Impersonal Finance

I figured I would start this series with one of the more famous athlete/bankruptcy case. For those who don’t know, Jack Clark was a Major League Baseball player who had a nice, but relatively obscured careers.  Three times in his career, he was listed as one of the highest paid players in the game.

In August of 1992, he stunned the baseball world by filing for bankruptcy. Why was it so stunning? He was in the 2nd year of a three year contract guaranteed to pay him $2.9m each year. In the filing, he listed assets of approximately $4.8m and debts of about $11.5m. Some of his assets included 18 luxury cars. Yes, you heard that correctly. 18 cars!

That astounding number of cars was just part of Clark’s problem. He had major credit card debts, multiple houses and even a six figure federal tax bill. Supposedly he even blamed his wife for their financial issues. How many of those 18 cars were hers, do you think?

Even in the 80s and early 90s players were making good money and they can definitely use that money for whatever they want. That being said, they shouldn’t be able to abuse the system and file some papers and get out from all that debt. He made 10s of millions over his whole career and the entire fault for his financial issues rest with him.

Jack Clark is exhibit A why everyone needs a financial planner/advisor. Just like you would never operate on yourself or represent yourself in court, why do people think they can do financial planning themselves? If multi-millionaires need help, what makes you think you don’t? People are conditioned to answer calls with “I’m all set” or “I’m working with someone” even if they aren’t. I am sure Jack Clark said that to someone at some point. Look at him now. If you answer an advisor’s call like that, I hope you never end up in same situation as Clark. If he had a business manager or advisor, that person would make sure he could never spend in a lifetime, the money he made in just a few years.

I really didn’t like this movie much the first time I saw it. Maybe it was because I dd not understand a lot of what was going on, or maybe it is just one of those movies which aged really well. The history of movies is littered with movies that garnered very little fanfare or interest in the original showing, but over time has gained popularity or cult status. Two examples off the top of my head would be “Rocky Horror Picture Show” and “Shawshank Redemption”. Even though Shawshank received some Academy Award recognition, the ticket sales were extremely mediocre.

After seeing “Other People’s Money” again, I realized the genius of this movie. The cast was brilliantly chosen and the acting was dead on. That being said, you can read a review of this movie at www.rottentomatoes.com. The general critical reviews were pretty unfavorable, but I would rather focus on the economic and financial aspects of the film.

The movie involves a professional corporate raider named “Larry the Liquidator” (played by Danny Devito) who buys up stock in smaller, profitable companies for the purpose of taking over the board of directors and liquidating the company for cash. The company then ceases to exist and most if not all employees are out of a job.

The gist of the movie is that Larry wants this small family run business, but to install his own board and take over the company he must beat a gorgeous attorney (played by Penelope Ann Miller) that he also wants to see romantically. He beats her and wins control of the company. In the end, however, he wants her too much and agrees to sell the company back to the employees at a very nice profit. Incidentially, in the unproduced version, he gets the girl and has a child with her, the owner of the company dies two years after the takeover and Larry’s own company is about to be taken over by an even bigger fish.

The romantic scenes are typical Hollywood. No way in hell could someone who looks like DeVito get someone who looks like Miller outside of Hollywood. It’s the whole fat guy/hot wife theme that is repeated in shows like “King of Queens” and “Grounded for Life”.

The best scenes of the movie are the actual financial scenes. The hostile takeover scenes are filled with great drama and great speeches. One side arguing against greed and the other side arguing for thinning out the herd and prioritizing profit over people. A reviewer from Amazon.com suggested fast forwarding to the scenes at the proxy meeting where two spectacular speeches are given. I think they are the highlight of the movie, but the movie should be seen as a whole. The inner workings of a takeover as well what is involved in a shareholder meeting are done well and in a way that is not dry or boring.

There is no true moral conclusion to the quandry. The shareholders choose money over people, but Larry chooses love (and a tidy profit) over principle and needing to control the company. It is hard to say who wins and loses because the movie ends so ambigiously. You want to believe that he took the money and got the girl, but then again, negotiations do not always end the way you would want them to.

I am not going to do any kind of star or thumbs up kind of rating system. Rather, I will say that its a very solid movie and worth seeing at least once.

In the financial services industry, look at any agent/advisor’s business card. You might see acronyms following their name such as: CLU, CFP, CFA, JD, MBA, LUTCF and ChFC. This list is by no means exhaustive. There are dozens of designations one can get from various institutions and organizations. I plan on breaking down a few of the more common ones and should people clamor for specific explanations, I will be happy to oblige. The five I will focus on are: CFP, CLU, LUTCF, JD and MBA. I see these most often and they give a nice cross-section of the various educational requirements necessary to achieve designations.

LUTCF (Life Underwriter Training Council Fellow) - To be honest, I have no idea what any of that means. I even took a poll of people in my office with that designation and most had no idea what the acronym stood for. So why do people get it? It’s an extremely easy designation to get and any designation on your business card and letterhead looks good. Agents get this for the sole purpose of inflating their reputation to present and future clients.

CLU (Chartered Life Underwriter) - The American College is the primary institution giving out designations. They claim this is the most respected designation in the insurance industry. I will say this. Most agents who have this designation at least know what it stands for, so I guess that is something. Another reputation builder, no one I talked to could tell me how they planned to use the letters. Most people just banged out one course after another, studying just enough to pass, but nowhere near enough to retain any of the knowledge. Are clients really supposed to be impressed by three unfamiliar letters after your name? American College uses stats to show why it’s a great designation to have and how agents with it do remarkably better. I bet they do since most agents flame out long before they have a chance to take this exam. Agents that achieve this designation are usually successful enough to take the time to pass the courses necessary. It is not a terribly hard designation to get and people should be wary when they see someone with this designation. I would ask said agent what CLU meant and how long did it take to achieve. Probe further and you may see it for what it truly is: three letters and nothing more.

Now, we’ll get to the three designations that have some teeth. We still should not be fooled, but at least there is something behind them.

CFP (Certified Financial Planner) - I know quite a few people, smart people, who took this exam and did not pass. It is tough and comprehensive and requires extensive knowledge in many areas of financial planning. Furthermore, you must be in the industry for a certain length of time and have taken numerous exams prior to sitting for the CFP exam. Here is the problem, as I see it. It is still just an exam. Just because someone scored high on the SATs does not make them smarter than those who didn’t score as high. Some people are great test takers and others are not. I think this is a legitimate designation, but mostly because high net worth people have made it so. It is a designation familiar to many people and as such is almost a necessity if you want to work with wealthy people. Like with anything, I know a few CFPs I would never take advice from in a million years.

JD (Juris Doctor) - A fancy way of saying, “I graduated from law school”. You could finish last in your class and you would still have your JD. In terms of the financial services industry, it only looks impressive to clients who know what a JD is. Otherwise, when you explain what it is, you may get questions about why you aren’t a lawyer or what good is that degree in your field. It does show you went through three years of graduate school, but nothing about your field of study or retained knowledge. Putting this on your business card seems like definite resume padding since most financial advisors are precluded from offering legal advice anyway.

MBA (Masters of Business Administration) - This one baffles me the most. You don’t see people putting BA or BS after their name, so why an extra two years of school make such an acronym appropriate business card material. It’s a shorter and usually easier graduate program than a JD, so if a JD is silly, all the more reason that an MBA after your name is even sillier. If someone has an MBA after their name, what on Earth would make a client think that they have this heightened ability to provide sound financial advice. That’s like going to a Ph.D in Psychology for heart surgery. Yes, they are both doctors, but only one is competent enough to operate on you. If one advisor has an MBA and the other one doesn’t, would you not still go to the one that seems the best, regardless of what comes after his name?

I am not saying designations are bad, per se. I think taking the time to do extra work and furthering ones education are noble goals worth achieving. However, I want you to realize that most designations are done just for resume padding and nothing loftier. Education does not equal knowledge and letters do not equal proficiency.

I thought it might be fun to have a few recurring segments. Not ones that run every day or every week even, but just when I’m in the mood. These are the three I will start with, but I reserve the right to add or subtract from the list over time.

Celebrity Profiles - Some celebrities make millions of dollars in various vocations whether they be actors, musicians, athletes, etc. Some of these celebrities do very well for themselves. They save and invest well and can turn their income earned in to vast financial empires. Others leave trails of disaster and waste. Turning their huge incomes in to debt and bankruptcy. I plan on profile a cross-section of successes and failures in any and all fields of entertainment.

Book Reviews - Just do an Amazon.com search of financial or economic books and literally 100s of titles show up. I will try to help sift through and make recommendations on which ones are good and which ones should never leave the warehouse. I don’t read much for fun, but if I come across an off-topic novel worth your time, I may review that book as well.

Movie Reviews - I am a HUGE movie buff. Numerous movies with finance or money as a general theme like “Other People’s Money”, “Wall Street” and “Trading Places” exist. My reviews will focus solely on the economic aspects of the movie and explain whether those scenes are practical or accurate.

I have a list of celebrities, books and movies I plan on featuring, but I will gladly take suggestions should people have them.