MOODY'S REVIEW

JULY 1995

COMMENTARY ON INVESTMENT AND PLANNING ISSUES

ERROLD F. MOODY JR. BSCE, LLB, MBA, MSFP, PhD

CERTIFIED FINANCIAL PLANNER

REGISTERED INVESTMENT ADVISER



DEATH: (Kievman) She suggests the following when you know a spouse is dying:

HOME HEALTH CARE SERVICES: (The Home Health Care Solution, Zhun Nassif, Harper and Row, 1985)

1. Does the agency conduct an in home assessment prior to developing your spouse's care plan and rendering service? Considering the stress of a caregiver, it is absolutely necessary that an independent firm come in a develop a plan of care

2. Will the agency consult your doctor or other professionals before developing a plan?

3. Does the agency assess your spouse's ability to perform the normal activities of daily living? You want the agency to render aid as necessary but not to make the patient even more dependent.

4. Does the agency consider your home environment?, Financial situation? Available social support?

5. Will you receive a written, detailed plan after assessment? How flexible is it? I can say from all the work I have done with various entities and individuals, GET IT IN WRITING!!!!! Never allow anything important to happen without written confirmation of what is going to happen and why.

A point made by Ms. Kievman is that you should also ask's about the agency supervision policies. Ask who provides the supervision and when that person is available. "If you need the services of a nurse, home health aide, or therapist, an in home supervisory visit by a registered nurse at least every two weeks is required".

SICKROOM EQUIPMENT: The Home Health Care Solution:

LITERACY VOLUNTEERS OF AMERICA: This organization combats the problem of adult illiteracy. 5795 Widewaters Parkway, Syracuse, New York, 13214-1846, 315 445-8000

CAREGIVERS: Many people have lots of concerns about hiring someone to come into their home to take care of a loved one. Are they reputable? Will they treat my spouse (mother, father, child) with care? Well, one type of employee that might be available in your community is a senior citizen. They may need the money, like to work, and are certainly considered, for the most part, more reputable and giving than many younger people. Call your senior citizen's center to see if they can help.

TO YOUR HEALTH: In a study of 7,000 adults in Alameda County in 1965, seven healthy habits were identified to have a positive effect on longevity. The researchers found that men of 45 who regularly followed six or seven of the habits gained more than 11 years in life expectancy and women gained 7 years. Correct answers follow the questions.

1. Do You smoke (no)

2. Do you drink more than a moderate amount of alcohol (no)

3. Do you eat breakfast regularly (yes)

4. Do you snack a lot between meals (no)

5. Are you able to maintain a normal weight for your height (yes)

6. Do you sleep 7 to 8 hours per night (yes)

7. Do you get moderate exercise on a regular basis. (yes)

EXERCISE: (Managing Your Health) ".....regular exercise can recharge your strength and flexibility, keep your body firm and fit and boost your self esteem. Several studies suggest that physical exercise may be beneficial to your heart and blood vessels, lungs, muscles, and metabolism. Regular exercise also appears to help prevent constipation, which in turn may help protect against colon cancer."

Unfortunately, no one is telling the young. Teenagers are less physically active than a decade ago. Only 37% of students in grades 9 through 12 reported that they performed at least 20 minutes of vigorous exercise three or more times per week. While half the boys said they regularly engaged in exercise, only 25% of the girls said they did. One in five teenagers is overweight. Through the 1970's, the percentage of overweight children 12 to 19 was about 15%. But that rate had jumped to 21% by 1991.

CHILD ABUSE: The National Committee for CHILD ABUSE: The National Committee for the Prevention of Child Abuse works to stop child abuse before it occurs. 332 South Michigan Ave. Suite 950, Chicago, Illinois 60604-4357 312 663-3520

PLANNED PARENTHOOD FEDERATION OF AMERICA: 810 Seventh Ave., New York, NY 10019 212 541-7800

NATIONAL PTA: This is a non profit organization devoted to acting as an advocate for children and teenagers. 700 North Rush, St. Chicago, Illinois, 60611-2571, 312 787-0977

SCHOOL VOLUNTEERS: The National School Volunteer Program provides leadership for school volunteers and builds partnerships between public education and the community. 701 North Fairfax St., Suite 320, Alexandria, Virginia 22314, 703 836-4880

NURSING HOME CARE: If your spouse or loved one is put on a waiting list, learn about how the list works. Is the list organized as to medical condition, date of application, financial resources or some other criteria?

HOSPICE CARE: From Norma Cousins in her Anatomy of an Illness, as to why hospitals create a need for hospices:

"Death is not the ultimate tragedy of life. The ultimate tragedy is the depersonalization- dying in an alien and sterile area, separated from the spiritual nourishment that comes from being able to reach out to a living hand, separated from a desire to experience the things that make life worth living, separated from hope."

SPEECH PATHOLOGIST: (For Better or Worse) This is a specialist who diagnoses and treat individuals to restore functional communication ability to its maximum potential. The program may include the strengthening of weakened oral muscles, the retraining of brain patterns to form words and thought, patient and family counseling and practical advice for everyday living. They should possess a Certificate of Clinical Competence (CCC).

HOME HEALTH CARE: According to a local hospital representative, getting home health care coverage through Medicare once you leave the hospital is not that difficult. However, if you should belong to an HMO where Medicare coverage has been assigned to them, supposedly these HMO groups offer only HALF of the home health coverage as what Medicare would cover.

PEANUTS: Metropolitan Life uses the Peanuts characters in their advertising to get you to buy their product. (Probably have to make up for the fines last year from many states). Anyway, recent ads tout the use of variable annuities. These are mutual funds contained in an annuity. Any earnings grow tax free until taxed at which point they are taxed. But the kicker is all the income and appreciation over basis is taxed as ORDINARY INCOME not CAPITAL GAINS. In the high tax bracket, that might be total of 40%+ combined state and federal. The long term capital gains is only 28%. The difference is more than peanuts. But they don't tell you that on the ad, obviously. And I also bet you will never hear that from a Met agent.

REASONABLE and SUITABLE: The Chartered Financial Analysts have a code of ethics. Here is their comment regrading "Reasonable Basis for Representations": In making investment recommendations, every reasonable effort should be made to ensure that clients understand the underlying reasons behind recommendations. In regards to "Recommendations and Portfolio Management": Clients should be informed about the way in which recommendations or portfolio allocations are determined. The key elements of the investment process used to make recommendations or portfolio constructions as well as the principals that are behind them should be disclosed. If these key elements or the investment process are changed, clients should be informed of such changes and the reasons that they were made. It is recommended that the investment objectives, needs and circumstances of clients be made a part of their written investment policy statement. Such investment policy statements should include the following elements

1. The clients return objective (income, capital gains, preservations of purchasing of assets)

2. The client's risk tolerance

3. The liquidity requirements of the portfolio

4. An inventory of the investment and funds that comprise the portfolio

5. The client's time horizon

6. The client's tax situation

7. Regulatory or other legal constraints on the portfolio

8. Any unique preferences or circumstances of the client that could have a bearing on the investment policy.

DEFERRED CHARITABLE GIFT ANNUITY: Invariably when one thinks of giving a gift to charity, you look for the immediate tax advantages and the income stream that will commence that year. However, for those in a high tax bracket, the increased income stream may move you into a higher tax bracket yet. But what you can do is simply delay the income stream to a later time when you are in a lower tax bracket. Assume a couple in their late 40's had $48,000 in stocks with a basis of $9,500. If they were sold outright, $38,500 would be taxed at better than 40% overall (federal and state in highest bracket). But if they gave the shares to a qualified charity, a couple might be able to deduct $35,000 in taxes that year if they agreed to accept a payment of $6,250 for the rest of their lives but not starting until 15 years from the date of the gift.

HOSPICE CARE: If a loved one has died, Medicare offers a bereavement service for up to a year thereafter.

CHARITABLE LEAD TRUST: Here's another trust that provides substantial tax benefits but were you don't give up your principal. You give the assets to a trust for a period of time and let them have all the income. Once the time frame is completed, you get your money back. Assume you had $100,000 and gave it to a charity with the proviso that it is to pay the charity $10,000 a year for 5 years. Your immediate tax deduction would be $38,000. CAVEAT: All income is taxable to the trustors however, so it's best to give cash and let the charity invest in municipals. The above illustration was based on a 10% return- it's more life 6.5% to 7% in today's market.

FFO, FAD: This is technical commentary on a subject I wanted to condense, so feel free to skip this. In analyzing real estate properties, you can use a basic comparative investment analysis sheet- one which I have used for 20 years. However analyzing a Real Estate Investment Trust is much trickier. One of the current methods is the FFO- net income, excluding gains or losses from debt restructuring and sales of properties plus depreciation and amortization and after adjustments for unconsolidated partnerships and ventures. Some analysts want refinements to that- not adding back deferred financing costs- such as those resulting from the purchase of interest rate swaps and caps- to the FFO.

An even more refined, though evolving concept is FAD. It is FFO minus a reserve for what are referred to as non revenue generating capital expenditures. These might be the replacement of a roof or the resurfacing of a parking lot.

COMPTROLLER OF THE CURRENCY: They have a pamphlet out called Deposits (?) Investments which is meant to educate the new investors as to the differences and risks between CD's and mutual funds. One comment was "The US Government has rules and regulations to make sure that the features of the investment product are clearly disclosed to you so that you can make an informed decision before you buy. It also monitors industry rules to be sure sellers of investment products follow certain standards of conduct. These rules are meant to ensure that the product is recommended for you to buy is suitable for your personal investment needs."

What a bunch of crap. The government nor the industry has ever presented an understandable synopsis of investment risk and reward that the consumer can grasp. (The SEC has requested some investor input recently and you will see of my comments in the future). As far as the industry is concerned and my attempt to provide knowledge and ethics courses for them- it is best noted by a conversation that I had with two former brokers of major investment houses in response to my efforts. They said that had to be the dumbest thing they ever heard of (partially true- I know the real world) simply because any attempt at ethics would undoubtedly lead to reduced sales- AND NO SECURITIES FIRM IN THE UNITED STATES WOULD ALLOW THAT TO HAPPEN! Further, although brokers are "taught that investments must be suitable, every firm essentially dispenses with that effort and tells the broker to sell, sell sell (though that may not really be necessary for many since they are solely interested in the commissions anyway). Any suitability standard for brokers and even supervisors is effectively worthless. Any suitability standard might only be addressed by the compliance officer several levels up" (and they haven't been trained in suitability standards either). Additionally, the firms don't care anyway since any losses sustained in an arbitration are made up 10 fold in the sale of investments they do get away with. Recognize that these are not my words but directly from the industry. And you thought you could trust them.

DISABILITY POLICIES: Disability insurers lost more than $586 million in 1992 and 93. So in order to make up some of the loss, they are discontinuing non cancelable policies (if you pay your premiums, the insurer must continue covering you without lowering benefits or raising premiums). Own occupation policies may be lost as well. Those companies that do continue with these policies will be charging about 20% more. You can buy a low load policy from Wholesale Insurance Network 800 808-5810.

RUSSELL INDEX: Here are some more indexes to gauge your returns against. Through 12/31/1994

Returns

Index 12/94 4th Qrtr Year

End
Russell 3000 (Broad Market) 1.55 -0.54 0.18
Russell 1000 (Large Cap) 1.42 -0.39 0.38
Russell 2000 (Small Cap) 2.68 -1.87 -1.82
Russell 1000 Value 1.15 -1.58 -1.99
Russell 1000 Growth 1.68 0.75 2.66
Russell 2000 Value 3.00 -2.97 -1.55
Russell 2000 Growth 2.36 -0.74 -2.43
Russell Midcap 1.29 -2.44 -2.10
Russell Top 200 1.48 0.64 1.64
S&P 500 1.47 0.01 1.33


Russell 3000 Index comprises the largest 3,000 stocks and represent 98% of the US equity market as determined by market capitalization

Russell 1000 consist of the 1,000 largest stocks in the Russell 3000 index

Russell 2000 consists of the smallest 2,000 stocks in the Russell 3000 index

Russell 1000 Value Index tracks stocks in the Russell 1000 index with lower price to book ratios

Russell 1000 Growth Index tracks stocks in the Russell 1000 Index with higher price to book ratios

Russell 2000 Value Index tracks stocks in the Russell 2000 Index with lower price to book ratios

Russell Growth Index tracks stocks in the Russell 2000 with higher price to book rations

Russell Midcap represent the 800 smallest stocks in the Russell 1000 Index

Russell Top 200 represent the 200 largest stocks in the Russell 1000 Index.

CREDIT LIFE INSURANCE: This is sold to provide security on auto and other installment loans in case the borrower dies. Unfortunately it's oversold- therefore prohibitively expensive. Phrased in a more colloquial terminology- it's a sucker bet. The National Association of Insurance Commissioners says that a policy should pay out at least 60% of its premiums. Most credit insurance pays out 44%. Best to use the cheap term policies that almost everyone could get.

SAVINGS: Colonial Life and Accident Insurance Company and the Employers Council on Flexible Compensation did a study where they noted that the amount workers save has fallen 34% over the last two years from just $2,688 in 1992 to only $1,776 in 1993. The Employee Benefit Research Institute 11/94 study called the Greenwald Retirement Confidence Survey covered 1,000 Americans age 26 and older. When asked about confidence in their ability to achieve certain goals, 84% responded that they were confident that they would have enough money to take care of basic expenses during retirement. 70% said they would be able to afford to live anyplace they wanted. 80% said their standard of living will be the same or better after they retire. Ain't gonna happen. In the seminars I did last year for major companies, it was obvious that most people were not saving enough- or if they were, were not putting it in the right vehicle. A Scudder survey noted that as the government debt rose from 37% in 1981 to 64% in 1993, the saving rate dropped in reverse. Bank savings vehicles, CD's, money market funds and 401(k) plans are down from $240 billion in 1992 to less than $189 billion in the first of 1995.

Merrill Lynch (I may not think too much of some of the brokerage firms, but they sure do some dandy studies) showed that 76 million baby boomers are moving closer to retirement without increasing the rate at which they save. They supposedly would need to triple the rate they save at in order to avoid retirement shock. There actually is a Baby Boomer Retirement Index which compares the rate at which the oldest baby boomer (age 35 to 48) must save at so they can retire at age 65 with the same standard of living. 100 means it's adequate. The index is at 35.9 in 1994. Well, that sucks.

1994: Just 484 of the 1,582 diversified domestic funds broke even in 1994. Only 184 bond funds out of 2,370 avoided losses.

JOB RELOCATION: ( WSJ) In a recent study 64% of employees rejected transfers due to family ties, including elder care concerns- up from 53% in 1993. 62% declined because of a spouses job and 53% cited costs in new location.

PAP SMEARS: For a free brochure on Pap smears and cervical cancer, send a self addressed stamped business envelope to Pap Smear Brochure, American Society of Clinical Pathologists, Box PRI, 2100 W. Harrison St., Chicago, IL 60612

GATT & PBGC: If you're entitled to a lump sum form a corporate plan, the amount is determined by a formula that uses interest rates established by the Pension Benefit Guarantee Corporation. It works the same way for annuities. For example, if you were to receive $500 a month for the rest of your life, and interest rates were very very high, you wouldn't need much of a lump sum to produce the required distribution. If, on the other hand, interest rates were very very low, you would need a much larger lump sum to generate the desired income. The problem arises in that the new GATT legislation that recently passed has the PBGC using rates based on 30 year Treasury bonds. These rates are higher than what PBGC has been using- hence they mean smaller pension lump sums to retirees. Companies have five years to comply. While that looks bad, the new law says that companies must use longer actuarial lifetimes. This would mean larger lump sum from companies that had been using unrealistic shorter lifetimes.

REVERSE MORTGAGES: FHA now backs lenders in 47 states, the District of Columbia and Puerto Rico. Lenders who make FHA backed loans have to abide by strict rules and set-up fees and cannot charge any hidden fees to make extra money. That has been one of the major problems with non FHA reverse home loans in the past. In fact the concern was so great that Congress enacted a truth in lending law so that every reverse lender discloses the total annual average percentage rate- including all loan costs- in exactly the same way. Some people may opt for the non insured reverse loans since they are not restricted by loan limits imposed by FHA. You may also be able to get payments for life no matter where you live- an option not available under FHA. (Actually, all the companies do is buy a life annuity.) Some elderly are concerned that reverse payments will affect Medicare, Social Security, Supplementary security Income and Medicaid. Not so since the payments are considered loans not income. It is true however that if the money is not all spent in the month received, it will be counted as a resource for SSI/ Medicaid eligibility purposes (currently $2,000 for singles, $3,000 for couples.) Below are some figures based on a 9% expected interest rate, $1,800 origination fee, 2$ mortgage insurance premium, $25 monthly servicing fee, and closing costs of $1,000 on a $50,000 home, $1,400 on a $100,000 home and $1,800 on a $200,000 home.

Home Value Borrower Lump sum/ Monthly

Age credit line Income
$50,000 65 9,933 81
70 13,203 110
75 16,916 147
80 21,147 196
85 25,587 265
90 30,103 386
$100,000 65 25,333 207
70 31,803 265
75 39,116 339
80 47,397 438
85 55,987 580
90 64,553 829
65 40,733 332
70 50,403 420
75 61,316 532
80 73,647 681
85 86,387 895
90 99,003 1,271

ORGAN DONOR: For a free organ donor card, call the National Kidney Foundation at 800 622-9010.

BREAST PROSTHESIS: Contact Baylor University Medical Center, 800 422-9567. They have a video for $10 (4/95) that offers realistic help and information.

CHOLESTEROL: Fifty percent of Americans ages 20 to 74 have borderline to high cholesterol levels, but only an estimated 30% of those know their level.

IRA's: A federal Reserve Board study showed that 47.2% of 3,906 households had at least some money sitting in uninsured bank accounts.

OSTEOPOROSIS: National Osteoporosis Foundation, PO Box 96616, Washington, DC 20077-7456 has a free booklet Medications and Bone Loss: Are You at Risk for Osteoporosis?

SEC: The commissioner of the SEC, Arthur Levitt says that an investor should

1. find out not only how much your broker will sell a stock for but also how much they will buy it back for. There can be a big difference between brokers- particularly for OTC stock

2. Be sure to ask what steps are being taken to get you the best price

3. Ask how your broker is getting paid- by fee or commission. "If it's a commission, keep in mind that commissions reward a broker for the quantity of the transactions, not the quality. Brokers are often paid more for selling mutual funds than stocks and for selling the in house brand of mutual funds than other mutual funds."

4. Ask your broker if they are competing in a sales contest.

5. Ask your broker where your order is sent for transaction. Some brokers are paid to send customer's orders to a particular market to be traded.

6. Check your broker's disciplinary history by calling the NASD at 800 289-9999.

COMPANY'S COMING: Three billion across the world are entering their prime reproductive years. The problem is going to be worse for the second and third world countries as the try to provide proper food and shelter. Then it will become the better nation's problems as more of these impoverished people try to immigrate to the better countries. A report from the Population Institute says that "no amount of guns or fences will stop the hungry masses of the Southern hemisphere from reaching the United States."

MEDICARE: The GAO- Government Accounting Office -found that where you live has a direct bearing on whether Medicare will cover some claims. The 34 insurance companies that administer Medicare for the government rely on local medical practice as to whether or not to approve a Medicare claim. If you are denied a claim, almost always you should appeal. statistics show that appealing not once but twice is usually in the benefit of claimants.

PERMANENT INSURANCE: Most commentary on agent sold insurance addresses the fact that it is uneconomical overall. Only partially true since a recent study shows that, over time, the policies aren't that bad- at least as far a return is concerned. California is forcing insurers to provide standardized yield comparison index for cash value policies such as whole and universal life. The index looks at how much money a shareholder might anticipate if he dropped the policy after 5, 10 or 20 years. They are not entirely accurate since "hypothetical" numbers are used in the analysis and can obviously skew numbers that are projected far into the future. Here are some numbers for a 40 year old man, nonsmoker, $250,000 policy.

Agent policy 5 years 10 years 20 years

First Colony Univ -21.2% 3.9%` 8.1%

Transamerica Univ -21.2 4.0 8.4

Guardian Whole -9.3 3.0 6.6

Low Load Direct

Marketed Ameritas 8.8 8.8 8.8

After all said and done, I still think the use of cash value insurance is not necessarily applicable for most people ASSUMING that they are astute investors. Those people should buy (if needed) the cheapest whole life insurance product in the U.S. and invest the savings over buying any other product- and that includes USAA or Ameritas. That said however, most of the public have no idea how to invest or what to do. They have a tendency of taking any extra savings and spending it (see comments previous). So if they need long term insurance, the use of a regular whole life or universal life product actually makes sense since it is the only way they might save anything at all. And the long term returns are very acceptable. Still think the commissions are too high though.

FAMILIES USA: This non profit organization has been fighting to improve America's health and long term care system for more than a decade. 800 699-6960 for info and publications.

SLUGS: These are securities that an issuer can buy directly from the U.S. Treasury and are a pseudonym for State and Local Government Series and whose cash flow is tailored to exactly meet the interest and principal requirements on bonds that are being refinanced. Slugs are deposited into an escrow account maintained and administered by the bank that serves as the trustee for the holders of the refunded bonds.

FOREIGN INVESTMENTS: (WSJ) Direct investment by foreigners rose sharply for the second year in a row. Foreign investors spent $47.2 billion to acquire or establish businesses in the U.S.- up 80% from 1993. Part is helped by the declining dollar (making their currency more valuable) and part by the improving U.S. economy. However, some of the boom is being offset by the distressed sale of a lot of real estate purchased by the Japanese many years ago (most in the Western U.S.) Disinvestment is apt to exceed $10 billion in 1995. More than half the sales in last year occurred in California which was a favorite buyers location in the 80's. One study indicated that the Japanese lost between 20% to 49% of their investment. These low prices are apt to keep the real estate prices depressed for several years. But when you think about it, it might be a good time to buy real estate- probably through REIT's or Real Estate Mutual Funds since, if the economy does solidify later, buying at low prices can show good returns as the market improves.

MORE NASD: Worth magazine had some lackluster comments about the practices of the National Association of Security Dealers. It noted that cooperation from this self regulatory organization is notoriously lax and quite self serving- much to the detriment of the public. The NASD offers a hot line on the disciplinary history of a broker, but the info is so limited as to not include much of the disciplinary history you'd want to know.

Arbitration has soured recently as well. Years ago I did some of these and initially thought they were a good idea for the customer. However, I shortly recognized the politics that were being played and I was subsequently the one arbitrator where the defense attorneys used their pre emptory challenge (it allows them to get rid of me without reason). It ends up that the same arbitrators tend to be used over and over- and those are the ones in the "good ole boy network".

The NASD also tried this year to eliminate punitive damages in arbitrations. End result? Arbitration may be faster than court and still probably cheaper. But integrity and justice seems to be losing. After all said and done, you should not end up with a problem if you used the right type of adviser to begin with. If not, you're simply asking for problems right from the get go.

CONTINUING EDUCATION OF THE BAR: Several months ago I submitted a course for four hours of continuing legal education by the State Bar of California. Just recently, I received approval. So, the next time you are seeking a financial planner, ask yourself if they can do this.

PRACTICAL

INVESTMENT THEORY

and

APPLICATION

Mandatory instruction/information for attorneys, judges, compliance officers, arbitrators, CPA's, expert witnesses and NASD personnel involved in investment (stocks, bonds, mutual funds, partnership) analysis and disputes.

Issues include licensing, designations, ethics, risk factors, investor suitability, investment application, statistics, analysis, etc.

Errold F. Moody Jr., LLB., MS in Financial Planning, 14 years securities instructor, 6 years Financial Planning instructor for U.C., Registered Investment Advisor, Fee Planner, Author of "Arbitrators Guide to Securities" and continuing education courses accepted by the California DRE and Board of Accountancy

This activity is approved for Continuing Legal Education and conforms to the standards prescribed by the rules of the State Bar of California governing minimum continuing legal education

4 hours MCLE; $145.00

Information/brochure- 510 352-4127; 800 215-9865

Thurs July 20, 1:00pm- 5:30 pm; Sat. July 29, 9:00 am - 1:00 pm

San Francisco State University, 425 Market St. San Francisco

If you know of anyone that wants to learn something and attend, give me a call.

FIGHTING CITY HALL: Assemblyman Byron Sher had introduced a bill that would exempt Certified Financial Planners from being required to register as Insurance Analysts when they wished to provide insurance advice for a fee. Under current law, one is required to be insurance licensed for five years, take continuing education and they then take a comprehensive Insurance Analysts exam. Bill 1485 would have exempted them- and, of course, me as well. But this commentary from a letter to Assemblyman Sher puts my position in focus:

"I urge you to strongly reconsider your bill allowing CFP's to be exempt from becoming Insurance Analysts. It is a tremendous disservice to consumers to allow this group to be exempt when the result will be more incompetent and unknowledgeable advice.

I realize that these are strong comments, but I have been pursuing this issue for several years in an attempt to get CFP's to recognize their responsibilities under the law- licensing and a continued dedication towards education.

Without the continued education they simply will not have the skills to adequately advise consumers.

Within that context, the following issues need to be addressed.

1. The CFP is an very good designation, but as all professionals know in the business, it is not considered to provide good in-depth analysis on insurance. If you were looking for a designation that does, it is the ChFC (Chartered Financial Consultant) which is available through the American College in Pennsylvania. The main thrust of their training is insurance. That said, I would not suggest that even they be exempt from continuing education requirements.

2. Perhaps one of the strongest negative comments about CFP training is the fact that in 1995, the College for Financial Planning (a name change to the National Endowment for Financial Education was recently enacted for some parts of their organization, but I will use the "College" to make the comments easier) ELIMINATED THE COURSE IN INSURANCE FOR NEW STUDENTS. While some elements were to be included in the overview course, I simply cannot agree with giving CFP's a release for requirements as Insurance Analysts where their training has already been effectively reduced to a potential level of inadequacy.

3. Continuing education is required for CFP's and while it is true that some may take a course or two in insurance, the bulk of the additional courses (and attendance) has almost been solely directed to investments NOT insurance. And as a member of the Northern

California Association of Fee Planners, I can assure you that I continually hear of the tremendous disdain for the insurance industry so that many simply avoid any involvement in this difficult area. ( I have some letters on file that can be used to support this statement.) My point is that insurance licensees are required to take continuing education (25 hours EACH year for the first four years for a new licensee and 30 hours of credit every two years thereafter with an additional requirement that eight hours must be in long term care) is a major positive element in increasing professionalism and skills in an industry that is trying to improve objectivity and competency. To allow ANY group to avoid mandatory continuing education is a dishonor to the Department of Insurance and consumer's alike. The current requirements of being licensed for five years before taking the Analysts exam is completely appropriate considering the difficulty and importance of the underlying issues. The enclosed copy of the extensive list of areas tested on for the analysts license is MANY MANY MANY times more encompassing than the material addressed in the CFP initial designation. And while some areas may be touched upon in CFP continuing education, it is only viable if the CFP takes it. The current mandatory provisions are essential to maintain and INCREASE skills.

4. I suggest that CFP's might be required to register with the Department of Insurance without the licensing exam (BUT THAT ChFC'S BE ALSO ALLOWED THE EXEMPTION) but be required to maintain the same continuing education courses that are mandated for life insurance agents throughout the state. At the end of five years, per the current law, they would be allowed to take the Analysts exam. Let them prove their capability rather than through a simple exemption. That's what the consumers need and should expect- knowledge and competency. The current bill does not demand that and should be revised.

Recognize that I have no ulterior motive for this effort. As a Registered Investment Adviser and a CFP, one might say that I would like the exemption since I could reduce my continuing education requirements. However, I believe that fee planners, such as myself, should adhere to and be forced to participate in continuing education as least to the same level of life agents. If "regular agents" are forced to learn, so should CFP's. It is literally the ONLY way that the industry can reach higher levels."

Well, my letter actually did make a difference. It was faxed to various congressmen and, within one month, the bill was junked. I guess it's worthwhile to speak up every so often for something you believe in. Regardless, it was for the betterment of consumers- though I'm already hearing derogatory comments from CFP's.

FUND FEES: Previously addressed, management expenses on mutual funds, for the most part, have been going up in recent years. And everything else being equal, you want the fund with the lowest fees. Money magazine calculated that of the "normal" 1.3% annual fee ($720 per years), brokerage fees took $66, Shareholder Services, $105; 12b-1 fees, $160; Investment Advisory Fee, $343; Custodian fee, $17 and other, $29. Mutual fund investors pay nearly twice as much as institutional investors. U.S. diversified stock funds have increased annual fees by about 35% over the past 16 years. 12b-1 fees just end up as additional sponsor profit. 87% of brokered sponsored funds have 12b-1 fees. Of the 4% load on a $10,000 investment, $105 went to the broker, $50 to the distributor, and $245 went to the brokerage firms. So if you pay a load and 12b-1 fees, you better be sure you've got a GREAT fund.