MOODY'S REVIEW

AUGUST 1999

COMMENTARY ON INVESTMENT AND PLANNING ISSUES

ERROLD F. MOODY JR.

MASTER OF SCIENCE IN FINANCIAL PLANNING

LIFE AND DISABILITY INSURANCE ANALYST

REGISTERED INVESTMENT ADVISER

WWW.EFMOODY.COM

NATIONAL INSTITUTE OF MENTAL HEALTH: Public Inquiries Office, Room 15 C-05, 5600 Fishers Lane, Rockville, MD 20857 301 443-4513 conducts research on the causes, prevention and treatment of mental illness. Toll free Helpline at 800 468-1515. They also have several brochures written in Spanish by writing to the address above, Room 7C-02 or calling 800 PANICO

MONEY: (Dick LePre) "More that half of all U.S. currency is in circulation outside the U.S. This is not indicative of either a sinister plot of a distrust in travelers check. It expresses the lack of faith in foreign currencies. It also mitigates the value of M1 observation: what is the point of concerning ourselves about the money supply if the money is not available for the purchase of goods here in the U.S.?"

CHRON'S: A new product, generically known as infliximab, has been approved by the U.S. to treat Crohn's disease, a painful and incurable bowel disorder.

INSTRUCTIONS ON AN AMERICAN AIRLINES PACKET OF NUTS

Open packet, Eat nuts.

SEC FINES: For all the rhetoric that the SEC expends regarding how well it protects consumers, it still collects ONLY 50% of all the fines it levies. Over $2.5 billion remains uncollected from the past 13 years. A lot of that is due to small cap investments.

YOU'RE IN GOOD HANDS????? State Farm paid $200 million last year to avoid a lawsuit alleging it's agents sold 4.4 million life insurance policies from 1982 to 1997 that were disguised as investments.

This trend will continue as long as you keep buying life insurance from life insurance agents.

STUTTERING: "Open a book and start reading aloud while keeping teeth clenched. Do for 5 minutes first day and add 5 minutes each day thereafter. When you reach 60 minutes, start reading aloud for 60 minutes each day for next two months. You must read loud enough to be heard."

ESTATE PLANNING: "11% of small companies in the U.S. offer a buy-sell vacation plan to their employees, a benefit available in approximately 30% of large corporations. A vacation buy-sell plan allows employees to either purchase more vacation time, using payroll deduction, or exchange accumulated vacation time for cash."

CANCER: A free book called Fighting Cancer by Annette and Richard Bloch is available by calling 800 433-0464.

OLDER: 10,800 boomers are turning age 50 per day

"Education is a progressive discovery of our own ignorance."

Will Durant

MEDICAID "PLANNING": (Center for Long Term Care)- The Braceland Center for Mental Health and Aging researched Medicaid eligibility workers, elder law attorneys, and certified financial planners regarding Medicaid estate planning. It was being heavily promoted in Connecticut due to the wealthy citizens and high quality Medicaid facilities. It showed that Medicaid estate planning was actively endorsed by lawyers, financial planners and even Medicaid eligibility workers to help them pass on assets to beneficiaries: 80% of Medicaid workers, 60% of elder law attorneys and 57.7% of financial planners reported that asset transfers have increased over the past 6 years (and this while greater restrictions were supposedly being enacted). The average transfer was: Among financial planners, 51.9% reported average transfers over $200,000 and 55% of elder law attorneys reported average transfers over $100,000. Overall, 7.4 % of those polled reported average transfers over $200,000.

The profile of the clients included- Income: Among financial planners, 51.7% reported clients with total monthly incomes between $2,500-$4,999 with 17.2 % reporting clients with monthly incomes above $5,000. 62.5% of elder law attorneys and 48.6% of Medicaid eligibility workers reported clients with monthly incomes between $1,000-$2499. Overall, 19.4% of respondents reported clients with monthly incomes above $2,500 and 5.0% reported clients with incomes over $5000.

Assets: 100% of financial planners reported clients with more than $100,000 in total assets; 13.8% reported clients with assets of $200,000-$349,999; and 72.4% reported clients with assets over $350,000. Among elder law attorneys, 87.8% reported clients with more than $100,000 in total assets; 41.5% reported clients with assets of $200,000-$349,999; and 19.5% reported clients with assets over $350,000.

Ethical?: Financial planners indicated they advised 40.8% of clients on average about asset transfers. Elder law attorneys reported advising 51.4% of clients about asset transfers. Overall, 81.9% of respondents recommended cash gifts; 43.5 % recommended paying off debt; 58.7% recommended converting countable assets into exempt assets; 52.9% recommended various financial instruments; and 55.8% recommended increasing the Community Spouse Resource Allowance

A rationalization by many elder law attorneys was that they had a fiduciary duty to "provide legal guidance that is in their clients best interests." Really? To suggest you gift away your assets so you can die in a Medicaid ward with a bunch of screaming Alzheimers patients is NOT a fiduciary duty. Their ethical obligation- and that of planners as well- was to insure that the proposed patient actually go down to a Medicaid and a private home to see the difference in care. Once they had viewed such difference, they would then be required to sign a statement that they were willing to die almost assuredly with substandard care. Never happen.

What I noticed previously however was a study in 1996 by the Minnesota Department of Human Services Quality Initiatives Division Long-term Care Client Asset Review conducted to assess the extent and impact of Medicaid estate planning. Quality Control staff reviewed 445 cases of clients residing in long-term care facilities as of December 1, 1994 for evidence of improper transfers. The results were troubling: 9 out of every 10 transfers were improper (276 of 297). The total amount of assets improperly transferred was $1,747,852 vs. $353,398 in permissible asset transfers.

I do understand the aspect of trying to save assets for beneficiaries. But it almost totally dismisses proper planning since, if you have enough money, the purchase of a long term care policy can do much to offer more comprehensive care as well as emotional comfort for both the patient and the caregiver.  Don't try to die in a Medicaid ward.

SWITCHING FUNDS AND UC DAVIS STUDY: (LA Times) Long time readers are aware of the study that showed that the younger the investor- primarily males- the more switching of funds they make when the market turns. This in the (normally) unsuccessfull attempt to time the market. From a Cigna survey of 401(k) plans in 1997 when the market did a drop- 36% of the 401(k) investors who did switch out of their funds were under 30 years of age. Only 28% of those over 70 made a switch; 20% between 50 and 60; 9% between 40 and 50 and 7% between 30 and 40. I am just guessing that the under 30 crowd has never seen a bear market (or major correction) and are running for the exits. But as stated ad nauseam, market timing doesn't work. Trying to hit the peaks and valleys is a fool's game.

MORE BAD LIFE INSURANCE: "Nationwide Life Insurance and Nationwide Mutual Insurance said they have reached a settlement agreement in a class action lawsuit concerning life insurance policies issued from 1982 through 1997. Nationwide Life and Nationwide Mutual said the agreement covers about 650,000 policyowners. Nationwide said the proposed settlement provides policyowners with a potential value of about $100 million in policy adjustments, discounted premiums and discounted products. "

So why did 650,000 policyowners get hurt? Cause they bought life insurance from a life insurance agent. If you don't understand what I am alluding to, read my article WHO CAN YOU TRUST?

"Conscience is the inner voice that warns us that somebody may be looking."

H.L. Mencken

INCOME: The Census Bureau's analysis of household income from 1969-1996 shows a 57% rise in real median income for married couples over age 65 compared to a 6.3% increase for all households. Incomes for single men and women over age 65 rose 63%. The elderly are now the least likely segment of the population to be poor. Their article noted that "At age 65... many are coming off peak earning years, still live in a home they own, enjoy relatively good health and are sitting on a nest egg. But a decade later, women have lost their husbands, are beginning to suffer from more expensive, debilitating health problems, and are working their way through savings."

WELFARE REFORM: "For the first time since a 1996 federal law demanded that welfare recipients go to work, a dramatic, nationwide decline in the number of people on welfare is beginning to level off."

But I wonder- was it due to the act itself or simply the fact that the economy has been so good? 

On the other hand, we still can't seem to reduce the number of child deaths. The number of U.S. women who die from pregnancy and childbirth complications has remained the same for the past 15 years, at a rate of seven or eight deaths per 100,000 live births.

GOT A TEENAGER?: Want him/her to grow up well? Here are some survey comments from Columbia University

1. Teens who attend church are less likely to smoke cigarettes, use marijuana or hangout with people who use drugs or drink.

2. Teens who have never smoked marijuana tend to eat dinner at night with their parents and also rely on their parents opinion. Those smoking marijuana tend to hang out with "friends" after school and are less likely to listen to music or do homework after school

3. Teens who use one substance tend to use another. Smokers are more likely to drink and use marijuana; pot smokers are more likely to drink  

401(K) FIDUCIARY RESPONSIBILITY: A Federal Appeals Court is effectively indicating that not only must an employer provide education but also tax and financial planning as well. The 8th District Court of Appeals noted that U.S. West had breached its fiduciary duty by NOT informing employees about the tax consequences of taking lump sum retirement distributions. A CPA commented that "In all my years of doing taxes, I never had a employer tell the employee what would happen regarding lump sum distributions. People are very uninformed." The article noted that "Plan sponsors should ask themselves: Are you providing your plan participants with the kinds of education they need to make informed, personal financial decisions? If in doubt, get professional help...."

"The great thing in this world is not so much where we stand as in what direction we are moving."

Oliver Wendell Holmes, Sr.

U.S. HOUSEHOLDS: (The Commerce Department's Census Bureau) "Much of the 1969-96 growth in total households is attributed to single-parent and single-person households. These households accounted for 23% of all households in 1969 and 36 % in 1996. Because these households have, on average, relatively low income levels, the net result has been fairly stable overall median income level at a time when most other types of households showed a substantial gain."

LONG TERM CARE: According to the National Committee to Preserve Social Security and Medicare, about 88% of U.S. Nursing homes certified for  Medicaid are "drastically short" of qualified medical personnel. Additionally, other studies show that residents in homes with more Medicaid patients are 30% more likely to  experience health declines.

GET IN SHAPE NOW!:The Northwestern University Medical School said that people with low risk of heart disease in middle age need far less medical care for any reason when they get old. The risk factors are high blood pressure, high cholesterol, smoking, a previous heart attack, diabetes or an abnormal heart beat. As is obvious, the majority of the problems are preventable- smoking, high cholesterol and high blood pressure.

How you want- or are going- to die is determined in great part by simply how you live.

HEALTH INSURANCE: The Census Bureau indicates that 43.4 million Americans were without health insurance in 1997, up 1.7   million from 1996. Health care spending will double by 2007, increasing from 13.6% to 16.6% of the gross domestic product according to the Department of Health and Human Services. FSN noted that several HMO executives had HUGE salaries- "Steve Wiggins, Oxford, $30.7 million and Wilson Taylor, CIGNA, $12.4 million; CIGNA had five of the top 10 HMO earners; add stock options and the numbers increase to nine in the eight-digit range, led by William McGuire of United Health Care, $61.1 million, and Alan Hoops of PacifiCare, $32.7 million). It is for clearly this type of greed and avarice at the HMO level that makes the consumer so rightfully angry at the level of care they are getting. These guys must have a real screw loose- and a significant lack of ethics and morals.

OLDER AND BETTER: (SBNC) "Small businesses suffering from acute labor shortages should consider recruitment strategies geared to older workers. Workers aged 50 to 60 stick with their jobs an average of 15 years, with better attendance than most other age groups. Mature workers 55 and older are also less apt to be involved in accidents on the job. Although they make up 14% of the U.S. labor force, they account for just 9.7% of workplace injuries. Moreover, a recent survey shows that workers aged 55 years have the lowest health care costs. Even in companies where health costs rise with age, the lower absenteeism and turnover rates more than offset the additional health costs."

MOVING: According to the Census bureau, about 16% of Americans move annually.

STUPID AND GULLIBLE: I find it annoying when so many people think they have a clue with "investments" or investing. In a recent scam, 325 people in 15 states lost over $15 million by investing in a golf course venture that paid 12% through unsecured bonds. People didn't like the volatility of the stock market and therefore decided on "regular" payments. It was a standard ponzi scheme. But had they gone to anyone on who was knowledgeable about investing and paid for advice, they would have been told that unsecured bonds were exactly that- no assurance for anything. What is a further rub is that much of the money was taken out of IRA's and requires taxes to be paid on money that has been totally lost. Most were retirees. But whether retired or working, paying for knowledgeable advice is anathema to one's ego.

SUSAN G. KOMEN BREAST CANCER FOUNDATION: 5005 LBJ, Ste 370, Dallas, TX 75244, 800 IM AWARE

EXPERT INVESTORS: So how good are "expert" investors?? Well, B of A took about a $100 million loss in 1998 for its use of a "quant" strategy- where computers dictate the buys and sells. It was supposed to reduce risk. Let's be careful out there. Don't know what a quant fund is? Then you are not a sophisticated investor. Better do some reading.

ABUSED??- You can get a copy of "Striving to be Violence Free" for $4 by writing to Perspectives, Inc (Attn: Guidebook), 3301 Gorham Ave. St Louis Park, Minn 55426.

"No matter how cynical you get, it is impossible to keep up"

Lily Tomlin

DELISTING: This is why the returns on small cap stocks are not necessarily valid. The companies may simply not be there to be counted. How's that?? In October 1998, 564 companies had already been delisted from the Nasdaq market that year because their price drooped under $1.00 per share. In an attempt to boost the quality of its issuers, stocks that fall under $1 for 30 days or more are subject to delisting. At the beginning of 1998, about 226 Nasdaq stocks, or 4.1% of the 5,500 on the market, were under $1.Now about 600 Nasdaq stocks, or 10% of the total market, trade under $1. "That's more than the annual totals in many years and is on track to eventually eclipse last year's total of 717 deletions and the record of 719 in 1988."

DEATH: More than 70% of people who commit suicide had seen a doctor within 30 days of their deaths

PENSION PLANS?: (SBNC) The Employment Benefits Research Institute and American Savings Education Council, in a 1998 study, stated that "fully half of the small businesses not offering plans claimed their employees were more interested in pay or other non-retirement benefits. Among small companies that did offer plans, only 25% said that employee demand for retirement benefits had been an important factor in their decision to launch a retirement program."

  "Don't worry if you're a kleptomaniac, you can always take something for it."

CPI: Once the FED reduced the amount of the CPI (Cost of Living increases) that HMO's would receive, HMO's have been dropping Medicare service left and right because they are no longer profitable. While the law does require HMO's to find substitute medical coverage for the elderly (about 440,000 beneficiaries may be affected), it is almost universally at a higher price. Federal officials say that a person dropped from a Medicare HMO has a right to buy certain types of Medigap insurance. "Disabled people who choose to buy Medigap policies are likely to have higher health costs than the average senior covered by Medicare and Medigap. Requiring insurance companies to sell Medigap policies to the disabled, at standard rates regardless of their claims experience, will lead inevitably to higher Medigap premiums for the elderly." But only the first 4 out of 10 allowed Medigap policies are apparently required. The other 6 groupings DO allow a decline because of prior health conditions- and these are the ones that include prescriptions and other elements many seniors would like.

Premiums were already rising rapidly, with many Medigap insurers reporting a cumulative increase of more than 45 percent over the last three years.

Americans have the highest paid doctors in the industrialized world. American patients report that their last visit to a doctor lasted longer than 20 minutes- yet are the most likely to complain that the visits are to short.

This whole scenario seems to be going back to the 70's where medical care for the elderly was scarce- and expensive. This is gong to be a major debacle- nobody should get much back out the budget "surplus". It should be used to fund more care- or at least more research to fix what will be a monstrous problem.

And more- Clinton said he wanted to include prescription drugs. But the Congressional Budget Office noted that he had "grossly underestimated" the cost. Clinton indicate a cost of $118 billion over 10 years. The study indicated it would be $168 billion- $50 billion more- a 42% increase.

And even more- Medicare also helps train doctors. But certain hospital in New York are getting three times the amount for each trainee than in LA or Cleveland and 7 times more than in Houston. New York hospitals get as high as $55,000 annually for each trainee while a major teaching hospital in Houston gets only $7,000.

TECHNOLOGY AND THE TRUTH: Pope John Paul said that "the world was moving so fast that people no longer stopped to ask the meaning of life and warned that humanity risked losing its soul to the technology it has come to worship." He further noted that "humanity has to accept certain truths rather than embrace ethical relativism where quick success is rewarded and the search for ultimate truth is shunned as archaic."

And he's absolutely right. If you don't step back every so often and see what you have been stepping in, you're probably moving too fast. It's one thing to do it if you have no responsibilities, but if you are married and have children, you can't spend your whole life in a rat race without understanding the repercussions on the people that love you.

"When I read about the evils of drinking, I gave up reading."

Henny Youngman

GETTING A REAL ESTATE LOAN: Pay attention to your FICO scores. FICO scores vary from the low 300's to a high of 850. A FICO score of 680 is considered good enough to not require any further review by an underwriter. An "A paper" loan may still be made with a 630 FICO score if reviewed by an underwriter. Some lenders offer premium pricing for borrowers with 700 or 740 scores.

"Why do mortgage lenders pay so much attention to these scores? (LePre) Real simple: there is a 1 in 8 chance that a borrower with a FICO score below 600 will be either severely delinquent or in default of their loan. There is a 1 in 1,300 chance that a borrower with a score above 800 will have similar problems."

BAD ANNUITIES: National Western Annuity company got sued because on certain options of payouts, it was paying 0% interest. That's right, nothing, nada, zilch. There are certain items the defendant has used that provide some leniency, but let's get real. 0%?????? This is NOT a diatribe against any agent that sold the product since there was no way of knowing what would happen later on. But it just shows what goes on. However, at the time of selection of a payout, an agent has to be able to figure out just what return is statistically available.

ALCOHOL: National Institute on Drug Abuse and the National Institute on Alcohol Abuse and Alcoholism  noted that the abuse of alcohol and other drugs costs the United States more than $246 billion a year, a government study published Wednesday found. That worked out to $965 for every man, woman and child in the country.

"CREATING AND MAINTAINING AN ESTATE  DOES NOTHING BUT DAMAGE THE PERSON DOING THE HOARDING. IT WILL FORCE YOU TO PUT THE QUALITY OF YOUR DEATH BEFORE THE QUALITY OF YOUR LIFE."

DIE BROKE, 1997 

DIE BROKE: While this book suggests you give away the bulk of your assets to your children while alive- and I certainly believe that the focus on leaving a large legacy is suspect- I feel justifiably paranoid about all the things that could then go wgnor and leave the parents in limbo. Things like the kids get sick, divorced, file bankruptcy, litigation, etc., etc. Combine these with the issues that parents might need additional funds for medical emergencies or long term care. What happens if the kids don't feel like giving the money back, or they don't have it?- well you get the point. Further, the emotional and psychological element of well being that cannot be dismissed- feeling like you have enough funds for almost all contingencies that you can handle yourself- IS a reason for holding larger sums during retirement.

Unfortunately the authors suggest the use of Medicaid trusts and other asset reducing measures without a solid regard to long term care. YOU DO NOT WANT TO DIE IN A MEDICAID WARD IF YOU HAVE ENOUGH MONEY TO AVOID THE PROBLEM.  ("Private-pay patients can usually find a nursing home bed quickly. Waiting lists for Medicaid patients (especially heavy-care patients), can stretch for several months, even a year or more. The only opening for a Medicaid patient may be in a facility that is not convenient to visitors, or that does not provide quality care." (Dana Shilling, Financial Planning for the Older Client, National Underwriter, Cincinnati, Ohio, 1992, p. 73)

"...the proportion of Medicaid recipients is indeed associated with lower levels of RN staffing and a higher proportion of residents not toileted...higher proportions of Medicaid were found to be associated with lower nursing home quality, suggesting that the Medicaid program in fact exercises its power to bargain for price rather than quality.... A higher proportion of residents whose care is reimbursed by Medicaid is associated with lower quality as measured by these indicators.... Residents in homes with few private-pay patients (implying more public-pay patients) were found to be 30 % more likely to experience functional decline.... Simply raising Medicaid rates or mandating parity across payers may not provide sufficient incentives for increasing quality. Under conditions of excess Medicaid demand, there may be little incentive to provide quality at any price...." (Jacqueline S. Zinn, "Market Competition and the Quality of Nursing Home Care," Journal of Health Politics, Policy and Law, 1994)

There are plenty more reasons on my site to consider proper planning so do some more extensive reading and hopefully the facts will become clearer.

Maintaining an estate simply to see how much money you can accumulate by the time of your death is egotistical. Maintaining enough for contingencies is being a healthy paranoid.

INEFFICIENT MARKET: Past teachings almost always reflected an efficient market a fact that the market was entirely random in its movement since all participants has the same information at the same time and no particular difference could be identified. That has been proven false to at least some degree and now we have a researcher say that the use of IRA accounts around tax time has a positive move on the market. The average annual return in the first two weeks of April since 1978 was 20.7%. The average of the last two weeks of April was 13.6% which is roughly equal to the 14% total market return of the last 20 years.

SUITABILITY:  SEC Law page has an article called "Brokers Have to be Their Own Judge" wherein it discusses the issue of "Did a broker have a reasonable basis for believing that the recommendation was suitable?" The author states "it requires brokers to make a determination of the essential facts relating to his customers, their financial situations and goals, and their investment experience. The doctrine also requires the broker to learn all essential facts regarding the particular investment being recommended and to have a reasonable basis for recommending that investment to that particular customer." Nice rule. Unfortunately, it sucks. What good does it do to supposedly learn all the facts about an issue if you have little idea of what anyone is talking about in the first place and effectively no background to put it to proper use.  Brokers are NOT taught alpha, beta, diversification, asset allocation, standard deviation, correlation, Bill Sharpe or many of the other basics needed to comprehend risk and reward. And if you do not know those, there is no way you can determine suitability. How do I know what has been taught????- I taught many of the licenses for years. The above info is NOT tested on the exam- therefore nor required in the licensing instruction. And the securities firms wouldn't let me teach it anyway since it would reduce sales. Suggesting that a janitor in a hospital learn all the facts about a patient for brain surgery in no way implies competency in developing a plan for care.  

The statements go on--"The National Association of Securities Dealers' (NASD) Rule 2310 (formerly Article III, section 2 of the Rules of Fair Practice) provides, "[i]n recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs." While the rule defines suitability by using the term "suitable" (thereby rendering the rule virtually useless for determining what is suitable), it does make clear that the only requirement is "reasonable grounds" for making the recommendation."

O.K., here again how can one determine "reasonable grounds?" If you are suggesting that a prudent man's determination of suitability/reasonableness is simply passing an exam on which the basics of risk and reward are ineffectively addressed, if at all, and you find that element sufficient, then  go ahead, call up a broker. It is my opinion that one does NOT possess the basics for a suitability application unless they have been properly trained in alpha, beta, correlation, diversification, etc.

And further, "Over the years, the NASD has attempted to provide guidance to the industry...." CRAP. I have tried repeated times to get the SEC and NASD to recognize their responsibility to include basic risk reward criteria for consumers, brokers and arbitrators -only to be rebuffed at every turn (letters on file).

And, "even in-house compliance manuals do not provide sufficient guidance. Some firms attempt to address the issue by limiting recommendations of broker to "pre-approved" securities, or to securities trading on national exchanges. But like any general rule, such policies are often too inclusive and run the risk of being blindly applied." My comment- in house compliance manuals are designed and written by attorneys and other back office reps who have apparently never taken a true course in the application of securities. I have read many. Pitiful.

The article suggests that a broker "Understand the investment or strategy, the essential facts relating to the security and the reason it is being recommended to any customer. Once you have identified an investment that you believe is worthwhile, make sure that you have adequate and timely information regarding your customer. As discussed in earlier columns, simply obtaining information on a new account form when an account is opened may not be sufficient. That information should be reviewed and updated periodically, and should be reviewed at least once a year, perhaps during an annual review of the account with the customer. But as of 3/99, "John Ramsay, deputy general counsel for NASD regulation, says the basic information the brokerage (firm) gets on a (customer)form is usually only enough to make suitable recommendations for the simplest of mutual fund investments. For anything more complicated, an investment adviser would be expected to know much more about the customer."

The commentary went on to state, "Make sure your customer has all of the necessary information regarding a particular security, issuer or investment strategy. While an obligation to provide information regarding widely known securities may be less than for more obscure securities, it is important that the customer have all of the relevant information at hand regarding any investment. Even the most sophisticated and wealthy customer can be unsuitable for a sophisticated options trading strategy that he cannot understand.

Be sure that you have determined the percentage of a client's liquid net worth being put into a particular investment or investment strategy that involves any significant degree of risk. While not stated in any rule, a particular investment may be suitable when using 10 % of a customer's net worth, but it may be entirely unsuitable when it uses 90 % of his net worth. 

Make sure that your customer understands why the investment is being made, and that you answer any questions he or she has regarding the investment or strategy."

Well, it all sounds very nice. But I can digest it simply at this point by stating this: if your broker, planner, insurance agent (remember, an agent can sell indexed annuities without a securities license) does not understand diversification by the numbers (How many stocks must you have in a portfolio in order to insulate it due to unsystematic risk?) then the person is unqualified to understand suitability. So now the onus is for you to understand it. And if neither of you know what I am talking about (few arbitrators or securities attorneys know either), then you are probably going to get screwed sooner or later because both you and your broker are too stupid.

GROW UP AND READ A BOOK 

COLON CANCER: This will kill 56,500 Americans this year and strikes both men and women equally. The CDC found that only 38% of all Americans have ever been screened for colon cancer, the second biggest cause of cancer deaths after lung cancer. Only 29% of Americans 50 and older have been screened for colon cancer, which is the fourth most common cause of cancer in the United States after lung cancer, breast cancer and prostate cancer. Simple tests could reduce the amount of deaths by 1/3. You may not like the intrusive exam (though new tests may be done at home) but just remember that death is permanent.

MEDICAL COVERAGE: The percentage of Americans receiving medical coverage through work has declined from 61.5% in 1988 to 56.6% last year and, if the current trends continue, will decline further to 52.2% by 2002.

Between 1987 and 1996, the number of people age 55- 64 without health insurance rose 25% to 3 million while the uninsured age 45- 54 increased an astounding 61% to 4.5 million.

HOSPICE CARE: (NY Times) Started in the 1970's as a voluntary charitable effort to help those near death and to avoid the endless and costly end of life procedures. The patients are offered comfort care- keeping patients free of pain and discomfort and assistance with spiritual, emotional and practical matters. The patient is in control- the hospice will try to follow the patients wishes. Hospice enables and encourages family and friends to participate in the end of life care. Most importantly , from my conversations with beneficiaries, hospice offers counseling before and after the loved one's death and advice and aid to caregivers who may suffer both an emotional and financial toll. Lastly, hospice utilizes teamwork through the use of medical professionals, home health aides, social workers, chaplains, volunteers and others to make the process of dying as "acceptable" a product of life as possible.

In 1983 Medicare began paying for hospice care- which subsequently fostered a bunch of for profit entities that, in some cases, found loopholes to falsify care. Currently only 25% of hospices are non profit.

Hospice care costs about $100 per day- less than a hospital stay ($400+ per day) and the main reason for its use. The average stay is 55 days and most of the 455,000 Medicare and private patients are cared for in their own home. But the average stay in a hospice program for nursing home patients was 166 days- and that is where most of the problems lie as certain agencies have submitted bills for ineligible patients. A federal study noted that about 33% of all nursing home hospice patients are ineligible, primarily because most are not terminally ill (having six months to live). .

As such, the budget has ballooned far out of control.  In fact, hospice is the fastest growing area of the Medicare budget costing about $2 billion a year. BUT THAT'S ABOUT DOUBLE WHAT WAS SPENT JUST FOUR YEARS AGO.

401(k): Mentioned previously, many early retirees take a retirement plan and spend it rather than rolling it over to a IRA. About 28.3% of recipients rolled about 56.3% of their 401(k) dollars: 11.2% spent 10.9% on financial investments; 6.6% spent 5.6% on a new home; 7.8% spent 6.5% on other investments; 17.3% took 7.5% to pay off debts and 28.8$ took 13.2% and just consumed it in other areas. Among the lower income. only 16% rolled over a pre retirement lump sum to an IRA- representing 31% of their distribution assets. (FED Bank of NY)

ESTATE PLANNING: Used to be that you should not attempt to make a trust the beneficiary of your IRA. It tended to accelerate the payouts since the IRS would not allow you to use a beneficiary. But they have altered their restrictions. Now you can use your revocable trust and base the payouts using a standard beneficiary. Of course there are rules, but they are not particularly onerous. Check with your attorney. That said, you may want to covert a large IRA before death to a ROTH IRA and avoid a lot of that problem by simply being able to give the assets to your beneficiaries without any demand for a payout at all.

EXERCISE: The Journal of American Medical Association noted that vigorous walkers had a 43 % reduced risk of premature death when compared to those who did no exercise at all. It even showed that occasional exercise led to  a 29 % reduced risk of premature death. Exercise has been shown to improve energy, reduce feelings of stress, anxiety and Depression; improve sleep; improve concentration; enhance self-esteem; help one lose weight; reduce the risk of heart disease; increases good cholesterol and lower triglycerides; reduces the risk of colon cancer; lower's high blood pressure and the risk of stroke and improves bone density and lowers the risk of osteoporosis

However, only about 22 % of Americans get enough exercise to do themselves any good.

ALZHEIMERS AND EXERCISE: Recent studies by the American Academy of Neurology and the University of Cleveland indicate that people who exercise regularly during their lifetime may be at a lower risk of Alzheimers. "The findings agree with previous studies suggesting that staying active physically, mentally and socially helps protect against the disease."

And to repeat from the book: "How We Die". The two worst ways to die are from AIDS and Alzheimers. How you live today IS a direct factor on how you die later on.

WOMEN AND LIFETIME: Why women live longer: a doctor at Ball State University indicated that "flexibility, resiliency and connections protect women against early death while men are more often wiped out by their own rigidity, aggression and denial of feelings." The life expectancy for men is now 72 years of age while women live in average of 78.8 years. Men smoke more cigarettes and consume more alcohol. They are three times is likely as women to die from accidents and four times more likely to be homicide victims. And as I a stated previously, white men have the higher suicide rates in the country once they get older than age 65. Many of these men have been insulated from the real world due to their positions of power in a corporation. However, once they retire, there entire powerbase may be gone (if there really ever was one). And they cannot boss their wives around since they have tended to develop more independency as they have gotten older.

In 1900, life expectancy for men was 49.7 years and for women 50.9 years. But by the middle of the century, men could now be expected to live to 65.6 years of age and 71.7 years for women. The increase for women, according to Dr. Crose, was due to women getting into holistic health and balancing their lives while men stayed in the "same old macho" roles. She also noted that while women do suffer more ailments and depression earlier in life, they use such adversity's to build into strength that they use later in life. A most interesting comment was the fact that women tend to be interested in more things and have a variety of emotions where men tend to express only two emotions: they are either fine or mad.

Gail Sheehy also commented about the difficulties of men as they get older. While men chuckle about menopause for women, it appears that men are "much more uncertain about the threat of aging than women. And the basis seems to be the threat of losing their potency in all the areas of their lives."

She noted that men should take a long vacation to review their lives and what they would like to change in the second half of life.

I did mine a long time ago- when I was 40. Changed a lot of things. Had to change even more when my brother in law died 7 years ago. It's also called growing up.

Very funny, Scotty. Now beam down my clothes.

PROSTATE CANCER: Many men die needlessly from this cancer since they refuse to get a test. But the American Cancer Society/Laval University says that routine screening with a  PSA test could reduce the number of deaths by 69% and could save up to 27,000 American lives annually. Some doctors won't do it because they say there is no proof it prevents early deaths. But if you are a man over 50,  and in view of this recent study, you may want to force your doctor to do one. Remember, being dead sucks.

EAT THIS!!: (Reuters) The Agriculture Department said Women generally eat healthier diets than men and senior citizens and vegetarians generally eat the healthiest diets of all. The major reason was that "individuals in those groups tend to be better informed about nutrition and the link between poor diet and certain diseases." The "Healthy Eating Index", developed by the department's Center for Nutrition Policy and Promotion measured how closely an individual's diet conforms with the dietary guidelines. Whites had a score of 64.78, compared to 59.66 for Blacks, But the difference between Hispanics, 64.04, and non-Hispanics, 64.11, was only slight.

Individuals with advanced education scored 66.67, compared to 62.97 for high school graduates and 62.57 for those who did not finish high school.

Vegetarians scored 67.21 - the second highest of any group- compared to 63.95 for non-vegetarians. Women outscored men on the healthy eating index by 64.79 to 60.59.

Non-vegetarians were slightly better informed than vegetarians about the link between diet and certain diseases, but generally knew less about nutrition.

So why the comment under finances? Because if you live better, you tend to live cheaper since you are not spending so much on medical bills. Toss in the commentary below on exercise and you will really see some major difference in the later years of life.

THE MOST SENSITIVE SEX ORGAN IN MEN OR WOMEN IS THE EAR AND THE MOST POTENT APHRODISIAC IS THE SPOKEN WORD

Abigail Van Buren

LONG TERM CARE: Two thirds of elderly nursing home patients rely on Medicaid at an expense of $24.2 billion in 1995. Long term care for those over age 65- in and out of nursing homes- approximates 20% of Medicaid's entire budget. Medicaid spending is surpassed only by the cost of public schooling. In 1997, there are about 30.3 million Americans between the age of 65- 84 and 4.0 million over the age of 85; by 2030 that will increase to 60.9 million and 6.5 million respectively. By 2050, there will be 60.6 million between 64 and 84 but the over age 85 will balloon to 18.2 million. And it is the oldest of the elderly that need the most care.

And the crisis is even more contentious today since some nursing homes are refusing Medicaid recipients because, since they are "for profit", Medicaid pays at least $27 per day less than private pay.

If you have assets, plan for long term care in your 50's. If you are a child of elderly parents, you may want to do some planning for them since the burden of care will invariably fall on you later on. This is particularly significant if they live a long distance from you.

SPDR: You can buy an index fund from many mutual fund companies. But you can also buy a SPDR- Standard and Poors Depository Receipt - like a stock and pay a commission. It does allow you to buy and sell anytime during the day versus only once a day by almost all funds. Now there are variations even to that since Select Sector SPDR's break down the investment into different sectors- say technology. You can also sell these short- assuming you know what you are doing. Do you? Tell me what diversification is by the numbers. If you can't tell me that, you are not an investor but simply someone screwing around with the market.