Category Archives: Risk or Exposure Management

financial exposures that can have major impacts on goals

Debit Card Scam in the Bay Area

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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.

MARIN COUNTY
Novato

SAN FRANCISCO
1515 Sloat Blvd.

SAN MATEO COUNTY
Daly City
Foster City
Millbrae
Redwood City
San Carlos

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

CONTRA COSTA COUNTY
El Cerrito
Pinole

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

SONOMA COUNTY
Petaluma: 939 Lakeville Highway

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Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Raymond James Poorly Managed Elderly client Contractor

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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®
BS, BEd, MS

www.aikapa.com

 

SEC v David Kugel (part of Madoff Ponzi Scheme)

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SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 22166 / November 22, 2011

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

SEC CHARGES LONGTIME MADOFF EMPLOYEE FOR HIS ROLE IN THE MADOFF PONZI SCHEME: details – http://www.sec.gov/litigation/litreleases/2011/lr22166.htm

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®
BS, BEd, MS

www.aikapa.com

Warning regarding “Registry of World Businesses”

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Warning about the Registry of World Businesses.

If you receive an email requesting that you send your information to the European Trade Register please read the following thread and do not register your business – the year currently requested in this scam is 2012/13.  If you have already made payment then report it.

The Thread outlines the Registry of World Businesses:
http://blog.mxlab.eu/2010/03/09/registration-of-the-world-business-directory-20102011/

The Terms on the Registry of World Businesses website: Notice #1 and most importantly #7 since this ‘free service’ will cost you almost 3K euros.

Terms and Conditions for Insertion

1. All orders are governed by the terms and conditions stated hereinafter. Acceptance of any modifications of these terms shall be subject to EU Business Services Ltd. (the service provider) prior written agreement. By sending his/her order, the subscriber accepts these terms unless he/she sends a cancellation within a period of seven days after the date of the signing/stamping of the order note, after which the contract will come into force. To be effective, the cancellation must be given in writing and must be sent by registered post with confirmation of receipt.

2. The service provider will place the insertion to the data base of the European Trade Register within a period of three weeks after receiving the order. The data of the subscriber will be used as stated in the order. The invoice will be sent by post. Payment will be made by the subscriber on the service provider’s bank account as mentioned on the invoice 14 days after receiving the invoice.

3.The subscriber must provide exact details of his/her business and/or his/her professional activity. On the basis of these details an insertion shall be drawn up., within a period of two weeks after the date of the invoice, the subscriber can make such corrections or alterations as he/she may consider appropriate and return them to the service provider. Upon the expiry of this period without receiving such corrections or alterations, the details shall be published in its original form. Should errors appear in the publications and these errors are based on the details provided by the subscriber, the subscriber shall be the only person liable for such errors. In the event that the service provider should have printed incorrectly the details provided by the subscriber in the online edition of the European Trade Register, the subscriber is entitled to a free extension of his/her subscription for one year. The liability of the service provider due to the aforementioned incorrectly printed details provided by the subscriber is limited to an amount of Euro 990. Decisions relating to advertisement positioning in certain sections of the European Trade Register or the designated categories are at the discretion of the service provider.

4. At the beginning of the second, third and following years of the subscription the service provider will send the subscriber an invoice, the payments for the second, third and following years have to be done on the bank account of the service provider as mentioned. All invoices are payable two weeks from the date of the invoice. The service provider has the right to terminate the contract in the event of non payment within the aforementioned period of two weeks without a prior written notice.

5. The service provider is not liable for damages caused by any technical or other failure arising in the data base of the European Trade Register or any technical failure of the data base of the European Trade Register. The service provider is not liable for damages caused by any error in the data base of the European Trade Register. Contractual technical specifications including but not limited to hosted domains for publishing adverts may be altered unilaterally for technical/security reasons by the provider. The customer shall be notified by email.

6. The insertion into the data base of the European Trade Register is granted for three years and will be automatically extended every year for another year, unless specific written notice is received by the service provider or the subscriber two months before the expiration of the contract. This contract shall come into force seven days after the day the subscriber has signed the order and therefore shall end three years later.

7. Unless agreed otherwise beforehand by the service provider, the price stated corresponds to the price of one year insertion. The price of the first three years is Euro 2970. In the event of the extension of the contract under the terms defined in the order section, the price of the access for each year shall continue to be that originally stated.

8. In order to be effective, all undertakings notified verbally to the service provider’s employees must be necessarily confirmed in writing.

9. The place of jurisdiction in any dispute arising is the service provider’s address.

10. The agreement between the service provider and the subscriber is governed by the law of the juridical seat of the service provider.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Introduction to Living Revocable Trust

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Introduction to a Living (Revocable) Trust

(information summarized from the State Bar of California)

Living trust is a legal document that you use to control your assets during your life and that your trustee can use to direct your assets when you are incapacitated or at death.  Your assets (bank accounts, brokerage accounts) are put in the name of a trust (instead of your own) and administered by the trust.

You manage the trust during your life and your successor trustee (an institution or person) will direct it when you are unable or unwilling to do it yourself.  This type of trust is called a revocable living trust or revocable inter vivos trust or grantor trust.  Your trust can be amended or revoked while you are competent.

  • A living trust agreement gives the trustee the legal right to manage and control the assets held in your trust.
  • Instructs the trustee to manage the trust’s assets for your benefit during your lifetime
  • Names the beneficiaries (person and charitable organizations) who are to receive your trust’s assets when you die
  • Finally, it gives guidance and certain powers and authority to the trustee to manage and distribute your trust’s assets – the trustee is a fiduciary.

What can a living trust do for me? It can allow someone of your selection to make financial decisions and act on your behalf if you’re unable to manage them yourself.  In setting up your living trust, you may serve as its trustee initially or you may choose someone else to do so.  You can name a trustee to take over the trust’s management for your benefit if you ever become unable or unwilling to manage it yourself.  At death or if disabled your trustee like a will’s executor and would then gather your assets, pay any debts, claims and taxes, and distribute your assets according to your instructions.  Unlike a will, this can only be done without court supervision or approval.

Should everyone have a living trust? No.

What are the disadvantages of a living trust?  No court supervision.
Cost of trust can be higher than creating a will.
Creates additional paperwork since lenders don’t usually lend to a trust and you may need to take it out of the trust (by deed) before you can take the loan on any real property.

If I have a living trust, do I still need a will? Yes.  Your will affects any assets that are titled in your name at your death and are not in your living trust or some other form of ownership with a right of survivorship.

Will a living trust help reduce the estate taxes? No.

Will I have to file an income tax return for my living trust? During your lifetime the trust is identified by your social security number and all income and deductions related to the trust’s assets are reportable on your individual income tax returns.

How do you find an attorney to work with you?
Ask us for a referral or ask a trusted friend. You can also call the California State Bar – certified referral service.  www.calbar.ca.gov/lrs or 1-866-442-2529.  You may want one who is ‘certified specialist in estate planning, trust and probate law’ although some good estate attorneys do not have this certification.  You could also check a list at www.californiaspecialist.org and click Specialist Search. Some attorneys charge hourly and others have a fixed/flat fee.  Always be wary of insurance an annuity sales companies giving estate planning advice.  You may want the pamphlet “How Can I Find and Hire the Right Lawyer?” from the state bar: www.calbar.ca.gov

** The information provided is NOT legal advice it is only provided for informational purposes to guide you through this process **

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Durable Power of Attorney (DPOA)

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Durable Power of Attorney (DPOA)
(source: The State Bar of California information)

DPOA documents are meant to provide a trusted person to act in your stead.  There are two types of DPOAs that you need to include to care of your needs when you are unable or unwilling to do so.

The Health Care Directive should include the name of an agent or attorney-in-fact who you know will advocate for your health care needs.  This individual needs to be an advocate to ensure that your wishes (not theirs) will be respected and followed.

The DPOA for property (or finances) will handle day-to-day financial transactions that you normally handle; such as, paying bills or signing your taxes if you’re not able.  In addition, if you have a Revocable Trust it is the attorney-in-fact that will transfer non-trust assets to your trust if appropriate.

Know that your DPOAs are only valid while you’re alive.

If you don’t have a DPOA and you are unable to make decisions a court will appoint a professional conservator for you and pay them from your estate.  The court does supervise your conservator but it is often more expensive and cumbersome if your conservator does not know or follow your wishes.

Act now, you never know when you might need assistance to direct your financial or your health decisions.  You can get templates from the State of California or contact an Estate attorney or call us for an internal referral.

*** This blog is provided as information to encourage individuals to make available documents that are legally important in their lives ***

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Insurance Claim tips

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*** We do NOT sell insurance or receive commissions from any products discussed in this forum ***

As you prepare your emergency document box that will allow you to return to life as usual following a disaster -we’d like for you to include the following:

  1. Notify your agent and carrier promptly. Let them know that you have sustained damage and are filing a claim. Even if you did not buy an earthquake, or flood policy or the damages do not exceed the deductible. Always contact your insurance in writing that you have sustained a loss for a disaster and are filing a claim. Most policies have reporting requirements that are time sensitive and you may not be aware of covered items for EQ in an non-EQ policy.
  2. Be ready with your own expert opinion. Have your own experienced contractor or licensed structural engineer once the insurance adjuster has completed their evaluation.
  3. Review your policy again and remind yourself what limits you have per category and also notice the declaration limits since these can change your expected coverage. If you read the policy carefully when you purchased it you should not be surprised regarding your coverage. Note that earthquake policies provided by CEA are standardized (easy to use) but also quite limited. Contact your insurance company and review your expectations and if not satisfied then contact 1-800-927-HELP and report your complaint.
  4. Do NOT agree to a quick settlement with your adjuster or insurance company until you’ve verified and understand your rights and coverage.
  5. Keep track of everyone you speak to with regards to your claim – this is your responsibility as a claimant.
  6. Keep all receipts for expenses if planning to claim additional expenses or loss of use. Remember that most CEA policies do not provide much for this coverage.
  7. You should have carefully analyzed the wording so that during your claim you will be able to receive true replacement of your property – like kind quality.
  8. Estimates by your own contractor should be similar to those given by the insurance contractor otherwise you may agree to less than it will cost you to get your home rebuilt. Care should be taken with inexperienced or out of state contractors who do not know what needs to be part of an EQ estimate. Assisting them by connecting them with a local experienced EQ contractor may provide you with the quickest and most complete estimate.

*** Above all do NOT sign releases or waivers without legal advice — read carefully and have your legal representative do the same — particularly careful if it contains the words “final” or “release” language. ***

All AIKAPA clients are encouraged to contact us so that we can review your policy prior to needing a claim.

*** We do NOT sell insurance or receive commissions from any products discussed in this forum ***

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Earth Quake Planning Basics

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 *** We do NOT sell insurance or receive commissions from any products discussed in this forum ***

 We strongly encourage you to insure against catastrophic risks. Katrina was a recent example of a catastrophic risk as would be a category 7.0 earthquake. The best way to prepare is to plan for both your physical and financial safety.

We address earthquake planning with our AIKAPA Managed clients and AIKAPA Guided clients usually consult with us as they need. If you’d like us to provide more specific and personal discussion feel free to call us. You may also find value in the links provided in the AIKAPA resource page (www.aikapa.com/links.htm).
Here are answers to your most frequent questions on earthquake risk planning:

  1. Can I be denied earthquake insurance? It is mandatory, inCalifornia, that home insurance providers make available earthquake endorsement to all home policies sold in this state. The CEA (California Earthquake Authority) was created after the last major earthquake to assist home insurance companies so that they would be able to offer home insurance inCalifornia. I encourage you to call California Board of Insurance directly if your agent states that you can’t get earthquake insurance but you have your home insurance with them (1-800-927-HELP). The laws to protect you are under the California Insurance Code at section 790.03(h) of the California Code of Regulations at Title 10, Chapter 5, and in judicial decisions.
  2. What is likely to be my premium? This year we’ve found that premiums are more expensive – some as much as 75% more. The actual policy premiums, in the Bay Area, can vary dramatically depending on your home’s location, cost of recovery, and deductible. Insurance rates are calculated based on your zip code and the current cost of rebuilding your home. If you login to the CEA website (link provided via www.aikapa.com/links.htm) you can use their premium calculator to estimate your likely policy premium. Most of our clients have policies in the range of $1,200 to $4,500 per year. These policies do give you credit for retrofitting which you’ll likely want to implement to increase your physical safety.
  3. How much of a deductible should I get? This type of insurance only comes with a fairly large deductible. It is usually in the range of 10-20%. A home that costs $600K to rebuild could have a premium around $1,500 and a deductible around $60 to $120K. This means that you need to self insure the first $60 to $120K in earthquake damage. These funds need to be inflation protected but accessible as part of your ability to self-fund earthquake damage below this level.
  4. What is the risk of earthquake damage? No one can yet predict this with any certainty how your home will fare during the next earthquake. You can review your county and city disaster recovery (earthquake) planning to have a local view of how to plan for your safety and also visit the ABAG and USGS website to find out more about your home and business location with regards to the fault lines and shake areas (see our resource page at www.aikapa.com/links.htm). It is your closeness to the actual fault line and the type of soil (how much shaking and aftershock you experience) that determine the damage you experience.
  5. What is the likelihood of a quake? The probabilities quoted appear to rise each year. The 2008 USGS survey states that there is a 62% chance of a 6.7 quake in the next 30 years. It is also believed that the next quake will strike further north of the Loma Pietra (1989) 6.7 quake. Those who use frequency analysis to make quake predictions rather favor the prediction that we have entered a higher quake activity period resembling that seen around 1911. You can read more about Geologist’s view at the USGS website. (See the AIKAPA resource webpage www.aikapa.com/links.htm)
  6. Should I buy this insurance from my current home insurance provider? You should do a thorough review of many providers. This is a pretty expensive premium that you need to feel sure will be available when and if you need it. First, get quotes from large insurance providers including CEA-backed providers (these are easy to find). Second, get a contractor or structural engineer to review your home’s structural condition in case of an earthquake and secure your home (see www.aikapa.com/links.htm for several useful links). You’ll next need to carefully review each policy – this is not as straight forward as choosing the least expensive policy. You will need to compare the limits and be aware of exclusions. Make sure that when comparing costs you are comparing the same type of coverage, from companies that are either backed by the CEA or are able to withstand the cost of the next big quake.
  7. When does it make sense to self insure? When you are covering risks that are not catastrophic it is our belief that you should consider self funding. You should also consider self funding a large deductible thus allowing you to have enough cash flow to pay for needed catastrophic insurance and also provide for other cash flow needs. Using your current financial statement, cash flow and home equity you can quantitate your risk and life style exposures.

*** We do NOT sell insurance or receive commissions from any products discussed in this forum ***

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com