The Four Investment Topics That Generate The Most Hate MailAdvisor Perspectives
Not too long ago, I was on an investment panel at the Bogleheads conference where another panelist implied I am motivated by hate mail from the insurance industry. I don’t enjoy receiving hate mail, but I do view it as a sign that my columns in the media are opening a dialogue, albeit at times insulting and hostile.
But there’s no amount of trolling that will cause me to shy away from my positions.
Here’s a sampling of those unflattering comments (spelling left as is):
- Even a baboon knows better than you
- You’re a loser too
- You’re uneducable
- Remove this article now or I’ll sue you!
The cause of my hate mail can be divided into two categories – I’m harming a planner’s ability to make money (the first two examples); or I’m pointing out a hole in a “can’t miss/get rich” scheme for the investor (the other two). Those topics are the four biggest hate mail generators.
Insurance investments (a.k.a. “permanent” insurance)
Easily in first place is mixing insurance with investing. That includes fixed-indexed annuities (rebranded from equity-indexed annuities), various universal-life policies, whole-life and even some fixed annuities like SPIAs. I’ve even had a regulatory complaint brought against me by an agent who didn’t like one of my articles. It was dismissed.
Insurance companies can invest in the same types of investments as other institutions and individuals, which is why I consistently advise using insurance companies to buy insurance and separating insurance from investing. That’s so consumers don’t have to pay for the unnecessary intermediaries, also known as the insurance companies and agents (a.k.a. brokers).
I point out flaws and misleading statements from the insurance industry to try and help consumers, though I also understand I’m hurting agents’ ability to make more commissions and I understand they have families to support as well. It isn’t my purpose to hurt the agents but rather a consequence. In fact, I even had a very large insurance company send three executives to my home town to educate me. When I asked six questions about their fixed-indexed annuities, things went south fast and their responses weren’t that much different than my hate mail from insurance agents.
Paying off the mortgage
A mortgage is the opposite of a bond. When you buy a bond, you are lending money and getting interest and hopefully your principal back. The mortgagor is paying interest and the principal back and that happens irrespective of whether the house value increases or declines, making paying it down risk-free. It makes no sense to borrow money at a higher rate than can be earned through other, risk-free investments. That’s why, for many years, I’ve been telling advisors to tell clients to pay down the mortgage, assuming they have enough liquidity.
The new tax law makes this even more compelling. State and local tax deductions (SALT) are now capped at $10,000 a year and the standard deduction is now at $24,000 for married filing jointly. Thus the next $14,000 of interest deductions above that may be providing no tax benefit, depending upon other deductions such as charitable contributions. Yet the client is paying income taxes on their interest from taxable bonds and perhaps even the 3.8% investment income tax as well.
But advisors lose out with this advice since they have fewer assets to charge on, whether it be a fee-only, AUM or commission-based model. I’ve had conversations with brilliant advisors who didn’t accept the simple logic that, after taxes, you don’t want to borrow money at higher rate than your ultra-low risk bonds. Why didn’t they grasp this simple logic? Perhaps Upton Sinclair explained it best when he famously said “It is difficult to get a man to understand something when his salary depends on his not understanding it.”
Read the full article here by Allan Roth, Advisor Perspectives