Friday, December 21, 2012

How Important is a Financial Advisor?

A large part of CFS's advocacy is focused on making sure all Americans have access to financial professionals who can increase financial literacy and ensure access to financial products that are an important part of securing the American Dream.  LIMRA is out with a study this month that attempts to quantify just how important a financial advisor can be.

Key point:
Similarly, 48 percent of pre-retirees who work with an advisor have estimated how many years their assets and investments will last in retirement, as opposed to 23 percent who do not work with one. And 37 percent of advisor-affiliated pre-retirees have identified the activities they plan to engage in and their likely costs, versus 26 percent of pre-retirees who are without an advisor.

Thursday, December 13, 2012

A Picture is Worth a Thousand Words

The good folks at EduTopia have a great infographic showing the value of financial literacy:

(Illustration by Jude Buffum) 

Tuesday, November 6, 2012

When the Tester Matters More than the Test

This blog has talked before about the possible link between state regulation of financial professionals and the lack of professionals working in communities that need them.  For example, we looked at the Texas insurance licensing exam and curious exam outcomes.  As we wrote:
Evidence suggests that state licensing requirements, particularly licensing exams, may be serving as an unfair and unnecessary barrier to entry into the profession - - to the detriment of consumers. After all while licensing is important and meant to protect consumers, consumers are not protected if the pool of professionals on which they can rely is artificially limited.
Another interesting set of data has come out of Ohio.  In this case, it involves the impact of "who" gives the licensing test.  In July of 2011, Ohio switched test vendors.  At that time, the pass rate on the Life Insurance exam dropped 10 points (70% to 60%) and has never recovered.
If there is a public policy reason that underlies the fact that it has become more difficult to get an insurance license in Ohio, that makes sense.  If it is simply more difficult because of arbitrary differences between two test vendors, that is more problematic.

First, there is the impact on job seekers.  Nearly 2,000 individuals take the Ohio life insurance exam.  Under the new vendor, 200 Ohioans who would have passed the first time will now fail.  That means these 200 will pay nearly $10,000 more in retake fees.  They will also spend countless more hours re-studying and preparing to retake the test.

Second, there is the consumer impact.  Some of the agents who would have passed under the old system will likely give up entering the profession.  These are agents who might have worked with their neighbors to help families acquire the tools necessary to achieve financial literacy.

As said in the Texas post, licensing exams should not be made too easy.  They should be properly set to measure entry-level knowledge.  When pass rates dip simply because the vendor changed, it raises questions about what is being tested.   Barring a change in law or regulation, basic fairness suggests that the pathway into the insurance profession should be the same in 2012 as it was in 2011.

There is hope in Ohio.  As CFS noted before, Director of Insurance and Lt. Governor Mary Taylor is a real champion of agents and brokers.  If anyone can look into this problem, her office can.

Friday, October 19, 2012

4 in 10 Americans...

... have less than $500 in savings.  That is the finding of a new survey.

This quote from the President of the Greater Philadelphia United Way sums up the sad situation:
“It doesn’t shock me, but it does scare me. You know, we often say that the reason so many people fall off the edge in a tough economy is that they’re standing way too close to it, and I think this is a perfect demonstration of that.”

Tuesday, October 9, 2012

"Dangers of Ignoring the Middle Market"

That is the title of an article from LifeHealthPro that deserves a read.  The piece examines the consequences of the Life industry failing to adequately serve the middle class.  Among the risks facing the industry considered by the article are a loss of tax free benefits, losing a generation customers to direct distribution and continued underserved markets.

Good stuff.

Tuesday, September 18, 2012

Interesting Report from Consumer Federation

The Consumer Federation of America is out with a new analysis today that shows an interesting paradox.  One the one hand, the study found that middle-class families had made "costly" financial mistakes.  On the other hand, it found that families still feel they can make "good" or "excellent" financial choices.

The react from CFA Executive Director Stephen Brobeck:
“Considering their past mistakes and the complexity of the financial services marketplace, we were surprised at how highly most middle class Americans rate their ability to make a variety of financial decisions and how infrequently they rely on information from the Internet and publications.”
Another interesting finding in the study is where middle-class Americans look for financial advice.  A full 45 percent said they want information from a financial advisor when looking for information about saving and investing.  This beat the Internet, books, magazines and TVs by a large margin.

As regulators in DC and states take a look at the financial industry, they need to keep this in mind.  As CFS's own research shows, the middle-class is woefully underserved and policies need to correct that problem, not make it worse.

Look Where for Financial Literacy Advice?

Given the debt crisis, it may seem like an odd choice but Time suggests the US could learn a lesson or two about financial literacy from Spain of all places.

Key point:
Why should Americans care what’s going on in Spain? The financial-education movement is a modern global phenomenon. No one knows for sure what works best and how to reach individuals with the information they need to make smart money decisions. Different nations are trying different approaches, and all of them can learn.

In Spain, they hope to reach all age groups but see getting to students with money basics as the long-term fix. In the U.S., students are on the radar for sure — but a rising emphasis is on helping adults by requiring simpler financial statements and products, providing closer regulatory oversight and creating online tools that will offer third-party advice at the point of sale.

Simpler products and timely impartial advice are fine. Let’s do it. But those are stopgap fixes. Empowering young adults to be confident about money — to be financially literate, just as they learn to read and write — is the right approach. Maybe we’ll learn something from a country at the center of the euro crisis.

Tuesday, August 21, 2012

A Long - But Successful - Road to Financial Literacy in Virginia

Virginia Business has a look at the long, but successful road the Commonwealth has traveled to get financial literacy courses in its classrooms.  It is a nice column from one of the supporters of the legislation.

Just how long was the road?
The VSCPA has been pressing the issue of financial literacy since 2004. In 2005, the General Assembly approved a bill to require instruction in the topic. In 2008, Chesapeake Del. Lionell Spruill Sr. introduced legislation to make the course a graduation requirement, but the bill failed to make it out of committee. The Virginia Board of Education (VBOE) did what the legislature would not. In February 2009, it revised its Standards of Accreditation, making the course a graduation requirement. Then-Gov. Tim Kaine approved the regulatory changes.

Tuesday, August 7, 2012

The Feds Get Involved in Financial Literacy

News from Reuters that Federal Reserve Chairman Ben Bernanke talked to teachers this week about the need to teach students financial literacy.

The chairman's key point:
"Consumers who make informed decisions about financial products and services not only serve their own best interests, but collectively, help promote broader economic activity."

Virginia Insurance Department and Licensing Fairness

As this Blog has noted before, one key reason families find financial security is because they work with an expert who helps them acquire financial products like life insurance, an IRA or an investment vehicle.  The bottom line is that if we want more families to achieve financial security, we need to make sure they have access to experts who can help them do it.  Studies show very few find financial freedom on their own. 

CFS has done a fair amount of work on how financial professionals are licensed and get into the business.  We want to know why some communities are served by the industry while others are not. The CFS work has uncovered instances where the evidence suggests that state licensing requirements for financial professionals, particularly licensing exams, may be serving as an unfair and unnecessary barrier to entry into the profession.  In other words, there are people who are trying to serve their neighbors but are not getting through the licensing process. 

While licensing is important and meant to protect consumers, consumers are not protected if the pool of professionals on which they can rely is artificially limited. We've noted before how evidence in Louisiana and Texas shows that those most likely to work in underserved communities are least likely to get a license from the state.  While no one should ever get a license if they do not deserve one, CFS has asked states to make sure their process is fair. 

This week, there is better news from the Commonwealth of Virginia.  Virginia was an early leader in the effort to look at exams and ways to encourage success from all those seeking to get a license.  The new report in Virginia shows that when states make an effort to help license professionals from all communities, results can be dramatic.  

Take a look at pass rates for the Virginia life insurance exam over time.  There has been a dramatic jump.  In 2011, Virginia officials told the Wall Street Journal that they concluded that their exam was more difficult than necessary, and that the exam was improperly failing even those who had entry-level knowledge and should be getting a license.  The Commonwealth took steps to "fix" its exam, and it would seem that everyone is benefitting today. 

The Virginia experience shows that states can help connect consumers with more financial professionals without sacrificing consumer protections.  As a result of the work of regulators, there are now more agents in Virginia helping their neighbors acquire the tools that have become a necessary part of the American Dream.  Congrats to Virginia.  Let's hope other states follow. 

Wednesday, July 18, 2012

Fiduciary Still Looming

While it may have taken a back seat to the election, the Department of Labor and stakeholders continue to engage in a behind the scenes debate about the DOL's fiduciary rule.

In the latest salvo, FSI sent a letter to Congress clarifying the industry's cooperation in the process.

When the rule comes, the key test will be does it preserve access to financial advice for small savers?  Americans are not saving enough for retirement.  With the need for the rule already in doubt, it is important we do not take one step forward and two steps back.

According to this article, the rule might not come until post-November.

Kent Mason, a lawyer at Davis & Harman, LLP, recently spoke to some of the practical concerns with the rule:
Under the original Labor fiduciary-rule proposal, a broker who has a client with $25,000 to invest in an IRA and $30,000 to invest in an investment account would only be able to advise the client on the investment-account portion, according to Mr. Mason. The broker couldn’t help with the IRA because he or she couldn’t give advice that affects compensation – either commissions or revenue sharing – under the Labor proposal.
“That kind of strange disconnect would have to unfold in that very odd way,” Mr. Mason said. “That’s the product of this bifurcated rule.”
Stay tuned...

How Important is a Financial Advisor?

A recent LIMRA study attempted to answer that question.  What they found is that access to an advisor can make the difference between saving and not.

Key point:
LIMRA's study found that 61% of consumers who work with an advisor contribute to a retirement plan or an IRA, while only 38% of consumers who don’t work with an advisor contribute to their retirement savings. Controlling for income, consumers who work with a financial professional are also more likely to contribute to a defined contribution plan or IRA.
Numbers like these are why CFS fights to ensure all communities have access to sound, ethical financial advice.

Monday, June 25, 2012

The Gender Gap

Experts frequently talk about "gaps" when it comes to financial literacy.  This week's news involves the "gender gap." has the news on how "women are especially falling behind when it comes to managing money and investing. "

The underlying study is from Financial Finesse.

Thursday, June 7, 2012

Sound Familiar?

Deloitte Research recently published a study of the life insurance market.  According to its authors, the study attempted to answer two questions:  what makes life buyers "tick" and why is it that so many consumers do not have the product?

Close readers of this blog can probably answer those questions without reading the study.  What Deloitte found in terms of answers mirrors the research of CFS, LIMRA and many others.  Specifically, it found that the major reason that buyers did not have insurance is because they did not have contact with an agent.

As the survey put it:
As many of those who are currently uninsured noted that a prime reason they don’t have coverage is no one has asked them to buy it. Even those with insurance open to buying additional coverage often say they have not received offers from carriers.
Another fact that the Deloitte study backs up is the notion that life insurance is "sold" and not "bought."
The surveys indicate that carriers cannot afford to wait for prospects to seek them out, as many respondents said they don’t shop for life insurance on their own initiative.
What does it all mean?

First, it is important that the industry make it an effort to recruit and retain agents that connect with prospects.  Second, it means state regulators must make sure there are no unfair barriers to entry standing in the way of the agents that the industry recruits.

We have noted before how issues of fairness in insurance licensing exams may be screening diversity out of the Life industry.

How much does poor financial literacy cost?

A lot, according to a study from the FINRA Investor Education Foundation.  The study looked at the differences between men and women at various levels of financial literacy.  What did they find ?
Women with low levels of financial literacy were more likely to engage in costly credit card behaviors—like incurring late fees—than men with low financial literacy. There were, however, no differences in behavior between men and women with high financial literacy. These findings suggest that increasing financial literacy can improve credit card management and reduce or eliminate gender-based differences in credit card behavior.
Read more.

Friday, May 18, 2012

A Pineapple, An Owl and a Pearson Test

In looking at why some communities have access to financial professionals and some do not, CFS has focused on regulatory barriers to entry that may be needlessly limiting entrants into the financial profession. One such barrier we have looked at is the licensing exam.  While a properly calibrated exam is an important part of consumer protection, an improper exam can do consumers and would be professionals more harm than good.

CFS has pointed out a lot of issues with insurance licensing exams, including a lack of  uniformity between states in terms of content, difficultly level and domain weighting.  For exams that measure entrance into the same profession, the tests look remarkably different from state to state.  There seems to be no public policy reason why this should be the case.

We have also noted the existence of curious exam performance data in states like Texas.

In recent weeks, there has been a flurry of attention about the exam used to measure aptitude among New York City's public school students.  According to coverage, the exam was littered with typos, confusing instruction and nonsensical questions. The New York experience is a good reminder that tests and test creators are not infallible.  Mistakes happen, and we ought to be willing to look at standardized tests from time to time and make sure they are doing what they are intended to do.

According to this powerpoint, that is exactly what the NAIC is doing right now with insurance licensing exams.  Stakeholders are engaged in a discussion about what steps to take.  Consumers in underserved markets will benefit if the organization is able to finally bring uniformity to the licensing process.

Any honest look at the licensing tests used today will reveal problems.  Here is hoping regulators finally get them fixed.

Thursday, May 10, 2012


A new study out from LIMRA found that 49 percent of all Americans are not contributing to any retirement plan.  The worst demographic was 18 to 34 years olds.  In this group, 56 percent were not saving.

As Washington, DC, and state leaders focus on changes to how retirement advice is given and received, these numbers should be kept in mind.  There is already a retirement savings crisis.  It is important it not be made worse.

As to why people are not saving, the survey found that:
Nearly half of consumers said they aren't planning to contribute to an IRA because they can't afford to, and only a quarter of Americans have worked with a financial professional to plan for retirement, the survey found.
These answers suggests any proposals that make savings more expensive or experts harder to find move us in the wrong direction.

Friday, May 4, 2012

Interesting Remarks from the LIMRA Chief

Robert Kerzner, CEO of LIMRA, recently spoke at the annual Life Insurance Conference. In interviews before his speech, he touched on Americans declining use of life insurance and how the industry has failed to keep pace with changing demographics.

Key point:
The average age of independent advisors is 52, and the average age of affiliated advisors is 47, he noted. Some of these older advisors continue to be influenced by old ideas about selling that just don’t resonate with younger people today, Kerzner contended.
Part of CFS's work is to make sure regulations in states are not unnecessarily standing in the way of new agents who might meet the needs of consumers today.  With more and more Americans needing financial security, it is important they have access to the individuals who can help.

Thursday, April 19, 2012

Shutting Out the Middle-Class? ran an interesting interview this week with Louis Harvey of the consulting firm Dalbar. Harvey was asked about the impact of the DOL or SEC imposing a universal "fiduciary" standard across the financial industry.  Harvey's conclusion?  The middle class will be shut off from advice.
“You can make three phone calls to three firms and ask their minimums,” Harvey said. “Every brokerage firm has a minimum for their RIA business which is substantially higher for the minimum of their commission business. The median for the RIA business is about $100,000; on the other, you can get a commission-based rep for about $5,000 [in assets].”
Also interesting is how Harvey labels himself in the great fiduciary debate.
Harvey considers himself a “separatist” on the fiduciary question, seeing a role for both fiduciary and commission-based advisors each in their own areas. He sees a danger in “trying to take the guys selling Fords and Chevys and bringing them into the fiduciary world. Only those who are qualified should be there,” he says.

Monday, April 16, 2012

A Solution in Search of Problem

That is what the Wall Street Journal editorial board labels the Department of Labor's attempt to redefine fiduciary.  Take a look.

The Latest Look at Financial Literacy

April is Financial Literacy month, and with it has come a host of articles looking at the financial literacy movement.  Of the more recent pieces, is a look by the Washington Post at efforts in Maryland and Virginia to teach finance in schools.  The central theme of the article is "does it work?"

Of course, that question cannot be answered yet but all experts agree it is worth trying.

In both states, a massive effort is underway:
Educators in Maryland and Virginia acknowledge that even implementing the new curriculum — let alone determining its effectiveness — is going to be a challenge. Teachers certified in math, social studies, economics and business are considered qualified to teach the new course, but they have to be trained. Dominion High School is aiming to offer the new course to juniors, beginning in 2013. At Marshall in Falls Church, the course is so new that Terence Mayo’s class is the only one currently offered, but it will require 17 different sections to accommodate one grade level, roughly 400 students. Marshall is exploring an online option, which students could take for free during the school day, and a class outside school for $800, which they would have to cover on their own. There’s also a summer option on the table.

Wednesday, April 4, 2012

Will Fixing 401ks "Fix" the Retirement Crisis?

That is the question posed by a great Washington Post article today.  The entire piece is packed with good information, examples and policy solutions.

This quote from Alicia Munnel of the Center for Retirement Research sums up the debate that will be worth watching in the next few years, as more and more burden for retirement is shifted to working families:
“Our whole retirement system’s too small. When you put together Social Security and these 401(k) plans, it’s just not going to provide enough for retirement income. . . . The question is, can you fix it by fixing the 401(k)s?”
Give the article a read and let's watch where this debate heads.

Tuesday, March 27, 2012

Another Call to Arms

Time's Moneyland column this week has a call to arms for proponents of financial literacy.  Looking at new data froth Council for Economic Education (OECD), the piece suggests financial literacy is losing momentum in states. Sadly, this isn't the first column like this.  We blogged about another one here.

What are the reasons?  The reason is not that financial literacy is not important.  But behind the scenes is a robust debate about finding out what works.
They also reflect recent criticisms that have surfaced in the U.S., where academics disagree as to what works as it relates to teaching kids about money. Some think kids don’t retain enough to make the financial education effort worthwhile. Indeed, a series of JumpStart student evaluations has shown that kids, on average, aren’t getting any smarter about budgets and debt. The JumpStart test is now being re-evaluated and recently missed its cycle. At the same time, the prominent financial education booster Lewis Mandell, a senior fellow at the Aspen Institute, even argues that such simple time-honored teaching tools as paying kids a weekly allowance may do more harm than good. He and others would prefer scarce resources be spent on financial education programs aimed at adults and in support of regulations that dictate things like clearer mortgage documents and credit card statements. This is largely what the Consumer Financial Protection Bureau is all about.
Thankfully, the column quotes one OECD official as saying financial literacy is not falling off the federal radar.  It may be time to redouble efforts to ensure it stays on state radars too.

Tuesday, March 20, 2012

Louisiana and Insurance Regulation

Jim Donelon, Louisiana Commissioner of Insurance, has published his 2010-2011 annual report.  For those interested in the effort to ensure underserved communities have access to affordable and appropriate insurance products, the report contains some unfortunate data.

For starters, page 30 shows that over half of those applying for a license to sell insurance in Louisiana will fail.  Why is this a problem?  It's a problem because research by LIMRA and others (including CFS) shows contact with an agent is perhaps the single biggest difference between those who purchase a product like life insurance and those who have the means but do not.  If we want to help more families achieve financial security, we must make sure all communities have access to qualified financial professionals.

Page 32 has more puzzling information.  The report shows that just 62 percent of those with a college degree who take the LA life agent exam pass.  Consider, for a moment, that in most states, over 70 percent of ALL candidates pass the exam.   What is it about the Louisiana exam that has even college graduates struggling?

Finally, the report also includes pass rates by race/ethnicity.  Looking at Table 15, one can see that those most likely to work in underserved communities are the least likely to get a license.

The report is a wake up call.  Like what we saw in the Texas post, numbers like this do not have to exist.  Other states have found ways to encourage more entrance into the profession without sacrificing consumer protection.  Remember the words of the Ohio Insurance Commissioner?  Ensuring fairness in licensing is in the best interest of consumers, job-seekers and society.  No no benefits when the pool of financial professionals is artificially and arbitrarily kept small.

Looking below at how Louisiana's pass rate stacks up against the rest of the region, one can't help but wonder if Louisiana regulations - like regulations we discussed in Texas - have gone too far and are hurting consumers, job-seekers and small businesses?

 Life Agent Licensing Exam First-Time Pass Rates 2011

Latest on Fiduciary

Late last year saw a big debate between the financial industry and the Department of Labor over the proposed redefinition of the fiduciary standard.  The DOL's proposal was so broad and so far reaching that even consumer advocates urged the department to put on the breaks.  As one said, the industry was "not exaggerating" that the rule would force broker-dealers to stop marketing and working with small savers.  At a time when more and more Americans are falling behind their savings goals, less advice is not a good thing.

Reuters is out today with news that the DOL is still working on its proposal.  Exactly when it will come out is not know. 

Friday, March 9, 2012

Is the Financial Literacy Movement Losing Momentum?

There is a great article over at that looks at the movement to include financial literacy instruction in public schools.  Pay particular attention to the great info-graphic, which suggests the movement may be losing some momentum.

Perhaps more interesting than just the raw number of states teaching financial literacy, is the article's look at different strategies and the search for what works best.

Of note:
Experts are still searching for the holy grail of financial literacy education.
"We economists would love it if someone came up with a methodology to teach people how to use credit cards to maximum advantage and do it in high school, when we can reach them, with the notion that it will be retained until they're adults and using credit cards," says Mandell. "We haven't found any silver bullets, but that doesn't mean we're not looking."
Limited time in the classroom.  Teachers who are not "masters" of the subject.  Factors like patience that can't be taught.  The article lists a great number of challenges facing advocates who understand we need to help teach kids money skills.

While the overall message of a slow down in the movement is alarmist, the details suggest the debate is more alive than ever and the search for the best path forward continues.

Friday, March 2, 2012

Serving the Middle Market

Part of the CFS mission is to shine a spotlight on solutions that will put more working-class (or middle market) Americans in contact with financial experts who can help them get the tools that are necessary to finding financial security. These consumers are often overlooked as professionals chase higher commissioners and larger portfolios.

While there are a number of public policies to promote in this area, there is also a need for the industry to recruit and retain more agents who will work in the market.

New York Life announced recently a plan to add 3,700 more representatives in 2012. The company is putting a heavy emphasis on underserved communities in its recruiting.

From the press release:
New York Life actively seeks to hire women and individuals who serve ethnic markets. In 2011, 57% of the company’s hires in the field were women or individuals who represent the cultural markets. An additional recruitment focus for 2012 is men and women transitioning to the workforce from the military.

Friday, February 17, 2012

Reuters on Financial Literacy

Reuters has a great piece this week on financial literacy and how not having it can impact retirement.  The whole thing is worth a read but here are some highlights.

On the implications of a lack of knowledge in the new era of retirement:

Experts often point to poor financial decision-making as a cause of the retirement security crisis. The problem has become more critical as we've moved away from professionally managed pensions and toward do-it-yourself defined contribution plans. Studies show workers do poorly managing their 401(k)s, including too-low contribution rates, infrequent rebalancing and maintaining too much exposure to equities in the last few years before retirement.
On gaps in financial literacy:
Not surprisingly, Mitchell says, men and women with higher levels of education know more about personal finance than those with less education. The research also shows gaps between whites and minority groups, with blacks and hispanics less likely to know than whites. And while men are more knowledgeable than women, men think they know more than they really do.
What can be done? The article points the need for much more education in schools, more focus on finances from parents, more budgeting by all adults and a realization from policy makers that this is a priority.

Monday, February 13, 2012

GAO Releases Highlights from Financial Literacy Forum

Last year, the Government Accountability Office (GAO) convened a summit of leaders in the area of financial literacy.  Last week, the GAO got around to releasing the highlights of the summit.

The takeaways are what you might expect:  focus on k-12 and vulnerable populations; increase partnerships between non-profts, governments and private sector; test out solutions to find what works best; and leverage the unique position of the federal government.

One thing that stood out was a look at what employers can do.  Interestingly much of the past financial literacy conversation focuses (rightly) on schools.  A lot of recent conversation, however, has started to look at how we can get to those who have already left the school system.

One of the themes that emerged during the forum was that employers have a key role to play in improving the financial capability of their employees. Participants noted, for example, that employers could encourage their employees to save for emergency purposes and retirement. They also discussed the need to create incentives for employers to support healthy financial behavior by employees. GAO was also encouraged to consider taking additional steps to enhance the financial literacy of its own employees and thus serve as a model for other federal agencies.

Wednesday, February 1, 2012

Selling Life Insurance

There is a saying that life insurance is "sold, not bought."  The saying highlights the fact that families purchase life insurance because someone educates them about the product and the need.  The saying also suggests just how important agents are to the sale of life insurance.  Families still report preferring to purchase insurance protection face-to-face.

Recent industry statistics suggest life insurance usage is at an all-time low.  Not surprising, statistics also suggest the agent population is in decline.  The two data points likely go hand-in-hand.

One goal of CFS is to ensure Americans have access to the tools they need to find financial security.  In the case of life insurance, that means agents.  The new LIMRA research is a clear sign that there is more work to do. 

Friday, January 27, 2012

The Next Wave of Civil Rights?

Economic empowerment.

That's According to Operation Hope's John Hope Bryant who is quoted in this Businessweek article about minority entrepreneurs.  The article contains some interesting facts and is worth a read for passages like this: 
When the U.S. Census Bureau last surveyed the landscape in 2007, African Americans owned 1.9 million businesses, about 7 percent of the total. While that was a 60 percent increase from five years earlier, the average revenue at those businesses had decreased 3 percent since 2002, to $72,000 a year, vs. an average of $490,000 at those owned by whites. And that was before the recession wreaked havoc on the black middle class. Median wealth in black households fell 53 percent between 2004 and 2009, to $5,677, according to the Pew Research Center. That’s one reason black entrepreneurs accounted for 9 percent of new ventures in 2010, according to the Kauffman Foundation, which promotes startups. Latino entrepreneurs represented 23 percent of the total. “
If you don’t have the resources, it’s much tougher to make it.” says Daryl Williams, Kauffman’s director of research and policy.

Wednesday, January 18, 2012

Serving - and Surviving - the Middle Market

Much of CFS's work is focused on helping to make sure middle-class families can acquire the knowledge and tools necessary to achieve financial security. This includes increasing financial literacy and helping to make sure public policies work to connect working Americans with tools like life insurance, IRAs and other products that are an essential part of the American Dream.

The New York Times ran a piece this week about the challenges of making sure the middle market is properly served. It is a challenge this Blog touched on during the DOL fiduciary debate, when everyone from the Consumer Federation of America to members of Congress worried that the rule would dry up incentives the industry had to serve small savers.

What exactly is the challenge?  The headline sums it up: "Financial Advice for Those with Small Nest Eggs."   The Times, noting Merrill Lynch's decision to tell brokers they would no longer be compensated for working on accounts with less than $250K, wrote:

Nobody has figured out a way to consistently give large numbers of people reasonably priced financial advice across all areas of their life and to do so in an ethical manner.
Knowing the DOL debate is coming back, the whole piece is worth a read for a discussion of the challenge. It is clear the market is moving away from the small and medium saver. What if regulations hasten the move? What can be done to turn it around?

Thursday, January 12, 2012

Kudos to the Ohio Insurance Department

Ohio Lt. Governor Mary Taylor (also the Department of Insurance Director) has penned a guest column that shows that she understands the role financial experts play in helping their neighbors achieve financial security.

Key point:

Representing a significant portion of Ohio’s economy, these small business owners treat their clients like friends and neighbors because they are friends and neighbors. They are local, they know their communities, and most importantly, they know their client’s needs. Agents and brokers use their knowledge of insurance to help determine what coverage is best, and work on the client’s behalf to ensure they have a policy that protects them, their family and their interests. And after the sale of a policy, agents and brokers continue to assist their clients by providing a helping hand when and if claims arise.

Part of the CFS mission is to advocate for public policies that will help connect working-class Americans with financial professionals. Research shows "middle-market" communities are underserved and under-represented by agents and brokers who can link consumers to products that grow financial security such as life insurance and IRAs. That same research shows Americans are looking for help.

It is good to see leaders like Lt. Governor Taylor taking the obligation to ensure consumers have choices seriously.

Monday, January 9, 2012

Getting a License to Sell Insurance in Texas

Given the CFS mission to help ensure that working-class Americans have access to financial tools and advice – including agents who represent a vital link to products like IRAs and life insurance, CFS has done a fair amount of work on how financial professionals are licensed and get into the business. That work has uncovered instances where the evidence suggests that state licensing requirements, particularly licensing exams, may be serving as an unfair and unnecessary barrier to entry into the profession - - to the detriment of consumers. After all while licensing is important and meant to protect consumers, consumers are not protected if the pool of professionals on which they can rely is artificially limited.

The state of Texas recently released a report detailing outcomes related to its life insurance licensing exam. The results are puzzling.

Overall, the report shows candidates for a life insurance license in Texas doing significantly worse on the exam than their counterparts in neighboring states like New Mexico, Kansas and Arkansas. Why? The subject tested is supposed to be essentially the same – entry-level insurance knowledge. Are candidates in Arkansas where the exam pass rate is 76 percent smarter than candidates in Texas where the pass rate is 55 percent? Unlikely. Though the profession is the same and the laws similar, the test is obviously different in Texas. Why?

In addition to an overall low level of success, the Texas report also showed the exam has a disparate impact that is consistent across education levels.

Some might suggest the Texas results can be attributed to some candidates better preparing for the exam or socio-economic variables. Certainly those two things have an impact. They do not, however, fully explain why Texas candidates do worse than their neighbors on an exam for the same job. Also, the Texas report shows that those who take courses to study the exam do only marginally better than those who do not (58 percent to 44 percent). So how important is preparation?

The Texas report is particularly puzzling in light of the fact that an alternative exam and method of exam administration exists that has less disparate impact and is presumably equally protective of consumers. That exam is used by Illinois, which has a history of dealing with issues in licensing exams.

Compare the Texas education/ethnicity chart above to this one below showing pass rates by ethnicity from 1985-2010 in Illinois:

Why don't Texans deserve the same?

At its launch, CFS released a survey with the League of United Latin American Citizens (LULAC) that highlighted some of the sources of financial insecurity among middle-class and minority communities. The poll revealed a very serious knowledge gap among Americans who had the finances to save and but did not. For example, 89 percent of those CFS surveyed who did not have life insurance or an IRA did not know anyone who sells the product. Eighty percent of this group had never been contacted about it.

CFS’s own research is mirrored by the consumer research of LIMRA and others, which consistently show middle-class Americans in search of professional financial advice. For example, LIMRA’s 2010 survey of the life market found that “almost eight in 10 U.S. households currently do not have a personal life insurance agent or broker to turn to and most of them say they never did.”

With life insurance usage so low, and Americans searching for individuals to talk to, will public policy makers listen?

Obviously, the answer is not to make the Texas and other exams easier or loosen consumer protections. The answer is to make sure the process is fair. As long as candidates for a license in states like Illinois and others have a much smoother pathway into the profession than candidates in states like Texas, questions of fairness will continue to linger - - and consumers will continue to suffer the consequences.

One Word You Don't Hear Mentioned A Lot

Pundits and polls have identified a lot of reasons for the lack of financial security in America. The University of Michigan has added another - patience.

A new line of research done by the school finds that "impatience and financial illiteracy are strong predictors of wealth and investment in health."

So while great strides have been made in getting financial literacy into the classroom, maybe we should be looking at teaching patience too.

The researchers note that this can be done with proper "framing" of financial choices.

Interesting stuff.