Someone I know shared this text message conversation about a business decision really got me thinking:
Person A: What do you have to give up to get their $ ?
Person B: I don’t care what I have to give up as long as I get a small piece of a much larger pie. I’ve learned success is largely about the team.
Person A: If all you need is capital, don’t sell your equity – huge mistake…
In the past I would have agreed completely with Person A, however, as I started thinking, this sentence kept rolling around in my head which I couldn’t ignore:
“What is equity?”
Immediately after sentence began circulating I decided to look up the etymology of the word ‘equity‘ because, from my time in the Bible the only usage that I could remember was in terms of ‘justice’ or ‘fairness’ such as in the following quick example:
But with righteousness shall he judge the poor, and reprove with equity for the meek of the earth: and he shall smite the earth with the rod of his mouth, and with the breath of his lips shall he slay the wicked. (Isaiah 11:4)
So how did such a great and righteous word like equity become synonymous with owning a piece of a corporate pie?
I did further searching online and could not come up with an excellent answer that satisfied. There were many posts, links and sites pointing to the term equity in terms of law, but nothing that I could find related to this common practice of calling ownership in a company ‘equity’.
I have heard people recently use the term ‘brand equity’ which further proves that the term is shifting or has shifted from it’s original meaning of ‘fairness’ to this current meaning of ‘asset’ or ‘ownership’.
Almost every day we hear a sentence like this ‘He is building equity.’
Unfortunately, I must, due to a severe lack of time, throw in the towel of finding the answer to my question in the root or history of the word itself. I will appease myself by making up this historical assumption that “The word equity must have come from the fair, or unfair division of business or real estate assets amongst people and it’s relation to the courts use of the word ‘equity'”. In short, there were probably many unequitable deeds done in business by predatory and greed sociopaths so that the term ‘assets’ and ‘equity’ became synonymous. There. Good enough.
But… it got me thinking spiritually as well. At the same time I wondered what the word itself meant and where it was rooted, I also remember very clearly that Jesus taught about assets and ownership of things in this world. Here are some bullet points:
- But seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto you. (Mat 6:33)
- Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal: 20 But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: 21 For where your treasure is, there will your heart be also. (Mat 6:19-21)
- Go to now, [ye] rich men, weep and howl for your miseries that shall come upon [you]. 2 Your riches are corrupted, and your garments are motheaten. 3 Your gold and silver is cankered; and the rust of them shall be a witness against you, and shall eat your flesh as it were fire. Ye have heaped treasure together for the last days. 4 Behold, the hire of the labourers who have reaped down your fields, which is of you kept back by fraud, crieth: and the cries of them which have reaped are entered into the ears of the Lord of sabaoth. 5 Ye have lived in pleasure on the earth, and been wanton; ye have nourished your hearts, as in a day of slaughter. 6 Ye have condemned [and] killed the just; [and] he doth not resist you. (Jas 5:1-6)
And there are more.
The crux of the matter is this:
- Whereas ye know not what [shall be] on the morrow. For what [is] your life? It is even a vapour, that appeareth for a little time, and then vanisheth away. (Jas 4:14)
But wait, there is a bigger crux:
- The earth [is] the LORD’S, and the fulness thereof; the world, and they that dwell therein. (Psa 24:1)
And the summary is this:
- The earth is the Lord’s. We didn’t make it. We can’t take it with us. We can’t own it. It’s not ours. We are tenants here for a short time.
- You can’t own anything. You think you own a house or a business but ask yourself this very simple yet clearly forgotten question: Can you own _____ forever? The answer is an obvious and child-like ‘No’.
So then, what’s wrong with selling 99% of your equity of your 1% can provide for the needs of your family, build a bigger, better, and more ethical company, and spread life and abundance to the world instead of death and destruction?
Isn’t it just a matter of who is on your team, not the size of your pizza slice that dictates all this?
Maybe I’m naive and maybe I’ll get hurt again because of it but life is a vapour regardless so I’m going to keep on the narrow path while I’m here.
Just so you know, like Ecclesiastes and the Byrds said, for everything there is a season and a time. There is a time to live and a time to die. A time to sow and a time to reap. A time to buy an investment and a time to sell it.
And, based on a tear-down 60 year old house in Vancouver selling today for somewhere around 1.2 million dollars, my spidey senses tell me that it may very well be a good time to sell!
Buyers, although I’m sure your realtor will love to grab a buyer’s commission from you it might make sense to wait a month or so.
Another analogy I heard which is great is that this is like a game of musical chairs. If you were planning on selling soon anyway, heck. Sell now.
For older people, you may never see a peak like this again.
Until then, everyone strap in and enjoy the roller coaster ride. Remember, like the famous bumper sticker says ‘cycles happen’.
Well, here it is. A perfect summary of the secrets to success. I can tell you they are true because I have personally failed some of them, if not most of them, and as a result, go figure, I’m not wildly successful – yet.
Awareness is a critical thing though.
Ignorance is not bliss as much as we joke that it is.
Enjoy the video and watch it at least 3 times since this guy blows through the list really, really fast and there is a lot to take in:
This is a great article to quickly reveal how much we *don’t* know about $$ and what we need to do. Thanks to my friend Paul who forwarded this article to me.
I think these are most painful to me because I remember sitting there in high school having a classmate explain to me the importance of compound interest and making your money work for you. I completely agreed with him. After all, who doesn’t know the penny-a-day story?
I just wanted to write a quick post about my experience with my Coast Capital Savings Visa Desjardins and the ‘visa bonus dollars’ program they have.
First, as an FYI, if you do not pay $30/year annual fee you get .05% of purchases converted into bonus dollars instead of the whopping 1%… For the longest time we couldn’t figure out why my card always got more points than my wife and finally one year we figured out they snuck in an annual fee. Of course, I’m sure it was legal and something I agreed to in haste at some point when I started the bad deal but the actual annual fee was really hard to see for me on the physical statement.
So, I cancelled that right away after discovering it and now I’m back to an even more useless visa dollar program. But that’s fine. Because the whole concept of ‘points’ on a visa card is useless on many fronts.
In short, the customer pays for their points out of their pocket and here is why:
- Visa charges the business (aka the ‘merchant’) that takes the card merchant fees.
- Visa gives the incentive to the customer, so the customer starts using their card more and more
- The more points the customer redeems, the more it costs Visa, and because Visa would never actually give anything for free because they are in the business of sucking your will to live, they simply raise the fees the merchant has to pay.
- The merchant says ‘oh crap. I’m losing money on this visa scam. I better raise my prices’ And so they do. and who pays for those service/product price increases?
- The customer pays for the service/product price increases. Yes, the very same customer who just got their shiny, new, overpriced toaster for ‘free’.
So it’s not free.
But it’s even better because I was doing some further thinking. In the case of my Visa Desjardins card, I got a little catalogue sent to me once per year showing me all the shiny new things I could get for free if I just bought more and used my visa more and made my life more trackable and less private and more susceptible to fraud and theft.
While I was flipping through the pages I finally found one thing I actually needed (kind of) – a bluetooth mini speaker that we could use as a flexible sound system. Cool device. Just before buying it I did a quick search online to find that on most websites it was selling at $199 but in this catalogue it was $225. So, I grab my calculator to figure it out since I suck at math and figure out that’s 12.5% more than any regular listed retail price from anywhere… what a great deal so far!
So I ‘buy’ it because what else would I do with these dollars? I can’t take them and buy a meal for my family after all….
Amazing service. That little gaffer showed up at my door about 5 seconds after I clicked submit. Slight exaggeration but it was fast.
Then I started thinking about how there must be this little ‘store’ sitting somewhere that fires out the orders and that’s when I started thinking about how they probably buy 10,000 of each product and get pricing SUPER low.
This is a full-blown racket.
And then, to finalize this bad deal, I was looking at my statement today and there was a transaction for $1.00 from something called ‘Rideau Inc’ in Montreal. Because it was only $1.00 I, like most people, considered strongly not even calling to figure out what the heck this transaction was for. I put on some tunes and got on hold for 25 minutes to find out that that $1.00 fee was actually a charge for buying something with my ‘bonus dollars’. Some company out of Montreal takes a shiny looney every time some fool redeems his worthless hello kitty dollars.
So I cancelled the deal and decided I’m going to make a concerted effort to use my visa even less in 2015.
And invest the $30 into an RESP or TFSA for my kids….
This is a SUPER video to demonstrate how you have to be very careful when you buy a home and talk about it as an ‘investment’. It may be one of the *worst* investments you could make.
Please note that even though this video is excellent, it doesn’t talk about other very important factors like the fact that you have tied up $300,000 which cannot be invested elsewhere.
Buying a home, in certain cases, can be justified. However, it should not be made soley as a ‘great investment’. It is rarely great when you factor it all together. Especially when compared side by side with other investment options.
Last Update to Dialogue: 15-01-14
It seems this is turning into a dialogue which I will update as they come in. I will put the date of the most recent response at the top of the blog post.
Below is my response to my Primerica sales rep when he asked why I was shutting down/transferring out my AGF DSC account. I thought it was interesting enough to share since not that many people do their due diligence, like me, and may be stuck in a similar deal or considering purchasing one:
Names removed for the privacy of rep:
Hey PRIMERICA REP,
Thanks for your reply and for your instructions on how to close down my DSC ‘investment’.
Since you asked for details… brace yourself….
I’m a straight shooter and I do wish you the best because I like you as a person and I still like the Primerica term life insurance so I will give you the straight goods. In fact, I might even blog about this at some point and remove your name from the article because it has been a most interesting experience for me.
On one side, you won my business and trust with the term life insurance story and showing me what a bad deal it was compared to whole life. I totally agreed and signed up for the deal. I still agree.
Then, once the trust was established, you sold me a DSC (Deferred Sales Charge) ‘investment’.
Note: I do not deny that you sold it to me legally and according to Canada’s industry guidelines. But you can sell tobacco legally, too.
Being in sales, I cannot blame you and I even understand more than most people might. You sold me the thing that gives you the most commission and I know the temptations to do this. In my sales position I’m often tempted to charge a ‘tad’ more if someone doesn’t know the market rates at all. Theoretically, that would be fully legal in a ‘buyer beware’ sense. They didn’t do their homework, after all.
Unfortunately, though, when you sold me the ‘investment’ I was in a peculiar position of vulnerability in the following ways:
- I was under personal psychological duress as a result of my painful business loss.
- I was in financial hardship and still am as a result of #1
- I didn’t know anything about investing in funds or the like. Even to this day I’m a baby/beginner (but much better than last year).
I have made the decision to take my personal investments into my own hands because I don’t believe my best interest has been taken into consideration.
I just finished my realtor licensing course and realtors have an actual *fiduciary duty* to their clients. It’s exactly the same as with lawyers and their clients. We must, by law, look out only for our client’s best interest. This fiduciary duty clearly doesn’t exist in this ‘investment’ world. The conflicts and temptations are insurmountable. If there was a fiduciary duty, there is no way you would be allowed to sell me a DSC.
It has been deemed by most people that DSCs are not just a bad deal, but actually unethical.
or this one:
I now agree fully with these views. It’s my money and I should be able to do with it as I please. In my life I only get a few hours and I used those hours to earn money with hopes of maximizing the leverage for my retirement and my children’s future.
In the future, if I use a financial advisor of any kind it will be a pay-per-visit / pay-per-hour advisor such as Asante (they were my customers at the shop when I owned it).
It was a hard lesson to learn but I’m very thankful I learned it with minimal collateral damage (imagine if I needed to suddenly access the money and it was a much larger amount!)
I hope this answers your question as to why I’m leaving the investment side of our relationship, but also my parents set up an account as well so I’m just going to clear this off my mind and to do list so I can free myself a bit.
To answer your question about what you could have done better? I think that’s pretty easy: you should not have sold me a DSC.
Simple as that.
Or, you could have *fully disclosed* that a DSC is frowned upon in most of the investment circles around the world and that the main purpose of selling it to me is to get a bigger up-front cheque.
Thanks for hearing me out and I wish you the best 2015 for the rest of your non-DSC product line.
Good morning Wayne,
Thank you for the extensive feedback.
Before you blog about your experience, here are some other things you may want to consider. You made quite a few assumptions on the transaction that we did. Let me clarify a few things regarding your investment. You purchased an RESP in the beginning of 2013 for [5yr old daughter’s name] who at the time was 3 years old. A DSC investment works on a deferred sliding scale so that after 7 years, there is no fee.
Why did I sell you this? Well, if [5yr old daughter’s name] is only 3 and we assume that she will go to school around the age of 18/19, the 7 year issue is a non-issue. In other words, for this long-term investment, you would have had to pay no fee out of your pocket. Now, if [5yr old daughter’s name] was 17 when we met, I would have not recommended a DSC investment because that would have meant you would have to pay fees when withdrawing the money. The same goes for an investment that a client would like to hold for a short-time such as an emergency fund.
I’m not sure how it makes sense then to work with a company that will charge you per visit/per hour as you say. If you’re under financial hardship, isn’t not paying a fee better than paying one? As for commissions, yes I got paid $30 for the transaction. I could have put in you in a front end load and made more.
I’m curious as to how much companies charge that work on a pay per visit/pay per hour basis? As for the management expense ratio as one of the articles mentioned being higher in a DSC fund: As I mentioned yesterday, your investment has generated just under 12% per year. That means that you’re up 24% since we began. I think that’s pretty good. The MER is deducted prior to what you get as a net return. This means that you made 12%/year after all fees already being deducted.
Yes we do have a fiduciary duty as well. I know that what I did was the best for you given the parameters of your investment need.
As for the articles, you may want to look at the feedback/comments that the first article generated. As a side note, there are a lot of “good” articles on why whole life insurance is the best and to stay away from term insurance. One can paint a picture in many ways. So one has to wonder–who should I trust/believe?
I think that it’s great that you have taken such an interest in learning about your money and the industry. I always say that an educated client is always better off than one who isn’t. This is one of the reasons that I’ve been somewhat persistent in trying to sit down with you over the last year to give you some more insight on fees…
Why not join us just to get your investment license…? Not only will you learn a lot about this subject but you could then control your own investment.
Just a thought. Thanks, Wayne.