1. Business Friday Forum
What is Financial Planning
Accumulation, Distribution and Transfer of Wealth
St. Bonaventure Business Student Friday Forum
September 26, 2014

2. Agenda
 Discuss the Business of Personal Finance
 What is Financial Planning
 What are Some of the Products and Services
 What is the Role of a Financial Planner
 What opportunity is there for a college graduate in
this industry
 The Money You Can Make
 The Impact You Can Have on the Life of Others

3. Who is Kevin Wenke
 Kevin Wenke
 From Olean NY
 BS From SUNY Fredonia (1993)
 MBA From University of Tennessee (1999)
 Started with MetLife in 2003
 IAR in 2004
 CFP in 2008
 CLU in 2008
 Decision Tree Financial in 2009
 “Comfort Investing” Book 2014

4. What is the Average 25 Year Old College
Graduates Biggest Asset?
The #1 Answer Is Usually “My Car”

5. Explanation
 Current Age 25
 Earning average of $50,000 per year
 Work until age 65
 Never Get a Raise = $2,000,000
 Get an average raise of 3.5% throughout career

9. The Accumulation, Distribution and Transfer
of Wealth

11. Cash Flow Quadrant
 Developed By Robert Kiyosaki
 “Rich Dad, Poor Dad” Author

14. WhereDo “Do It Yourself” InvestorsGet
Investment Advice?
MediaExperts
Newspapers
Television
Radio
Tipsfrom Family
and Friends

15. Quantitative Analysis of Investor
Behavior
 Produced by Dalbar since 1994
 In the Period of 1984-2013, The Average DIY
Investor:
 Earned an Average CAGR in the Stock Market of
3.69%
 The S&P 500 had a CAGR of 11.11%
 Earned an Average CAGR in Fixed Income of 0.7%
 The Barclay’s Bond Index had a CAGR of 7.67%

16. investment
Cycleof emotions
Depression
Euphoria
Optimism
Excitement Anxiety
Fear Relief
Optimism

17. Individual DIY Investors
Have A Great System of:

18. Where There is a Problem

19. Common Way Financial Planners
Get Paid
 Gain Clients and Manage Their Portfolio’s
 Average Fee Charged is ~ 2.5% of the portfolio
 1% is paid to the Financial Planner meeting with
Clients
 1% is paid to the Portfolio Manager
 0.5% is paid in various expenses and trading costs

20. Building a Clients Portfolio
 Stocks
 Large Cap
 Mid-Cap
 Small-Cap
 International
 Emerging Market
 Bonds
 Long-Term
 Short-Term
 TIPS
 Corporate
 Government
 Municipal
 High-Yield
 Convertible

21. Level of Risk
Expected
Return Reposition assets for better
investment return with same risk.
Reduce risk and maintain investment return.
Grandma Gambler
Efficient Frontier

22. 100%
Regression to theMean
50% 50%

23. Professional Investment
Advisor Performance
Average, or
Benchmark
(Index)
Different managers beating their benchmark in
different years maintains the average… Before Fees!
Asset Managers that beat their Benchmark
Asset Managers that lagged their Benchmark

24. Average, or
Benchmark
(Index)
Professional Investment
Advisor Performance
Different managers beating their benchmark in
different years maintains the average… Before Fees!

25. Benchmark
Fund Manager Performance
Different managers beating their benchmark in
different years maintains the average… Before Fees!
Account
Performance

26. Hypothetical Account Performance
(the Index Minus 2.5% Fee)
Hypothetical Stock Market Movement
TheFeesEffect
"It is difficult to systematically beat the market. But it is not difficult to
systematically throw money down a rat hole by generating commissions
(and other costs)." -- Michael Jensen, professor, Harvard University
Performance
Costs to
Investors

27. Some Real Numbers
 The S&P 500 had a CAGR of 11.11% from 1984-
2013
 $100,000  $2,374,000
 If a 2.5% Fee was Levied Against that Return
 $100,000  $1,186,000

28. “Robo-Advisors”
 Investors don’t want to “Watch Their Own
Money”
 Investors Understand that Asset Managers
Typically Don’t “Beat the Market”
 Investors Don’t Want to Pay High Fee’s on
Average Performance
 Software Based Advisors (Wealth Front and
Future Advisor) are Charging 0.5% for their
Service Using Low Cost ETF’s and Mutual
Funds (Cumulative Fee <0.7%)

29. Some Real Numbers
 The S&P 500 had a CAGR of 11.11% from 1984-
2013
 $100,000  $2,374,000
 If a 0.7% Fee was Levied Against that Return
 $100,000  $1,958,000

30. However
According to the Dalbar Report, the average DIY
investor who earned a CAGR of 3.69% in stocks
would have only turned $100,000 into $304,000.

31. Other Considerations
 “Past Performance Doesn’t Guarantee Future
Results”
 Nothing Contractual ensuring a return basically says
“invest at your own risk because we aren’t standing
behind our service.”
 Aggressive portfolio’s fell by around 50% from their
highs at points in 1987, 2000-2002 and 2008.
 Investors changed advisors and advisors got PTSD
 Bonds are Used to Reduce Volatility
 30 Years of Falling Interest Rates has made
professionally managed and rebalanced portfolio’s look
like they are “beating” their averages.

32. Other Considerations
 Other than Growth and Income, Stocks and
Bonds typically provide no additional
economic benefits to the investor holding them.
 Ford – 100 shares for 6 months x-plan pricing
 Wriggly sends shareholders a pack of gum each
year…….
Point - Investors buy Stocks and Bonds
for Growth and Income

33. Is this possible
 Help an investor limit the amount of investment losses
they can experience to an absolute amount.
 Helping to manage emotions and allow investor to comfortably
“buy low and sell high”
 Reduce the risk to a portfolio when interest rates
increase and or
 Allow an investor to have a large portion of their
wealth positioned more stable asset
 Allowing them to be in a position of power and control
 Without sacrificing long-term investment returns
 While providing additional benefits to their
comprehensive financial plan?

34. Reduce Risk and Reduce Volatility
With Out Sacrificing Long-Term
Performance

35. Investing In Stocks vs. Options

36. Benefits of Using Call Options
 Purchasing the right to purchase an asset in the
future at a predetermined price.
 Positive Leverage – Unlimited Upside Potential
 Call Options don’t force investor to risk 100% of their
capital
 Transfer the downside risk to the seller of the
call option
 Cost effective for investors to obtain - $0.65 per
contract and $5 per trade
 Contract is equal to 100 shares of stock

37. TheUseof Call OptionsCan Help
Prevent ThisBehavior
Depression
Euphoria
Optimism
Excitement Anxiety
Fear Relief
Optimism

38. Potential Negative of Using Call
Options
 Must Compensate Seller For Their Risk
 Premium is based on future “strike price”, contract
term, current risk free interest rate and volatility of
underlying asset.
This Premium Can Come From The Earnings of
Remaining Money Not At Risk In Option
 Ideally remaining money should be safe,
have a stable value, be liquid while providing a
decent rate of return

39. Constructing a Portfolio
 Fixed Income Securities
 Low Variance and Standard Deviation
 Cash
 Bonds
 TIPS
 MLPs
 BDCs
 MBSs

40. These Securities Are Still
Interest Rate Sensitive

41. The Contract That Guarantees
a Minimum Rate or Return

42. What is Cash Value Life
Insurance
 Life Insurance Companies Invest Premiums
Into a Diversified Portfolio of Fixed Income
Securities.
 The Manage and Retain Interest Rate Risk for
Policy Owners.

43. Assets Life Insurance Companies
Hold
 They own 17% of US Corporate Debt
 Control $6.5 Trillion Dollars of Assets
 This Amount Would Increase the More
Premium Collect
 Compete with Investment Banks for Corporate Debt
Underwriting.

44. What is Whole Life Insurance
From A Mutual Insurance Company
 Mutual Life Insurance Companies Are Owned
By Its Policy Owners
 Allows Policy Owner to Receive Dividends
When Surplus (Earnings) Are Above
Guaranteed Minimum Rates.

45. Contracted Minimal Return
Plus Equity Ownership
 Owners of Whole Life Receive Dividends Which Are
Derived From:
 The Earnings of the Life Insurance Companies Insurance
Business
 The Earnings of the Fixed Income Portfolio
 The Earnings from their other insurance business
 Annuities
 Disability
 Long-Term Care
 Term and Universal Life Insurance
 The Earnings From Other Interests the Insurance Company
Controls
 Brokerage, Mutual Fund and Asset Management Businesses

46. Criticism of Cash Value Life
Insurance
 Expenses are Front-Loaded – Takes Years to
“Break-Even”
 Requires a long term commitment.

47. They “Never
Perform” As
Illustrated!
30 Year Dividend Interest Rate History 1983 - 2012
4.00
6.00
8.00
10.00
12.00
14.00
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Guardian Northwestern MassMutual* New York Life
30 Year Average Return: Guardian 8.98% Northwestern 8.69% MassMutual* 9.10% New York Life 8.67%
CAGR of the S&P 500 1983-2012
10.87% (Growth and Dividend Reinvestment)
Life Insurance Dividend Rate Does Not Reflect Cost of Insurance

48. Return Comparison
Risk vs. Return
 SP 500 (1984-2013)
 CAGR of 11.1% (when
dividends are reinvested)
 Assumes No Fee’s
 Best Year
 38.0% (1995)
 Worst Year
 -37.2% (2008)
 Standard Deviation
 17.1%
 Call Options and Whole
Life Insurance
 CAGR of 11.68%
 Considers Average
2.5% deducted for
COI
 Best Year
 Worst Year
 Standard Deviation*
 18.6
 Beta = 1.0

49. Call Options and Cash Value Life
Insurance

51. In financial planning the goal is to integrate and coordinate all
areas of your finances to achieve efficiency and have a greater
probability of reaching your target. Integrating the pieces of your
finances also means working with your other advisors to ensure
the best possible plan for you!
Lawyer Accountant
Mortgage Broker Certified Financial Planner Banker
Insurance Agent Investment Advisor

52. What Is Earning Potential Of
Commission Based Insurance?
 Life Insurance
 30-100% of FY Premiums
 2-10% on premiums paid after 1st
year.
 Fixed Annuities
 3-5% of Contribution
 Disability Insurance
 50-100% FY Premium
 10-20% On Premium After 1st
Year
 Long-Term Care
 50-100% FY Premium
 10-20% On Premium After 1st
Year

53. Potential Earnings?
 Show 2 New People a Week how to Reallocate
$500 per month into life insurance with this
strategy
 Could come from their Earnings or Assets Already
Invested
 $600,000 Annual Premium at 50% Commission

55. Question and Answers
 More Information at my Website:
 Http://www.DecisionTreeFinancial.com
 Http://www.KevinWenke.HubPages.com
 Please Share and Follow Me On:
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56. Thank You