How much is that Guarantee in the window?“The fact that a great many people believe something is no guarantee of its truth.”- W. Somerset MaughamGuaranteed income for life! This is the marketing cry of the insurance industry, and emotionally it has a lot of appeal. The soothing comfort implied is so enticing that there are actually proposals from the Obama administration to encourage Americans to buy annuities with their retirement savings (see:  Retiree Annuities May Be Promoted by Obama Aides – Bloomberg,  January 8, 2010). I guess this is what happens when the government owns an insurance company.Even The Wall Street Journal has fallen prey to this marketing ploy as exemplified in the story, Locking in Future Income – December 9, 2009. In this story about variable annuities, the WSJ does a reasonable job of disclosing the “very steep fees” (the price of the guarantee? …not really as you will learn) and that you can’t get the guaranteed amount in a lump sum. They also warn about the complexity of these products and offer a summary of additional warnings. But, a favorable message about the value of the guarantees in the “timing” section of the article stated: “If, for instance, the market falls sharply just after you buy and your underlying funds take a dive, the guarantee could prove quite valuable.”Read More

Broken Beliefs and Uncertainty’s Heavy HandI recently had the displeasure to have to terminate an agreement with an advisor we have been working with for the last year or so. I had to terminate him for ethical reasons, but he didn’t understand those reasons. You see, he had a “belief” that he steadfastly promoted without acknowledging the uncertainty introduced by his belief in his communications with clients. His preference was to defend his belief instead of simply acknowledging the uncertainty. Instead of objectively examining the circumstances where his belief would have failed to deliver the value he explicitly represented to clients that it “should” deliver, he focused only on data that showed it added value, ignoring contradictory data and evidence.It is common in our industry to communicate beliefs with clients. Understand that most of these beliefs are just exactly that…something one believes in that may not necessarily be factual. If it was factual, we wouldn’t call it a belief, we would state it as a proven and irrefutable fact. Often advisors articulating their passion about a belief will cross this line and mislead clients leaving an impression that their belief is an irrefutable fact. With the uncertainty of everything we do with our clients and the uncertainties of the future, there are few things we can factually say other than things are uncertain. So where do we cross the ethical line when communicating with clients? When does explaining the rationale behind why we believe in something cross the boundary line of ethics into making misrepresentations or misleading our clients?Read More