Keeping your personal data private

Personal privacy means clients not wanting specific entities or people to have access to their personal data. Personal information hacked from various databases or revealed through social engineering (i.e., individuals are manipulated or conned into divulging information) become commodities that are sold. Once the data is available it becomes more difficult to stop it from being used. This information can potentially be used to locate people, steal personal financial assets or health care resources, and even impersonate individuals (i.e. identity theft). The best way to prevent identity theft is by preventing the initial access to private personal data.

Some personal information may appear irrelevant but when combined with other information can be sufficient to provide access to your financial or health care resources.

A survey is a common way for criminals to easily collect information about you since we’re all inclined to be helpful. More active methods could include a sham customer service agent with your account number or the last four digits of your social security requesting that you provide additional personal information or make payments. You should be particularly resistant to answering unsolicited questions when you’re in a good mood or when tired. Remember that these are times when we may be more vulnerable to a well-trained manipulator (they can reach us by phone, online, email or even at your door).

When connecting through public networks, through unsecured email, or when using a public computer, or considering a new technology be sure that your personal information is not open for others to steal. At minimum use passwords, logout when finished working on a public browser and erase the browser history.

You might be surprised by the ways that privacy can be violated:

1) Financial identity – fraudulent use of bank or credit cards. The identity may be used to originate loans, get new credit cards, and open new accounts. This will appear in a credit report and in monthly reports.

2) Driver’s license – forged driver’s license can accumulate multiple traffic violations in your name and even result in suspended license, warrant for arrest or increased insurance rates.

3) Social Security and IRS identity – in 2012 the IRS predicted losses of $21B from tax refund fraud alone.

4) Medical identity – phony health insurance claims can result in erroneous diagnosis (a frightening scenario!) based on records that are not part of your health history, not to mention the costs.

5) Child identity – child’s information and social security number thefts are vulnerable since children don’t monitor their reports.

6) Synthetic identity – this is the use of several identifications to create one new person.

7) Online Home Technologies – these technologies by default record information which is fed back to their database.

Keep in mind that a breach today may yield no obvious impact but creates the potential for future use or abuse.

There is much to think about before adopting new technology and divulging personal information. Personal information can be secured, but it requires ongoing care and thoughtfulness which can at times be both challenging and daunting. You need to take the first step by understanding the various risks (which is the goal of this article), determining what you will do and always taking a secure approach before adopting the latest tech “toy.”

Edi Alvarez, CFP®

Uncloaking Investment Sales Pitches – Dig beyond the pitch

Two weeks ago a client brought promotional material from a stock-picking service and asked if it was “too good to be true”. In October we had a client bring in a booklet titled “Banned in America” providing an opportunity to obtain a “Death of Cash Survival Kit”. These types of sales pitches, along with the advertising practices of some firms, increase anxiety and misunderstanding, contributing little if anything to consumer education. I thought I’d share some of the sales tactics we’ve encountered this year.

Example 1: The Stock Picking Service

Consider this claim “84% of our stock picks are winners … gained more than 300% in less than eight years’ time … An investment of $100,000 in our portfolio recommendations would be worth $389,414 today. In comparison, the same investment in the S&P 500 index would be worth only $149,970 … outperformed the S&P by 165%”.

Sounds fabulous, doesn’t it?! So, what’s wrong? There is no portfolio. There are only stock picks at the beginning of the 8 year period and no indication of how you would buy the next picks. Since there is no portfolio, they don’t address buy/sell timing, costs, or performance. Usually they have a large number of purchases (beyond the $100K) that must be made before there is a sell order. If you sold any of the original stocks (to make the recommended buys) you would not have the gains quoted. What about the recommendations that didn’t perform? Any picks that do not work may disappear in future reports. In some cases, they might even be “pump and dump” schemes to raise the price of particular stocks before the owners sell them.

But how can they be allowed to make these claims? Most of these offerings are made through “educational subscriptions” that fall short of the definition of investment advice. In fact, they are not required or accountable to any investment regulatory agency.

Example 2: Selection of “hand-picked” Managers

This year we had a new experience with a prospective client who compared our real portfolio performance with a portfolio of investment managers selected specifically for them by another advisory firm. I found it difficult to explain (without appearing self-serving) that the portfolio of ‘hand-picked’ managers with an impressive portfolio return (well above all averages) was a new creation not a proven selection. There was no evidence to indicate that the advisory firm had any talent for selecting managers in the past or that this outstanding performance was not the result of survivorship bias (that is, ignoring under performers and only reporting returns for well performing advisors).

Sometimes it can be difficult to understand or explain the problem of survivorship bias in a ‘hand-picked’ portfolio. At Aikapa, all positions in our portfolio are publicly reported and there is no survivorship bias.

Example 3: Modeled Mutual Fund Portfolio

Some large investment firms love to create model portfolios that have little relevance to a client’s actual (real) portfolio. By model portfolios we mean portfolios in which the securities aren’t specifically identified. Since the securities included in the portfolio are unidentified, there is no way for an independent evaluator to verify if the calculated return provided by the model has any relevance to attainable returns or past history. There is the potential in model portfolios for survivorship bias (any under performing fund can be eliminated and no one the wiser). In addition, the models do not include front, back and ongoing fees. A model portfolio that doesn’t include real large costs obfuscates the performance that the client can expect from their portfolio now and in retirement.

Example 4: Cumulative Return

Although cumulative return presentations are ubiquitous I have been spared seeing client portfolio reports with only cumulative returns – until this year. Cumulative returns are calculated using total earnings without regard for time. Cumulative returns (on their own) are intrinsically deceptive. For example, a 20% return is a good return over two years but a dismal return over 20. If two cumulative returns start at different times then the returns can’t be compared. It is much more useful to report rolling annualized compounded returns for each year than to show only the cumulative return.

Example 5: Purchase of illiquid assets as core investments

Many investment advertisements show private real estate investments as an excellent way for a small investor to quickly grow their entire retirement asset. The presentations illustrate the very high upside potential but often fail to point out the significant change in liquidity and risks compared to a publicly traded diversified portfolio. Unfortunately, several of our new clients experienced the real impact of the downside when the market took a downturn and their real estate projects couldn’t obtain necessary financing. It is during such a crises that a client learns the real meaning of downside risk and how lack of liquidity prevents them from recovering any of their investment. In addition, these sales pitches often forget to outline the increased costs and administration associated with managing such investments.

In short, a sales pitch should never be the sole basis for evaluating how to invest your hard earned money particularly assets already earmarked for your retirement. Do your homework and explore the strategies behind the sales pitches. In all investment decisions let your goals (not the sales pitch) define your target return.

Edi Alvarez, CFP®

SEC charges former CalPers CEO in Agent Fee Scheme

SEC Charges Former CalPERS CEO and Friend With Falsifying Letters in $20 Million Placement Agent Fee Scheme

According to website Buenrostro (former CalPers CEO) directed placement agent fees to Villalobos through falsification of documents with CalPers logo.  The placement fees paid were at least $20 million dollars.

The letter was a new requirement by this fund company for fees paid to placement agents that assisted in raising funds.

There seems to be no end of leading executives who continue to cross ethical lines to enrich themselves and their friends.  Kudos to the SEC for identifying this action and hopefully, if found guilty, will apply a sufficient deterrence to discourage others from crossing over this very clear ethical line.

Edi Alvarez, CFP®

What do you do if your mortgage is denied?

How do you prepare for a mortgage application? What do you do if your mortgage application is denied?

As of August of 2011 lenders rejected about 50% of received applications for mortgage refinance (according to the Mortgage Bankers Association).

We recommend to always know and improve your credit history before you apply for a mortgage or refi. – the key is to improve your credit score.  If the mortgage is still rejected then we look at the lender – was this because they are the wrong type of lender or is there something else going on?

Why might you not qualify for a mortgage?

If your mortgage application is denied, always find out exactly why the lender turned you down.  The law states that you have the right to receive a disclosure letter – but you want more than those general letters – so use the fact that you have the right of disclosure to find out the ‘real’ reason from the front person you worked with.

The best way is to take the disclosure letter to your loan officer and ask for an explanation that makes sense to you, something that you can do something about.  The front person is a great source of answers as to how your loan is perceived at that institution.

What reasons are there for rejecting a mortgage application:

1) Appraisal was too low to back the amount of loan requested – declined due to LTV (loan-to-value). Lowball appraisals kill many purchases and refinances, but if you are certain that it is a low appraisal it is worth reapplying with a different lender.  Try to find a mortgage lender that is local and uses local appraisals to ensure that they know the market value for your home.  One of our clients had an appraisal at $1.2M and yet it came in at $2.1M with a local appraisal – not a small discrepancy between appraisals!

2) Credit history problems should always be resolved before you apply because some credit fixes can take time (6-12 months).  If your credit score is slightly lower there may be quick fixes like paying off credit card balances but even they will take 3 months before they show up in all three credit scores.

Some lenders will do a rapid rescore to get a new score soon after you know that the three credit history companies receive your changes – but this can still take time.

3) A too high Debt-to-income ratio will require that you pay off debt so that your monthly payment obligations are low enough compared to the income you earn.  Although unusual some times we find that clients have not included all of their income. In most cases, we help clients select the best assets that will be sold to pay off debt and lower their monthly debt payments.

Most lenders follow Fannie Mae (45%) and Freddie Mac guidelines some have more stringent requirements (35-38%).  Forty-five percent is a very high DTI and we recommend that despite the allowed DTI you not exceed 35% DTI.  If you are trying to get a mortgage with a DTI above 35% consider carefully if you have the capacity to maintain this debt load if  you have an emergency or unexpected financial shortfall.

4) When selecting your mortgage consider the size of the lending institution.  Often we find that community banks and credit unions have more flexible underwriting standards.  This is particularly important for those who are self-employed.

5) Do not take mortgage rejection personally.  At times it is not ‘the right time for you’ to refinance or purchase a home.  It will be the right time for you if you take the opportunity to manage your finances, pay off debt responsibly and keep adding to your earning history.  Always get your finances in order 6 to 12 months ahead if you are planning to buy a home.  For many, this is their largest debt they will obtain in their lives.

Edi Alvarez, CFP®

What to do about debit card fraud

What is debit card fraud?

Debit card fraud usually begins when a thief swipes the magnetic strip on the back of your card and create a duplicate of your card.  The thief is said to ‘skim’ your card. To be able to steal money from your account, they also must capture your PIN.  The most efficient do this all at one time – either at a fake ATM or at a vendor’s checkout.

How do you avoid debit card fraud?

Your debit card is the key to your account(s) – it’s for your personal use only. Employ safe debit card use habits:

  • Keep your card in a safe place and never lend it to anyone.
  • Do not type your PIN at Gas station or unattended Debit machines – it is better to use the debit card as a credit card for these transactions
  • Protect your PIN – it’s your electronic signature. Don’t write it down – memorize it. Change it.
  • When selecting a PIN, always avoid the obvious: your name, telephone number, date of birth, and address. Make sure your PIN cannot be easily guessed.
  • Never disclose your PIN to anyone. No one needs to know it. Change it often.
  • If you are uncomfortable about using the machine for any reason, do it later or go to another location. If anything seems unusual about don’t use it.
  • To ensure privacy, use your hand or body as a shield to  enter your PIN.
  • After completing a transaction, remember to take your card and your transaction record.
  • If your card is lost, stolen or retained by the ATM notify your financial institution immediately.
  • Regularly review transaction history online and report unusual transactions immediately.
  • Beware of all e-mail messages claiming to be from your financial institution. In many reported cases of fraud, individuals will receive e-mail from what appears to be their bank asking them to click on a link included in the message. If you click on the link, you are brought to a fraudulent web site that looks just like your bank’s website. This is known as ‘phising’.

Once it happens – what should you do?

1. Report it to the financial institution immediately. They will take several steps to ensure that your account is protected.  Immediately changing your PIN would be a good place to start.

2. Contact the credit bureau and have a fraud alert placed on your reports – if the financial institution does not do that immediately.  The three are equifax, transunion, and experian.

3. Contact the police, if you’ve not done so already.

4. Make a formal debit card fraud report with the anti-fraud group at the Office of the Controller of the Currency at

Edi Alvarez, CFP®

Debit Card Scam in the Bay Area

Debit Card Scam in the Bay Area – monitor your finances regularly

The latest high profile debit card scam is a reminder of ‘buyer beware’.  We’ve always been concerned about debit cards because they provide direct access to your accounts.  The latest scam is specifically on self check counters at Lucky’s but it could have occurred at other locations.

We all know the advantages and speed of using the latest and greatest technological tool but we need to but some automatic roadblocks between our cash flow (and our financial information) and vendors or we must be prepared for nasty surprises.

Why have we been recommending the use of credit cards rather than debit cards?  Aren’t credit cards evil and to blame for much of America’s debt?  Tools are neither to blame nor inherently evil but improper use can make a tool dangerous.  Without financial awareness, credit cards can lull consumers into using them to meet emergencies or fulfill life long dreams/goals.  We recognize that credit and debit card transactions are electronic and are therefore quite different from cash. Each electronic transaction carries your electronic imprint and you need to be very careful who has access to that information.

So how do you protect yourself?
We recommend that clients use credit cards rather than debit cards because with credit cards (if you monitor them monthly) consumers have the time to work through the process and reject a fraudulent charge.  Such is not the case with debit cards where money is drawn directly out of your account.
In combination with use of credit cards we recommend that consumers establish a simple process to monitor their expenses regularly. We also encourage clients to setup credit card web email alerts on unusual credit card charges.
Overall, we recommend that consumers know their finances well enough so that they at any time have a good idea if their ongoing balances are aligned with their financial plan.

The latest debit crime wave on Lucky self checkout stores ...

More than 300 people have reported unauthorized withdrawals from bank accounts following Lucky’s first identifying the problem on Nov. 11 of account ‘skimming’ at their self checkout cashiers.

Hackers installed ‘skimming’ devices on selected self-checkout aisles, allowing them to collect personal data, like debit card numbers and PINs, remotely. The fraudulent withdrawals are being made from ATMs in Southern California and the San Francisco Peninsula.

The crimes are being investigated by the US Secret Service.

In the meantime, Lucky’s is asking anyone who used a self-checkout lane at an affected store to close out their accounts and change card numbers. Here’s a partial list of affected stores, courtesy of the Contra Costa Times.


1515 Sloat Blvd.

Daly City
Foster City
Redwood City
San Carlos

Union City
Fremont: 5000 Mowry Ave.; 35820 Fremont Blvd.
Hayward: 25151 Santa Clara St.

El Cerrito

San Jose: 5510 Monterey Highway; 200 El Paseo de Saratoga; 844 Blossom Hill Road; 3270 S. White Road.
Santa Clara: 234 Saratoga Ave.
Mountain View

Petaluma: 939 Lakeville Highway


Edi Alvarez, CFP®

Buffett or Buffet – an extra ‘t’ does matter

Buffet or Buffett which one would you choose to invest with? Does an additional T in your name matter?*

A firm that bears no relationship to Berkshire Hathaway filed offering with the SEC last month.

Warren Buffet is getting into the high-risk business of Regulation D private placements. This is Warren Buffet, with one T, not Warren E. Buffett.

The Buffet that’s short one ‘t’ is the moniker of a new private placement connected to a stockbroker and investment adviser based in Boca Raton, Fla., named Peter Bruno.

According to Mr. Bruno’s website, he is chief executive of Wall Street Money Management Group Inc., a registered investment advisory firm. According to filings with the SEC, the firm has $17.1 million in assets under management and 122 client accounts. At the end of September, Berkshire Hathaway reported assets of $385.5 billion.

It would seem clear that the Buffet name is being used to cash in on the Buffett record and confuse consumers. Could there be any other explanation?

*Original article by Bruce Kelly, December 2, 2011.

Edi Alvarez, CFP®

How could insider information by Hank Paulson be legal?

Information in this post is from Taken to Task on 12/2/11:

How could Treasury secretary (Hank Paulson) providing insider information to Hedge fund managers be legal?

The story goes that in July 2008, then Treasury Secretary Hank Paulson tipped off a small group of hedge fund managers to the government’s plan to put Fannie Mae and Freddie Mac into conservatorship. When the government did just that in early September 2008, anyone hoping for a bailout of Freddie and Fannie (or just long the GSEs) got wiped out…while anyone short the stock made a boatload.

How could this not be legal? Paulson’s behavior is a dereliction of duty, violation of the public trust and for undermining the American taxpayer he swore to support.

According to the reports Paulson’s meeting and alleged comments did not violate insider trading laws; technically it was legal.  Then what do the insider trading laws protect us against? According to the rules insider trading by sitting members of Congress is wrong and offensive, Paulson’s gift to his hedge fund buddies, where he was CEO prior to becoming Treasury Secretary — is so grotesque and wrong it boggles the mind; more especially considering that Paulson told the press a different story than he told the money managers.

Why are the Justice Department, the SEC or any other federal prosecutor not investigating Paulson’s actions regarding Fannie and Freddie — and why don’t they shed light on his meeting with hedge fund managers.  Or will the SEC once again allow all to pay a small fine and claim no fault?

Edi Alvarez, CFP®

Raymond James Poorly Managed Elderly client Contractor

Raymond James Financial Services over will need to pay fines for poorly supervising a former independent contractor because of how he handled the finances of an elderly Texas man and the estate of his deceased wife.*  The elderly couple portfolio included life insurance and variable annuities. It is seldom best to switch from annuities to other investments and back.

The former employee had apparently switched the couple out of their municipal bond portfolio entirely, and put them into high-commission variable annuities and life insurance policies. Without their knowledge, he then moved them from one variable annuity to another, costing the couple large surrender fees and commissions. He also orchestrated loans against the insurance policy and used the proceeds to buy other annuities.

Raymond James previously said that the couple actually turned an $800,000 profit on their investments while the former employee remained at the broker-dealer. The couple willingly followed the employee when he changed jobs and joined LPL in 2006, and brought their accounts with them. Subsequent trading at LPL incurred the losses at the heart of the complaint, the company said. The couple has settled damages with LPL before the arbitration with Raymond James.

“Raymond James continues to believe that the award in this matter is a miscarriage of justice,” according to an email statement from Robert M. Rudnicki, the firm’s vice president and director of litigation. “Raymond James believes the panel erroneously held Raymond James responsible for those losses.”

*Material for this post is mainly from “Appeal Denied: Raymond James Must Pay $1.7 Million to Elderly Investor” by Donna Mitchell, Financial Planning, Dec. 1, 2011

Edi Alvarez, CFP®


SEC v David Kugel (part of Madoff Ponzi Scheme)


Litigation Release No. 22166 / November 22, 2011

Securities and Exchange Commission v. David Kugel, 11-Civ-8434 (S.D.N.Y.)


On November 21, 2011, the Securities and Exchange Commission charged a longtime Bernie Madoff employee with fraud for his role in creating fake trades to facilitate the massive Ponzi scheme.

The SEC alleges that David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, was asked by Madoff to provide the firm’s investment advisory operations with backdated arbitrage trade information to be formulated into fictitious trading on investors’ account statements. Kugel’s own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years.

The SEC previously charged two other longtime Madoff employees Annette Bongiorno and JoAnn Crupi for their roles in producing phony account statements that were sent to Madoff investors. According to the SEC’s complaint against Kugel filed in U.S. District Court for the Southern District of New York, Bongiorno and Crupi and other staff in Madoff’s investment advisory (IA) operations used the information provided by Kugel to formulate fictitious trades to appear on investor account statements.

The SEC alleges that sometime in the early 1970s after Kugel began his career with Madoff as an arbitrage trader in the firm’s proprietary trading business, Madoff informed Kugel that BMIS managed money for outside clients. He asked Kugel to provide the firm’s IA operations with backdated convertible arbitrage trades for inclusion on investor account statements. Some of these trades replicated successful trades that Kugel had actually made for BMIS proprietary trading operations. Other trades were based on historical information that Kugel obtained from old newspapers.

According to the SEC’s complaint, Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars. After Kugel provided the information, Crupi and Bongiorno would then design trades that totaled that amount. These fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors. Kugel, who opened his own BMIS account, received these account statements and trade confirmations as well.

The SEC alleges that Kugel provided backdated trade information for IA accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his BMIS IA accounts from 2001 to 2008.

Edi Alvarez, CFP®