PII: 1057-0810(92)90002-T


Letter to the Editor 

Rick Keamey indicated that you might want some practical feedback from a 

practicing Financial Planner on your first issue 

As an academic journal it may be fine, but from a practical standpoint, I did 

not find it very helpful. I have been in my business for 10 years and the financial 

field for 15 years. I hold an MBA, a CLU, a ChFC, and numerous securities licenses 

including two principal’s licenses. I am a member of the IAFP’s Registry, and serve 

on its National Advisory Council. My firm is also a Registered Investment Advisor 

with both the SEC and the State Of Florida. All that to say that I have worked at my 

profession and have to deal with the practical realities, but do not presume to criticize 

your efforts in any regard except in that slanted respect. I have no idea of who your 

target audience is-only that Rick said my viewpoint might be helpful to you. In 

that regard you are welcome to it for what it is worth. 

My world is one of constantly shifting laws (10 major tax acts in the last 15 

years), perennially evolving financial products, volatile economic conditions, abys- 

mally basic levels of consumer sophistication, and shrinking compensation patterns. 

The level of consumer sophistication is a major source of liability in my business. 

All the product fields are highly regulated even if enforcement and thoroughness of 

fee-only-delivery of advice is not. In any case, the expectations of the client are 

often more than can be reasonably delivered. A major concern is to convince the 

client that while an advisor can help quantify and analyze a risk for them, he cannot 

accept the investment risk for the client. Law suits are rampant and the cost of 

defending them can bankrupt a completely honest and diligent practitioner even if 

he wins. 

Yet, the client does not want generalities and abstractions. He wants practical, 
specific direction. Unfortunately, he often bases subsequent evaluations on sudden, 

unforeseen current economic changes, peer pressures or contradictory input from a 
neighbor, financial vendor or competitor. 

But, back to your Journal. The first article on the “Game of Life” is not viewed 

as a game by the consumer as indicated above. Comments such as “clearly the family 

wants return after taxes” ignore the fact that the majority do not recognize the 

distinction, and for many of them in the minimum bracket, total return may more 

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nn FINANCIAL SERVICES REVIEW, 2(2) 1993 

often determine product selection. My comments above dictate the futile nature of 
the first article to me. 

The pension article would be straight forward, except that it ignores a number 
of realities. First, investment choices are frequently uninformed or simply do not 
do well due to changing parameters. Stocks of any kind that have losses cannot be 
deducted inside a plan. That tends to argue for “safer” and the more income-oriented 
assets of the overall portfolio to be placed in the shelter. Since there is not significant 
distinction between ordinary income and capital gains at this time, it is a stretch to 
assume the capital gains exclusion will come back in light of deficit problems. It is 
obvious to anyone that the sheltered nature of gains and current favorable treatment 
of retirement distributions make sheltered plans the vehicle of choice. There are also 
less obvious benefits, such as the creditor protection characteristics and ability to 
purchase permanent life insurance with before-tax dollars. The early distribution 
penalty is a real deterrent for those who may not yet be otherwise financially secure. 
The individual risk profile is a key determinant in any investment decision. I do not 
necessarily agree that it is in every individual employee’s best interest to make 
individual decisions. It increases transaction and administrative costs. In addition, 
the level of financial sophistication and who contributed the money are also 
important. 

The next two articles seemed to have no conclusion or hypothesis of any 
consequence. The conclusion of the check writing article that consumers will always 
respond to pricing, is certainly not a surprise to anyone. 

The disability article was very thorough and well-researched. The question 
posed failed to recognize that the individual disability product is principally a white 
collar, largely professional, occupation-oriented product. Evaluation of claims and 
costs must be largely experienced rated on a historical basis. In fact, a couple of 
large, older carriers dominate this market because of their specialization and 
disability claims base. 

It is easy to refer to optimal product allocations, but the reason those selections 
are not made by formula on a daily basis is that the “optimum” is different for every 
individual, and what is optimal today is never optimal tomorrow. The variables are 
always too varied. 

I am afraid I always lean to the specific and transferable ideas that can be 
explained as simply as possible to my clients. Good luck with your Journal. 

Best Regards, 
Michael M. Cain