July 1999

MOODY'S REVIEW

JULY 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

OBESITY: Eighth International Congress on Obesity. Obesity...." is a pandemic, probably one of the top five public health problems in the world. Scientists are already beginning to wonder whether it will be worse than smoking." England and Germany are not far behind the USA in their numbers of overweight people

INSURANCE: Conning & Company survey predicts "that traditional agents who had accounted for virtually all life insurance sales 20 years ago, today account for 82%, with that number expected to dwindle to 68% over the next five years as insurers move to other channels of distribution." According to the survey, insurance companies expect the other 32% of their life insurance sales to come from stockbrokers and banks (20%), direct marketing (6%), workplace marketing (2%) and quote services/Internet sales (4%).

"The reason there are two senators for each state is so that one can be the designated driver."

Jay Leno

HEALTH INSURANCE: A study by the Henry J. Kaiser Foundation (a national healthcare philanthropy) indicated that the number of small businesses (less then 200 employees) with employee health coverage declined from 52% in 1996 to 47% in 1998. The biggest drop was in companies with 25 to 49 employees that went from 66% to 55%.

NEGATIVE ELECTION: (CFO) "negative election," in which a new hire is automatically enrolled in the plan. Under California law, the company must disclose to employees that it has automatically enrolled them in the plan, and the individual has 60 days to cancel the contributions--or enhance them.

This has increased enrollment substantially since many new workers keep the plan.

STOCK OPTIONS: (SBNC) 74% of small to mid-size companies with $50 million or less in annual sales revenue offer stock option plans to all employees. Small to mid-size companies also rely more heavily on stock options for compensating their directors. On average, smaller companies grant directors options for 1,000 shares a year--twice the average 450 share options granted to directors serving on large company boards.

SOUNDS LOGICAL: A University of Washington psychology professor, says communicating well and learning how to solve conflicts are NOT keys to preserving a marriage. Instead, according to "The Seven Principles for Making Marriage Work", that successful couples have "a mutual respect for and enjoyment of each other's company." In other words, friendship.

MORE LIFE INSURANCE ETHICS: Richard Weber notes at least 5 ethical problems within the industry. My (cynical) comments follow.

1.) Sale illustrations. These are distortions of reality since they are based on situations that will supposedly exist 25- 50+ years into the future. Sure they may work, but the whole idea with insurance, in my mind, is to buy insurance. If you become emotionally involved with an illustration that may not come close to reflect reality, you may find yourself in a major bind years in the future. If you need insurance for a period of time, buy it for that time frame- hence term for many situations. But if you need/want permanent insurance, buy permanent insurance and stop messing with all the unknowns about earnings, mutual funds in variable products and what not. You'll only get into trouble. (Admittedly, maybe you won't. But you may not know for 40+ years and then it's too late to change.)

2.) Replacement of policies. These are viable under certain circumstances, but they are extremely limited. The problem within the industry is that agents were replacing one with another with another, etc. for the commissions. There will be more legislation on the problem, but best stated whenever someone makes an offer for replacement - caveat emptor. In California- as well as other states- you must sign off on replacement forms before a sale is consumated.

3). Regulation. Mr Weber notes an old axiom that you cannot regulate ethics (and a rationalization for why bother to have ethical standards in the first place!) He is absolutely correct when he states "regulations.... tend to make it harder for ethical agents to conduct their business and usually will have little or no impact on those for whom the regulations were intended. While we must adhere to regulations whether we like them or not, ethical selling calls for constantly going beyond the regulations and seeking what is genuinely in the client's best interest."

4. Consolidation. Mr. Weber asks, "Will mergers be in the best interest of the public?" The major disability companies are all merging into one and its debatable that what actually will transpire will be in he best interest of consumers.

5. Product suitability- The Insurance Market place Standards Association (IMSA) requires member to "develop, promulgate and monitor policies and procedures that speak to product suitability standards." But if they did so, half of the insurers in the U.S. (my opinion) would be put out of business. I know some of the biggest firms that are almost focusing on the dollar as the "be all and end all".

The problem is that no matter what you think of insurance, past problems, future difficulties, etc., it still is a mandatory element of financial planning. However, as much as 70% of the public are underinsured and underserved. The sale/use of life insurance can be done ethically. But not by an industry that clearly is focused on the dollar, no matter what it says. Not by the Departments of Insurance who effectively do nothing to fine unethical and illegal activities. Even to allow said licensees to remain licensed. Not by the national Planning Organizations who do not require any continuing education in the field. Not by fee only planners who I have found are almost incompetent in this mind numbing area.

VARIABLE LIFE INSURANCE: From an agent who got tired of his company pushing VLI sales- "I don't believe VLI fits most people's needs and that most VLI sales are made for the benefit of the agent more than the customer. It's not the product that's bad; it simply is a niche product that is appropriate in my opinion, in very few cases." And that's about right. It may be viable for some situations, but they are relatively remote.

EMPLOYEE EDUCATION: (CFO) "Employers must be wary of assuming 401(k) participants know enough. Education continues to be a primary concern among plan sponsors. Under ERISA Section 404(c), sponsors can help protect themselves from potential lawsuits if they provide investment education to participants."

Won't work in many cases. Most of the people doing the instruction have never been taught the fundamentals of investing. A broker- even one with the series 7- has never been taught alpha, beta, correlation, diversification, standard deviation, etc. Even a Certified Planners is viable only for basic planning. As long as the market is strong, the problem may not be identified. Later, it will come back to haunt many a fiduciary. I would suggest any 401(k) employee get a formal resume of anyone teaching them.

ILLITERACY AT ITS WORST: About 30% of first time college students take remedial courses because they cannot read, write or do math adequately.

"He can compress the most words into the smallest ideas of any man I ever met."

Abraham Lincoln

PROFESSIONAL REVIEW: An attorney- not an estate attorney- hired me to review his living trust and insurance. The living trust- though needing some update- had the same boilerplate material as literally all other living trusts and, in that regard, would leave animosity for beneficiaries that would probably last a generation or more. Here is the problem. Assume the documentation stated that your son and daughter were to get equal shares of the estate. So, let's take a look at a simple issue. Your son will inherit an antique car worth $20,000. How much does the trustee give the daughter from the 401(k) plan to equalize the value of the car??

Anyone with beneficiaries of will or living trust in any state has to know the answer and have the document revised to reflect reality. Do you know the answer????

BONDS AS PART OF ASSET ALLOCATION: (Ticker) "In the past 36 years, one could have received 88% of the market's return with only 67% of the volatility by maintaining a 60/40 split between the S&P 500 and the five year T-Bond." Of course with today's high flying returns and low interest rates, I would opt for a heavier weighting to stocks. But it always pays to be vigilant and wary.

"In America any boy may become President and I suppose it's just one of the risks he takes."

Adlai Stevenson

SOCIAL SECURITY: (Associated Press) It does an exceptional job of helping people - particularly women- who retire with little in assets, though that was not the (true) intent when it started in the 30's. Anyway, it "cuts in half the gap in poverty rates between elderly women and elderly men." Women pay 38% of all social security payroll taxes yet receive 53% of benefits- primarily because they live longer and the fact that the benefits are not sex adjusted. They can also get it (as can men) even though they have never worked but as long as their spouse was covered under SS. If they have not worked, the benefits are not as significant. Blacks and Hispanics draw more upon social security than whites simply because of less income overall. Elderly persons were poor if they had income of less than $7,698 in 1997- $9,712 for couples. Overall, "without income from social security, 47.6% of elderly Americans- 15.3 million people- would have been poor in 1997. Social security benefits cut that poverty rate by 75% to 11.9% or 3.8 million elderly."

BAD ADVICE: Several months ago I sat in the office of a "planner/adviser" who was using Quicken to provide a basic budget analysis (at $250 per hour) to a new client. Except that he didn't understand step up in basis at the date of death and was off by a negative $40,000 on the sale of her house. I corrected him- but it gives you an idea of how bad the knowledge base is in the industry as well. It also points out that Quicken can work- but only if you really know what figures to put in. Figures can lie and liars can figure.

There are a lot of things we do that are irrelevant, but that's what the Senate is for.

Senator Alan Simpson on MacNeil/Lehrer

SAD: I got a call from Florida from a son wondering why his 70 year old mother was being "propositioned" by a financial planner to convert her regular annuity to a variable annuity- and she had never invested in mutual funds before. The reason- almost unquestionably- was the commission. Don't trust anyone in this business.

DEPRESSION IS INSIDIOUS: Recent studies indicate that from "30% to 50% of visits to doctors' offices are for complaints that can't be pinned down medically. The bottom-line reason is often depression, anxiety, substance abuse or the result of various life stresses."

DRINK YOURSELF HEALTHY: The New England School of Medicine in a 10 year study noted that people who had one drink per day had a 21% less risk of dying than did non drinkers- though drinking more reduced the benefits. Overall, however, the study indicated that drinkers had a 30% to 40% lover risk of dying from cardiovascular disease than teetotalers.

ALZHEIMERS: An estimated 4 million people have the disease affecting about 10% of those between 65 and 85 and 40% of those over 85. Individual caregivers spend an AVERAGE of 69- 100 hours per week caring for the victims. Care givers are 46% more likely than non caregivers to visit doctors for their own health problems and are 71% more likely to use prescription drugs. More than 50% of caregivers are at risk for clinical depression.

The disease costs a minimum of $100 billion a year and about $26 billion directly to businesses thought lost employee productivity and absenteeism in trying to care for care for parents. About 2.3 million caregivers lose sleep, energy, work time and productivity due to caregiver stress.

Experts state that in 50 years, 1 in every 45 Americans will suffer from Alzheimers.

COMPANY COMING: About 5.9 billion people live on the planet today, and the population is growing by about one billion people every 12 to 15 years.

MONITORING 401(K) PLANS: (Ted Benna)

1. Make sure the amounts withheld from your paychecks match the contributions that show up in the plan.

2. Be sure any matching employer contributions are properly credited.

3. Find out how often contributions are deposited. By law, an employer has up to 15 business days after the end of each month to deposit your contributions.

4. Check your account balance regularly, and save all statements. If you find discrepancies, talk to your plan administrator.

5. Make sure you receive account statements when they are due. Example: If you are supposed to receive statements quarterly and you haven't received one during the last three months, ask why.

ETHICS IS WHAT YOU DO WHEN NO ONE IS LOOKING

INSURANCE IMCOMPREHENSIBILITY: "Companies need to become much more consumer oriented. This is going to allow consumers to understand the products more, which will make the sales easier, which allows us to pay agents less per sale. I think we need to try to improve the quality of information. If you ask your friends from outside the insurance industry what insurance products they have, ask them to explain why they have those products. See how many can give you anything more than vague answers. Then, read the material the insurance companies are giving these people. See how many paragraphs you have to read over three or four times to understand what the product is and how it works. What chance does your average consumer have of understanding these products?" (Tillinghast actuary at a May 1997 meeting of the Society of Actuaries).

SAD??: This actually refers to Seasonal Activity Disorder and is a form of depression marked by sluggishness and a craving for sweets and starches and usually starts during the winter months when there are less hours of daylight. About 80% of sufferers benefit from light therapy. See your doctor.

"Quit worrying about your health. It'll go away."

Robert Orben

ORGAN TRANSPLANTS: Every 16 minutes a new name is added to the National Organ Transplant waiting list.

CASH BALANCE PLAN: (WSJ) "A cash balance plans is a defined benefit plans where the benefit is expressed as an account that earns a set rate of return. The accrued benefit is basically your lump sum accumulated to age 65 at the interest rate in the plan.. and then divided at age 65 by an immediate annuity factor.... The cash balance plans is a career average plan."

STOCK OPTIONS: (NY Times) An interesting study by Wyatt Worldwide showed that companies that offered the greatest number of stock options actually underperformed companies that did not offer as many. They tracked 940 companies and divided them into three categories based on potential dilution to their shares if the options already granted as well as those available for future grants were exercised. The dilution, expressed as a percentage of the shares outstanding was as high as 18.7% for the top third of companies and returned a median of 13.5% for shareholders in 1997.

The middle third who would be diluted by just 10.6% if all the options were exercised returned 16.9%. The study requires more time but may be worth noting.

ECONOMIC FORECASTS: (NY Times) Here is a comforting thought- a "25-year study by the National Bureau of Economic Research, a private group in Cambridge, Mass., concludes that growth estimates for the year ahead typically err by 100 percent or more and that, computer age or no, they have become no more accurate over time."

As regards 1999, "most economists said that this year is going to look the way they thought 1998 would look. Growth is supposed to slow sharply, profits to shrink, inflation to creep up, unemployment to edge up a bit. The Blue Chip consensus of 50 forecasters expects growth to slow to 2.2 percent, compared with 3.7 percent last year, and inflation to accelerate to 2.2 percent from 1.6 percent last year. Three forces, economists say, may bring it about: a sluggish world economy, a growing profit squeeze and a less than ebullient stock market. Few forecasters expect American households to keep reaping the huge capital gains that have propelled spending faster than income."

Obviously the returns have been substantially higher- some say significantly overvalued, that the market cannot sustain such a continued rise, etc.- but I also learned a long time ago that if the market wants to go up, it will and you should just go along for the ride. And that's exactly what I have done for my clients. Trying to continually second guess the market is next to impossible. Nonetheless, I think the issue for investors is continual reading of national and international economics. It helps to put asset allocation (or lack thereof) into perspective.

MEN VERSUS WOMEN: A recent NY Times article noted that married couples get along better when one literally always wins in arguments. Those more "equal" couples tend to have higher stress and blood pressure levels when engaging in "discussions" that lead to heart disease. And when equal couples were given incentives to really try and change the other persons mind, the women did not find it necessary to engage in the "incentive manipulation". But the men's blood pressure went up whether for henpecked or patriarch alike. "For men, if you had a reason to win the argument, that was all that mattered".

I think this has gone along for a long time and women (mostly) were well aware that it was better to just let hubby have his way. (Actually, what keeps a man alive? A loving wife. That may mean, in part, a wife who lets a man have his way and win even when he is wrong). Unfortunately, while the husband may live longer, women may get severely shortchanged, in my experience. A lot of the men- at least in terms of investing- hadn't a clue to what they were doing and left the wife underfinanced. Further, since the wife did not involve herself in any of these areas, she may have no idea what to do and leave herself open to scam artists or those that mean well but still don't have a clue and are also incompetent.

MORE DEPRESSION: During a lifetime, 5% of men will suffer depression- women at twice that rate. But women tend to handle it better. Depression affects 17.6 million Americans each year. Depressed men tend to sleep and eat less and to feel agitated. Women tend to sleep and eat more and to feel persistent fatigue.

SMOKING: New research found a 53% increased risk of divorce for smokers, regardless of gender, age, race, education or income. So if you don't like your mate, puff, puff!

HAVES AND HAVE NOTS: (NY Times) I have said that there will be a social upheaval by 2010 due to the fact that the haves and have nots are widening in their economic structure. The Times article noted, "For four decades much of the national debate about economic well-being has focused on incomes and, especially, on their growing disparity: Nearly all real growth has gone to the top 5 percent of workers, while those at the bottom have lost ground.

Four out of five working-age Americans essentially have no wealth, except for equity in their homes, while in 1997 the top 1 percent owned 48.6 percent of all financial assets like stocks and bonds. That is the greatest concentration in the nation's history those who own their own homes and those who don't: homeowners retire with an average net worth of $115,000, while nonhomeowners have $800."

401(k): 84 percent of people dip into their 401(k) plans each time they change jobs.

MORE 401(k): The National Small Business United (NSBU) indicated that the percentage of small businesses offering 401(k) and other retirement savings plans has risen from 28% in 1997 to 36% in 1998.

CREDIT CARDS: The credit care delinquency rate hit a 15 month high in the last quarter of 1998.

RETIREMENT FOLLY: (NY TIMES) I have repeatedly stated that the simplistic programs for retirement planning are simply that- too simplisistic. From a Times article on Retirement: "Here is a secret about the perfect retirement plan: It doesn't exist." and "Here is another secret about all retirement plans: They are educated guesses, because they deal with that most unpredictable of things, the future."

HMO's: Most articles dump on Health Maintenance Organizations for literally every reason imaginable- though I feel mine is very good, thorough, efficient and cost effective (Kaiser). Anyway, a "GAO report concluded that "[a] majority of HMOs in their study incorporated most criteria considered important for complaint and appeal systems." This conclusion is consistent with recent Congressional testimony indicating that most HMOs handle member complaints in a responsible manner. The report also shows that HMOs use consumer feedback to change or improve their plan design, business practices, and to add benefits."

NURSING HOME RESIDENT PROTECTION ACT: The Act had passed both houses of Congress with little opposition.

"Under the new law, nursing homes that do not participate in the Medicaid program must warn incoming residents they can be evicted or transferred if they cannot continue to pay privately, e.g., with long-term care insurance. The law also provides that a nursing home cannot evict or transfer existing Medicaid patients if and when the nursing home decides to withdraw from Medicaid."

"If the automobile had followed the same development cycle as the computer, a Rolls-Royce would today cost $100, get a million miles per gallon, and explode once a year, killing everyone inside."

Robert X. Cringely, InfoWorld

ETHICS: An investor relations consultant took a settlement with the SEC for trading or her privileged information. She was subsequently barred from the National Investor Relations Institute for ethics violations- and she had twice served as the president. But what was interesting was that the SF Chronicle article stated, "One would think that an officer of a professional organization responsible for setting standards for an industry would have full understanding of the laws and would avoid compromising situations."

My point is that I know of Certified Planner officers involved at the highest level that are doing just that. One said, in a meeting with the California DOI in regards to compliance with the law, "so, what's the big deal?". Another lied to a journalist about Certified Planner training. Another has been violating state laws for years. Don't trust any one in the business- including myself- without doing a lot of homework. Even then, be skeptical.

INSURANCE: (WSJ) PS 58 costs for insurance are going way down. Employees get the first $50,000 of coverage free and then have to pay the PS 58 costs for the rest (some caveats). According to the article, charges for $200,000 starting in July 1999 would be reduced from $72 a month to $34.50.

MORON: A journalist that writes for a local newspaper in the SF Bay area made statements in a article that were absurd. And in a subsequent telephone conversation that included the requirements of financial planning, he stated that risk management was not required in order to do planning. Further, that he could given anyone needing insurance a 2 minute statement as to why they just buy term. When asked about disability insurance- silence. When asked about long term care- silence. When asked about survivorship life- silence. When asked about permanent insurance- silence. When asked about policies that existed- life insurance, annuities, split dollar, etc.- silence. He simply kept repeating that it is not a requirement to do financial planning. Of course he is stupid, but that is not just what bothers me. His views and lack of knowledge will be perceived as the truth and cause potential problems for many.

Here is another perfect example. A journalist and noted book author for DUMMIES wrote an extensive article on Medicare/long term care in the SF Examiner indicating that the elderly could be covered by up to 200 days of long term care under Medicare. Do you know what Medicare effectively covers? 0 days. Both the journalist and the paper were requested by a representative of the Alameda Area Agency on Aging to make a correction. NOTHING.

Why does stuff like this happen? Because the editors also don't know what should be done so they simply hire people with limited background and do not recognize the repercussions to the readers. So what else is new?

SMOG: (USC School of Medicine) Children who grow up breathing dirty air may later suffer lung damage, and girls seem more susceptible than boys.

MALNOURISHMENT: Various reports indicate that anywhere from 10%- 60% of the older population is malnourished.

OLD: U.S. Census Bureau- An estimated 20% of the population will be 65 or older by 2030 up from 13% in 1990.

OVERBUILDING- AGAIN:?? Mostly using midyear 1998 information, the FDIC has added three markets to the six already identified as vulnerable to broad-based overbuilding. The nine markets named are Las Vegas, Atlanta, Nashville, Salt Lake City, Charlotte, Portland, Phoenix, Dallas and Orlando.

"Somewhere on this globe, every ten seconds, there is a woman giving birth to a child.

She must be found and stopped."

Sam Levenson

MEMORY STUDY: The National Institute on Aging is trying to get the word to people over age 55 that if they're getting abnormally forgetful, they should see a doctor. Scientists have just discovered that a memory problem called ''mild cognitive impairment'' can be an early warning sign of Alzheimer's - and they're beginning three huge studies to see if certain drugs could prevent those patients from ever getting Alzheimer's. Leon Thal, chairman of neurosciences at the University of California, San Diego, and Ronald Petersen, a Mayo Clinic neurologist, compared 76 MCI patients with 234 healthy subjects and 106 with mild Alzheimer's. The MCI patients progressed to Alzheimer's at a rate of 12% a year, compared with 1% or 2% of the healthy volunteers.

DEATH: (Centre for Living with Dying) "Fear is what stops us from reaching for support when we are in grief of any kind and it stops us from giving support to a friend or loved one. We're afraid to say or do the wrong thing so we do nothing."

MORE DEATH: (Dale Borglum) "Until one comes into some kind of intimate contact with death, spiritual practice will be dilettantish. So may people are yearning to find more meaning in life- they are in crisis control mode of existence, and the encounter with death is very different from this rhythm. Death is a mystery; it can't be done in a busy way."

"Many people spend a lot of energy distancing themselves through staying busy, through various forms of intoxication, keeping themselves from slowing down enough to feel the fundamental fear of death that is at the foundation of human experience."

401(K) ARTICLE: I have felt that 401(k) instruction is pathetic, sophomoric and not going to insulate a company from fiduciary obligation because so many employees were never really instructed as to what to do, why and the ultimate repercussions. Here is a definitive article on the subject and how most of it has gone bad and left employers with liability. In part, "And in all likelihood, 404(c) won't even protect companies from suits filed by employees unhappy with their investment returns. Why not? Let Brooks Hamilton explain. "Look at the disparity between the results for the top and bottom plan participants," he says. "With a gap that wide, how can a company possibly argue that it did an adequate job educating the bulk of its employees? A good lawyer will seize on the gap as prima facie evidence that the corporation didn't fulfill its responsibilities.

TURNOVER: Active managers replace an average of 87% of their stocks each year.

FUND FEES: The average fund expense ratio is 1.45%. The average index fund levies a 0.56% fee.

ROCKING CHAIRS AND ALZHEIMERS: While some of you "younger" readers may not have a direct interest in this, I suggest you read it closely since you may be required to take care of an invalid parent or other loved one in the near future and any insight to helping them- and therefore yourself- can be invaluable beyond money. A recent study by Kirkhaven nursing home showed that rocking chairs bring peace of mind to the elderly with dementia. "The son of one Alzheimers's patient felt rocking eased his mother's agitation. The study also found that rocking could even lessen the need for pain medication. It was speculated that prolonged rocking might cause the brain to release pain-relieving endorphins."

MORE INSURANCE: one of the greatest difficulties clients have in financial planning is the ability to look at death- yet it is absolutely mandatory that one addresses the need for various types of insurance. Unfortunately this hesitancy is also clearly evidence with a lack of insurance planning by Certified Planners's. In a recent commentary in the Journal of Financial Planning it indicated that many planners were not looking at, or least not emphasizing enough, the entire area of risk management-not just life insurance, but also disability, health, long-term care and liability coverage. One Certified Planner noted that "insurance is not is exciting to offer to clients as investments". An estate planning expert noted that the majority of financial planners either don't know, or what they know about life insurance is wrong and they therefore are not using the product. In my opinion, it is malpractice if someone says he is doing a financial plan any precludes insurance.

Several reasons have been offered why a the insurance planning is not properly addressed:

1. Most planners apt to focus almost solely on investment management

2. Clients don't like to pay for insurance.

3. Few people like to think about death, dying, and disability, Alzheimers, hospitals, nursing homes, home health care or any of the associated issues. This is most notable in men who can do have a significant fear of dying. Women tend to be far more open about the subject.

4. Life insurance companies have been emphasizing the investment aspect of the policy and have not truly addressed the underlying need for insurance- the financial and emotional security should someone die or become disabled.

5. The investment emphasis by a the insurance companies has resulted in a lot of lawsuits that have made planners uneasy with a product.

6. This is been used as a rationale by many planners-the fact that it is almost solely commissioned based and therefore must contain an absolute conflict of interest.

7. Insurance is, in my mind, one of the most difficult areas of all planning areas. While it is easy to get information about mutual funds and other investments from the lights of Morningstar in Value Line, it is almost nigh on to impossible to obtain objective and intensive analysis of a life insurance product. Therefore, since the analysis is hard, and since very few planners had the capability to do such analysis, they simply have decided to effectively eliminate planning for that area in total. While this has been somewhat noticeable with financial planners having a life insurance license, it is become almost unilateral with fee only planners who possess no license whatsoever and are almost universally not taking any mandatory containing education classes that are required by the state licensing departments. One of the rationalizations that these fee only planners use, as stated above, is the element of commissions. While it is unquestionably true that commissions can taint the planning process, it is not a universal fact. Further there are certain products-such as long term care and Medigap policies-that are only available with commissions. Therefore, regardless of anybody's bias for or against commissions, they have no choice but to utilize said products and therefore have a fiduciary obligation to do the necessary research to figure out how they work, what they are supposed to do and what the client should ultimately purchase- if anything. But we still go back to knowledge. And unlicensed fee only planner will only have a rudimentary background in analyzing said products. Therefore, while somebody may have limited the conflict of interest in regards to commission, they simply have paid and hourly or flat fee for an incompetent, unknowledgeable adviser who is effectively breached its fiduciary obligation to a client.

The article also noted this quote, a fee only planner might gather info at a "seminar or by reading a magazine article, but not sure they are getting adequate information." I will reinforce that statement from my attendance at an IAFP meeting in San Francisco where (mostly) fee only planners heard a 25 minute discussion on long term care. I would not be surprised that that might be the only true discussion they hear on the matter for a full year- and that they might very well use that simplistic insight as the entire breath of the subject matter. Yet commissioned agents in California must attend a full eight hour course on long-term care before they can never really broached the subject with a client. You tell me, commission or otherwise, who would you rather use? I'd opt for the knowledge.

ASSISTED SUICIDE: Another study about of physician assisted suicide indicated that "6% of doctors admit they have helped patients die with lethal injections or prescription drugs." Most of these doctors had ended a life only once or twice. However, 18% said that they had received a request for suicide assistance."

EXPORTS: Small businesses account for 30% of U.S. exports.

SENIOR HOUSING: A study by Gulf/Atlantic Valuation Services found the "median price per unit of a freestanding assisted living residence was $59,701 in 1997. The overall capitalization rate for these facilities was 11.39 %. Congregate seniors' housing facilities had a median sales price of $63,793 per unit last year and a capitalization rate of 10.29 %. The median sales price for facilities combining congregate and assisted living units was $79,118 per unit last year, with a capitalization rate of 10.02 %. The study surveyed 224 seniors' housing sales that occurred between 1994 and 1998."

401(K) UNDERSTANDING: (Hearst Business Communications) 83.2% don't know what drives stock prices up and 71.7% don't know what happens to bonds when interest rates change; 79.4% don't know what a GIC is and 68.1% don't know what a money market fund is. Only 31.5% believed their employer provides good investor information.

TOO LITTLE, TOO LATE: SEC Chairman Arthur Levitt gave a "tongue lashing" to the mutual fund industry because it has not properly cautioned investors about "unrealistic expectations". They must "provide investors with complete information in understandable language". Further comments are that"financial illiteracy is very troubling in an era when workers are shouldering a significant portion of their retirement planning through 401(k) plans and IRAs."

But for years I have been after the SEC/NASD regarding the fact that they do NOT require brokers to even be presented the basics of investing as part of their licensing- alpha, beta, correlation, diversification, asset allocation, standard deviation, Sharpe ratio and a few others. Well, if they do not require brokers to know risk and reward, why in the world should they expect the mutual fund industry- who are made up primarily of brokers- to have any insight as to what is needed either? It's sad that the SEC is complaining about a problem they have refused to address for years.

Anyway, the president of the Investment Company Institute also noted that "investors in defined contribution plans, such as the popular 401(k)'s, must receive more information from their plan provider about fees and risks". Sorry- if you are using the standard broker with a Series 6 or 7 to provide investor education, it won't work since they have no understanding even of suitability per se.

STANDARDS: (FSN) "With over 32,000 licensees, the CFP people have their hands full enforcing the CFP standards. The CFP Board of Standards relies on the SEC, NASD and even a newspaper clipping service to provide information about wrongdoing. Sometimes the revocation is well after the fact. A recent revocation was a CFP who had 120 felony convictions."

Literally every revocation is after the fact.

12b-1 FEES: More than 40% of money-market funds--especially those sold through brokers--charge 12b-1 fees. DON'T EVER BUY ONE OF THESE.

WOMEN: Women make 80%+ of the consumer spending decisions in the U.S.

Women have climbed from 3% of management and administrative positions in 1977 to between 35% and 45% today

By 2000, women will own 50% of all small businesses in the U.S.

40% of all medical students are women

STOCK PICKING: So you think you are a good stock picker? Well, 86% of diversified stock funds lagged the S&P 500 for the last 10 years.

Further, Wilshire Associates that you could have made 280.6% the last 10 years (BEFORE costs) by following asset allocation advice of the brokerage firms. But you could have made 286.1% by simply using an allocation of 55% stocks, 35% bonds and 10% cash.

STOCK OPTIONS: Are you a heavy hitting executive that gets company stock options? Some employees have gifted the options to children /other beneficiaries and got the asset out of their estate for a very limited gift tax. But the IRS is saying that the options, when tied to continued employment, are not valued till the exercise date potentially several years later. The value may be substantially different than the original value 3 to 5 years later and the executives/taxpayers may be required to cough up some major taxes. Be forewarned

"People often believe the tape is talking to them."

A stock analyst when discussing how people buy stocks- then wondering what went wrong when their picks went bad.

AND NOW FOR SOMETHING COMPLETELY DIFFERENT: Here is a unique planning "opportunity" for those age 55 and up that have cash value life insurance and an estate over $625,000 and where no long term care planning had been done by husband/wife NOR their children (who will may bear an ultimate responsibility for later care of their parents.) First, one must remember that the insurance is INCLUDED in the estate and will be taxed at around 40%.

Take a look at a simplistic example. Assume a $1,000,000 policy with $400,000 cash. Upon death, about $135,000+ in estate taxes will have to be paid. Why not take out the $350,000 in cash over time to reduce the estate down to the lifetime exemption ($650,000 now growing to $1,000,000 by 2005.) If they gave $20,000 to their son and daughter in law, they have effectively given $28,000. The additional $8,000 is the 40% savings from a lowered estate. But the new couple does NOT take the $20,000 and spend it. They buy MORE insurance on the parents. Say what? What they buy is one of the unique policies that provide life insurance WITH LONG TERM CARE ACCESS. The face value might be $75,000 with a $125,000 value for long term care. If the parents never need it and die, the kids get the $75,000 and there is no estate tax since it is not in the parent's estate. But if the parents need long term care, then the MEC contract can provide nursing home and home health care for an extended period. This provides the children and parents with the ability to cover a financial burden AT A REDUCED COST. Equally important is it provides an emotional security for the children that is hard to value. Whatever you do- review your estate plan to lower taxes- review your long term care to reduce a financial and emotional burden.

LIMITED LIABILITY COMPANIES: (LLCs) have been popular partly because the partners have been spared the 15.3% self-employment tax. But that may change if the Internal Revenue Service has its way. The IRS claims that because of their level of activity in the business, LLC partners are not passive investors and should pay the tax.

HP12C OR SIMILAR: From a recent instructor at the College for Financial Planning- " I spoke with a number of "CFP" students who said that they didn't see the value of learning the time value of money on a calculator since they used a computer at work. I agree with you that if you can't use the calculator, you probably don't know what you are talking about. The process of using the calculator helps you learn what result to expect."

I repeat- if you use a planner, agent or broker that is not universally conversant with a financial calculator, both of you are stupid. You have to know how money works.

HEART DISEASE: 50% of men and 33% of women under 40 will develop heart disease at some point in their lives. If you reach age 70 free of heart disease, you probably will escape the problem altogether. However, you will still die.

HUD: The agency reports that 66.3 percent of all households owned their own home in 1998, or 69.1 million families -- 7.3 million more than in January 1993. About 41 percent of the new homeowners since 1994 are minorities, although minorities make up just 24 percent of the U.S. population.