There has been a lot of talk lately about what to do with Fannie Mae and Freddie Mac. Should the government get rid of them altogether? The banks say no. Have you ever wondered why they say no?
Currently, FHA guarantees loans including the very popular 30 year mortgage with as little as 3.5% down. When a bank loans you the money for a house, they turn around and package your loan with other similar loans and sell them on the secondary market. At this point, they become mortgage backed securities. In recessionary times, the government steps in and buys these mortgage backed securities, because the banks do not want to hold onto the responsibility of the loan in case of default. This is a situation where a bank has a financial incentive to sell the loan, but not to be responsible in case of loan default. In other words, they have no risk. If they have no risk, because of the government stepping in, then they have no incentive to do proper loan underwriting. Therefore, today, the banks are jumping up and down saying that they are not going to take the risk on 30 year mortgages. The banks are putting political pressure on Congress to continue to snap up these 30 years mortgages.
Now, let us examine this in a little more detail. What if the government quit stepping in on the bank's behalf? Then, the banks would probably not offer 30 year mortgages. If you could no longer get a 30 year mortgage, then what kind of mortgage could you get? Mortgage interest rates would temporarily go up, but if you look at things today, this will not really be a problem. If people are not willing to buy a house now with rates under 5%, then why would a bank think that people are going to rush out and borrow money at higher rates? They will not, believe me. However, once things settle down and the banks realize that they actually need the consumer to make money, then they will realize that they have to offer residential loans, like it or not.
Even if the banks do what they threaten to do and abandon the mortgage market altogether, I still believe that American Capitalism would take over and somebody would step up and offer 30 year mortgages. The banks are frankly too stupid to stand idly by and watch some other firm make the money on mortgages. Look what happened with credit default swaps. Once one bank starting making money with these instruments, then all the other banks followed suit. What did we poor consumers end up with? A bailout.
Personally, I do not think that banks should be allowed to underwrite a loan and pass off the risk. This is totally ridiculous. If they approve the loan, then they should keep the risk. Period.
Conversely, if banks take the risk, then they will underwrite the loans a little tougher. Yes, this means less people in housing and higher down payments, but this is the way it should be. There is no right to a house. I do not know about your neighborhood, but not too far from my house, there are some really nice apartments that are way better than anything that I ever lived in when I was younger. They have garages, exercise rooms, pools, whirlpools, saunas and even restaurants in some. Apartments are not so bad anymore.
This is a serious conflict of interest here when the bank can lend the money, but not be responsible for the loan. When did we agree to this? In reality, when we allowed the same people to stay in Congress for years and years. These terrible people have caused the problems that we are having today. Fat chance that these same people will do anything to fix it. They do not work for the American people. They work for the banks. It is patently obvious by now.
It may take an election or two, but we need to vote them out of office. It is really the only hope we have as Americans to get back control of our country.
Friday, August 20, 2010
Monday, August 9, 2010
Demand to See their Form ADV Part 2 (b) Brochure Supplement
The SEC has come out with their final rule on the much needed revamp of the Form ADV. In the past, a lot of pertinent background history could fall through the cracks as far as retail investors were concerned. Imagine if you received investment advice from someone who worked at a large Wall Street firm. Well, if this was the case, then the old Form ADV II did not have to disclose the background history of the person dispensing the investment advice. It only was a requirement to disclose the background history of the principal officers of the Wall Street firm. A glaring gap in disclosures that the SEC has now closed in conjunction with the states.
Now, with the new Form ADV, there will be a Part 2 (a) and a Part 2 (b). Both Parts will be in a new narrative form with easy to read language instead of the former check the box format. In addition, Part 2 (b) will be a new Brochure Supplement that will have to disclose the background of the person dispensing the investment advice to you.
Caution: If there are two people talking to you about investment advice in a meeting, then you should demand (that's right, I said demand) to see the Brochure Supplements of both people. If they only produce one Brochure Supplement, then this should raise a red flag with you. This might be indicative of one of the people giving you advice not actually being licensed, or they could be hiding their Brochure Supplement. Why would they do this? They may hide their Brochure Supplement because it contains their bad background. To get around this, they may bring to the meeting someone else in their office who has a cleaner background for disclosure.
I would be very concerned if someone whom you know to be insurance licensed is advising you to sell all of your investments in order to buy their annuities. Especially, if they do not produce a Brochure Supplement and instead produce a Brochure Supplement of someone else in the meeting or not in the meeting at all. First of all, an insurance agent who is not registered as an investment adviser cannot advise you to sell any of your investments without being licensed. It is against the rules of most, if not all, states in the country. Secondarily, doing business this way should raise a red flag with you. If they are hiding this, then what else are they hiding? Also, if they give you a Brochure Supplement of someone who is not even in the meeting, then I highly recommend not doing business with this firm. They are hiding something for sure.
Of course, it makes further sense that if an insurance agent is advising you to sell your investments to buy their annuities and they do not produce a Form ADV Part 2 (a) to Part 2 (b), then they are violating state rules and regulations in giving you that advice. You probably did not even know that.
Another thing to watch out for is if you only receive Form ADV Part 2 (a) and you do not receive a Part 2 (b) at all. This also is against these new SEC and state rules regarding full disclosure.
Even though, this new rule revolving around the new Form ADV Part 2 (a) and Part 2 (b) is a giant step forward, there are still reasons to stay on your toes. Now that these two Parts will be in a narrative format, it will be much easier to read and I would highly recommend that you do so.
Now, with the new Form ADV, there will be a Part 2 (a) and a Part 2 (b). Both Parts will be in a new narrative form with easy to read language instead of the former check the box format. In addition, Part 2 (b) will be a new Brochure Supplement that will have to disclose the background of the person dispensing the investment advice to you.
Caution: If there are two people talking to you about investment advice in a meeting, then you should demand (that's right, I said demand) to see the Brochure Supplements of both people. If they only produce one Brochure Supplement, then this should raise a red flag with you. This might be indicative of one of the people giving you advice not actually being licensed, or they could be hiding their Brochure Supplement. Why would they do this? They may hide their Brochure Supplement because it contains their bad background. To get around this, they may bring to the meeting someone else in their office who has a cleaner background for disclosure.
I would be very concerned if someone whom you know to be insurance licensed is advising you to sell all of your investments in order to buy their annuities. Especially, if they do not produce a Brochure Supplement and instead produce a Brochure Supplement of someone else in the meeting or not in the meeting at all. First of all, an insurance agent who is not registered as an investment adviser cannot advise you to sell any of your investments without being licensed. It is against the rules of most, if not all, states in the country. Secondarily, doing business this way should raise a red flag with you. If they are hiding this, then what else are they hiding? Also, if they give you a Brochure Supplement of someone who is not even in the meeting, then I highly recommend not doing business with this firm. They are hiding something for sure.
Of course, it makes further sense that if an insurance agent is advising you to sell your investments to buy their annuities and they do not produce a Form ADV Part 2 (a) to Part 2 (b), then they are violating state rules and regulations in giving you that advice. You probably did not even know that.
Another thing to watch out for is if you only receive Form ADV Part 2 (a) and you do not receive a Part 2 (b) at all. This also is against these new SEC and state rules regarding full disclosure.
Even though, this new rule revolving around the new Form ADV Part 2 (a) and Part 2 (b) is a giant step forward, there are still reasons to stay on your toes. Now that these two Parts will be in a narrative format, it will be much easier to read and I would highly recommend that you do so.
Friday, July 23, 2010
Remember When I Said...
Remember when I said that Promissory Notes are strucutured just like Ponzi schemes and you should never invest in them?
Once again, proof positive that I am right and you should never invest in any Promissory Notes. Here is a story about some CPA's selling Promissory Notes that turned out to be a Ponzi scheme! What did I tell you about Promissory Notes? They are structured just like Ponzi schemes. Is it really a surprise that they turn into Ponzi schemes? Not if you read this blog or you have read my book.
See this Press Release from the U. S. Securities & Exchange Commission for the full story:
http://www.sec.gov/news/press/2010/2010-130.htm
I will keep blogging about this as long as I can blog. Be careful out there.
Once again, proof positive that I am right and you should never invest in any Promissory Notes. Here is a story about some CPA's selling Promissory Notes that turned out to be a Ponzi scheme! What did I tell you about Promissory Notes? They are structured just like Ponzi schemes. Is it really a surprise that they turn into Ponzi schemes? Not if you read this blog or you have read my book.
See this Press Release from the U. S. Securities & Exchange Commission for the full story:
http://www.sec.gov/news/press/2010/2010-130.htm
I will keep blogging about this as long as I can blog. Be careful out there.
No Place to Hide
The SEC has finally approved changes to the standard disclosure document for Registered Investment Advisers. The final guidelines should be posted on the SEC web site sometime next week. Currently, Registered Investment Adviser firms have not had to publish the background information of the individual that advises the client, unless that individual happens to also be an officer of the firm. Going forward, this new narrative brochure as it is called will have to enclose a brochure supplement at the end of it disclosing the background of the individual dispensing the advice. Not only will potential clients see the disciplinary history and background of the officers of the firm, but now, they will also see the background of the individual trying to obtain their business.
The problem in the past has been getting access to the disciplinary background of the person trying to obtain the business from the potential client. If the person trying to obtain the potential client's business was not an officer of the firm, then a potential client would not find anything in the current disclosure Form ADV II. Now however, there will be this new brochure supplement that will have to disclose to prospective clients a resume like disclosure with information about their educational background, business experience, other business activities, disciplinary history and their qualifications such as designations and licenses.
Prospective clients will now be able to compare brochure supplements and brochures on the firm with other Registered Investment Advisers and their Investment Adviser Representatives. This in my opinion is a giant step forward in terms of disclosure and I applaud the efforts of all involved.
I can see the future implementation of this process whereby prospective clients will now be able to ask for the brochure supplement from the Investment Adviser Representative who is trying to obtain their business. Guess what? If the person trying to get a prospective client's business does not provide this brochure supplement, then odds are they are either hiding something, or they are not properly licensed as Investment Adviser Representatives.
Let's take a harder look at this situation. Assume that you go into a firm that has insurance agents in it who sell annuities and are not licensed as Investment Adviser Representatives. In addition, there are also one or more Investment Adviser Representatives affiliated with the insurance agents in some way. If a prospective client is being advised to sell their securities by the insurance agent who is not licensed, then the prospective client can ask for their brochure supplement. Of course, if they are not licensed, then they will not have this brochure supplement. In case you do not know, insurance agents cannot advise anyone to sell their securities to buy annuities unless they are also licensed as an Investment Adviser Representative or a Registered Representative.
Further, if the insurance agent in this example tells you that someone else in the firm is the Investment Adviser Representative, then why are they not the one sitting in front of you, giving you the advice and disclosing their brochure supplement to you? As a prospective client, you do not want to stand for this kind of shady relationship. It is obvious that the insurance agent and the Investment Adviser Representative are in cahoots, so to speak, and may be trying to direct you straight to annuities which may not be in your best interests.
Demand to see the brochure supplement of the person giving you the advice. If they fail to produce a brochure supplement, then run, do not walk out the door. You do not want to do business with these people.
This brings me to another point. Registered Representatives who are also Investment Adviser Representatives are known as dually registered. These dually registered advisers will have to provide these same brochure supplements. The same goes for insurance agents who are also Investment Adviser Representatives.
The end result is that this is finally something that favors prospective clients.
My advice to all prospective clients is to demand the brochure and the brochure supplement. These new documents will give you the best opportunity to learn about conflicts of interests, compensation methods, educational backgrounds, business experience, professional designations, licenses and disciplinary history of the individual trying to obtain your business. Again, if the person trying to get your business fails to produce these disclosure documents, specifically the brochure and brochure supplement, then do not do business with them. Odds are there is something wrong with their background or disciplinary history.
I look forward to creating these new documents on behalf of my prospective clients. Stay tuned.
The problem in the past has been getting access to the disciplinary background of the person trying to obtain the business from the potential client. If the person trying to obtain the potential client's business was not an officer of the firm, then a potential client would not find anything in the current disclosure Form ADV II. Now however, there will be this new brochure supplement that will have to disclose to prospective clients a resume like disclosure with information about their educational background, business experience, other business activities, disciplinary history and their qualifications such as designations and licenses.
Prospective clients will now be able to compare brochure supplements and brochures on the firm with other Registered Investment Advisers and their Investment Adviser Representatives. This in my opinion is a giant step forward in terms of disclosure and I applaud the efforts of all involved.
I can see the future implementation of this process whereby prospective clients will now be able to ask for the brochure supplement from the Investment Adviser Representative who is trying to obtain their business. Guess what? If the person trying to get a prospective client's business does not provide this brochure supplement, then odds are they are either hiding something, or they are not properly licensed as Investment Adviser Representatives.
Let's take a harder look at this situation. Assume that you go into a firm that has insurance agents in it who sell annuities and are not licensed as Investment Adviser Representatives. In addition, there are also one or more Investment Adviser Representatives affiliated with the insurance agents in some way. If a prospective client is being advised to sell their securities by the insurance agent who is not licensed, then the prospective client can ask for their brochure supplement. Of course, if they are not licensed, then they will not have this brochure supplement. In case you do not know, insurance agents cannot advise anyone to sell their securities to buy annuities unless they are also licensed as an Investment Adviser Representative or a Registered Representative.
Further, if the insurance agent in this example tells you that someone else in the firm is the Investment Adviser Representative, then why are they not the one sitting in front of you, giving you the advice and disclosing their brochure supplement to you? As a prospective client, you do not want to stand for this kind of shady relationship. It is obvious that the insurance agent and the Investment Adviser Representative are in cahoots, so to speak, and may be trying to direct you straight to annuities which may not be in your best interests.
Demand to see the brochure supplement of the person giving you the advice. If they fail to produce a brochure supplement, then run, do not walk out the door. You do not want to do business with these people.
This brings me to another point. Registered Representatives who are also Investment Adviser Representatives are known as dually registered. These dually registered advisers will have to provide these same brochure supplements. The same goes for insurance agents who are also Investment Adviser Representatives.
The end result is that this is finally something that favors prospective clients.
My advice to all prospective clients is to demand the brochure and the brochure supplement. These new documents will give you the best opportunity to learn about conflicts of interests, compensation methods, educational backgrounds, business experience, professional designations, licenses and disciplinary history of the individual trying to obtain your business. Again, if the person trying to get your business fails to produce these disclosure documents, specifically the brochure and brochure supplement, then do not do business with them. Odds are there is something wrong with their background or disciplinary history.
I look forward to creating these new documents on behalf of my prospective clients. Stay tuned.
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