Due to operating difficulties with Spaces, I have moved my blog to http://beamemphis.blogspot.com/

Financial Planning

By Richard K. Fullmer

October 1, 2008

The year 2008 is shaping up to be a nasty year in which to retire. ...

Soon-to-be retirees who saw the market take huge bites out of their investment portfolios in just 11 months' time must surely be confused by the wide divergence of opinion on the appropriate exposure to equities going forward. ... So a natural question is: How should retirees configure their portfolios for the long term, while not exposing themselves to inappropriate risk?

...Retirees ... must consider two conflicting elements of risk—the risk of outliving the portfolio because it shrank in a down market and the risk of losing pace with long-term inflation.
It's time we turned conventional wisdom on its head. A common argument is that portfolios with conservative asset allocations may not provide sufficient investment returns in retirement. Even if true, this argument does not mandate that investors should be invested aggressively over the entire retirement period. ...

But this could mean taking the most investment risk precisely when it is most perilous to do so. Counter to conventional wisdom, longevity risk can be reduced, on average, by planning for a more conservative portfolio early in retirement and a more aggressive portfolio later. ...

The Volatility Bow Wave Effect
It is well documented that people are living longer. ... For retirees concerned about fully funding their golden years, the proper asset allocation depends not so much on their tolerance for investment risk, but their tolerance for longevity risk. What most retirees really care about is not going broke.

When a ship plows through water, it creates a bow wave, a V-shaped curl of raw power. [Naval] architects attempt to reduce a vessel's bow wave because it can sap energy and reduce fuel economy. ...

The volatility of investment returns is like a bow wave that can sap energy from a retiree's portfolio. ... Reducing the volatility of return at the beginning of a portfolio's distribution period by allocating assets more conservatively helps reduce the bow wave effect, enabling the portfolio to "plane over" rough periods in capital markets.

...Volatility is more bearable in the accumulation phase when the investor has more options available... It is much less bearable in the distribution—or decumulation—phase, when these options are not likely to be available. Further, the impact of volatility is lessened during the accumulation phase because the dollar-cost averaging (DCA) that occurs as a result of making periodic investments throughout the accumulation phase has beneficial effects to the investor.

Unfortunately, during the decumulation phase, the often-promoted benefits of DCA disappear and, in fact, work against the investor when cash is flowing out of the portfolio. ... It turns out that the sequence of investment returns is important in the decumulation phase. ... [It] may be that a more conservative portfolio is in order during the early retirement years, in order to get through the riskiest period. Later, it may be safe to move to a more aggressive portfolio.

Implementation
Such a strategy can be implemented in a number of different ways. For example, when an "income bridge" approach is used, one pool of money may be invested to fund the first 10 years of retirement and another pool of money to fund the years after that. Even more funding pools may be used under what could be called a laddering approach.

In either case, any particular pool could be allocated 100% to a single asset class, such as 100% cash or 100% equity, for that matter. However, the overall portfolio allocation should always take into account the client's tolerance for longevity risk and investment risk. It may serve advisors well to challenge conventional wisdom by reconfiguring their clients' portfolios to protect them against late-stage risks. Retirees have but one retirement to plan for, and there are no "do-overs." Reducing one's exposure to equities early in retirement may increase the likelihood of funding the golden years and preserving wealth.

Richard K. Fullmer, CFA, is a senior portfolio strategist for Russell Investments in Tacoma, Wash.

Financial Planning

By Jeanne Lee

October 1, 2008

These days, small business clients are suffering in two ways. ...[They're] worrying about shrinking revenues and finding enough operating capital to survive this tough economic climate.

At the same time, business owners feel the pain in their personal retirement accounts. ...

Reach Out
... A slow economy is a perfect time to cement relationships or even to pick up new business.

...Small business clients often need an objective voice to help take the emotion out of financial decisions. "Even the good managers get mired in minutiae and freeze up-even panic," says Andy J. Matysik, managing partner at L.M. Punch & Associates in Minneapolis.

...Financial advisors should guide business owners to review employee retirement plans with an eye toward cutting administrative costs and possibly reducing or temporarily eliminating contributions for employees. A small firm with a 401(k) plan that costs $2,000 a year to administer may be better off switching to Simple IRAs with no administrative costs, especially when the company is no longer able to contribute matching funds. ...

Many experts expect tax rates to go up with the next presidential administration. If a business owner's income is less than $100,000 this year, planners might want to bring up the idea of converting retirement assets to a Roth, so that he or she can pay taxes on those assets while in a lower tax bracket. "The business owner can amend the retirement plan to allow in-service, non-hardship withdrawals, then roll it into a Roth," says Pam Dumonceau, president of Consistent Values, a planning firm in Aurora, Colo.

Cut Costs
... Many business owners are unaware that changing employee health insurance plans to a high-deductible health plan that is compatible with health savings accounts (HSAs) could reduce their premium expenses by 30% to 50%.

"There are not a lot of ways to cut health insurance costs, but if you've got a small employer who is pretty well out of options and has to cut expenses to get over the hump, he or she should look into these high-deductible health plans," says Leon Rousso of Leon Russo CFP & Associates in Ventura, Calif. "For a 15-person group, the savings could be $30,000 or $40,000 a year—which might mean saving one employee."

Ordinarily, Rousso says, he would advise that half of the cost savings be shared with employees in the form of contributions to their health savings accounts—accounts that allow individuals to put aside money for qualified healthcare expenses on a tax-free basis. It's a move that's good for morale. However, if a business is struggling to stay afloat, all of the money saved can be used to pay the bills. ...

Rethink Expenses
Advisors should also encourage business owners to take some extra time in a slower business environment to take a hard look at their expenses, experts say. ...

Vincent Schiavi, president of Schiavi and Dattani in Wilmington, Del., believes that "small business owners need to get their accountants involved and really look at budgeting." An accountant in the industry can tell you if your ratios—like days in accounts receivable, revenue per employee, gross profit margin—are in line. This information can help business owners make decisions such as whether or not to discontinue a product line.

Find Cash
Business owners facing a cash crunch may be looking at their personal retirement accounts as a source of cash, though taxes and heavy penalties for early withdrawal make this a poor choice for funding. Advisors can help clients brainstorm creative solutions to short-term cash crunches.

If they need money to get the business over a hump, check whether there is some cash value in a life insurance policy as this might be a cheap source of funds. See if there are any business assets that they can collateralize.

If there is a line of credit, see if the business owner can apply to the bank for a lower rate. "Interest rates are down, and lines of credit are variable rate, so they can probably renegotiate," Dumonceau says.

Succession Planning
In many ways, an economic slowdown is the ideal time to initiate discussions about succession planning. Business owners are often so preoccupied with day-to-day operations that exit-planning issues are left on the back burner. But financial advisors should alert owners who plan to pass their businesses on to family members that they can use this opportunity to take advantage of lowered values. ...

It's common for business owners to be trapped in unwanted assets that would trigger a tax headache if sold. Examples include low-basis stocks or bonds outside of retirement plans, equipment, machinery or real estate. ...

"A lot of these small businesses are S-corporations, where the tax consequences just flow through to the individual owner," Matysik notes. Now is a good time to sell, he says, since asset prices are suppressed. Also, tax rates are not likely to go any lower. "We are telling clients to realize gains in this or next calendar year, so they can take advantage," Matysik says.

Talent Raids
Once the economy turns around, human capital will again be at a premium. Financial advisors should encourage small business clients to position themselves for the next business cycle by snatching valuable talent on the cheap, if they can afford to. ...

Explore Acquisitions
For a business owner client whose company is in an expansion mode—even if growth is at a more modest level—this may be a good time to explore acquisitions. If a competitor is struggling, your client may be able to buy that competitor out at a very reasonable price. ...

Along the same lines, with commercial real estate values muted, this is a great time for business owners who are anticipating an expansion in the near future to consider purchasing warehouses or even acquiring additional office space. ...

Yet drastic times call for drastic measures. And when drastic times pass, small business clients who have come through the storm intact with your assistance will want to bring you more business.
Jeanne Lee is a business, personal finance and healthcare writer living in New York. Her work has appeared in Fortune and Money.

Employee Benefit Adviser

By Lydell C. Bridgeford

September 1, 2008

Top-down buy in is consistently listed as a key component of wellness program success by health and productivity experts. ... [Anytime] an adviser or employer can work shoulder-to-shoulder with employees engaged in wellness programs, they have a better opportunity to inspire, influence and steer behavior.

Bill Germanakos was able to do this because his personal journey to health was well publicized at work - and nationally. Last year, Germanakos, a medical sales representative for Quest Diagnostics, won top prize on "The Biggest Loser." He lost 164 pounds - 49.1% of his body weight - in 34 weeks, dramatically improving his health. In April, Quest Diagnostics appointed Germanakos, who had previously led a sales team selling new technologies, as its director of employer wellness initiatives...

Leading by example

... Quest Diagnostics was named a Gold Award winner among the 2008 Best Employers for Healthy Lifestyles - making a case for the strength of a message sent by HR execs and advisers who practice what they preach.

The company's HealthyQuest employee wellness program, has resulted in more than 70% of participants achieving an assessment rating that indicates a low risk of developing major health problems, compared to 60% when the program began.

Programs include physical fitness, weight, and stress management resources, tobacco cessation counseling and efforts to improve the healthful quality of food choices at onsite cafeterias and vending machines. The company is beginning to see a positive ROI from the programs and employees appreciate the changes in their lifestyle, says Fred R. Williams, director of health benefits management at Quest Diagnostics.

...Having Germanakos share his wellness story encourages others to share their own, which gives wellness participants confidence that they can make a change as dramatic as his, whether it's quitting smoking or losing weight, notes Williams, adding that improving health is a metric that the company tracks.

Unexpected payoff

Thom Mangan, president of the benefits division of Hub International, Northeast, has found that making his personal commitment to health and wellness public has helped make the wellness conversation with clients more meaningful. ...

Mangan, whose goal is to lose 30 pounds, has been steadfast in his wellness approach. ... He's also ordering salmon, rather than steak, and often skipping the cocktails when he's out and about with clients and prospects.

"I'm going through it. I know it can be done. And it's not easy," says Mangan.

... Now, Mangan has the opportunity to frame his wellness services differently and push clients a little more forcefully than he has in the past.

Neil Simons, president of Rockville, Md.-based Independent Benefit Services also thinks wellness is a crucial element to lowering premiums and developing a happier, more productive workforce. He attributes his advisory firm's success with implementing wellness programs for clients to IBS' internal wellness advocacy.

"I don't know if [participating in wellness] is critical to your success in business, but I do know it helps if you are practicing what you preach. ..." says Simons.

..."We have a fitness guru on retainer that we bring in to talk to our clients. And he comes in to our office every Monday and takes everybody's blood pressure every week. ... And he keeps everybody moving and thinking about fitness," says Simons.

..When advisers and employers share in employees' wellness journey there is also the opportunity to share additional tips and tactics on how to accomplish health goals.

"I am making public appearances and letting people know what I have accomplished," Germanakos says. "I am trying to spread the word and educate people about health and wellness ..."

...

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EBA Managing Editor Molly Bernhart contributed to this story.

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Achieving and maintaining behavior change

Motivating participants is a major challenge facing worksite wellness. But maintaining the healthy behaviors participants learn to embrace through the plan is even more difficult. Here are some tips for overcoming obstacles that could cause employees to fall back on bad behaviors once the honeymoon is over:

Meet people where they are.

The smoking cessation strategy for a 50-year-old who smokes three packs of cigarettes a day should differ significantly from the treatment plan for a 21-year-old who consumes just three cigarettes every other day.

Personalize the experience.

... Lifestyle coaching programs can be an effective way to help people create an individualized strategy, as coaches can assess each individual's specific needs, develop a customized action plan, solve problems and prevent setbacks. They also can help identify the emotional triggers of unhealthy habits.

Measure success.

... Participants need to feel motivated to continue making progress, which may include having increased confidence, experiencing psychological mood changes and finding the right support network.

Matthew M. Clark is a clinical psychologist with the Department of Psychiatry and Psychology at Mayo Clinic in Rochester, Minn., and a medical director for Mayo Clinic.

Use a gimmick to attract attention--and customers--to your business

MyBusiness October/November 2008

by Geoff Williams

In 2005, the beverage maker Snapple attempted to create the world’s largest ice pop made of its own product. The frozen bar--hoisted above Times Square in New York City--measured 25 feet tall and weighed 17.5 tons. But it melted much faster than expected, prompting panicked tourists to run as a sticky, sugary mess of strawberry-kiwi flavored fluid flooded the streets. That probably wasn’t the intended outcome, but at least it got people’s attention.

In this sluggish economy, concocting a gimmick for your business can mean the difference between no sales and new sales. Even better, gimmicks (unless you want to try to top Snapple’s efforts) don’t have to cost a lot of money to implement--which means if they don’t work, there’s no harm done. Here are three tips for creating the right gimmick for your small business:

1. Show customers that you feel their pain.
Many businesses have given out discounts to customers in the form of free gas cards, an idea that revolves around a gripe that everyone shares. But Cole Durbin, the owner of Padre’s Modern Mexican (www.padresmexican.com), a restaurant in Phoenix, actually came up with a unique way to show the public he understands his clientele’s problems beyond the pump.

During "Recession Happy Hour," Durbin offers a free drink to anyone who brings in a foreclosure notice. Inexpen-sive and clever--and the media noticed. CNN did a story on his business, and, well, we’re mentioning it, aren’t we?

2. Steal from the greats.
Provided you aren’t taking intellectual property--like another company’s logo--there’s nothing wrong with borrowing ideas that have worked for others and using them for your own marketing devices. But if you’re going to do that, advises Subscriber-Mail’s Jordan Ayan, borrow from the best. A huge fan of the late George Carlin, Ayan, who is founder and CEO of the e-mail marketing firm, wrote a white paper called "The Seven Dirty Words You Can’t Say in Subject Lines; Plus 100 Others You Shouldn’t Use Either." It turned out to be the most frequently downloaded article from his Web site, www.subscribermail.com.

3. Think personal, not professional.
Amy Maurer, who owns a media consultancy business in Washington, D.C., has an inexpensive marketing gimmick that she uses with her present and potential clients. She bakes cookies and hand-delivers them, insisting that it’s helped her triple her business clientele. "I think it immediately tells potential clients that I am different," Maurer says.

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NFIB.com
For more tips on making your business stand out from the competition, check out the "Sales and Marketing" section of www.NFIB.com/toolsandtips.

Buyout bosses manage companies that outperform their publicly traded peers on key measures of growth. And they don't do it just by cutting costs.

CFO Magazine

Kate O'Sullivan - CFO Magazine

September 1, 2008

The public's perception of private-equity firms is all wrong — at least according to a new study from Ernst & Young.

Often viewed as hard-hearted financial engineers who pile up profits by slashing expenses, P-E kingpins are criticized for their lack of transparency [and] their much-debated tax status. But a new report offers support for the ... case that P-E bosses ... are not only shrewd investors but also talented managers.

The study examined last year's top-100 private-equity exits in North America, Europe, and Asia, using publicly available information and self-reported data gathered in interviews with private-equity investors. ... P-E firms helped their portfolio companies achieve an average enterprise value growth rate that was double that of their publicly held peer companies.

Private-equity-backed businesses outperform public companies in productivity gains, in employment growth, and in business expansion, measured both in terms of enterprise value — the company's market value plus net debt — and earnings before interest, taxes, depreciation, and amortization, according to John O'Neill, Americas director of private equity at Ernst & Young. "We found that probably only a third of that growth is from cost-cutting," he says. "More than 50 percent is organic growth, and the rest is acquisition-related."

By making quick decisions free from the scrutiny of public shareholders, installing and motivating the best managers and workers, and sticking rigorously to their business plans, P-E firms "are selling better businesses than they bought," says O'Neill.

The study found that even when private-equity investors take the "secondary buyout" route — selling a portfolio business to another private-equity player — the new owner manages to unlock further value. So why did the first firm sell it? "Once they find a buyer at the right price, they're going to sell the company," says John Vester, a principal in E&Y's transaction advisory services group. "They don't fall in love with the deal."

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InvestmentNews

By Noelle E. Fox And Drew A. Denning
September 22, 2008, 6:01 AM EST

The following white paper, "Sustaining Income Through Retirement: Four Strategies for Retiring Clients," was published by Principal Financial Group in Des Moines, Iowa, and is reprinted with its permission.

Over the next 15 to 20 years, baby boomers are expected to reallocate nearly $8.4 trillion in retirement assets from investment products that support wealth accumulation to those that will support spending needs through retirement (Boston Consulting Group, 2006). Fortunately, today's retirees have access to a much wider range of strategies for turning personal savings into reliable streams of income than their predecessors had. But for most, awareness and a thorough appreciation of these strategies will occur only with the guidance of a financial professional.

...It has been well-reported throughout the media that baby boomers face an uncertain financial future as they transition from full-time employment into their retirement years.

As with prior generations, baby boomers face the twin retirement savings challenges of keeping up with inflation while protecting against losses due to volatile market swings. Baby boomers also face an increased risk of outliving their savings, thanks to increased longevity.

Moreover, as the uncertainty of having enough retirement income has escalated, so has a retiree's share of the financial responsibility for securing a comfortable lifestyle. Unlike the prior generation, fewer baby boomers can rely on employer-provided pension plans for sufficient retirement income and health care coverage (Department of Labor, Pension Benefit Guarantee Corp., Internal Revenue Service, Department of Commerce, Employee Benefits Research Institute, Bernstein and Mercer Human Resources Consulting estimates). Meanwhile, Social Security will provide proportionately less income replacement than it did for prior generations. ...

MAINTAINING INCOME 

...[In] the distribution phase of a retiree's life, the rate at which money is spent is the most important factor in maintaining sufficient retirement income for the rest of his or her life. ... As a rule of thumb, a retiree can withdraw 4% to 5%, adjusted annually for inflation, and still retain a high probability that his or her savings will last through a 25- to 30-year retirement.

While saving more and spending less are the key drivers in establishing and maintaining a secure retirement income, retirees may also improve their income flow by employing thoughtful asset allocation strategies and utilizing innovative retirement products throughout their retirement years (diversification/asset allocation is not a guarantee of future benefits). ...

FOUR INCOME STRATEGIES

...[We] will explore the differences among four strategies for turning retirement savings into a sustainable retirement income stream. By comparing the strengths and weaknesses of each option, financial professionals can help clients make an informed decision about which strategy best meets each client's needs.

The four retirement income strategies we will discuss are:

1. Mutual funds with automated income payments.

2. Variable annuities with guaranteed minimum withdrawal benefits.

3. Income annuities.

4. Combinations of mutual funds and income annuities.

Strategy 1. Mutual funds with automated income payments are designed to automatically provide a steady, inflation-adjusted monthly payment, much like some income annuities. But where an income annuity turns a lump sum investment into a stream of payments, a mutual fund with automated income payments still offers access to the underlying account balance. Also, the income distributed by these mutual funds is not guaranteed to be steady — predictable from year to year — or to keep pace with inflation.

... Once the mutual fund is depleted, the investor can no longer receive income from it. Also, while the potential for investment growth with a mutual fund is appealing, the investor receives no protection against market losses. This means the investor may outlive his or her retirement savings.

...Investment option fluctuations and longevity are important factors for an investor to consider when considering a mutual fund with automated income payments.

Types of mutual funds with automated income payments. Mutual funds with automated income payments come in two forms: endowment-style and self-liquidating. Each form works in a different way to help control the risk of an investor outliving his or her savings.

• Endowment-style mutual funds. These are designed to last throughout the investor's lifetime. The in-come payments are linked to account performance. Consequently, in the event of market volatility — be it a rapidly rising or falling stock or bond market — the amount of each distribution check could vary widely from year to year. The potential for such volatility makes it difficult for the investor to consistently budget his or her retirement expenses. So, while this strategy technically does provide longevity protection by providing some income for life, that income may not be sufficient to meet the retiree's needs.

• Self-liquidating mutual funds. These are designed to completely liquidate over a predetermined time horizon. The investor agrees to that time horizon when purchasing the mutual fund. Instead of spreading out assets to last a lifetime, these mutual funds are designed for the assets to last through the predetermined date. Income is tied to account performance, so income payments may be unpredictable. Typically, investors who select a self-liquidating mutual fund have other assets set aside to cover their fixed expenses in case they outlive the money in the self-liquidating mutual fund.

While mutual funds with automated income payments do fulfill a retiree's need to generate income, they lack the ability to provide full income for life and the income predictability of other retirement income strategies.

Strategy 2. A variable annuity contract with a guaranteed minimum withdrawal benefit rider is a distribution choice for retirees concerned about maintaining a minimum retirement income. As a variable annuity, the product allows the owner to stay invested in the market, similar to Strategy 1. And the GMWB rider provides a minimum level of income through guaranteed benefit payments.

By opting to receive income payments at a fixed percentage rate for life, a retiree is protected against outliving this particular income stream. The guaranteed portion also establishes an income "floor," which cushions the retiree against market risk. This means that, regardless of fluctuations in the value of the investment options that make up the variable annuity contract, the retiree will continue to receive a guaranteed minimum income payment for life. ...

While the guaranteed income may provide retirees with some assurance, it comes at a price — the GMWB fee. ...

Fees associated with the GMWB are the price retirees pay for the assurance of knowing they will always receive a minimum income (Guarantees are based upon the promises and claims-paying ability of the issuing insurance company). ...

Ideally, a retiree would like a reliable income that increases a little each year to offset the negative impact of inflation. However, any growth in the payments from the GMWB is dependent on account performance. To have any increase in the monthly payments, even just to make up for inflation, the account balance must grow enough from investment returns to exceed the benefit withdrawal base and prompt a step-up.

Annual fees can add up to more than 2.75%. Assuming inflation is 3%, the investment would have to earn a 5.75% return just to make up for the eroding impact of fees and inflation. In order to allow income to step up on a regular basis after withdrawals start, the annual return would need to be at least 10.75%, due to the 5% annual withdrawal. ..

. Absent a rising account value, the beneficial future step-ups will not occur, making it very difficult for the retiree's spending power to keep pace with inflation over the long term. ...

Investment options. Generally, the owner has a specific set of investment options or portfolios to choose from. ...

Strategy 3. Income annuities turn a lump sum of retirement savings into a regular stream of income. That income stream can be guaranteed for life, protecting a retiree against the risk of outliving his or her savings. Income annuities have no risk from market exposure and maximize spending for an individual. Retirees can also select additional features with this product that will address the risk of their income not keeping pace with inflation or not paying the remainder of their investment upon an early death.

With relatively low fees and fully guaranteed payments, income annuities are generally considered a cost-effective strategy. ...

Chief among the drawbacks owners encounter with income annuities is a loss of control. Once an annuity is purchased, the owner cannot surrender the contract for the cash value. ...

Other concerns can be addressed through the selection of additional features, but adding features will reduce the income payment received. Still, the cost may be worth it if those features address key owner concerns, such as:

• The risk of dying before the owner has received much value from the annuity. This risk can be reduced through a refund option, which entitles the beneficiaries of the owner's estate to either a lump sum or a payment stream equal to the remaining value of the initial premium.

• The risk of the owner's spouse not being covered after the owner's death. Owners can choose to base the annuity payments on their life expectancy and that of their spouse. This ensures that either spouse will continue to receive an income payment should the other spouse pass away.

• Inflation risk. This can be controlled by purchasing an annuity linked to the consumer price index. The annuity's payments increase with the government's regularly reported increases in the CPI. Another option that addresses inflation risk involves adding a fixed annual increase feature. This gives the owner an annual "raise" based on a predetermined rate.

Although income annuities can create cost-effective, inflation-protected income that is guaranteed for life, they are not a complete solution to retirement income. Retirees need some liquidity to pay for unexpected costs in retirement, especially those that arise in health care. Retirees also need flexibility in spending, as retirement could last more than 30 years and, over the course of time, spending needs are likely to change.

Strategy 4. The income annuity becomes a more effective solution when combined with other investment options, such as mutual funds. ... While the mutual fund provides market exposure, control, liquidity, and flexibility in spending, the annuity provides a baseline of guaranteed income.

... By combining traditional investments, a retiree can generate retirement income that adequately meets all of his or her retirement needs at a low cost. However, this solution is not for everyone. Consider the example of a retiree entering his or her drawdown phase with a significant portion of guaranteed income from a combination of pensions and Social Security. In such cases, retirees may be better equipped to face the unexpected costs in retirement by forgoing an annuity purchase and keeping their remaining savings liquid.

Also, income annuities are typically not appropriate for individuals in poor health, as longevity protection is not the primary concern.

CONCLUSION

After evaluating multiple alternatives, it is clear that no single product or withdrawal strategy is always the right answer for every retiree and every situation. ...

Noelle E. Fox is an investment and product analyst, and Drew A. Denning is vice president of income solutions in the retiree services group at The Principal Financial Group.

STRATEGIES To see the white paper and additional graphs, visit investmentnews.com/income.

New vehicle aimed at property owners with charitable intent

InvestmentNews

By Janet Morrissey
September 22, 2008, 6:01 AM EST

A number of broker-dealers have started offering a program that allows charity-minded clients to offload their real estate in a tax-friendly way while enjoying an income stream from the proceeds.

The program, offered since June by Life Income Funds of America in Englewood, Colo., is a pooled-income fund that allows real estate donations.

About 25 broker-dealers sell the program, including Commonwealth Financial Network of Waltham, Mass. ...

"I'm not saying this is the solution for every single client, but it's at least another option from just an outright [property] sale, a 1031 [like-kind exchange] or a charitable-remainder trust," said Gavin Morrissey, director of advance planning in Commonwealth's San Diego office. ...

DEMAND FROM ADVISERS

..."Demand is extremely high, especially with their baby boomer clients," he said. "[Baby boomers] typically have 30% to 40% of their net worth in real estate and only 15% to 25% in investments such as stocks, bonds, mutual funds, 401(k)s and things."

Life Income's product is intended for retirees and others who want monthly income but no longer want to manage their real estate holdings or face a capital gains tax from selling the properties.

"They don't want the tax implications of selling a property or the management hassles of putting it into a 1031 exchange program," Mark Quam, president and chief executive of Life Income and its distributor, Welton Street Investments LLC, also of Englewood, said.

Under his firm's program, a person can donate cash, securities and real estate to a pooled-income fund, which then sells the property and reinvests the proceeds in special funds. The donor gets a partial tax deduction for charity, avoids paying the capital gains tax from the property sale and gets a monthly or quarterly income distribution from the fund — which varies depending on the fund's performance — until the donor dies.

Under one option, after the donor's death, the remaining principle is donated to the philanthropist's charity.

The donor also has another option of donating all or even part of the property to the charitable fund and can designate up to two heirs to continue receiving monthly income payments after the donor's death.

There are other donor programs, such as the charitable-remainder trust, charitable-lead trust and the charitable-annuity trust, which often accept real estate donations as well. However, these trust programs are donor-advised funds that require costly lawyers and accountants to set up and maintain.

...Pooled-income funds also allow people to contribute a portion of a real estate property, while charitable trusts require that the entire property be donated.

"Charitable-remainder trusts are very expensive and cumbersome — lawyers and trustees are involved," Mr. Quam said.

Pooled-income funds eliminate the "expense and administrative hassles that come along with a charitable-remainder trust," Mr. Morrissey said.

Donors can direct their assets into one or more of Life Income's four funds, which currently offer yields ranging from 1.7% to 8.9%, he said.

The best candidates are those who don't have more than 50% debt on their properties, Mr. Quam said.

COST OF GIVING

Still, there are fees associated with a pooled-income fund, which vary from firm to firm. At Life In-come, the donor faces a 4% upfront fee and a 0.25% annual fee for five years in the firm's Series A funds, and a 2% upfront fee and a 0.5% annual fee for seven years in Series C Funds.

...Most other pooled-income funds don't accept real estate donations — at least not yet.

"The complexity of owning real estate and the risks associated with it, and problems associated with disposing of real estate — even in good times" — makes it a tricky investment for a charity, said Dave Ness, president of the Raymond James Charitable Endowment Fund in St. Petersburg, Fla., whose pooled-income funds don't allow real estate donations. "And the current real estate environment hasn't made disposing real estate any easier," he said. ...

E-mail Janet Morrissey at jmorrissey@investmentnews.com.

InvestmentNews

Those who pay the costs themselves can quickly go into debt

By Darla Mercado
September 22, 2008, 6:01 AM EST

...The coverage protects clients against the financial blow from a serious illness. While disability insurance makes up for one's missing wages while being laid up with an injury and medical insurance pays for illness-related expenses, critical-illness insurance covers out-of-pocket expenses that arise immediately.

Those expenses can easily drive clients into piles of debt, according to a new survey, "Benefits & Behavior: Spotlight on Group Critical Illness Insurance," from The Guardian Life Insurance Company of America in New York. ...

Barry Petruzzi: Critical-illness insurance isn't well-known.

"[Critical-illness insurance is] something that's not well-known as a [type of] coverage, but it's very important to have," said Barry Petruzzi, second vice president for group benefits at Guardian.

Typically, the customer takes out insurance against specific major illnesses or serious conditions, such as cancer and kidney failure. If a client develops a condition that is covered in the policy, he or she receives a lump sum payment upon confirming the diagnoses with the insurer.

...Still, not many advisers recommend the coverage to their clients, and some are skeptical of using it.

"You might never collect on your cancer insurance, and you won't be covered on the other things that can go wrong," said Ed Stuart, a CFP and wealth manager at Regent-Atlantic Capital LLC of Morristown, N.J.

"I'd want to be sure that the client's insurance needs are well-covered and that they would be covered by any catastrophic expense, but to pick an illness out and buy extra coverage doesn't make much sense to me."

However, there are still purposes for the insurance. For instance, a disability policy may not kick in for 90 days, and the lump sum from the critical-illness policy can go toward paying bills until then.

Still, Mr. Grant pointed out that there are pitfalls for advisers who are unfamiliar with the way critical-illness policies work. For example, a client and a carrier can have very different definitions of "critical illness."

Most policies will cover what is known in the actuarial world as "the Big Five": cancer, stroke, major organ transplant, kidney failure and heart attack. However, if a policyholder goes blind or develops Lou Gehrig's disease, they will bear the full brunt of the out-of-pocket expenses, said Kevin Grant, a certified financial planner at Higgenbotham & Associates in Dallas. ...

"Be very careful to read the agreement," Mr. Grant said . "It's just like disability: What's in the contract is what's covered. And it's a bad thing if you have a client who thought he would be covered and the money doesn't come in."

E-mail Darla Mercado at dmercado@investmentnews.com.

Growthink blogs

Written by Jay Turo on Thursday, October 2, 2008

We are living through one of the most tumultuous periods in the history of the financial markets.  It is rattling even the most steadfast and optimistic of investors.   ...  

A few takeaways:

Big is Not Safer Than Small.   Whatever the results of the government mortgage bailout, ... for equity holders of the big banks and mortgage and insurance players caught up in the mess ... it is misery.   ...   Investors for a long time will have serious hangovers and reservations regarding investing in these entities in any form – stock, debt, and/or derivatives.   Quite simply, the whole sector is tainted.

Cash Is Not Safe. Never in U.S. economic history have there been as many question marks as there are now around the security of cash...  

The question marks are threefold:

1. The underlying entities holding cash are more sick than not, ... your deposits are exposed.
2. The FDIC backstop/guarantee – ... is getting spread thin across an unprecedented number of defaults and in too tight a time frame.
3. Inflation.  ...[As] expenditures for bailouts, wars, ... mushroom ... the inevitable outcome has to be the government simply printing more and more money.   Thus inflation.

So cash, our old friend – whether in the bank or under our mattress – is both under parking risk of default (a low risk for sure but much more so than just a few weeks ago) and under systemic, significant inflation risk.  .

Executives Good, Traders Bad. In 2007, venture capital firms invested approximately $26 billion in startup and emerging companies.   ...   In Washington, the nation's political leaders are committing more than 25 times this amount, effectively, in bailing out the residential mortgage market.

Now don't get me wrong, the housing and foreclosure crisis is real and painful in this country.  But let's take a step back and think about priorities for a second:

• Would it be better to have more non-fossil fuel startups and technologies and fewer McMansions? Would we rather have more medical researchers and scientists or Wall Street derivatives traders?
• Who should be rewarded: the executives and visionaries working to build real operating companies, or the Wall Street whiz kids that made billions trading leveraged “house of cards” sub-prime mortgage portfolios?
• Quite simply, do we want to be a nation and a society that rewards entrepreneurship and business-building or one that rewards financial instrument manipulation?

Thinking about it for only a minute, the answer is obvious.   It is even more obvious to the biggest investors in this toxic debt: the Chinese, the Koreans, the Japanese, the Russians, and the Arabs.   ...

So where is this foreign capital now going to go?  Well, most of it will now in all likelihood stay home, or be invested in emerging/developing economies.  ...[While] the U.S. investment climate looks very, very unattractive compared to what it once was it is still by far the best place in the world to invest in startups, to invest in entrepreneurs, and to invest in operating companies.  ... While most Americans – terrified by the hysterical financial media that the end of days are near – are increasingly blind to this fact, the more detached foreign investment players know the real deal.  There are ... great American operating companies all in our midst.  Some are publicly traded, most are not.  In the coming years, watch for a return to this kind of back-to-basics business-building/value creation investing.  It can’t come soon enough.

Long-term gains are substantial after bear markets

InvestmentNews

By Andrew Coen
September 15, 2008, 6:01 AM EST

If the past is any indication of the future, investors should not panic and sell their stocks because of the current downturn, according to a new study.

There have been 12 bear market cycles in the last 60 years, and investors who held on to investments during each of those instances made gains in the long run, according to the new report based on quantitative data issued by Boston-based Putnam Investments.

Since 1948, there have been 12 bear markets that lasted an average of 14 months and saw an average decline of 22.4% in the Standard & Poor's 500 stock index. After each of those, economic conditions improved, with 12 bull market occurrences lasting an average of 45 months and seeing an average 123.9% gain in the S&P 500. ...

In addition to calming their panic, Scott Toms, chief investment officer at Hagerstown, Md.-based Cornerstone Wealth Management Group, urges clients to diversify and to be prudent when investing in large cap offerings, because losses may be greater.

"You can really miss big moves in the market if you get out," said Mr. Toms, whose firm manages around $150 million in assets and is licensed through Boston-based LPL Financial. "We try to stay invested in various asset classes."

Keith Newcomb, a wealth manager at hourly fee-based firm Full Life Financial LLC of Nashville, Tenn., is skeptical about the Putnam study's findings because, he argues, investment strategies need to be geared toward a client's individual lifestyle and not based on 60-year data.

"The sequence of returns is so much more important than the conclusion drawn from a 60-year period," said Mr. Newcomb. "Advisers and clients should have a strategy in place to prevent runaway losses in some sectors, [which happened to some] during the last bear market."

E-mail Andrew Coen at acoen@investmentnews.com.

How often should you replace your PCs? That all depends.

Computerworld  August 11, 2008

By Patrick Thibodeau

August 11, 2008 (Computerworld) Ask what seems like a simple question — How often should PCs be replaced? — and you'll find that for IT managers, the answer isn't so simple. And it's certainly not universal.

...For IT execs in general, financing arrangements, the ways PCs have been used, the need for more processing power to run resource-intensive applications, and "softer" issues — such as keeping younger employees happy by giving them new technology — can all be considerations in deciding when to replace systems.

But while there may not be any real consensus among companies, the broader IT trends point to an expanding period between PC refreshes.

Many companies have settled on a three-year refresh cycle for laptops and a four-year window for desktops, said Gartner Inc. analyst Leslie Fiering, who added that the replacement cycles have increased over the past few years. Four years isn't even out of the question for laptops or notebook PCs, Fiering said.

Of all the factors that can influence a PC replacement schedule, accounting may be the most important. And while the slowing economy may prompt some companies that treat their PCs as a capital expense to hold on to the systems longer, many businesses lease their equipment and are sticking with the refresh schedules in their contracts, as is the case at Grant Thornton.

...William Lewkowski, CIO at Metro Health Corp. in Wyoming, Mich., leases most of the health care provider's technology, including PCs and data center equipment. Lewkowski likes how the leasing approach drives IT upgrades.

"It forces us to keep current every three or three and a half years," he said.

But Lewkowski said he doesn't doubt that he could extend the life spans of some of his desktop systems in particular to four or five years, especially as he starts using virtualization technology to deliver applications to end users.

On the other hand, Virgin Entertainment CIO Robert Fort buys his IT gear and treats the purchases as a capital expense, which gives him more flexibility than he would have if he was leasing equipment. Then it becomes a question of how best to spend the company's IT dollars ...?

Fort's answer to that question is that replacing PCs on an as-needed basis makes the most sense. ...

The NYSE uses a combination of blanket upgrades and replacements based on use. For instance, some developers may still be walking around with four-year-old laptops, while frequent travelers may get new machines much sooner.

"The rule of thumb is still three years," said Steve Rubinow, CIO at NYSE Euronext Inc., which operates the New York Stock Exchange. But, he added, "it's as much driven by accounting mentality as it is by technology changes."

PPLI offers tax-advantaged hedge-fund investing and other benefits

Investment Advisor Magazine

By Lewis Schiff
View Lewis's most recent musings in his blog

From the July 2008 Issue of Investment Advisor Magazine

... Private Placement Life Insurance is a powerful solution that’s also powerfully intricate. ... PPLI solutions support wealth transfer, wealth creation, and philanthropic needs, by using the death benefit in tax-advantaged ways.

For several years, Robert W. Chesner, Jr., an attorney with Giordani Schurig Beckett Tackett LLP, Austin, Texas, has used PPLI with a variety of affluent clients. ... For this kind of client ... investing in the same or similar portfolio within a PPLI offers a major advantage by eliminating the federal income tax.

Tax-free growth
Leslie C. Giordani and Michael H. Ripp, Jr., also attorneys with Giordani Schurig Beckett Tackett LLP, have demonstrated the advantages of accumulating returns inside a PPLI versus a taxed investment (“Private Placement Life Insurance Planning (Part 1),” ALI-ABA Estate Planning Course Materials Journal, 2006). In their hypothetical example, they show the side-by-side scenarios for a PPLI policy insuring a 45-year-old man with a $2.5 million annual premium for five years and a 10% rate of return net of investment management fees (taxed as ordinary income.) A hypothetical combined federal and state rate of 40% was used (see table, below).

Even after the first year, the PPLI cash value exceeds that of the taxed investment—plus the client’s death benefit.

In addition to the features of a traditional policy, a PPLI policy provides:

• Fee transparency to the client, unlike the “hidden” commissions of a traditional policy;
• Investment options, such as hedge funds and private equity;
• Very low cost for insurance and other policy fees (insurance, mortality and expense charges, commonly average around 1% or less over the life of the contract);
• More efficient cash value compounding with the low cost of insurance, the potential performance of alternative investments, and no commissions reducing contributions to the cash value account—especially in the first year.

The interest in PPLI for asset protection has also increased. Asset protection in offshore insurance vehicles offers many additional advantages for high-net-worth clients. ...[If] the offshore trust owns the PPLI, then those assets grow free of any federal income tax—and free of predators after the client’s estate. At the death of the insured, those assets can distribute in a tax advantaged way to the next generation.

Paying premiums
PPLI policy premiums start from a low of $1 million ($250,000/year over four years, for example) to a more typical $5-10 million (paid in the early years of the policy or as a single premium). ... To make the investment side of all PPLI policies efficient, early aggressive funding works best. The premiums usually represent less than one half of a client’s net worth and are typically in the 10-40% range.

... To fund a PPLI policy, Chesner and Giordani favor using a private split dollar structure, which acts as intra-family loan. The attorneys on the advanced planning team set up two ownership entities in the form of trusts. The first one exists completely outside of the patriarch or matriarch’s estate (and perhaps offshore) for income-tax and estate-tax purposes. It owns the policy.

The patriarch, for example, owns the second trust, which can be included for income tax purposes. ... The real advantage of this arrangement is that the significant growth of the PPLI cash value and death benefit (minus the premiums and interest) occurs outside of the estate and free of income and estate taxes.

“You can start moving the needle to really help mitigate the transfer tax,” says Chesner. “It depends on how much insurance the client buys”

Setting up a PPLI Policy
After the client education stage, advanced planning teams focus on five areas:

• Insurance underwriting—In the overall scheme of a PPLI policy, the cost of insurance is relatively inexpensive if the insured is in good health and doesn’t bring underwriting baggage. ...
• Financial underwriting—... Large PPLI face amount policies take longer to place than average-sized policies.
• Investment research and selection—... A PPLI is usually embedded within a comprehensive financial plan, complete with growth scenarios and cash flow projections.
• Funding the policy—Substantial tax and planning questions lead to solutions such as private split dollar and other solutions.
• Domestic vs. offshore ownership—The advanced planning group will need to analyze the benefits of domestic vs. offshore ownership—and the best ownership entity.

Obviously PPLI is not for everyone, but for those clients who are concerned about estate taxes and have sufficient assets to protect, it’s an option worth exploring.

---

Lewis Schiff is the principal of Advanced Planning Group, a family office network for advisors. His latest book, The Middle-Class Millionaire, was published in January 2008. He can be reached at lewisschiff@advancedplanning.org.

How visual tools and techniques help managers lead with the whole brain.

strategy+business Autumn 2008

by Tom Ehrenfeld

Illustration by Opto, image © Photodisc/Alamy

Visual management has be­come an essential discipline for managers today. The practice involves communicating with images, organizing and directing work through vi­sual controls, and creating clear graphic depictions of complex ideas — for example, to enable workers to see how their work fits into a value stream flowing directly to customers.

...Several recent books add new ideas to the existing literature about visual management as both a tool and a broader form of managerial thought. ...

A Question of Meaning
... [Consultant] Dan Roam’s ... book, The Back of the Napkin: Solving Problems and Selling Ideas with Pictures...has more to do with generating insights, framing problems, and selling ideas than with visual thinking per se. ...

“One of the reasons that pictures are such a great way to solve problems is that many problems are hard to see clearly, and a picture can help us see aspects of the problem that might otherwise be invisible,” Roam writes. “Visual thinking helps by giving us a way to see problems not as an endless variety of things that go wrong, but as a small set of interconnected visual challenges, each one of which can be pictured more clearly on its own.”

...Ultimately, Roam doesn’t convince us that his methodology is the best tool for the job. That said, his approach can help managers facing a complex problem discover the most important elements to act on. ...

A Mission of Elegance
...Edward Tufte, the best-known figure in information design, ... was anointed as “the Leonardo da Vinci of data” by the New York Times. ...

Tufte ... argues that graphic excellence can be boiled down to a handful of essential principles that enable anyone to use charts, graphs, and the like to make sense of data to communicate a powerful message with clarity and elegance...

In his book The Visual Display of Quantitative Information ..., [his] “principles of graphical excellence” are compelling in themselves; for example:

• Graphical excellence is that which gives to the viewer the greatest number of ideas in he shortest time with the least ink in the smallest space.

• Graphical excellence is nearly always multivariate.

• And graphical excellence requires telling the truth about the data.

... One of his vilest enemies is PowerPoint, which he cites as an evil, authoritarian form of communication that elevates format over content, prevents rich data analysis, and essentially turns every presentation into a sales pitch. ... Tufte shows how blind obedience to this format produced, in the case of NASA engineers studying data on the space shuttle Columbia, a failure to read the looming danger sug­gested by the data. (The shuttle disintegrated in flight in 2003, killing seven crew members.)

...The centerpiece of Tufte’s books is his reverential decon­struction of a map by famed illustrator Charles Minard that depicts the movement and dissipation of troops in Napoleon’s Russian Campaign of 1812. ... (See Exhibit 1.) Tufte passionately ex­plains how Minard compiled the best data and incorporated numerous graphic tech­niques, each one precisely chosen, to convey a compelling and complex message with clarity and elegance. ...

 

Wisdom from Comics
...Scott McCloud’s Understanding Comics: The Invisible Art ... is really about learning to see, read, and fully realize the dynamics of words coupled with pictures.

...McCloud explores many of the technical aspects of visual storytelling. He shows ... how visual storytelling can create meaning in ways no other storytelling method can and thus evoke a powerful response from the reader. ...

Revenge of the Right-brained
...[Today's] changing ways of managing call for something different — an approach that relies more on skills tied to visual management. ...Daniel H. Pink’s A Whole New Mind: Why Right-Brainers Will Rule the Future...argues that ... [to] thrive in the new economy, individuals and managers must think with both the left and right sides of the brain, Pink says. “We are moving from an economy and a society built on the logical, linear, computer-like capabilities of the Information Age to an economy and a society built on the inventive, empathic, big-picture ca­pabilities of what’s rising in its place, the Conceptual Age,” he writes.

... Honing one’s vision can also start with developing a keen eye for how things get done and how they can be improved. This ap­proach is embodied in the Toyota production system, codified and known as lean management. In this system, based on the principles of eliminating waste and engaging em­ployees by aligning all actions with the understanding of how one’s work creates customer value, visual tools have enormous leverage. ...

... [The] Lean Enterprise Institute ... published a ... workbook titled Learning to See. This resource was designed on a simple premise: that Toyota built part of its success through the organizational practice of mapping the streams through which information and materials travel from first steps to customer value. The authors, lean expert Mike Rother and Toyota veteran John Shook, knew from experience that people could monitor the flow of goods and the health of processes by creating maps comparing the ideal state with current practices. By analyzing the gap between these two conditions, individuals working together could greatly im­prove the processes, and see where and how their work fit with others. ...

...The Elegant Solution: Toyota’s Formula for Mastering Innovation, in which author Matthew E. May ... shares a basic principle of the Toyota system, which is to begin all problem solving by in­tensely observing the work itself. ... May shows how lean managers “think in pictures” by sharing their findings in a clean, visual, and commonly understood format that prompts everyone to understand and act on the problem together.

Visual Tools
... Gwendolyn D. Galsworth’s Visual Workplace, Visual Thinking: Creating Enterprise Excellence through the Technologies of the Visual Workplace ...shows how visual tools support a more powerful, effective, and aware workplace. All work can be broken down into the technical standards of what one works on and the procedural standards of how one integrates this work into a value stream, Galsworth explains. ...

A visual workplace is distinguished by cues that indicate when materials are running low or by understandable categories for commonly used materials. It displays times for pickups and dropoffs, boards with critical metrics for project success. These devices guide work and transform culture by uncovering and sharing critical information that would otherwise be hoarded by managers, protected by workers, and simply lost in the grind of getting the next project out the door. As individuals find visual ways to share their standards of getting things done, “the workplace speaks, able at last to tell us where things are, what needs to be done, by when (or for how long), by whom (or by which machine or tool), in what quantity, and how,” she writes. And this principle applies as much to white-collar office work as it does to manufacturing.

... “The vi­sual workplace is about making the truth hold still long enough for us to see it, assess it, make a sound decision, and then take timely action,” she argues. Again, these are not abstract ideals, but operational practices; she speaks of specific tools such as visual displays, production boards, and other commonly understood cues for shared action.

... “In its fullness, an implementation of the visual workplace will change everything. Everything. In its fullness, it represents the creation of an entirely new set of competencies for people, process, and leadership.

“To tell by looking. To tell everything by looking. To put an end to motion by liberating in­formation that has long been imprisoned in the binders, reports, books, computer files, and data systems of the company — and in the hearts and minds of the workforce — and in the process to liberate the human will.”

Reprint No. 08310

Author Profile:

---

Tom Ehrenfeld is a freelance writer based in Cambridge, Mass. Formerly a writer and editor with Harvard Business Review and Inc. magazine, he is the author of The Startup Garden: How Growing a Business Grows You (McGraw-Hill, 2001).

PLANSPONSOR.com

September 11, 2008  – As plan sponsors prepare for new fee disclosure regulations, Spectrem Group has found they are more knowledgeable about plan fees than in the past.

According to a Spectrem Group study, the proportion of plan sponsors believing they pay no fees dropped to 9% from 23% in 2005. Likewise, the average estimated amount of fees paid to plan providers is 123 basis points this year compared to 107 bp in 2005, the study report said.

...Sponsors estimate that participants pay an average of 99 bp in fees to plan providers. ...

On average, plan sponsors estimate they pay approximately 35 bp for the services of their advisers and consultants. ...

However, only half of plan sponsors are confident they fully understand the fees charged by their advisers and consultants, and just 43% are confident they fully understand the fees charged by their plan providers. In addition, only half of plan sponsors are satisfied that they are receiving full value for the fees they pay for both advisors/consultants and plan providers.

...Spectrem found that overall, 84% of sponsors receive a written fee disclosure statement from their plan providers and 88% receive one from their advisers and consultants. ...

In addition, the study report said outside advisers and consultants are used to assist in plan decisionmaking by about two-thirds of plan sponsors, with about half using a commission-based adviser or consultant and half using a fee-based adviser or consultant. ...

Spectrem noted that the information provided to sponsors needs to be compared to that which will be required to comply with the new regulation that will go into effect on January 1, 2009.

...Sponsors of plans with $50 million or more in assets are the most confident about their understanding of fees (58%). Plan size does not appear to be an issue when it comes to the perception of many plan sponsors that they are receiving less than full value for the fees they pay.

Rebecca Moore
editors@plansponsor.com

Growthink blogs

Written by Dave Lavinsky on Wednesday, September 10, 2008

...[Here's] a technique that will allow you to gain insightful market research and learn best practices REALLY QUICKLY.
And for no cost, thanks to Google.
...[Let's] say I want to get into the lacrosse business, selling equipment through stores and/or online.
...I went to Google's new keyword search volume tool here: https://adwords.google.com/select/KeywordToolExternal
I typed in "lacrosse" and Google then shows me all the related keywords and how many times people searched on them last month. It immediately showed me the following:
Keywords_________ Approx Monthly Search Volume
lacrosse.......................... 2,740,000
lacrosse equipment........ 110,000
women's lacrosse........... 74,000
girls lacrosse.................. 60,500
high school lacrosse...... 49,500
lacrosse sticks................ 49,500
lacrosse wisconsin......... 49,500
lacrosse camp................ 40,500
From this, I see that lacrosse is a pretty popular sport; in fact, when I download Google's list of the top 150 lacrosse-related searches, I see that the sport gets 4.9 million searches per month.
To put this in perspective, and to see if the market is growing or expanding, I go to Google Trends at http://www.google.com/trends and type in "lacrosse."
... Also, from the Google Trends graph, I quickly saw that lacrosse is a seasonal sport with peaks and valleys in search volume.
My next area of research is to determine the level of competition for selling lacrosse equipment. For this, I simply type in terms like "lacrosse," "lacrosse equipment," and "high school lacrosse." I find that general terms like "lacrosse" and "high school lacrosse" have very little competition (based on the few Sponsored Links I see on the top and to the left of the search results), thus providing a significant opportunity if I can figure out products and/or services to fulfill the needs of those who search these terms.
For the term "lacrosse equipment," which is a term that shows more buying intent (i.e., someone who searches this term has more intent to purchase a product than someone who simply searches "lacrosse"), I see several more competitors. Finally, when I search the term "lacrosse sticks," I see even more ads, since someone who types in this phrase has even more buying intent.
The next tool I use is Google's Traffic Estimator, located at https://adwords.google.com/select/TrafficEstimatorSandbox, which shows both the estimated clicks per day I would receive if I advertised on the term, but more importantly, the average estimated price that I would pay each time someone clicked on my ad.
...[It] gives me an estimate of how much my competitors are spending each time someone clicks on their ads.
For "lacrosse sticks," Google estimates that the top 3 advertisers pay between $0.99 and $1.26 per click.
The final stage of my research is to return to Google.com, do a search on "lacrosse sticks," and conduct competitive research. I click on the ads of the companies advertising on the keyword, and figure out how they are generating more than $1.26 per click.
I assess things like:
1. How their web pages are organized
2. Whether they are trying to generate profits from merely a one-time sale or whether they have long-term revenue generation systems (e.g., a paid membership club)
3. Whether they have a newsletter or other mechanisms to collect the email addresses of their prospects so they can market to them on an ongoing basis, etc.
This process provides me with significant competitive intelligence on current practices in the industry.
...

Baseline Magazine May 2008

By Elizabeth Millard

Social networks like Facebook and LinkedIn can have positive and negative impacts on future job prospects for employers. Learn how to use your profile to your advantage.

...“If you approach online profiles as a way to present your professional side to the world, then you have a great opportunity,” says John Challenger, CEO of outplacement consulting firm Challenger, Gray & Christmas.
Facebook ... has become a standard in the business world, Challenger explains. Recruiters regularly surf its online pages and read about potential candidates, and many profiles tend to be more professional than that Wild West of online profile sites, MySpace, he adds.
Even more respected is LinkedIn, ... Potential employers can scan a candidate’s connections list and job history, and make initial decisions about their “fit” for a company.
“Recruiters are taking a close look at those networks, since it’s like going through someone’s Rolodex,” Challenger says. ...
But these sites are just part of a larger online identity, notes Tuck Rickards, who leads the Technology Sector for the Americas for Russell Reynolds Association, a firm specializing in CEO and other senior-level recruiting.
“People have to think about their online footprint,” he says, ... by inserting one’s own name into a search engine. Facebook and blogs might come up, but also ...comments written on an alumni page, executive bio pages, press releases and other random bits of digital data.
... “You have to be careful about what you say, ...” says Rickards. “You can leverage these ... as tools to create a nice profile of yourself with controls wrapped around it.”

Watch That Trumpet Volume
Because online sites like Facebook, MySpace ... can provide an opportunity for people to present a certain image to specific employers, in addition to looking good to the whole professional world, notes Steven Rothberg, founder of CollegeRecruiter.com.
“Write about your passions and ideas, and employers ... get to know you,” he advises. About 75 percent of employers admit to using Google to do background research on candidates, he notes, and a growing number are using the sites to include candidates rather than exclude them.
...Having an impressive roster of contacts is usually proof that a person can cultivate important professional relationships and nurture them ...
Also, there’s the danger of looking too wrapped up in one’s online self, says Terry Gudaitis, cyber intelligence director at security firm Cyveillance.
...People who are particularly open about discussing their personal lives may spark concern in managers who fret about their being equally candid about details on a project, client or other sensitive business matter.... ”How you present yourself online is a snapshot of your decision-making ability and your integrity,” Gudaitis says.

US News and World Report

Even sole proprietors without employees can get in on 401(k)'s to plan retirement

By Matthew Bandyk

Posted August 15, 2008

... Small-business owners are so focused on developing their businesses that some do not realize that those assets can grow at a much faster rate for their retirement under the right plan. ...

... But there are some unique benefits to 401(k)'s. ... Today, a business owner under 50 with a 401(k) can invest up to ... $15,500 ($20,500 if over 50) coming from his or her own income, and then up to 25 percent of the business's profits under the "profit sharing" provision. ... [The] total amount cannot exceed $46,000 (or $51,000 if you're over 50)... That $46,000 "can drop you a tax bracket," says Stuart Robertson, general manager of [ING DIRECT's ShareBuilder401k, which designs 401(k) plans for small businesses]. "That is a great tax shelter for these folks."

...[What] do you need to know before you get your own plan started?

Know the difference if you have any employees. ... Having employees also means the proprietor must pay a higher administrative burden for the plan. That's because 401(k)'s are regulated so that they can't be "top-heavy"—the benefits of the plan cannot be too weighted in favor of the company's top brass.

Carefully consider the array of investment options. ... Some offer a "closed" menu of funds or other investments for you to put your money. Not only does that limit your options, but sometimes the mutual fund is paying the third party for the favored treatment. That means as a shareholder in that fund, you're footing that bill, which means less money for retirement. Look for brokers who are "open" and do not have such restrictions on what funds are available.

Make sure a third party is experienced. If you're using a someone else to set up your 401(k), make sure they know what they're doing. ...

Understand the Roth account. ... The difference between the regular 401(k) and the Roth account is that the traditional account holds money that ... comes from your pre-tax income, and is taxed only when the money is distributed upon retirement. The Roth account is tax-free—the money comes from your after-tax income, and is not taxed again. The fact that tax rates are historically quite low today has made the Roth account much more attractive, because the expectation is that taxes will be higher in the future, says Richard Meigs, [president of 401khelpcenter.com]. ... "If you think taxes are going to increase, or if you think you're going to be in a higher tax bracket, I would put some in your Roth and some in your traditional, as a hedge," explains Robertson.

Ask yourself how much control you want. ... "There are lots of financial institutions that will let you set up [a 401(k)], but you have to invest in just the vanilla options—mutual funds, stocks, bonds," says [Eric Wikstrom of Integrated Wealth Strategies LLC]. "In my opinion, they don't offer true self-direction." Some people choose to pursue a "self-directed" 401(k), which lets you invest your money in almost anything you choose, such as real estate. ...

More companies are using game theory to aid decision-making. How well does it work in the real world?

CFO Magazine - July/August 2008 Issue

Alan Rappeport - CFO Magazine

July 15, 2008

When Microsoft announced its intention to acquire Yahoo last February, the software giant knew the struggling search firm would not come easily into the fold. But Microsoft had anticipated the eventual minuet of offer and counteroffer five months before its announcement, thanks to the powers of game theory.

A mathematical method of analyzing game-playing strategies, game theory is catching on with corporate planners, enabling them to test their moves against the possible responses of their competitors. Its origins trace as far back as The Art of War, the unlikely management best-seller penned 2,500 years ago by the Chinese general Sun Tzu. ...

... One popular way to teach the theory hinges on a situation called the "prisoner's dilemma," where the fate of two detainees depends on whether each snitches or stays silent about an alleged crime (see "To Squeal or Not to Squeal?" at the end of this article).

...[Oil] giant Chevron makes no bones about it. "Game theory is our secret strategic weapon," says Frank Koch, a Chevron decision analyst. Koch has publicly discussed Chevron's use of game theory to predict how foreign governments and competitors will react when the company embarks on international projects. "It reveals the win-win and gives you the ability to more easily play out where things might lead," he says.

Enter the Matrix
Microsoft's interest in game theory was piqued by the disclosure that IBM was using the method ... (Consultants note that companies often bone up on game theory when they find out that competitors are already using it.)

For its Yahoo bid, Microsoft hired Open Options, a consultancy, to model the merger and plot a possible course for the transaction. ... "We knew that they would not be particularly interested in the acquisition," says Ken Headrick, product and marketing director of Microsoft's Canadian online division, MSN. And, indeed, they weren't; the bid ultimately failed and a subsequent partial acquisition offer was abandoned in June.

...To simplify complex playing fields, Open Options uses algorithms to model what action a company should take — considering the likely actions of others — to attain its goals. The result replicates the so-called Nash equilibrium, first proposed by John Forbes Nash, the Nobel prize–winning mathematician portrayed in the movie A Beautiful Mind. In this optimal state, the theory goes, a player no longer has an incentive to change his position.

As a tool, game theory can be useful in many areas of finance, particularly when decisions require both economic and strategic considerations. "CFOs welcome this because it takes into account financial inputs and blends them with nonfinancial inputs," says Tom Mitchell, CEO of Open Options.

Rational to a Fault?
Some experts, however, question game theory's usefulness in the real world. They say ... it assumes that all participants in a game will behave rationally. But as research in behavioral finance and economics has shown, common psychological biases can easily produce irrational decisions.

Similarly, John Horn, a consultant at McKinsey, argues that game theory gives people too much credit. "Game theory assumes rationally maximizing competitors, who understand everything that you're doing and what they can do," says Horn. "That's not how people actually behave." ... McKinsey's latest survey on competitive behavior found that companies tend to ... [rely] passively on sources such as the news and annual reports. And when they learn of new threats, they tend to react in the most obvious way, focusing on near-term metrics such as earnings and market share.

CFOs are preparing for a prolonged downturn.

CFO Magazine - July/August 2008 Issue

Kate O'Sullivan - CFO Magazine

July 15, 2008

... "I'm not optimistic, but I think things may be improving, if only because we've bottomed out," says Jeff Burchill, CFO of FM Global, a commercial-property insurer.  ...

Seventy-one percent of finance executives say the U.S. economy will not begin to recover until 2009 or later, and 30 percent say they don't expect a rebound until at least the second half of next year. ...

Like many finance executives, Burchill ... believes high energy prices, a weak dollar, and inflation will continue....

... 60 percent of survey respondents now say they are taking steps to address higher fuel prices, including reducing business travel, improving the energy efficiency of their facilities, and adopting more-efficient shipping processes.

...FM Global ... is launching a Website through which employees can arrange carpools, and will now provide shuttle service from downtown Providence so that workers can use public transportation.

Some CFOs are passing along the increasing cost of fuel and other commodities to customers (see "To Raise or Not to Raise?"), saying they expect to raise prices an average of 4 percent over the next year. Wages will grow by just 3 percent, while domestic hiring will flatten. ...

Slightly more than a third of finance chiefs say their companies have been directly affected by the credit crunch... Among lower-rated firms, however, that number soars to 82 percent. ...

Don Elsey, CFO at Emergent BioSolutions, a Maryland-based manufacturer of vaccines, says ... banks are now seeking equity as part of their financing packages. "We're very reluctant to go down that path," he adds.

All in all, CFOs are treading a path that has an unmistakable downward slope. The question that remains is whether the steps they are taking to reverse direction will have the desired effect or result in a continued slide.

Kate O'Sullivan is a senior writer at CFO.

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To find out how CFOs regard soaring costs, the credit crisis, and their future prospects, click here.