Salesmen and Pressure

A few moments ago, I received a phone call from a distraught client about an issue that was in part financial and in part about the need for some home repair (yes, it is Saturday evening).  The client's air conditioning unit had failed, and the HVAC technician, in the process of evaluating that problem, somehow introduced a plumber into the discussions.  The cost of the repairs quickly escalated beyond what the client expected.  The client and her husband were being pressured into making decisions immediately to follow through with the repairs, and pressured into taking the "same as cash, 12 month payment plan" option.

The client had also had some health issues over the last month, and that added to her stress.  She called me wondering what to do about this salesman who was pressuring her into making a decision tonight.

I told my client that she needed to tell the salesman that she "needs to sleep on this" and that she would "phone them next week concerning her decision."  I told her that if she wanted me to speak to the salesperson directly that I would be glad to do so on her behalf.  I also told her that I could put her in touch with a general contractor who might be able to provide another estimate.

Takeaways:  Do not let salesmen pressure you into making a snap decision. Gather up other quotes before hiring someone to do the work.  One part of financial management is making sure that you are receiving quality service at the lowest price possible.  This is one scenario in which requesting multiple quotes will help you receive quality service at the lowest price possible.

Another point is that your financial advisor may or may not be available during evenings and weekends.  If you desire such availability, make sure that you have discussed this in advance with your advisor before you make a decision to hire them.

A Checklist for Surviving Spouses

This article from Morningstar gives a great checklist for surviving spouses -- men or women whose spouse has passed away.  It is also a good article for executors who are responsible for managing the estate of any person, including non-spouses.

http://news.morningstar.com/articlenet/article.aspx?id=383820&part=1

Essential Reading for Investors Thinking About Investing in Structured Notes With Principal Protection

Structured products are on the regulators' radar, as I mentioned in a previous post:

http://labradorinvestments.blogspot.com/2011/06/finra-boss-discusses-structured.html

Most individual investors (people like you, your family and your friends, as opposed to institutional investors such as banks, trust companies, hedge funds and investment advisors) do not understand these complex products.  FINRA (the Financial Industry Regulatory Authority), a regulator that was formerly called the NASD (National Association of Securities Dealers), has prepared an excellent, readable and understandable summary of a product called Structured Notes With Principal Protection.

http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/Bonds/P123713?utm_source=MM&utm_medium=email&utm_campaign=Investor_News_060911_FINAL

I urge anyone who might be approached by a broker touting these products to read this summary.

Big Banks on Moody's Radar for Possible Downgrade

In what appears to be a dyspeptic moment, Moody's, a nationally-recognized bond rating organization, has put several of the biggest U. S.-based banks on its radar for a possible downgrade of their credit ratings.  The reason:  Moody's is skeptical that the U. S. government will bail out these banks should they get into financial trouble again in the future.

Bank of America, Citigroup, Wells Fargo, J.P. Morgan Chase & Co., Bank of New York, Goldman Sachs Group, Morgan Stanley and State Street Corp. are all affected.

http://online.wsj.com/article/SB10001424052702304563104576361353111885360.html?mod=djemTAR_h

Moody's action may increase borrowing costs of these banks, which would have a ripple effect throughout the economy as the banks scale back their lending or increase interest rates and fees that they charge to customers.  This action by Moody's may or may not have a meaningful impact on the U. S. and global economies going forward.  But it surely does not help sustain any economic recovery that now is under way.

CFA Credential is Very Popular in Asia

 As many of my clients and friends know, I am a Chartered Financial Analyst.  This designation was first awarded in 1963, and the purpose of the exam was to elevate the ethics of the investment advisory profession and to show that the CFA has demonstrated mastery over a wide range of subjects with a fair degree of depth.  Subjects generally include Ethics, Quantitative Methods (i.e. statistics), Economics, Financial Statement Analysis (including an understanding of accounting at the Advanced Accounting level), Fixed Income Securities (i.e. bonds, or debt securities) -- analysis and valuation of these securities, Equities (i.e. common stocks) -- analysis and valuation of these securities, Portfolio Management (i.e. managing investments for individuals and institutions) including development if Investment Policy Statements (IPS) and purchasing investments to meet the requirements of the IPS, and Alternative Investments (Real Estate, Mutual Funds, Derivative Products, etc.)

This article discusses the fact that growth in the number of CFA candidates has surged in Asian markets but is rather flat in the US.
 
http://www.fins.com/Finance/Articles/SB130686424931820513/Asian-CFA-Registrations-Surge?Type=0

FINRA Boss Discusses Structured Products

If you deal with a broker (or, less likely, an investment advisor) who is discussing whether or not a so-called "Structured Product" is suitable for your portfolio, the following article is for you.  This article deals with the need for hightened scrutiny of brokers who suggest the purchase of structured products for client portfolios to assure that these products are suitable for clients.


What are structured products?  These are complicated and artificial products (not securities) that do not directly relate to specific companies.  To me, they are like the plastic cheese that is sold in some grocery dairy cases.  They do not represent the "real" thing that you are trying to purchase and consume.  They are also fraught with risk, and are very profitable to the brokerage firm that is hawking the structured product.

Many times, structured products are so-called "derivative" instruments, meaning that their price is "derived from" some other asset (such as commodities) or security.  Structured products can use leverage, meaning that the investment returns are amplified by using debt to purchase additional exposure to the investment that is supposed to influence the price and investment returns of the structured product.  For example, if you put $1 into an investment in a structured product that uses leverage, the manager of the structured product may borrow money from a bank to increase your exposure to whatever the structured product's performance is intended to shadow.

I believe in keeping things simple:  invest in securities that you understand and that bear a direct relationship to the company or government that you are wanting to invest in.  Common stocks are pretty simple:  they represent an ownership interest in a publicly-traded company.  Owners of common stocks are part owners of the business and share in the profits and dividend distributions of the company.  Debt (or bonds) are investments in which the issuer (a government, agency or corporation) promises to pay to the investor periodic interest payments as well as the original principal value of the investment at maturity, if not before (in the case of callable bonds).  There are some complicated bond contracts (or "indentures"), but generally speaking, if you buy a plain vanilla bond, you know what you are getting.  Cash equivalents are securities that mature in  year or less.  They are commonly found in money market mutual funds and are also available for sale at brokerage houses.


http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20110524/FREE/110529972

If a broker recommends a "product", especially a "structured product", I recommend running away as fast as your feet can carry you.  They are typically inappropriate for an individual investor.  The brokerage firm, and your broker, are likely to be paid a nice commission for selling the product to you.  So think twice if your broker recommends "products" to you.