes down to probably less than $0.10 and most of the the investors will end up losing over 80% of their money.

Remember the name of my book?

Keep Your Assets. Take My Advice.

If my book title is not more apropos in this situation, then I do not know when it would be.

How is it possible for an RIA not to work in your best interests?

I have always been a big fan of Socrates and the Socratic method of arriving at decisions. Socrates would always ask questions of people to try and get them to justify their positions. In all cases, Socrates would act less informed and question his pupil repeatedly to teach them that they were actually ill informed and the position that they have taken was without merit. Most times these people took the advice of someone else and did not really have a position of their own. With this in mind, let us ask some questions to see if we can arrive at the answer of how it is possible for an RIA (registered investment adviser) not to work in your best interests.

I have to wonder about some of these big registered investment adviser firms out there who are getting other registered investment advisers to outsource their investment management to their mega firm. There are several of these big independent firms that manage billions of dollars of other investment advisers' clients. The thing that goes against the grain for me is all of the extra fees involved.

I was looking at the Form ADV 2A and 2A Appendix of a large $14 billion dollar firm which is growing like a weed and attracting a lot of registered investment adviser money. In effect, it is the feeder fund concept that several registered investment advisers got into hot water about in regard to Bernie Madoff. They referred their clients to Bernie Madoff and did not do their due diligence. That is another story altogether. Today, I wanted to forget about the feeder fund aspect for a moment and just focus on the fees.

This big $14 billion dollar registered investment adviser firm has several different programs available, such as mutual fund asset allocation, ETF asset allocation, strategic ETF asset allocation and so on. Their fees are as high as 1% on some of these accounts for smaller investors with less than $250,000. Then, you have to add whatever the adviser who referred the client to them charges on top of that figure which is usually in the 1% - 1.5% or more range. Do not forget the actual expenses of the investments themselves. According to the Investment Company Institute's latest FactBook, the average equity mutual fund has an expense ratio of 0.99%.

So, if the big mega firm charges 1%, perhaps the adviser goes easy on you and only charges 1%, then you are in the mutual fund portfolio that charges another approximate 1% in expenses. It doesn't take a smart fellow to figure out that this is about 3% a year. I've actually seen worse than 3% believe it or not.

It is great for the adviser who refers his client to this big fourteen billion dollar outsourcing firm. The adviser no longer has to mess with a bunch of back office headaches and can probably cut his overhead. Further, it probably frees up more of the adviser's time. They do not have to worry about how they are going to invest their client's money any more. They hired someone to take that off their plate. Did you notice how beneficial it was for the adviser?

Conversely though, how beneficial is it for the client? Could another adviser not offer a similar mutual fund asset allocation portfolio that they manage for 1 - 1.5% instead of outsourcing to the big mega firm? It would seem to me that the client would reap the benefits of a 1% savings if this was the case.

What about if the adviser managed a portfolio of ETF's on behalf of the client? ETF's have lower expenses and may actually save the client another 0.50 to 0.75% in expenses if the adviser managed these ETF's on behalf of the client, instead of outsourcing it to a mutual fund portfolio at the big 14 billion dollar mega firm.

But, there is a problem by going with a local adviser who picks the investments his or herself. What happens to the client's money if the adviser is injured or disabled? This obviously presents a problem. Sometimes this is the advisers justification for going to the big mega adviser. This does make some sense, however I beg to question if there are other big mega advisers who perhaps charge a more reasonable fee for outsourcing money management to them? The answer is yes. I can think of one in particular that charges a maximum of 0.41% for their money management expertise and that fee grades down from there depending on the total assets managed. They are a big mega money manager who does an excellent job. So, with this alternative, you may be able to get a client's portfolio of ETF's to be roughly around 1.5% to 1.75% all in. This alternative would save the client of the other big fourteen billion dollar mega firm about 1.25 to 1.5% a year, would it not?

So when the title of this blog asks how can an RIA not work in your best interests, then I have provided an answer. When an RIA knows full well that he can find a comparable mega firm for significantly less per year, but chooses to still use the higher priced mega firm, then this is a undisclosed conflict of interest. Unless of course, they explain that there are other mega firms who may charge lower fees in their disclosure documents and you as a client know this and agree to this in writing.

Also, if an adviser can manage the money themselves for their clients instead of outsourcing it, then they will save the clients money in fees. Granted a backup plan is necessary if something were to happen to the adviser, but this can be planned like anything else. A local adviser should have a repeatable process of investing that most any other adviser can look at and implement. (We do.) If not, then you probably do not want to do business with that adviser. Especially if they are just shooting from the hip.

So, the bottom line is when you are advised to go with a big fourteen billion dollar mega firm, you might want to shop around for other mega firms if this is the direction you want to go in. You could save yourself a lot in fees and get a comparable service, if not better.

If you want a big mega firm managing your money for a reasonable fee, then let me know. I can help. Of course, you will receive full disclosure in advance. This offer is only available for clients in states that we are licensed in or maintain an exemption from licensing. Contact me at rick@marianfs.com for full details.

Rising Interest Rates & Its Effect on Fixed Income Investments

How long have we been listening to pundits on television tell us that interest rates are going up? One pundit on Fox Business actually said today, "you would be an idiot to buy bonds right now." This guy is the actual idiot in my opinion. He is broad brushing all of fixed income as being bad. As is true of most television pundits, he is flat out misguided.

Let's think about the possible rise in interest rates by the Federal Reserve for a moment. What is the main reason for them to raise interest rates? Historically, it has been to keep inflation in check. Well what has to happen for there to be inflation? Wages have to go up and the economy has to be expanding. My question to you is are we in the kind of economic environment where the economy is growing at a strong pace, personal incomes are rising and prices are also rising. Well, right now, only one out of three of these is happening, albeit modestly. This of course would be inflation.

In reality, we really have low inflation right now with some spikes like in energy and food. These two economic sectors are generally highly sensitive and volatile and usually spike up, then pull back. This is exactly what has happened. So, as of today, I would say that we had a short term spike in inflation, but it does not appear to be a strong upward trend.

Even assuming you believe the White House's take on the economy which I personally believe is way to optimistic, we still have horrible problems with housing and unemployment. The strength of this economy is not going to do much of anything without drastic action. The Democrats will lie and spin like they always do and the Republicans will pretend that they do not spend taxpayer dollars like drunken sailors. Both political parties are a train wreck in my opinion and the future is bleak for any meaningful change for at least until the next election.

A case in point is to look at both parties budget plans for the next 10 years. The President's plan expects to spend $27 trillion over the next 10 years. The Republicans expect to spend $26 trillion with Representative Paul Ryan's budget. In the grand scheme of things, that's not much of a difference over a ten year period.

So, when you think about interest rates rising, they typically rise faster in a strong economy. Are we there yet? Nope. High unemployment, a huge amount of housing inventory and little inflation are not the cornerstones of a scenario where interest rates are going to go up in a hurry. When they do go up, it is more likely to be a gradual increase and not necessarily a shock to the markets.

When a gradual raising of interest rates happen, it has the most effect on short term interest rates and less effect on long term rates. With a caveat, preferred stocks and high yield bonds typically pay the largest price when interest rates go up. Believe it or not, municipal bonds typically are not affected like high yield bonds are for example. The dividends tend to offset the increase in rates.

Do you really and I mean really think the Federal Reserve Bank is going to raise interest rates more than 1% any time soon? Forget about the idiot people that you see on television. Think for yourself.

Personally, I do not see interest rates going up a full 1% for probably at least one year or more. The only thing that would change my mind would be if Congress and the President eliminated the IRS, instituted a flat tax of less than 20% and lower the corporate income tax to 25%. The likelihood of all that happening in the next 12 months is slim to none. Therefore, I would not worry about interest rates going up more than 1% in the next 12 months.

Let's check back in 12 months and see if I was correct, shall we?

More Vindication for My Do Not Buy List

My last blog post was vindication for a item on My Do Not Buy List. Just a scant two days ago, I blogged on Regulation D Private Placements and their dubious listing on My Do Not Buy List. Today, more vindication! Another item that I have on My Do Not Buy List gets noticed by both the SEC and FINRA.

The SEC and FINRA have come out with a warning about Structured Products which has been on My Do Not Buy List from day one. Although, in elite circles, they are sometimes called Structured Investments and this is how I list them on my handout. (See link at the bottom of this article.) After all, no one wants to be sold a product. See article here about the joint statement from the SEC and FINRA on Structured Products:

http://www.sec.gov/news/press/2011/2011-118.htm

This article includes a list of questions that investors should ask before investing in these Structured Products. All you have to do is take one look at the complexity of this list of questions and you will quickly agree with me as to why it should be on My Do Not Buy List. See the list of questions here:

http://www.sec.gov/investor/alerts/structurednotes.htm

The bottom line is that if it is on My Do Not Buy List, then you can rest assured that you should not ever invest in it. For your own handout of My Do Not Buy List, click this link below:

http://www.marianfs.com/documents/Do_Not_Buy_List.pdf

Feel free to forward to others for their protection.