Imagine you've retired to a small town in Northern Michigan, and you're looking for investment advice. How would you find an adviser, and why would you trust him with your money? Would you swoon like an overheated teenager at a Justin Bieber concert for a financial planner who calls himself "America's retirement expert"?
You might---and his carefully crafted persona just might convince you that he's indeed worthy of your trust. But you shouldn’t take everything he tells you at face value—and here’s why.
Financial planners have financial aspirations of their own. They make money by getting it from you. This isn't evil in its’ own right. But it is a conflict of interest, and it can pervade everything they do.
Financial planners target older people because they have the largest nest eggs, and the more money they manage, the bigger their take. Also, older people view their money more emotionally than younger people do, because they have so much at stake. And that makes them vulnerable.
WHO IS MICHAEL REESE....REALLY.
On his company’s web site, Traverse City resident and Centennial Wealth Advisors founder Michael Reese describes himself as a “Certified Financial Planner®, Chartered Financial Consultant (note: a financial planning designation for the insurance industry awarded by the American College of Bryn Mawr), and a Chartered Life Underwriter (note: a professional designation for individuals who wish to specialize in life insurance and estate planning)”.
Using a canny mix of Elmer Gantry-like fervor and nearly seamless public relations and marketing, Reese has managed to rise from the middling ranks of financial services brokers to the vaunted (and self-appointed) title of “America’s Retirement Expert”. His numerous appearances on local media, including his radio and TV shows, have allowed him to offer his own Karl Rove-like narrative at the same time he manipulates his image behind the scenes.
Although Reese claims to have spent several years hosting his own financial planning radio program, it appears to have actually been a self-produced podcast that he paid to air on 106.7 FM in Traverse City. He now buys time on Traverse City's NBC affiliate Channel 7&4 to air another self-produced infomercial-- “The Michael Reese Show”--every Saturday morning. In addition, Reese's book, The Big Retirement Lie, is published by his own private publishing entity, Copper Leaf Publishing, LLC.
In mid-December 2012, Reese's credentials were again inflated by his "celebrity branding agency", Winter Park, FL-based Dicks & Nanton, when D&N crowed that Reese was "Featured on NBC as Guest on The Consumer's Advocate Show".
The press release conveniently omits the fact that "The Consumer's Advocate Show" is a Dicks & Nanton-produced fluff promotional infomercial, part of the services Reese pays for. You can see Reese's press release below, followed by one for another D&N client, Michael Dinich. Same stuff, all they did was replace the name:
According to Reese, the biggest challenge he faces when dealing with clients is “mindset.” He believes a financial investment mindset change is required when a person enters retirement—from a growth and accumulation mode to an asset preservation mode. Reese states, “My expertise is helping clients understand the need for that kind of portfolio shift.”
Like many financial advisers looking for a way to connect with a prospect, Reese claims that a steep stock market financial loss suffered by his father while a Reese client is the reason he reexamined his investment sales strategies. Reese outlines the story on his web site:
Years ago when Reese became a Registered Representative (note: a stock broker) in the financial services industry he began courting everyone he knew to become his next client. His father, a new retiree, became one of his first clients and Reese strictly followed the investment protocol by which he was trained and invested his father’s hard earned money and retirement savings using a conservative retirement oriented investment model according to traditional financial investment planning. Within a few years there was a severe drop in the market and his father lost nearly fifty-percent of his retirement funds. Reese was devastated by this outcome and felt personally responsible. According to Reese, “I was left with a decision…either leave the business or find a better answer. Fortunately, I found a better answer.” That overwhelming sense of personal responsibility led him to re-examine the portfolio strategies in which he was trained. He then began to develop his own strategies that focused on the preservation of assets and protecting investment portfolios through intelligent tax planning.
While Reese’s decision to “develop his own strategies” may have indeed been influenced by his father’s purported loss, a 2004 complaint filed by a Geneos Wealth Management customer may have also impacted that decision. (Geneos Wealth Management is just one of the assumed names under which Reese has conducted business during his years in Traverse City.) According to Reese’s official, publicly available FINRA ‘Broker Check’ report, a January 10, 2004 complaint filed by a Reese client alleged a “sales practice violation of over $5,000”.
Reese’s client had a $750,000 investment portfolio, and the FINRA report states the client came to Reese “looking to invest $30,000 in something that would give them a better rate of return than they were currently earning in bank investments”. The client indicated that, “given the small percentage of their portfolio under discussion, substantial liquidity was not a concern”. However, after meeting with Reese, where he reportedly reviewed the client’s investment objectives and risk tolerance, the client “was persuaded to invest 50 percent of the $750,000 portfolio in the Wells Real Estate Investment Trust paying them a quarterly dividend of 7 percent annualized”. While there was no admission of wrongdoing by Reese, the complaint was quickly settled for $15, 343.69, six weeks after it was filed.
Reese let his broker's license lapse in August 2006, shortly before creating his current business, Centennial Wealth Advisory. He is, however, a Registered Investment Adviser and licensed as an insurance agent by the State of Michigan (more about that later).
You've probably heard of Real Estate Investment Trusts (REITs). These tax-favored companies invest in a diversified set of real estate or mortgages and, by law, must distribute 90 percent of net earnings to shareholders. They're a good way for retail investors to gain from real estate without directly owning property, locking up large sums for long periods or acting as a landlord.
But REITs come in many flavors—some of them bitter. The best-known REITs are publicly traded on a stock exchange such as the New York Stock Exchange. These 160 listed REITs are well covered by analysts and transparent in their finances and operations.
The Wells Real Estate Investment Trust (REIT) Reese’s client invested in is one of 65 public, nonlisted REITs, known in the industry as PNLRs. They divulge their finances publicly and offer shares to the public. But they don't list their shares on an exchange. That's one of the many problems they pose for less sophisticated investors.
Nonlisted REITs have been aggressively sold based on their attractive quarterly distributions, or income payments. Some return over 7.0 percent of the initial investment a year with a promise to return the invested principal—at some point in the future.
But they have a host of risks that CDs, bonds and even stocks don't. Many investment advisers don't believe their distributions compensate for those risks. Unlisted REITs raise money by paying brokers and financial advisers handsome commissions, often 10 percent of the sale. Some REITs also charge investors ongoing management fees. A few even charge when you cash out, according to the National Association of Real Estate Investment Trusts.
The Georgia-based Wells REIT II Inc., (the REIT that Reese convinced his client to invest nearly $350,000 in) has raised $6 billion from investors since 2004. But it's used only about $4.7 billion to buy real estate, according to the company's latest quarterly financial report. The rest has been spent on commissions to brokers, other expenses and paying investors who demand to cash out.
SWIM WITH THE SHARKS: IRA "COLLEGE”
Reese’s strategic realignment also sent him back to school—IRA COLLEGE. Run by Advisors Excel, an aggressive field marketing organization owned in part by large annuity insurance carriers, IRA College is a two-day marketing seminar designed to help you “achieve the dominance you deserve”.
Cost for attending the chest-thumping seminar is a steep $2,000 and Reese is one of its biggest stars. According to a seminar recent brochure, Reese can teach to you “how to absolutely dominate the IRA market space by becoming the go-to specialist for IRA planning, conversion and tax reduction strategies.
You’ll learn directly from one of the most successful, prominent IRA authorities in the industry. You will gain real world, time-tested strategies and systems. You will walk away with tips, techniques and resources that you can instantly use to generate immediate and sustained results in your practice.”
Reese is pitched as an “IRA Expert, Million Dollar Producer” and his bio describes him as
“one of the most highly-recognized and sought after advisors in the IRA field, generating well over $1 million in commissions and fees annually while only working two days a week in a town with fewer than 50,000 people. He’s the author of ‘The Big Retirement Lie’; he’s been a featured speaker at Senior Market Advisor Expo; and he has helped turn hundreds of average producers into millionaires with his time-tested IRA training and techniques. At the IRA COLLEGE, you will learn Mike’s targeted approach for attracting highly qualified seminar attendees (participants at Mike’s seminars have no less than $250,000 in their IRAs), piquing their interest with unique IRA strategies that could save them hundreds of thousands in taxes and, most importantly, converting them into lifelong clients.”
The brochure goes on to breathlessly promise that you’ll learn the “Simple planning strategies that can provide INCREDIBLE value for your clients and put HUGE dollars in your pocket! (Mike averages over $70,000 per new client using these strategies!)”
According to Reese, there are four primary principles that have been foundational to his success. “First, I specialize in a market and I pay very close attention to that target market. Second, I continuously work on improving what I do and how I do it. Third, I must remain very objective and opened minded and always be willing to use different tools. I continue to attend industry events to learn. And finally, I don’t try to attract people that don’t fit the model I have found to be very successful. I don’t try to fit a square peg in a round hole.”
Reese states that, “A fully integrated retirement plan must include an income plan, an investment plan, a tax plan, a healthcare plan, and an estate plan. However, most people don’t have a complete plan in any one of those areas let alone all five areas.” He further elaborates, “With pensions disappearing and recession-worn portfolios, ninety percent of my new clients’ primary concern is: ‘How do we take our accounts and use them to generate secure, sustainable lifetime income regardless of what the markets do.’ Clients are more scared of running out of money than dying.” Reese, however, has developed proven strategies to reduce or eliminate the anxiety historically related to retirement planning. He continues, “We work in such a way that we guarantee retirement income for our clients and we have done it very successfully.”
HOW DOES REESE DO THAT? (THREE SIMPLE STEPS TO SHEAR A SHEEP)
How does Reese do it? With insurance.
More accurately, with a combination of annuities and hybrid life insurance he called "Leveraged Life" in a recent IRA COLLEGE webinar. Watch the entire webinar, "Case Design for High Net-Worth Client", at this link: http://bradae.blogspot.com/2009/08/mike-reese-webinar-part-3-case-design.html
Yes, in addition to being a “Investment Adviser Representative” Michael Reese is an insurance agent licensed by the State of Michigan. According to Michigan licensing records, after voluntarily surrendering his non-resident producer license on October 16, 1998, he became a resident producer in Michigan four days later on October 20, 1998.
Reese represents the following carriers:
Insurance Company Name
|NAIC #||Appointment Type||Status||
|BLUE CROSS AND BLUE SHIELD OF MICHIGAN||54291||Accident and Health||Active||10/24/2006|
|COLUMBUS LIFE INSURANCE COMPANY||99937||Life||Active||10/24/2006|
|AMERICAN GENERAL LIFE INSURANCE COMPANY||60488||Accident and Health||Active||10/24/2006|
|AMERICAN GENERAL LIFE INSURANCE COMPANY||60488||Life||Active||10/24/2006|
|AVIVA LIFE AND ANNUITY COMPANY||61689||Life||Active||06/17/2009|
|EQUITRUST LIFE INSURANCE COMPANY||62510||Life||Active||10/24/2006|
|GREAT AMERICAN LIFE INSURANCE COMPANY||63312||Accident and Health||Active||10/24/2006|
|GREAT AMERICAN LIFE INSURANCE COMPANY||63312||Life||Active||10/24/2006|
|JACKSON NATIONAL LIFE INSURANCE COMPANY||65056||Life||Active||06/28/2010|
|LIBERTY LIFE ASSURANCE COMPANY OF BOSTON||65315||Accident and Health||Active||10/24/2006|
|LIBERTY LIFE ASSURANCE COMPANY OF BOSTON||65315||Life||Active||10/24/2006|
|LINCOLN BENEFIT LIFE COMPANY||65595||Accident and Health||Active||10/16/2008|
|LINCOLN BENEFIT LIFE COMPANY||65595||Life||Active||10/16/2008|
|LINCOLN BENEFIT LIFE COMPANY||65595||Variable Contracts||Active||10/16/2008|
|LINCOLN NATIONAL LIFE INSURANCE COMPANY||65676||Accident and Health||Active||10/24/2006|
|LINCOLN NATIONAL LIFE INSURANCE COMPANY||65676||Life||Active||10/24/2006|
|LINCOLN NATIONAL LIFE INSURANCE COMPANY||65676||Variable Contracts||Active||10/24/2006|
|MINNESOTA LIFE INSURANCE COMPANY||66168||Accident and Health||Active||08/31/2011|
|MINNESOTA LIFE INSURANCE COMPANY||66168||Life||Active||08/31/2011|
|MINNESOTA LIFE INSURANCE COMPANY||66168||Variable Contracts||Active||08/31/2011|
|NATIONAL WESTERN LIFE INSURANCE COMPANY||66850||Life||Active||11/19/2009|
|NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE||66974||Accident and Health||Active||04/07/2010|
|NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE||66974||Life||Active||10/24/2006|
|PACIFIC LIFE INSURANCE COMPANY||67466||Accident and Health||Active||04/06/2012|
|PACIFIC LIFE INSURANCE COMPANY||67466||Life||Active||04/06/2012|
|PACIFIC LIFE INSURANCE COMPANY||67466||Variable Contracts||Active||04/06/2012|
|PROTECTIVE LIFE INSURANCE COMPANY||68136||Accident and Health||Active||10/24/2006|
|PROTECTIVE LIFE INSURANCE COMPANY||68136||Life||Active||10/24/2006|
|SECURITY BENEFIT LIFE INSURANCE COMPANY||68675||Life||Active||03/01/2011|
|OXFORD LIFE INSURANCE COMPANY||76112||Accident and Health||Active||04/02/2012|
|OXFORD LIFE INSURANCE COMPANY||76112||Life||Active||04/02/2012|
|TRANSAMERICA LIFE INSURANCE COMPANY||86231||Life||Active||10/24/2006|
|TRANSAMERICA LIFE INSURANCE COMPANY||86231||Variable Contracts||Active||10/24/2006|
|PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION||86630||Life||Active||10/24/2006|
|PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION||86630||Variable Contracts||Active||10/24/2006|
|ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA||90611||Accident and Health||Active||10/24/2006|
|ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA||90611||Life||Active||10/24/2006|
|ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA||90611||Variable Contracts||Active||10/24/2006|
|FORETHOUGHT LIFE INSURANCE COMPANY||91642||Life||Active||10/24/2011|
|AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY||92738||Life||Active||02/24/2009|
|PHL VARIABLE INSURANCE COMPANY||93548||Life||Active||10/19/2010|
|BANNER LIFE INSURANCE COMPANY||94250||Life||Active||10/24/2006|
|COLUMBUS LIFE INSURANCE COMPANY||99937||Accident and Health||Active||10/24/2006|
|SAGICOR LIFE INSURANCE COMPANY||60445||Life||Active||11/23/2010|
In addition to selling traditional insurance, Reese specializes in selling indexed annuities.
Annuities are sold as a way to invest hard-earned lifetime of savings in something "safe." These financial products usually come with lofty promises -- your money is guaranteed to be safe, so it won't ever go down, but you'll still earn money when the stock market goes up. Sounds great, right? Sign me up!
Not so fast -- there's a reason this sounds too good to be true. There's a catch with indexed annuities. Some indexed annuities are good investments for the right people in the right circumstances. Others are not. How do you tell the good ones from the bad?
Let's start with the basics. What is an indexed annuity? It's a type of insurance product that works as an investment. The person buying it invests his or her money into the annuity, which is guaranteed at a minimum rate of interest (under certain conditions), but is also linked to the stock market. Theoretically, if the market goes up enough in a given year, the annuity will increase, but if the market goes down, the investment doesn't.
Nothing too bad so far. So where are the hidden dangers?
First, indexed annuities typically have "surrender fees". What are these? If you want to sell the annuity, or withdraw money (generally, anything over 10% in a year), you have to pay a price. Sometimes these surrender fees are manageable -- they have a six or seven year period, with fees starting at 5 to 7 %.
The problem? Some indexed annuities carry surrender charges of up to 20% or even 25%. That's right, you may lose up to a quarter of every dollar you take out (once you get past the annual 10% "free" withdrawal). These surrender periods can also be long -- in the 10 to 15 year range. This means that you would have to wait 10 to 15 years to take out your own money.
For someone young, this may be worth the wait. But, again, we're talking about baby boomers and even their parents. These products sold to people in their mid to late 80's.
What happens if someone needs to go into a nursing home, or assisted living? What if someone had large medical bills? What if someone wants to buy a condo, or give money to a loved one to help out? Most commonly, what happens when someone elderly needs to pay for a caregiver to come to the house and provide help so they don't have to leave home?
If most or all of the savings are tied up in an annuity like this, it's tough luck. While there are, sometimes, narrow exceptions for nursing home admissions (which are very, very limited so that most people won't qualify for them), everyone else is usually stuck between a rock and a hard place.
The second big "catch" to many of these products is that they can sometimes be so complicated, convoluted and confusing, that many of the insurance agents or financial planners selling them do not even fully understand them. For example, often, the money is only guaranteed under certain conditions. Also, the investment doesn't go up except when the stock market goes up A LOT (in some cases; a modest amount in other) in a given year, and even then the annuity will only increase in a very small amount.
There are participation rates, minimum floor guarantees, cap rates, various indexing methods, margin or administrative fees, as well as different valuation, averaging and calculation mechanisms. We're not talking about simple stuff here.
Although Reese sells them as a way to avoid taxes, let’s take a closer look at that financial strategy.
COST BENEFIT ANALYSIS: HOLD 'EM OR FOLD 'EM
Assume you are a long-term, buy-and-hold investor who wishes to invest $20,000 in either a taxable S&P 500 index fund or a similar S&P 500 index subaccount with identical expenses within a tax-deferred variable annuity. Assume the investment in either option will earn an average annual return of 11.2%, of which 4.5% comes from dividends. In the taxable account, you will pay income taxes on dividends as received. The annuity will impose an M&E (mortality and expense) charge of 1.15% each year. Which investment will give you the most money after taxes at the end of 20 years?
After paying income taxes at a marginal rate of 28% on your annual dividends, the taxable account would have a net annual return of about 9.9%. At the end of 20 years, the investment would have grown to $132,125. Your long-term capital gain would be $112,125 taxable at 20%. After paying your tax of $22,425, you would be left with a total of $109,700.
The annuity would have a net annual return of 10.05% after the M&E charge. At the end of 20 years the investment would grow to $135,778, or some $3,600 more than the taxable account. Your gain would be $115,778. All of that gain, though, is taxable at ordinary rates. If taxed at a marginal rate of 28%, your tax bill would be $32,418. That means you would net $103,360, or about $6,300 less than that of the taxable account.
Hmmm... Maybe the tax deferral in the annuity wasn't everything that it was hyped to be. It seems as though those M&E charges coupled with ordinary income taxation on annuity gains offset the tax advantage during the annuity's accumulation phase. Indeed, your income tax rate would have to drop in 20 years for the annuity to come out on top in this case. Will it? Only you can answer that.
FILLING THE BUCKET: LONG-TERM CARE INSURANCE
As the third phase of Reese’s “leveraged life”, he recommends using some of the proceeds of your IRA to purchase life insurance with long-term care benefits.
But buyers of these life-combo products are facing sharp premium increases—or trimmed benefits—in the coming months, thanks to a new accounting rule that affects the type of life insurance often used with long-term-care riders. People who already hold such policies might see their premiums rise as well.
Life insurance policies with long-term-care riders, known as "hybrid" products, have taken off in the past few years, as reported September 2012 in the Weekend Investor. Sales jumped 56% last year, according to LIMRA (Life Insurance and Market Research Association), an industry-funded research group.
One reason is that they overcome one of the biggest stumbling blocks for buyers of long-term-care policies—writing a big check for a product you hope you will never use. By pairing life insurance with long-term-care benefits, you can lock in a payout for your spouse, children or other heirs, even if you don't use the long-term-care benefit.
As with traditional long-term-care insurance, hybrid policies typically kick in when the policyholder needs help with two "activities of daily living," such as eating or bathing. They either pay you a set amount each month or reimburse long-term-care expenses, but they might not cover care for cognitive loss and could have waiting periods.
"Be careful, because not all long-term-care benefits are created equal," says Katherine Lanious, president of Capital Insurance Insights, a life-insurance wholesaler in Naples, Fla.
The living benefits in these hybrid products are typically limited to the amount of the death benefit. That can be much less than those of a typical long-term-care policy, which generally covers all qualified expenses up to a maximum amount for two to five years. The long-term-care benefits can add as much as 20% to the basic premium of an insurance policy, insurers and planners say.
THE WIND-UP…AND THE PITCH (AN EMOTIONAL DART TO YOUR HEART)
|February 2011 Seminar Ad|
The following is a Reese pitch for a recent financial seminar held in the Traverse City area.
Does it bother you that Washington seems to be on a spending spree racking up over $14 Trillion in deficits while bailing out failing companies and “stimulating” the economy? Are you concerned that your future financial security could be jeopardized by inflation and the increased taxation that is sure to result?
Why should you and your family pay for Wall Street’s and Washington’s misdeeds and manipulations?
Author, Certified Financial Planner®, and Retirement Planning Specialist, Michael Reese, is hosting a FREE seminar to share common-sense financial strategies designed to
assist you in protecting your financial security regardless of what happens to the economy around you.
Discussion Topics include:
· Income – How will you protect and guarantee your retirement income even if inflation and market “corrections” rear their ugly heads?
· Silver and Gold – Opportunity or bubble? Learn how the world’s best money managers hold precious metals and hedge their risk at the same time.
· Your IRA – Likely your biggest financial position, and also your biggest tax time bomb. Do you know how to protect your valuable IRA against increasing taxation which can devastate your real return?
· Market Neutral Investing – How secure would you feel if you utilized a simple, yet sophisticated approach that positioned you to make money in any market environment?
Don’t miss this opportunity to learn what you’ll never hear about from your bank, broker, or CPA. If you are concerned about government spending, increasing taxes, future inflation, and the current state of the economy, then you don’t want to miss this important event!
This is an educational program only. There is no cost or obligation to attend, and nothing will be sold. You will enjoy a complimentary dinner served immediately after the meeting.
Reservations are required. Seating is limited and fills quickly.
Please call (800) XXX-XXX to reserve your seat!
AMERICA’S RETIREMENT EXPERT? MAYBE NOT.
Although Reese has invested a lot of time and money crafting his façade as “America’s Retirement Expert”, he’s abandoned his quest to trademark the phrase. According to United States Patent and Trademark Office records, Reese’s trademark action died on October 20, 2011.
Hey, anybody want to be “America’s Retirement Expert”? We hear that job’s open.