BEWARE OF THE INVISIBLE LINE IN THE BANK

You mean you didn’t know there was an invisible line in your bank? That’s because it is invisible after all. No one will dare to point it out to you. “Then why is this important at all,” you may ask. Because what you don’t know may come back to bite you.

I’ll give you an example. One day a client of mine, Mrs. Prudent (the name has been changed to protect the gullible), went into her bank to deposit a check. It was a check for a large sum of money.

Mrs. Prudent had sold her small, home-based business. She wanted to fully retire and take things easy. She was eighty-two. She intended to open a certificate of deposit.

A CD, she knew, is insured by the Federal Deposit Insurance Corporation up to $250,000. This was the amount of her deposit. She felt good, she knew her money would be safe.

That was when the teller told her she must see the investment advisor at the bank. He would help her with her deposit.

The investment advisor was very pleasant and cordial. He certainly looked and talked like he knew what was best. He said that the bank now had an account for her that would pay more that the existing rate for a jumbo CD. This account would also grow faster than her deposit could.

Mrs. Prudent was absorbed in the banker’s explanation. She felt like she was in good hands. It was her bank after all.

When all the soothing talk from the bank investment advisor was finished, Mrs. Prudent left her money in his hands. He gave her a paper that looked like an official investment document. It didn’t look quite like her previous CD’s. But she was comfortable. She had dealt with this bank for years.

What Mrs. Prudent didn’t realize was that she had crossed the invisible line in the bank.

You see, banks can now offer financial products which are in no way associated with the bank. They are now in the investment business. The banks investment officers get paid a little differently than the bank employees. They may make commissions on the sale of other investment products.

The transactions on one side of the invisible line in the bank are insured by
the Federal Deposit Insurance Corporation. They are bank products.

On the other side of that invisible line, the banks investment officers may place your money in investments, insurance, and annuities which aren’t the products of the bank at all.
These products are not insured by the Federal Deposit Insurance Corporation. They bear the risk of other types of investments. They may fluctuate with the stock market.

This is fine, if you know that’s what you are getting. But it does come as a surprise to many.

Some time later, Mrs. Prudent came to see me about updating her medical power of attorney. While she was talking with me, she mentioned that it seemed odd that her bank CD seemed to lose some of its value.

“What do you mean,” I asked.

She produced a copy of a statement which showed that the value of her “CD” was now less than the $100,000 she had originally deposited with the bank.

After a review of the statement, I explained that the “CD” was not a CD at all. It was a variable annuity issued by a large insurance company, and it was based on the performance of the stocks held within the annuity.

“What do you mean,” she asked. “I opened this account at my bank.”

“ Yes,” I explained, “but it was issued on the financial advisor’s side of the invisible line at the bank. It was not a bank product at all, much less a CD.”

The account had lost value because the stocks which were held in her variable annuity had lost value in the stock market.

“I don’t invest in the stock market,” she argued.

“Oh, but you do,” I responded. What you ended up with at the bank was not a CD. As I explained, it was a variable annuity.

A variable annuity is a product which varies (hence variable) according to the stocks held by the insurance product, the annuity. You were not dealing with the bank, you were dealing with the investment advisor who happened to be at the bank. You crossed the invisible line.

Mrs. Prudent was flustered. “This isn’t what I wanted,” she shrieked. “I just wanted my money to be safe and earn a fixed percent. I wanted a CD!”

I had to agree. Mrs. Prudent had no business investing in the stock market. Or in a variable annuity, which is nearly the same thing.

At her age there would not be enough time to recover any loss in the value of her investments. Safety had become more important than growth, or even the potential for growth.

If the annuity Mrs. Prudent had invested in were a fixed annuity then everything would be all right.

With a fixed annuity there is no threat of losing the principal. All principal is guaranteed. Some states have even passed laws securing the funds held in a fixed annuity. It is safe from lawsuits and creditors. So all in all, a fixed annuity is not a bad investment.

And a fixed annuity would most likely have paid more interest than the banks certificate of deposit. And it would have been as sure and protected as the banks certificate of deposit.

But that is not what the bank investment advisor wanted to sell her. You see a variable annuity generally pays a larger commission to the bank financial advisor than would a fixed annuity.

We went to the bank together. When I objected to the way Mrs. Prudent was sold a variable annuity when she wanted a CD, the bank disagreed.

When I explained that Mrs. Prudent was eighty-two and had no business being in the market, the bank disagreed.

When I asked if Mrs. Prudent’s funds could be returned and placed in a safe account, the bank said no. The bank generally refused Mrs. Prudent’s requests.

Their position was that Mrs. Prudent should have known about the invisible line in the bank, that is the difference between banking activities, and investment propositions.

The best notion it seems to me, is to let banks do your banking, and let investment advisors advise you about investments. Insurance representatives would be the ones to talk to about insurance. And annuity promoters would be most helpful when considering annuities.

In any event, see your estate planning attorney before completing any such changes. You would be wise to make sure whatever you do coincides with your estate plan. You don’t want to undo any of your careful planning. There is an invisible line.

Do you know where the invisible line is in your bank?

Everyone knows how important it is to be able to make decisions regarding your health care. But what happens if you are unable to make your own health care decisions? Can someone else make them for you?

Yes, but only if you have appointed someone to be your health care agent or issued a health care power of attorney. Together with this appointment you should also specify your wishes by writing out some “Health Care Directives.”

The National Academy of Elder Law Attorneys has issued this following news bulletin to remind people to name their health care agent in writing:

News
1. National Health Care Decisions Day is April 16
————————————
Despite recent gains in public awareness of the need for advance care planning, studies indicate that most Americans have not exercised their right to make decisions about their healthcare in the event that they cannot speak for themselves. The National Healthcare Decisions Day event will help Americans understand that making future healthcare decisions includes much more than deciding what care they would or would not want; it starts with expressing preferences, clarifying values, identifying care preferences and selecting an agent to express healthcare decisions if patients are unable to speak for themselves. The National Healthcare Decisions Day (NHDD) initiative is a collaborative effort of national, state and community organizations committed to ensuring that all adults with decision-making capacity in the United States have the information and opportunity to communicate and document their healthcare decisions.

If you haven’t yet done so, decide you will now put your Health Care Power of Attorney and Health Care Directives in place. Don’t delay-do it today.

I used to get irritated when I would see an attorney’s letterhead describing the service as “attorney and counselor at law.” Isn’t that redundant. It seemed to be the height of self-importance or egocentricity. “Why would you need to describe yourself as both an attorney and then as a counselor at law?” I would ask myself.

Now more than ever perhaps both appellations are appropriate. An attorney is defined as a person who practices law, a counselor, a lawyer, or even sometimes an ambulance chaser. A counselor is defined as someone who gives counsel, or an advisor. Now more than ever, I believe the role of advisor or counselor is needed.

On the radio or TV these days we are bombarded with blaring commercials who guarantee us that this or that company has the appropriate legal forms for you to provide the documentaion you need to start a business, incorporate, file an LLC, prepare a will or a trust, file for bankruptcy, or obtain a trademark.

I believe these companies may have very good documents. After all the company was started by “top attorneys.” And the law will back you up, they declare.

But what if you don’t know the difference between incorporation and starting a new business or filing an LLC? What if you don’t know the difference between a will or a trust, or a patent or a trademark? And more important, what if you don’t know what you don’t know?

That’s when you need the other appellation for attorney. That’s when you need the counselor or legal advisor. Your choice between a corporation and an LLC taxed as a small business corporation may make all the difference in the world when it comes to your business success. Your legal advisor, your attorney and counselor at law, may make all the difference to you.

So now I am reconsidering the combined use of the words attorney and counselor at law. Maybe you do need both. Often “the laborer is worthy of his hire.”

Knowing all the different kinds of powers of attorney is an important part of planning your estate. You may not need to know all the intricate details of the power of attorney, but you do need to know the basics in order to ensure that you hire someone who does. Having a power of attorney is a convenient way to make sure that your affairs to stay in order in the event of your incapacitation. read more >>

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