Crash Proof Retirement Media


The Crash Proof Retirement Show®

Saturdays 11am - Sundays 1pm

The Crash Proof Retirement Show® was created by Phil Cannella as the beginning of his life’s goal, to educate the everyday American about the struggles and obstacles that face them in retirement. Cannella and his Co-host, Joann Small, team up every weekend on Philly’s Top Talk Radio Station, 1210 WPHT, to bring truth and logic to the people and reveal the stories mainstream media won’t touch.


The second quarter report from the Private Equity Growth Capital Council (PEGCC) shows that fundraising in private equity nearly doubled to $50 billion last quarter. This growth signals the continuing desire of sophisticated investors to exit the stock market.

Private equity funds can be invested in a variety of ways, including expansion of emerging companies, restructuring, or developing new products for existing businesses. One thing all of these investments have in common, however, is a lack of exposure to publicly-traded exchanges.

Young, start-up companies have little revenue, limited earnings and therefore have unestablished credit. It can be difficult to obtain loans under these conditions, so these organizations are left to rely upon friends, family, or outside, private investors. This is just one example of a private equity investment. Others include buyout deals, different forms of capital investments, and ‘loan-to-own’ strategies with companies in distress.

Generally speaking, this category is used to describe investments of capital into long-term strategies. These are intended as ‘buy-and-hold’ investments and by definition do not lend themselves to any degree of liquidity. This factor alone makes private equity quite risky for the individual investor. University endowment funds and insurance companies are a few examples of typical classes of investors in private equity.

Exit volumes from private equity slowed from the first quarter. A chart of the last 10 years showed that exit volumes tend to increase along with the quality of stock market performance. The four quarters with the lowest exit volumes in the last 10 years all occurred during the last financial crisis.

Regardless, the influx of funds during the second quarter suggests that many high-worth investors believe the market’s momentum has slowed, and prefer to move their funds into a more privatized sector where they feel they have greater control—and most importantly, a better chance of seeing their money grow in the future.

The Importance of Fiduciary Duty

In the financial arena, professionals can be held to two different codes. The first of these is the fiduciary duty, which legally binds the agent to act solely in the best interest of the client.

Brokers, on the other hand, do not operate under the fiduciary standard. Instead, brokers operate under a different code known as a ‘suitability’ obligation. By definition, this standard requires that the broker must ensure only that the financial products offered are suitable for the potential buyer. This means that the broker does NOT need to place his or her own interests below those of the client; but instead must only reasonably believe that any recommendations made are suitable for clients, in terms of that individual or corporation’s needs.

The distinction may seem to be a small one, but it can make all the difference in the world. But if a broker is not required to act in the client’s best interest, how would that affect an individual? It isn’t as if the broker would intentionally sabotage an account.

The first issue is the suitability obligation opens the door to numerous conflicts of interest. For example, a broker can choose to place a client’s assets into a mutual fund that will net that broker a particularly high commission. Under a fiduciary standard, this would be expressly prohibited. But all that’s required of a broker is showing that the aforementioned fund is suitable to the particular investor. What’s more, there’s nothing to require brokers to disclose these potential conflicts of interest either.

Furthermore, brokers who work for investment banks are often little more than salesmen. Their main job is to market the products offered by the investment bank to clients. Brokers are not only able to act outside of a client’s best interest, it’s openly acknowledged that their greater loyalty is to the firm.

In light of these facts, it’s easy to see why the fiduciary is the stronger of the two standards. Do investors have a choice? Well, some investors may be lucky enough to find a broker willing to operate under a fiduciary standard. Sheyna Steiner writes that investors should ask the following four questions to anyone entrusted with their accounts:

  • Are you acting under the fiduciary standard? Can you put that in writing?
  • Which licenses do you have?
  • Are you a registered investment adviser? Can I get a copy of your SEC/State Regulators Registration Form)?
  • If you are not acting as a fiduciary, are you willing to fully disclose all conflicts of interest and the amount of compensation received from advice and products recommended?

An Apology for Quantitative Easing

“I can only say: I’m sorry, America.”

These sound like the words of a treasonous diplomat or disgraced politician. Instead, they made up the opening line of an article written for The Wall Street Journal by Professor Andrew Huszar, a former Federal Reserve official whose work back in 2009-2010 earned him the title “Quarterback of Quantitative Easing.”

In the article, Huszar apologizes profusely for the government’s bond-buying program, blaming the initiative for failing to solve the country’s economic problem and instead creating another ‘bubble’ on Wall Street.

Today’s Crash Proof Retirement Show features a panel discussion moderated by Phil Cannella. Along with co-host Joann Small, Cannella welcomes Huszar and political insider Dick Morris to discuss whether there is a retirement crisis taking place in America.

Panel Discussion Highlights – 4/19/14 by Crash Proof Retirement on Mixcloud

Huszar worked for the Federal Reserve for seven years before leaving for a job on Wall Street in early 2008. In the spring of 2009, he was recruited back to the Fed with a promise that he would be managing the largest economic stimulus in United States history—a program, built on the purchase of $1.25 trillion in mortgage bonds, that would come to be known as quantitative easing.

“This was a dream job, but I hesitated,” Huszar wrote for the Journal. “I had left the Fed out of frustration, having witnessed the institution deferring more and more to Wall Street. Independence is at the heart of any central bank’s credibility, and I had come to believe that the Fed’s independence was eroding.”

Ultimately, Huszar took a leap of faith—one he soon would regret. “Despite the Fed’s rhetoric, my program wasn’t helping to make credit any more accessible for the average American,” he wrote.

Even more to his frustration, each day the Fed deviated farther from the course it had followed for nearly 100 years. The Fed had never purchased a single mortgage bond, but Huszar’s program bought so many that the pure volume threatened to crash worldwide confidence in the financial markets.

Wall Street, however, was well on its way to recovery. By the time Huszar’s program ended in March of 2010, the markets had regained about half of what was lost during the 2008 crash.

And that was just the first round of quantitative easing. By November, the market was dropping again, so “QE2”—the second round of quantitative easing—was approved by the Fed.

“That was when I realized the Fed had lost any remaining ability to think independently from Wall Street,” lamented Huszar. “Demoralized, I returned to the private sector.”

Today, almost four years later the Fed has announced that quantitative easing—now on its third round—will end this October. But is it truly an end, or just a suspension until the next market correction? Andrew Huszar, for one, hopes this misguided experiment is finished for good.

“The central bank continues to spin QE as a tool for helping Main Street,” he wrote. “But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.”


Carlo di Florio, chief risk officer for the Financial Industry Regulatory Authority (FINRA), recently highlighted concerns stemming from variable annuities, saying those particular investments remain ‘at the top’ of the regulatory body’s list of concerns.

At the Insured Retirement Institute’s Government Legal & Regulatory conference held in Washington in July, di Florio and others emphasized the complicated structures of variable annuities, including caps and buffers that can alter the course of each individual investment.

di Florio revealed that consumers’ chief complaints pertaining to variable annuities are disclosure and sales practices. Many investors expressed feelings of being blindsided by surrender charges and other conditions on their particular contract.

Along those same lines, Forbes Magazine published an article entitled “9 Reasons You Need to Avoid Variable Annuities.” Here is the list, in its entirety.

  1. If you truly want to convert after-tax dollars and gains to tax-deferred gains, you can pour money into a variable annuity but be aware you do NOT receive a tax deduction since annuities are not qualified retirement products.
  2. It could make sense to annuitize a variable annuity (convert your lump sum to an income stream) if you end up living a substantially longer life than the statistical average.
  3. Fees typically are very high – at least 2% per year, including “mortality and expenses.”  Some variable annuities cost 3-4% per year.
  4. Investment options typically are limited and often have high underlying expense ratios.
  5. The insurance component is misleading – it’s not insurance in the common sense of the word. “Insurance” in variable annuities typically guarantees you’ll receive at least the amount of money you initially invested into the annuity if you die (unless you have a rider that increases the coverage – but these are rare since the 2008 meltdown). If you die suddenly, you get the value of your account (if you haven’t yet annuitized) – the “insurance” only has value if your investment plunged dramatically vs. your initial purchase amount.
  6. Variable annuities are disadvantageous to inherit if they don’t go to a spouse. If the money formerly was after-tax dollars, the heir receives no step-up in basis on accounts with gains. If you invest the same dollars (after tax) in a stock fund, your heirs benefit from a step-up in basis at the date of death or 6 months later. This is hard to quantify but a step-up in basis is a powerful tool to reduce capital gains taxes.
  7. Disclosure to individuals is very poor. I typically see a lot of confusion on the part of clients who bought variable annuities. These are complex instruments with many moving parts that aren’t always adequately explained (or even understand) by the seller. Folks who buy annuities don’t understand the tax ins and outs and often are told variable annuities are “safe” etc.
  8. Variable annuities typically lack liquidity and can tie consumer money down with prolonged surrender penalty periods.
  9. Variable annuities convert lower capital gains rates on taxable income (if the annuity is purchased with after-tax dollars) into a higher tax rate levied on ordinary income. This can cost consumers significant tax dollars down the road.


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