401k Plan Fiduciary and Performance Responsibility

Anyone who influences the investment product mix should likely be a fiduciary… but only if the selected investment managers are fiduciaries as well.

Yes, that eliminates all Mutual Funds and ETFs, since neither admit fiduciary responsibility. But Mutual Funds, ETFs, and Collective Trusts could be recommended by plan fiduciaries who are not paid for product placement.

Plan sponsors could be required to use: fee only plan advisors, non-product investment education providers, and 3(38) fiduciaries, TPAs and record keepers that help keep all the fiduciary bases covered.

Collective Investment Fund Trustees and Investment Managers are fiduciaries.

If Plan Sponsors do all the above, their responsibility is covered, and plan participants can be responsible for their own investment mistakes… subject to the product alignment rules outlined below.

What happens in the case of an individual brokerage account option within the plan? Are Plan Sponsors responsible for the performance of these portfolios? Perhaps, but just from a qualification standpoint… Rules that impose fiduciary liability on employers will eventually kill defined contribution plans dead!

So how should we deal with investment performance?

What constitutes poor performance, and how can performance be judged when all plan participants will have somewhat different investment objectives and risk tolerances?

If I want an income building, convertible-at-retirement CIF, that’s my choice… investments with income or “working capital” preservation objectives can’t be judged with a market value ruler.

If I get a 50% match from my employer, that’s an annual 50% gain on contributions… my good fortune, my business, my selections. Similarly with cost. If my program develops a convertible, 6% income, portfolio, why should it matter if the expense ratio is higher than with standard 401k income products?

Again, participant’s choice… leave the employer alone.

My solution would be an investment menu “warning system” based on product risk assessment and a system of controls on individual portfolio content.

The menu composition rules and participant selection controls would be based on risk recognition and income production instead of market value history… higher quality plus reasonable income should equal a more secure retirement.

All participants currently have access to  “performance”, “income production”, and “expense” information;  few convert the data into realistic performance expectations, or risk assessments.

A simple warning label could flag high risk products.  Plans must have less than 20% “high risk”  and at least 30% “low risk” opportunities in selection menus containing between 20 and 40 selections.

Participants must select at least 10 products… no more than two “high risk”, no less than three “low risk”. No high risk and all low risk is the “default” within three years of retirement.

No single portfolio position could exceed 25% of the portfolio… any excess would automatically be reallocated among four default positions. None of the “most risky’ products could be “default” choices, and at least one of the least risky must be.

Done. No DOL aggravation required.

For more information, contact a qualified 3(38) fiduciary at either QBOX Fiduciary Solutions or Expand Financial.

How can I recognise a SCAM?

A very good question and here are some tips including information from the Canadian Anti-Fraud Centre. www.antifraudcentre.ca

1. If it sounds too good to be true – guess what?!
You’ve won a big prize in a contest that you don’t recall entering. You are offered a once-in-a-lifetime investment that offers a huge return. You are told that you can buy into a lottery ticket pool that cannot lose. Oh really?
2. You must pay or you can’t play.
“You’re a winner!” BUT, you must agree to send money to the caller in order to pay for delivery, processing, taxes, duties or some other fee in order to receive your prize. Sometimes the caller will even send a courier to pick up your money. No legitimate lotteries use this process!
3. You must give them your private financial information – I think not!
The caller asks for all your confidential banking and/or credit card information. Honest businesses do not require these details. If you are placing an over-the-phone order, be extremely careful when providing credit card information – get the name of the person and an order number and record it to compare with your monthly statement.
4. Will that be cash… or cash?
Often criminal telemarketers ask you to send cash or a money order, rather than a cheque or credit card. The reason is simple – cash is untraceable and can’t be cancelled. Crooks (obviously) have difficulty in establishing themselves as merchants with legitimate credit card companies.
5. The caller is more excited than are you – oh joy, oh rapture!
The crooks want to get you very excited about this “opportunity” so you won’t think clearly. Lottery, “free” vacation, stock tip – the gimmick doesn’t matter. Act in haste, repent at leisure!
6. The manager is calling – don’t we wish.
The person claims to be a government official, tax officer, banking official, lawyer or some other person in authority. The person calls you by your first name and asks you a lot of personal or lifestyle questions (such as “how often do your grown children visit you”). They are trying to get enough information to steal your identity or have another crook try to scam you as a parent/grandparent.
7. The stranger calling wants to become your best friend – so you need more?
Criminals love finding out if you’re lonely and willing to talk. Once they know that, they’ll try to convince you that they are your friend – after all, we don’t normally suspect our friends of being crooks. Hang up and ignore them – HONEST people don’t try to become best friends over the phone or internet or in chat rooms or dating sites.
8. It’s a limited opportunity and you’re going to miss out – good, miss out.
If you are pressured to make a big purchase decision immediately, it’s probably not legitimate. Real businesses or charities will give you a chance to check them out or think about it.

What can you do to protect yourself?
Remember, legitimate telemarketers have nothing to hide, however….
• criminals will say anything to part you from your hard-earned money.
• be cautious. You have the right to check out any caller by requesting written
information, a call back number, references and time to think over the offer. Legitimate business people will be happy to provide you with that information. They want the “bad guys” out of business too. Always be careful about providing confidential personal information, especially banking or credit card details, unless you are certain the company is legitimate. And, if you have doubts about a caller, your best defence is to simply hang up. It’s not rude – it’s smart.

If you’re in doubt, it’s wise to ask the advice of a close friend or relative or contact the Canadian Anti-Fraud Centre, local law enforcement or the Better Business Bureau. Rely on people you can trust. Remember, you can Stop Phone Fraud – Just Hang Up!

What if I suspect that a relative or friend is being targeted by unscrupulous telemarketers?
Watch for any of these warning signs:
• a marked increase in the amount of mail with too-good-to-be-true offers;
• frequent calls offering get-rich-quick schemes or valuable awards or numerous calls for
donations to unfamiliar charities;
• a sudden inability to pay normal bills;
• requests for loans or cash;
• banking records that show cheques or withdrawals made to unfamiliar companies; or
• secretive behaviour regarding phone calls.

If you suspect that someone you know has fallen prey to a deceptive telemarketer, don’t criticize them for being naïve. Encourage that person to share their concerns with you about unsolicited calls or any new business or charitable dealings. Assure them that it is not rude to hang up on suspicious calls. Keep in mind that criminal telemarketers are relentless in hounding people – some victims report receiving 5 or more calls a day, wearing down their resistance. And once a person has succumbed to this ruthless fraud, their name and number will likely go on a “sucker list”, which is sold from one crook to another.

Also, make sure the details are reported to local law enforcement, the Better Business Bureau and the Canadian Anti-Fraud Centre. In addition, add your phone numbers (including your cell and fax) to the Do Not Call List – at www.dncl.gc.ca. It isn’t perfect but it does help.

Internet and E-mail Safety (and security)

In this blog, let’s look more closely at internet and e-mail scams and security.

Knowledge is power – and never truer than when surfing the net. The most common risks are viruses, key-stroke recordings, miscellaneous malware and Trojan horses.

Viruses do the same thing to your computer as they do to us – they make it sick; they can even kill it. Key-stroke recording software is installed by hackers and allows them to record all of your keystrokes with particular attention to usernames and passwords – they love banking, credit card and email access the most. Malware is also malicious as it can take many forms: from tracking your internet use patterns to copying files to a remote computer to erasing key pieces of software. Trojan horses get uploaded and then sit in wait – silently for a triggering date or event and then allow the hackers to take control of your computer and use it for attacking other computers.

The only 100% protection against these threats is don’t surf the net! Now let’s get into reality – hardware and/or software firewalls together with anti-virus and anti-malware software.

Hardware firewalls are called routers and they act as a first line of defence between the internet and your computer and are relatively inexpensive to acquire and are not very complicated to install. Software firewalls are generally a second layer of protection after the hardware firewall. Most reputable commercial ISPs (Internet Service Providers) provide this as part of their customer offering and may reside either on their servers or on your computer.

Anti-virus and anti-malware software is sold by several companies (Norton, AVG, Kasperski, F-secure and MalwareBytes to name but a few). Most suppliers offer free versions of their protection suites but remember if it is free, there is a reason! They are in business to make money and the free versions are teasers only. They do help of course, but don’t provide complete protection, so beware of freebies! Running “in the background” on your computer, they analyse every attempt at both inbound and outbound communication over the internet for suspicious software code and either block or delete access to outsiders. You can control all of these functions through a “control panel” that is installed with this software.

Be very selective on the websites that you visit. Some categories are higher risk for spreading these problems than others – dating sites, erotic picture and video sites together social media are the greatest sources of problems – avoid them!

Rule No. 1 – if you don’t know the sender or you didn’t sign up for any e-mail notifications from stores or websites, DON’T OPEN IT! The “Nigeria” scams and grandchild scams are run constantly on e-mail as are Lottery scams of various types.
Rule No. 2 – see Rule No. 1.
Rule No. 3 – ensure you have a full-version of both anti-virus and anti-malware software installed on your computer that gets automatic signature updates – preferably daily – to stop evolving threats. If you follow these 3 rules, you are going to be safe 98% of the time.

The final 2% is chain-mail – the electronic version of old chain-letters – if you get one, regardless of the identity of the sender, do not forward it – even if it is from a close relative or friend – don’t!

A great reference book on scams is from the Competition Bureau of Canada – The Little Black Book of Scams – click here to get there immediately. The Canadian Anti-Fraud Centre has a website that is all about various scams and identity theft. Click here – Canadian Anti-Fraud Centre Home Page.

I’m Mad As Hell! – Confessions of a Widow

Richard (Rick) Atkinson, MBA

After a recent presentation, a member of my audience named Edith spoke privately with me. She informed me her husband Fred past away six months previously. Then Edith added “I’m mad as hell!” When asked the reason for her fury, she said when Fred was alive he regularly met with a financial advisor and the two of them made money decisions impacting both he and Edith. Edith was informed after the fact, by her husband, regarding what was decided but with little or no explanation. According to Edith, Fred ended each conversation with the words, “Don’t worry sweetheart, I’ll take care of you.”

After Fred’s passing, Edith said she was left with the task of picking up the financial pieces. Not only did she have a time finding Fred’s financial paperwork, she didn’t understand Fred’s notes or the rationale for decisions.

After gathered up what papers she could find, Edith said she met with the financial advisor Fred regularly dealt with. At the meeting, Edith said the advisor quickly summarized the years of discussions without regard to Edith’s lack of financial understanding. She said he used unfamiliar terminology and spoke in a rather abrupt manner. Several times, the advisor said, “You do understand, don’t you?” Edith said this made her feel inadequate and humiliated.

At the conclusion of our chat, Edith added, “You know Rick, though I’m mad as hell at Fred, I’m also mad at myself.” On asking why, she said, “I should have insisted at being present at each meeting with the advisor, asking my questions and getting answers which satisfy me. Unfortunately I didn’t and this makes me very angry.”

I mention the conversation with Edith because I believe she represents many spouses/partners who defer financial decision making to their mate. Financial Education is Key!

For years Edith relied on her husband to determine the financial wellbeing of she and Fred. Unfortunately, for Edith her behaviour of shirking financial responsibility played havoc and is forcing Edith to ‘get up to speed’ with her financial situation and plot a course of action aimed at solidifying (and possibly improving) her future as a single retired woman.

Turning the clock back, Edith could have prevented her frustration by insisting on being present at every meeting with the financial advisor. Further, she would have benefited by educating herself on financial terminology, investment products available and their advantages and disadvantages, asking questions and insisting on receiving explanations and answers which satisfied both she and Fred.

Where to Start

For women (also men) who want to feel empowered when it comes to financial matters, here is a partial listing of actions you may wish to consider:

(a) Investigate enrolling in a course on investing offered at your local community college and boards of education night school programs.

(b) Read the business section of your local or regional newspaper for useful economic and financial information. Three of my favourite financial writers are:

Ellen Roseman and Gordon Pape of the Toronto Star and Rob Carrick of the Globe and Mail.

(c) Use the Internet to search for investment information, commonly asked questions, trends, economic thinking and the like.

(d) Read published reports and investment newsletters offered by financial institutions and private organizations.

(e) Attend business shows. One show I’ve participated is the annual MoneyShow held in major centres across Canada.

(f) Read books and magazines for investment information and tips. Two magazines find appealing are: Canadian Business and Money Magazine.

(g) Join an investment club or discussion group. Check your local library for information on the availability of such clubs and groups in your area.

Consequences of Financial Literacy

By increasing one’s financial literacy, the payoffs are many including:

• Avoiding making financial mistakes through exercising informed decision making.

• Increased ability to make projections about future variables (i.e. income growth, inflation).

• Increased self-confidence when dealing with financial institutions and personnel.

• Better understanding of financial products including costs and benefits.

• Increased personal and household budgeting.

• Better debt management.

Women I’ve met who consider themselves financial literate report they feel an increased sense of control; something they did not experience prior to understanding the complex world of money.

To this day, I wonder what steps Edith has taken to dispel her feeling of anguish. Is she feeling confident when meeting with her financial advisor, is she more understanding of her financial situation and better equipped to face life? I do hope so.

What are you doing to improve your financial literacy?


Most sales people have no idea why their customers buy. They assume that customers buy for their reasons, when in fact the opposite is true. In fact, customers buy for their own reasons.

Here are some key ideas to remember about why customers buy.

1. EMOTIONS FIRST. The root of any buying decision is an emotional response based on perceived value or filling a need. Therefore, the actual decision to buy is almost always emotional.

Estate to the Heart by Edward Olkovich EstateTherapy dot com - Copyright 2014

2. HOT BUTTONS. Hot buttons are unique to each person and are perceived differently by each customer based on what makes them feel good or meets their emotional needs. The master sales person finds those real benefits and emotional needs and pushes the hot buttons that result in a sale.

3. BUYING SIGNALS. During the sales process a client communicates specific buying signals, Wood-Young notes. “Everything the customer does, or does not do, is a buying signal. Successful salespeople learn how to read and intuit these signals and use them to build a profile of customer buying behavior.”

4. THE BUYING TEAM. Successful sales people work well with multiple buyers and decision-makers by identifying roles, concerns and issues. What does each person bring to the sales transaction? What is their role in the buying process? What are their hot buttons?

Engage customers in areas that bring to the surface the mechanics of their buying process. Ask your customers, why do you buy? The answers will show that the customer or prospect is often thinking the following:

– Can I trust the salesperson?
– I don’t have time for this.
– I don’t want to hurt the salesperson’s feelings.
– What are his or her motives and intentions?
– Is it safe to open up?
– Everything is OK the way it is now, so why change?
– There may be a problem, but what the salesperson is offering isn’t the solution. I want to find my own solution.
– How can I postpone this buying decision?
– The salesperson’s solution is too risky.
– The benefits don’t outweigh the risks
– There is no solution to this problem.
– I’m not convinced I need to buy.

5. ASK FOR THE SALE. Finally, the sales master asks for the sale. Most salespeople never ask for the sale because they don’t think the customer wants to buy when in fact the customer is wondering, ‘How do I buy?’ Remember, people buy based on benefits defined by them, not by their salesperson.

By: Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. He can be contacted at mark@mercantilema.com or www.mercantilemergersacquisitions.com. Mercantile is a mid market M&A brokerage firm.

Death Bed Advice….

These were some words of wisdom told to me by a client that had to sell his company from his death bed. He and his family dictated these pieces of advice in one long visit. Not sure where they got them, but I wrote them down while he was dying.

I wanted to share them with you.

1. Life isn’t fair, but it’s still good.
2. When in doubt, just take the next small step.
3. Life is too short to waste time hating anyone.
4. Don’t take yourself so seriously. No one else does.
5. Pay off your credit cards every month.
6. You don’t have to win every argument. Agree to disagree.
7. Cry with someone. It’s more healing than crying alone.
8. Save for retirement starting with your first paycheck.
9. When it comes to chocolate, resistance is futile.
10. Make peace with your past so it won’t screw up the present.
11. It’s OK to let your children see you cry.
12. Don’t compare your life to others. You have no idea what their journey
is all about.
13. If a relationship has to be a secret, you shouldn’t be in it.
14. Life is too short for long pity parties. Get busy living, or get busy
15. You can get through anything if you stay put in today.
16. A writer writes. If you want to be a writer, write.
17. It is never too late to have a happy childhood. But the second one is up
to you and no one else.
18. When it comes to going after what you love in life, don’t take no for
an answer.
19. Burn the candles, use the nice sheets, and wear the fancy lingerie. Do not save it for a special occasion. Today is special.
20. Over prepare, and then go with the flow.
21. Be eccentric now. Don’t wait for old age to wear purple.
22. The most important sex organ is the brain.
23. No one is in charge of your happiness except you.
24. Frame every so-called disaster with these words: “In five years, will
this matter?”
25. Always choose life.
26. Forgive everyone everything.
27. What other people think of you is none of your business.
28. Time heals almost everything. Give time.
29. However good or bad a situation is it will change.
30. Your job won’t take care of you when you are sick. Your friends will. Stay in touch.
31. Believe in miracles.
32. Whatever doesn’t kill you really does make you stronger.
33. Growing old beats the alternative — dying young.

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile is a mid market M&A brokerage firm. Mark can be contacted at mark@mercantilema.com or www.mercantilemergersacquisitions.com

Is there such a concept as “corporate ethics”?

Much has been written and said recently about an apparent lack of ethics in many segments of our society – in particular our politicians, political appointees and corporate executives. As the political side of this issue is well discussed in the forthcoming issue of Money Magazine, I am going to visit corporate ethics here.

I think the first issue is to answer the question – is there such a concept as “corporate ethics”? I have thought about this a great deal and have come to the conclusion that no – there is no such thing. Corporations don’t think as entities – they merely reflect the ethical values and personal principles of the decision-makers – whether that is a single person in a small company or an entire Board of Directors or members of the so-called “C-suite” for larger national and international businesses.

I find the notion of corporate ethics and responsibility inextricably linked back to those same issues on a personal level for the individuals involved. A corporation doesn’t decide to do anything – the people that control the corporation make the decisions and they should be the ones that pay the price.

Public censure, fines and other forms of discipline assessed against companies only penalise consumers, employees, and in some cases, shareholders. These approaches are punitive and don’t change the fundamental behaviours, beliefs and attitudes of the decision-makers that are involved.

As a result of some financial imprudence (you can provide your own personal interpretation of that statement) in the mid-to late 2000s, some companies were labelled as “too big to fail” and the executives who caused the problems labelled as “too big to jail”. What nonsense – particularly the second part about jailing those responsible for the most egregious acts.

The negotiated settlements see some people parting with, what appears to be large amounts of money – the reality is something very different, unfortunately. Yes they part with some millions but those millions pale into ignominity in consideration of the deliterious effcts of the actions on businesses, consumers, employees and unsuspecting investors. These people deserve nothing less than being stripped of 100% of their ill-gotten gains (both cash and assets), jailed for terms involving double-digits (with no early parole and no “Club Fed”-style prisons) and a permanent world-wide ban on further business activities other than as a consumer.

Harsh? YES. Too harsh? You can judge. What I do know is these people with their suspended or nominal sentences are not being dealt with in an appropriate manner and the “punishment” is certainly not a deterrant.

Does your advisor have a Succession Plan? Your right (and obligation) to know!

My previous blog touched on the subject of understanding that your advisor is legally required to take continuing education to maintain their licence or registration but in this instance, there is no obligation for an advisor to have a Succession Plan and you may be the one that suffers the consequence!

Any financial advisor will preach the importance to any business owner about having a proper plan that is properly funded to ensure that they, their family, their employees and their customers are protected in the event they can’t work anymore. For some reason, customers come last but should that be the case for financial advisors? Certainly each advisor has the right (and obligation) to ensure that they and their family are properly protected in the event something happens that leave the advisor unable to work – that is just common sense. However, don’t you as a client/consumer/customer have the right to ask your advisor that question – with the added caveat of “if you aren’t here, who is going to look after my accounts and ensure my plans are achieved?

After all, you have trusted your advisor with probably more information about yourself, your family, your business, your health – than anyone else with the possible exception of your spouse! You have allowed them to put in place for you a long-term plan so you and your family can achieve your goals – but if they aren’t in the business – then what? Don’t you want to know they have a plan in place to bring on a new advisor to take over and still ensure your goals are met – if they are sick, critically injured, retire or pass away? Are you prepared to start again from scratch with another advisor? You spent a lot of time and energy developing that trust – do you want to go through that again?

I urge you to ask your advisor about their plans. Ask to meet their planned successor. Satisfy YOURSELF that you are dealing with an advisor who truly has their “act together” and follows the same advice they may have given you.

No-one is immune to the risks of life and nothing will ever be 100% certain however you have an obligation to yourself to ensure that you have an advisor who believes in following their own advice to clients. You can’t abdicate that responsibility!

Is your advisor staying current? Ask about their Continuing Education credits!

Many people are still unaware that all licensed or registered advisors have to complete a certain minimum amount (usually hours or credits) of Continuing Education – called CE Credits – each year in order to continue their licensing or registration. This is very good news for the consumer – or is it?

I wish I could state with absolute certainty that this is good news – but I can’t. One of the challenges of the Canadian System is there is no central body that sets the requirements in terms of hours needed, nor is there consistency on the type of education or training that qualifies. Each Province and Territory sets their own standards and some are well defined while others lack clarity or specifics. Some SROs (self-regulatory organisations) do set standards but again, they are not consistent. Ah that this would change – for everyone’s benefit!

I doubt you will find any advisor or manager that disputes the need for regular updates on products, taxation, international treaties, etc. However some advisors take a more laise-faire approach than others. For example, learning about the technicalities of products is obviously important so that consumers can be assured their advisor is giving them proper recommendations but is that really furthering their “education”? For some regulators the answer is yes while for others the answer is no – so who is right? Ask 20 advisors and you are likely to get 20 differing opinions – not that this would be a real surprise of course.

I have my own feelings, unsurprisingly, and they are rather fundamental to my own belief system – product information is training – it is not education in my opinion – and therefore shouldn’t count for CE purposes, anywhere.

Regardless of that statement, what I do believe very firmly is that consumers have a right to know what regular education their advisor is receiving. Are they current on the advice they are giving or are they 2 or 3 years behind (product training notwithstanding)?

I urge everyone to ask ALL of their advisors at least once every two years to describe the Continuing Education they are taking – you deserve to know!

Is the General Practitioner a dying breed of Financial Advisor?

In my last blog, I introduced the concept of “strike teams” as a potential solution to the solo advisor trying to be “all things to all eople at all times” – which is, of course, an impossibility.

So what is a “strike team”? STs are groups of advisors – each with their own specialty or specialties – that work together as a team with EVERY client they each bring to the table. Clients and prospects are introduced to the entire team and the engagement is for the entire team. In the ideal world, this team would include specific formal business arrangements with an accredited mortgage broker, a business and personal banker, one or more CAs or CGAs and lawyers (or law firms) that cover all needed areas of professional practice.

I believe that both eisting clients and prospective clients have the right to expect full service from their advisors with the exception of those advisors who choose to hold themselves out as specialists in only 1 area of practice – and the clients know this and understand they have to go elsewhere for the balance of their financial needs. I believe advisors do a dis-service to themselves, their clients and the industry when they try to convince everyone they can do it all – it just isn’t possible, so why pretend?

I don’t see this as a need for every advisor to run around and find like-minded colleagues with whom they can immediately form this type of team. However, I firmly believe this is the way forward for advisors who wish to be at the leading edge of this profession. In closing, I am reminded of a statement I heard about the difference between generalists and specialists (from a few decades back I am afraid but it is even more true today):

A generalist learns less and less about more and more until they know nothing about everything while a specialist learns more and more about less and less until they know everything about nothing.