1) What experience do you have in the financial planning industry?
You should always ask how long they’ve been in the business and in what positions they have worked in. You can always check an advisors background and whether they have any disciplinary actions against them by checking on FINRA’s website at www.finra.org/Investors. We also think that it is important to find someone who has experience working with firefighters and understanding the ins and outs of their pension plans and retirement benefits.

Jason Torrey-Payne has been a Financial Advisor since 1997. He has a degree in Business Economics from the University of California, Santa Barbara. He has worked extensively with firefighters since joining the Credit Union in 2004 and has extensive and deep knowledge of fire department pension and deferred compensation plans throughout California. He dedicates time to ensure he understands the financial implications of a firefighter and keeps abreast of any changes that may occur as it relates to a firefighter’s retirement benefits.

2) What kind of licenses do you currently hold? Are you a Certified Financial Planner®?
It’s very important to ask what licenses your advisor holds. It could determine whether your advisor is offering you the right solution for your needs or just the only option they can sell. Some of the representatives that visit fire stations are only licensed in one particular area, and can sell only specific products such as annuities or insurance. Insurance representatives can only offer insurance products. The reason this could be a problem is because they may only be offering you what they are licensed to sell instead of assessing all options and selecting the best fit for your goals and risk tolerance. Preferably, you would like to find someone who has both securities and insurance licenses. You should also look to see if the individual has any other professional designations, such as the CFP®. The CFP designation requires a prerequisite of holding a bachelors degree, a minimum of three years as an investment advisor, taking additional classes and continuing education and passing a comprehensive test. As a certified CFP, that individual has a strict planning process to follow and is held to the highest ethical standards. Most of all, please make sure that the person you choose to manage your retirement assets is someone you can trust and has the necessary qualifications and works for a high integrity and ethical company.

Jason Torrey-Payne is a fully registered investment advisor and holds both securities and insurance licenses. This means he has access to the full spectrum of investment and insurance products and can also assist you with Long Term Care insurance. He also holds his Certified Financial Planner (CFP) designation. Additionally, Jason is a member of the “Fire Family” and is employed by Los Angeles Firemen’s Credit Union, a 75 year old financial institution exclusively serving California’s professional firefighters and their families.

3) What are your fees?
Before you hire any financial professional to manage your assets, you should always find out and make sure you understand how that person is compensated. There are many different ways that advisors can charge for their services so it’s important to understand and determine which is the best for you. Some financial advisors charge a percentage of the value of assets they manage. This typically is in the range of 1-2% annually. Some assess an hourly fee for the time they spend. Other advisors charge a flat fee based on your net worth that is not tied to your accounts or assets at all. Finally, many planners are compensated by the commissions on the investments they sell. In some cases, one option may be better than the other for you, it just depends on your needs. It’s just important for you to ask the question, so that you can get a better understanding on how your advisor is compensated. You should expect and demand a direct and honest answer to this question.

At FIREHOUSE Financial, we review with you the best plan of action when it comes to the fees that you pay. For some people, a fee-based arrangement is more appropriate. In a situation where an individual wants to just buy and hold a few stocks, a one-time commission is probably cheaper and more appropriate for those goals. Jason will explain the differences before you transact any business. We also offer a “no cost” consultation and a professionally prepared financial plan. This is an excellent tool which most planners in the industry use to give you a detailed map of where you stand regarding your financial goals. Most planners in the industry charge a $1,500-$3,000 fee for this report; but at FIREHOUSE Financial it’s FREE.

4) What products/investments do you offer?
For an advisor who is securities and insurance licensed, this will be an extensive list. This is another way to confirm that your advisor has lots of options to choose from. Most advisors should be able to access Mutual Funds, Exchange Traded Funds (ETFs), Stocks, Bonds, Options, Annuities, Life Insurance, Long Term Care Insurance, Fee-Based Accounts and Managed Money accounts. They should also be able to open a variety of accounts; such as Traditional & ROTH IRAs, Coverdell, 529 Education accounts, and Business Retirement accounts.

At FIREHOUSE Financial, we offer all of the above. In addition, Jason will look at investment options outside of the standard brokerage services. For example, he will look at traditional financial institution savings products and certificates. It’s about offering the best products that fit the member’s needs and goals.

5) What is your approach to investing?
This question can be answered in many ways so it’s important that you find an advisor that is aligned with your needs. This may mean asking about their approach to asset allocation or their investment philosophy in general. This also normally includes the level of communication you expect from your advisor. Will they contact you annually, quarterly, etc?

At FIREHOUSE Financial, we utilize a team approach to help assist you with your financial goals. You have access to financial advisors in helping you develop the right plan of action for your unique situation. We take the time to understand your needs and map out a detailed plan for us to follow together. This is something that is different for each individual and we tailor the plan to your unique needs. We have members who we talk to on a quarterly schedule and others that just check in with us annually to review their Deferred Compensation plans. It’s important that you seek out an advisor that understands your needs and delivers the service and expertise that you deserve.

We hope that this information helps you in making a more informative decision when choosing a financial advisor. Please remember that your financial goals should not be taken lightly and if you choose to have someone help you, they should always be a professional holding the appropriate licenses. If you have any questions or would like to schedule your free, no obligation financial needs analysis report, please contact FIREHOUSE Financial to schedule an appointment at 800-231-1626 ext 4913.

The more business we do together as a Fire Family, the greater the financial reward will be for all members!

Have a safe month!

Mike Mastro

Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the Credit Union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Los Angeles Firemen’s Credit Union has contracted with CFS to make non-deposit investment products and services available to Credit Union members.

Mrs. G and I were shopping at Ralphs yesterday getting all the fixings for dinner tonight, and the butcher was wearing a “Vietnam Veteran” hat.  We got to talking and he was with the Navy on a “river boat” in 1968-1969 and I thanked him for his service.  He went on to talk about the difference in treatment for returning veterans today and those who returned forty-three years ago.  I was finishing up high school in San Francisco then and remember with great sadness the way returning Vietnam veterans were treated.

Obviously I am leading up to something.  I recently had the opportunity to have a long, long chat with a very high ranking member of the United States Marine Corps (and that is pronounced “kor” – not “korps” – but I am digressing) and we were talking about the various “risks” that USMC personnel face.  As our discussion went from suicide to sniper to IED to vehicle collisions – he brought up an issue I was unaware of.

“One of the greatest risks my Marines face is the “payday loan” operations that are present near every USMC installation.”   Again digressing, I was in Little Rock last week and when I was being driven back to the airport, I saw a “bail bonds” establishment.  I jokingly said to the cop driving me – “there must be a jail near here” – and he chuckled and pointed out the correctional facility.  My dad used to have a similar joke about “animal hospitals” and their proximity to a certain type of restaurant – but I will skip that one today.

Back to the statement from the Marine leader.  He was very, very concerned about the “payday loan” operations and the exorbitant interest rates they charge and how they impact his operations and the lives of Marines.

Of course there is a component here of personal accountability and spending more than you make and other issues, but I had no idea on how serious this issue is to the fellow I was speaking with.

With this in mind, I did a quick check online and got some information that you may find interesting – seeing as how this is a “credit union” site and most of you have some “financial” relationship with this credit union.  Here is a summary of what I read taken from a “consumer” website.

“Payday” loans are small, short-term loans made by check cashers or similar businesses at extremely high interest rates. Typically, a borrower writes a personal check for $100-$300, plus a fee, payable to the lender. The lender agrees to hold onto the check until the borrower’s next payday, usually one week to one month later, only then will the check be deposited. In return, the borrower gets cash immediately. The fees for payday loans are extremely high: up to $17.50 for every $100 borrowed, up to a maximum of $300. The interest rates for such transactions are staggering: 911% for a one-week loan; 456% for a two-week loan, 212% for a one-month loan.

PROBLEMS CAUSED BY PAYDAY LOANS
1. Payday loans become a trap and are not used on a one-time basis as originally claimed by the industry.
Consumers who must borrow money this way are usually in desperate debt. The high rates make it difficult for many borrowers to repay the loan, thus putting many consumers on a perpetual debt treadmill. Because they cannot repay the loan, they often extend the loan by paying the $17.50 per $100 fee several times over. Thus, many consumers end up paying far more in fees than what they borrowed. This kind of credit puts people in worse financial shape then when they started. For already desperate people, borrowing more money at triple-digit interest rates is like throwing gasoline on a fire.

When this practice was legalized in California three years ago, the industry argued that payday loans were used for occasional emergencies for a short term. This is simply untrue. According to a Wall Street analyst covering the industry, “the average customer makes 11 transactions a year, which shows that once people take [out a payday loan], they put themselves behind for quite some time.

“A manager of PD Chex, a payday lender in Colorado, estimated that only two percent of customers take only one loan. The owner of the store, Avrum Schulzinger, went on to say that “he expects all of PD Chex’s customers to default eventually.”  Stories from payday patrons make the results of these subsequent loans clear-consumers take them to meet a quick need, find themselves unable to meet their needs on their next payday, take subsequent loans and quickly get trapped by the outlandish fees.

Payday lenders claim they are the only option for debt-strapped consumers. But borrowing more money at triple-digit interest rates is never the right solution for people in debt. Instead, payday loans make problems worse. As the data shows, virtually everyone takes more than one payday loan and thus the loans are similar to an addiction. This is not a legitimate loan product that benefits consumers. In fact, because most consumers believe they could be prosecuted for passing a bad check, the payday loan suddenly becomes their priority debt. Thus, the original debt problems that brought them to the lender often cannot be resolved.

2. Payday loan rates are way too high, especially given their low risk.
The industry claims its extremely high fees are necessary on account of the risk being taken and its high loss ratio. In fact, in Colorado, one of the few places in the country that collects actual data from the industry, payday lenders charge-off only 3% of the loans made from 1996-1997, while their loans had an average APR of 485.26%.   Conversely, California banks charged off 2.7% of credit card debt in those same years, while having an APR of 15 – 22%.   Thus, the payday loan industry’s claim of risk and loss simply does not stand up to close scrutiny and do not justify the high rates charged.

Further evidence of the low risk is the rapid growth of the industry, both in California and around the country. Since payday loans were legalized in California effective January 1, 1997, more than 3,500 payday loan outlets have opened in the state. The industry is extremely profitable. A State of Tennessee report stated that the industry return on equity in 1997 was 30%.

3. Payday lenders are virtually unregulated in California.
Unlike consumer finance lenders, such as Household Finance or Avco Finance, who also make small loans, payday lenders are virtually unregulated. Other states have much more regulation for payday lenders including audit, examination, bonding, and reporting requirements.

4. Consumers are easily deceived by payday loans.
This transaction is inherently deceptive. By requiring consumers to turn over a post-dated check, consumers are often coerced or harassed by illegal threats or collection practices. For example, they will be threatened with jail for passing a bad check, even though the law specifically says they cannot be prosecuted if the check bounces. Payday lenders often deposit a check before the agreed-upon date, causing the check to bounce and imposing more fees on consumers.

If you have read my monthly piece regularly over the last few years, you know that my focus in life is trying to educate people about the discipline of risk management.  It is more than the safety stuff – there are thousands of risks we face as individuals and organizations.  Once you identify a risk, you can build control measures to address the risk.

As I thought about what the Marine executive was telling me, I was trying to build control measures in my head.  Here is my nickels worth.  We need to educate our children early on in life about “money” – where it comes from and how to be responsible in monetary operations.

I am convinced that if more people understood “money” issues, we would be better off.  The young kids who get this knowledge early on in life will be more responsible consumers – and this is good – whether they end up being Marines or a member of Congress.  The rule “spend less than you make” is universal in nature.

Gordon Graham
President, Lexipol

During these economic challenges a refocus on the roots of the credit union movement may be in order. “Not for Profit – Not for Charity – But for Service” has been the credit union industry motto for over 100 years, and LAFCU’s philosophy for over 75 years. A credit union is a cooperative financial institution that is owned by its members and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members.

The most important difference between Banks and Credit Unions might be this: Banks are for profit and credit unions are not. Though credit unions have existed in America for over 100 years – and nearly 100 million Americans already belong to a credit union – many still don’t think of credit unions as being free from profit motives. Credit Unions function like banks in that they take deposits and make loans and provide a wealth of financial services, but exist solely to serve their members, never for profit.

Here are a few additional ways that credit unions and Los Angeles Firemen’s Credit Union are unique:

• Every credit union member owns a share of the credit union, and each member has the ability to elect a Board of Director’s who represent their needs and interests in the Board room on a 1 vote per member basis irrespective of the amount of money individual members have in the credit union.
• Credit unions do not look to make profit for shareholders. Instead of turning profits, credit unions return the money they make to their member shareholders in the form of higher rates on savings, lower rates on loans, reduced fees, as well as new and improved services such as FIREHOUSE Financial, FIREHOUSE Business Services and most recently Firefighter Insurance services.
• Credit union strategic direction and operations are overseen by a non-paid volunteer Board of Directors whose role is to represent member interests. They are motivated by service to their fellow firefighters, not by compensation.
• Credit unions are cooperatives, meaning they work with – not in competition with – each other. What’s the benefit? One example is CO-OP Network, which offers credit union members access to more than 28,000 surcharge-free ATMs nationwide.
• Credit Unions ultimate success is determined by how well each member serves their fellow members. For example LAFCU relies on members who are savers to fund loans to those members who are borrowers. The amount and degree of loan delinquency and charge offs by some members determine the end of year ability to share refunds and bonus dividends with the entire membership in addition to the ultimate financial stability of the credit union.
• Concern for community (California’s firefighter community in our case) is a credit union value, whether through services to people of modest means or the creation of foundations (Fire Family Foundation, for example) that helps our fire families in time of need.
• Credit unions invest in their members by providing educational opportunities and financial education for members and youth.

The margins we are able to earn from interest on loans less dividends paid on member shares cover the operating expenses to run the organization and allow for improved and new services to get introduced. The remainder of the funds (after interest refunds and bonus dividends in those years we pay them) goes into our capital bucket which is set aside for when bad things happen (such as the economic conditions we are faced with today). Today those reserves stand at a very healthy $80 million.

So you may ask why I just gave you a history lesson on credit unions. This model is our model at L.A. Firemen’s Credit Union and as such it is important to note that we are very different from other financial institutions, including banks. I am hopeful that understanding this fundamental difference will provide good context to my ongoing comments in this blog and will be helpful to you “our members” as we continue our discussions.

And, it goes without saying that the LAFCU Credit Union Model is built on Integrity, Trust and Doing the Right Thing for the membership of this Credit Union.

Due to the job stability of municipally and state paid firefighters, we have been able to enjoy almost non-existent loan losses over these many years. State budgets were never impacted to the point they are today. Now fire departments that are challenged with city budgets must revisit their budgets frequently because cuts in overtime and other benefits are common. We are fortunate that job losses are few and far between for fire service personnel; but, firefighters are faced with the challenges of reduced income as well as pay cuts and/or layoffs for many working spouses. This impacts our membership and the Credit Union causing higher delinquencies and charge offs today. This in turn affects LAFCU’s ability to give back to the members in the form of interest refunds and bonus dividends.

The Credit Union is weathering this storm well but not without some impacts. Delinquencies and Charge Offs have increased and that contributed to the Credit Union’s net loss in 2009. That being said, our financial position and strength is considerable and our capital ratio approximates 9% whereby 6 % is noted by credit union regulators as being adequately capitalized and 7% as well capitalized.

We are working with members in financial distress and continue to provide loan extensions, loan modifications, and consolidations, along with a free in house and an outsourced budget counseling service called Balance. We also have many resources on our website from calculators to articles to financial coaching videos that can help improve a family’s cash flow. Although the Credit Union is here to assist our members in every way possible, we have found ourselves not being able to help every member. Sometimes the wound is too big and a band aid will not help in the long run.

During these tough economic times, the Board of Directors and Management will continue to take a leadership role and make difficult decisions (such as not paying an interest refund and bonus dividend in 2009) to ensure the financial security of the “membership at large” as well as to ensure the safety and security of this organization that was built by firefighters for firefighters.

Please provide me your comments and thoughts along with any questions I can answer. Thank you all for your loyalty and for participating in this exclusive firefighter community – our families benefit – our fire departments benefit – and the fire family community benefits.

Mike

It’s all about the basics which we need to remember. There are reasons for setting policies and procedures. They were established because they worked in the past. Unfortunately greed seems to get the better of many of us. For example, why do we invest in certain stocks? The idea was the return on investment or the dividends the company paid was based on how well the company was managed so that it could continue to have good returns. It was not necessarily because the value of stock increased which is what I believe many small time investors were betting on. I believe this is part of the reason why we are in this current financial crisis as people deviated from the standards such as conforming real estate loans. Most economists are saying it will be a steep hill to climb once we start to recover. I would have to agree with that.

When we eventually climb out of this economic situation, we will look back and remember what caused this fiasco, but will we change? It’s all up to each and every one of us to make financially sound decisions and not let greed stand in the way. Each of us needs to make sure we are making good financial decisions including how to save for the future.

Revisit your budget. The government’s most recent survey on the Consumer Price Index showed that an increase of 5.6% in the past year. Now is a great time to review your budgeted costs to ensure that they are on par with today’s reality. For example, while gas prices have recently declined, August’s national average was still $.75 per gallon higher than it was in December 2007, according to Consumer Reports.org. If you find that you have underestimated your expenses, be prepared to temporarily trim some non-essential items from your budget.

Review your accounts receivable. While profits may still be healthy, the success of your business relies heavily on having enough cash to pay your bills on time, especially now that creditors are tightening up on their lending practices. Keep a close eye on your accounts receivable aging list, and call to check on outstanding payments on a regular basis. Not only will this “remind” your customers to pay their bills in a timely manner, but will also help you gauge whether or not you can afford to keep providing the slow payers with your products or services.

Secure your lending relationships. Make it a priority to meet with the business services consultant at your financial institution. While credit is still available for small business owners, you’re going to have to work harder for it now than in previous years. You want to do everything you can to show that you are determined to be a good borrower and are a low risk for default. In preparation for your meeting, make sure your financials are clean and up-to-date. Think of it in terms of a job interview: with limited funds available for lending, you want to stand out as the most qualified applicant.

How are you surviving the current economy? Let us know if you’ve found success with any of these tips, or have others you’d like to share.

Reading the article, “What they’ll do to your tax bill” at money.cnn.com about the differences in McCain and Obama’s view on tax codes is a perfect example of how something so complex and potentially divisive as how to distribute the tax burden can become so similar. This article is very detailed and provokes an emotional response on several points – such as how ridiculous it is that the Alternative Minimum Tax is still based on salary levels 40 years ago. But then, it’s pointed out how dependent the tax system has become on the AMT revenue, so how can any strong opinion on changing it turn into real tax impact for the typical person?

This quote in the article really struck a chord about how difficult it is to affect change in our system. “Distributionally, they’re [McCain and Obama's tax plans] markedly different. But in terms of their impact on revenue, the two plans are not terribly different,” said Roberton Williams, principal research associate at the Tax Policy Center.

So in the end – at least as far as tax policies go – does it really matter whether we have a Democrat or Republican in the White House? What do you think?

Here are a few excerpts from Federal Reserve Chairman Ben Bernanke’s statement to the House Committee on February 27th:
“The housing market is expected to continue to weigh on economic activity in coming quarters. Homebuilders, still faced with abnormally high inventories of unsold homes, are likely to cut the pace of their building activity further, which will subtract from overall growth and reduce employment in residential construction and closely related industries.”
“Consumer price inflation has increased since our previous report, in substantial part because of the steep run-up in the price of oil. Last year, food prices also increased significantly, and the dollar depreciated.”

I would agree with these statements made by Bernanke. It’s the domino effect, one problem leads to another. Are we heading toward a recession, inflation or stagflation? It depends on who you talk to.

So how much lower do you think the Fed will reduce interest rates? I think they will cut at least another 50 basis points at the March meeting. Just about every day I hear or read about the sub-prime lending issues and increasing foreclosures. Who is really to blame? Did we as consumers take too much advantage of the excess cash from refinancing our homes? Is it the foreign markets who kept buying our debt? Or is it the sub-prime mortgage lenders that funded real estate loans with such low teaser rates to qualify the borrower? I’d like to hear what you think.

Over a span of two years (from June 2004 to June 2006) the Federal Reserve slowly raised the Fed Funds rate from 1% to 5.25%. Now the Federal Reserve has started to reduce this rate toward the end of 2007. So what is in store for 2008? With the sub-prime lending debacle continuing to be an issue, concerns of a recession as well as concerns about inflation it’s hard to say. We may see additional rate cuts through mid 2008. In a recent economic article it said there is a 66% chance of a half-point rate cut and a 100% chance of at least a quarter-point cut at the January 29-30 meeting. How low will the Fed have to or need to go? Some predict as low as 3.50% by the middle of 2008.

To start off the New Year, it was announced that the December payroll report numbers were disappointing along with a jump in the unemployment rate from 4.7% to 5.0%. The stock market has also had its continued turmoil. Several members from the Federal Market Open Committee have concerns that the troubled housing and financial markets may continue to have a negative impact on the economy. In addition, inflation is a concern which has stretched beyond higher oil prices (which increased 69% over the past year). At yearend 2007 the Dow Jones ended the year above 13,000 but has been declining since then. It seems the market just rolls with the punches. When there is good news the market moves up, but when there is bad news the market moves down. I haven’t heard a whole lot of positive news lately.

I’ll provide you with an update next month and by then all the numbers should be in.