032 A Bit More Communesque?

(Complete Show Notes Below)

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In the 32nd episode of the Financial Procast:

Stockton, California Shifts the Paradigm for Muni Bond Safety

You may have heard that Stockton, California has filed for bankruptcy protection in the last couple of weeks. What you probably haven't heard much about is the battle that's taking place in regard to the bondholders and the plan that the city has presented to come out of bankruptcy.

At issue is the fact that Stockton has $500 million in outstanding debt and is continuing to pay some $30 million to CALPERs (California Public Employess Retirement System) on an annual basis.  The bondholders are arguing that all bonholders should be made whole ahead of any payments to CALPERs and city officials argue that the pension obligation is not a debt as such.  Either way, it's shaping up to be an interesting debate and one that we should all monitor closely.

This debate underscores something that we've been saying for quite some time–you must pay close attention to the underlying fundamentals of any investment that you make.  Our guess is that most of the folks who bought the municipal bonds issued by Stockton had very little knowledge of the pension obligations the city had and where that position fell in the order of subordination.

 

MetLife Sheds Two of its Independent Broker-Dealers

Seems that more life insurers are looking for ways to exit the b-d business…can't say that we blame them.  This business is probably something that most companies should never had really been involved in the first place but greed blinded them years ago into believing they could be a “one stop shop”.

In the end, revenue steers the ship and executives see that there's just so little money to be made in this business for the risk that accompanies it.  We think that you're likely to see more consolidation in the broker-dealer industry before it's all said and done.

 

The IRS Debate Over Health Insurance Exec Compensation

At issue is Section 162(m)(6) of the IRA (Internal Revenue Code), part of the law created by PPACA.  It seems that section 162(m)(6) creates a prohibition for “covered health insurance providers” from deducting anything in excess of 500k in compensation paid to “applicable individuals”.

Here's an excerpt taken directly from the code itself the defines “covered health insurance providers”:

For taxable years beginning after December 31, 2012, section 162(m)(6)(C)(i)(II) provides that the term “covered health insurance provider” means any employer that is a health insurance issuer as defined in section 9832(b)(2) and with
respect to which not less than 25% of the gross premiums received from providing health insurance coverage

And thus the problem with passing legislation that no one understands.  Legislators seem to always think in terms of a linear function when the issues are more along the lines of a geometric progression.  We'll all keep our eye on this closely as the precedence could have far-reaching implications for all business.

 

Principal Says You Need a Dreamboard

We think dreamboards are hokie…there I said it.

Yeah this sort of thing may work for some people in some circumstances, but we've yet to encounter anyone working toward retirement who we thought could really benefit from a dreamboard.  Nor have we have considered asking our clients about their dreams…that's something personal and we trust that they probably would like to keep it that way.

Perhaps we're wrong but we continue to believe that most people would rather have competent financial advice rather than someone they can get all warm and fuzzy with.  However, if you'd like to check out what Principal has in mind for you visit their dreamboard site.

 


2 Responses to “032 A Bit More Communesque?”

  1. Jeff Hexter says:

    Personally I’m not a dreamboard maker (though I think I grasp the utility of them and may make mine some day)… But the whole idea that a business – any legal business – cannot count as a business expense certain compensation paid to an entity under their employ – is just plain wrong.

    • Brandon Roberts says:

      I may have came down a tad hard on the dreamboarders. It’s emotional baggage from my career agent days. To explain a tad more, my experience with the career agency system was pretty usual. A sales manager pursues bright individuals with decent jobs prospects luring them in with champaign dreams and caviar wishes.

      Then, after said individual leaves their somewhat stable and okay paying job to become a financial “advisor” they quickly discover it’s a sink or swim business, and someone tied a 500lb weight to their feet.

      When they turn back to that sales manager looking for help and asking about all those perks he mentioned during the interview process, mum is pretty much the word. But he does suggest making a dreamboard and becoming inspired. Maybe that’ll make the fact that you can no longer make your mortgage payments a little easier to deal with. The ones who came in with a wife and kid at home made my stomach turn the most.

      So, this idea comes with a negative emotional response from me out of the gate. Plug it into financial planing and it draws too close to emotive appeals. And anytime things get emotional, manipulative sales tactics are typically soon to follow. I know a guy who has been in the car sales business for a while. His strategy for those who come in from a very logical point of view is to piss them off. His claim is experience taught him the exact emotion doesn’t matter. All you need to do is get someone to operate on a higher emotional level and they’ll begin to do things that throw logic in the backseat. And at that point, you have an opening.

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