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.
An article was forwarded to me this week by someone I know who believes strongly in the importance of ethical technology. He is heavily involved in the Ubuntu project and we all share a desire to see a paradigm shift in the role of technology in our lives from that of a harmful consumable to a helpful benefit.
If you have looked down at your phone already since starting to read this blog you are a victim in the most serious way. You can’t even focus for 30 seconds without running to the call of your taskmaster.
Before reading the article, I felt it would be beneficial to share some of the discussion that we had. One friend suggested that people perhaps simply “don’t care”. When that suggestion came I responded with this:
This issue is one of truth, in my opinion.
Everyone knows their phones own them. No secret. They know it whether they are in denial or not. So the issue is one of truth.
It seems that the same people who “don’t care”, also don’t seek out truth. Seriously. You have to be open-minded enough to realize that you could be the victim of someone with an agenda.
Most of the world hates truth.
“your phone owns you.”
possible response 1: yes it does. But what can you? (hears truth but rejects it by inaction)
possible response 2: no it doesnt. I’m in control. (liar)
possible response 3: yes it does. And I’m trying hard to get out of jail. (highly uncommon… like needle in haystack uncommon)
Compare this with:
“you shouldn’t eat sugar because it’s it’s bad for you”
possible response 1: Yes it is. but what can you do? It’s in everything?
possible response 2: I don’t eat that much. I’m not worried
possible response 3: yes, I know and I’m gradually reducing it from everything I eat/drink
If someone loves truth it will be followed by action. Otherwise, you will see either denial/lying or submissive acceptance.
Now here is the article!
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.
I have been looking into the payday loan business. It intrigues me both as an entrepreneur but even more so on the ethics side. There is a serious stigma associated with payday loan businesses that they are evil and help to ruin lives.
This is a broadcast about our local city Burnaby showing the same thing: that we must unite against these vicious sharks… yet… I couldn’t help but notice how they didn’t have any of them on this panel to express their perspective. Here is a summary about the rally
You hear comments about this kind of business like: “I want to see them out of business” and ‘This is unconscionable’ or, “Let’s run these birds out of town” and even compare them to the likes of a sketchy massage parlour.
But then you hear comments by the same people a few breaths later about the customers of payday loan businesses like, “They don’t think about how they are going to pay back their loan when they get it” and, “They have marginal financial literacy skills”. The people interviewed like to call them ‘these people’ or ‘these folks’ as if to distance themselves. First they offer scathing insults to the business followed by belittling comments about its customers. I don’t see a lot of love here. But it gets better.
My favourite part is when the interviewer asked “Won’t these people have to go to loan sharks on the street if they can’t go to payday loan businesses?” One of the ‘solutions’ offered was to make more institutions like Pigeon Park Savings . Don’t get me wrong, Pigeon Park Savings looks great and is just what the doctor ordered for the neighbourhood where it is but to compare a customer of this service to a payday loan business is a shocking display of missing information. I understand completely because I had the same general perception about payday loan businesses until I spent some time behind the counter at one. The first thing you will notice is that customers at regular payday loan businesses are normal. They have jobs (hence the word payday), they dress normal if not nicely, they drive cars, etc. The members at Pigeon Park are not customers. They are members. It is a service, not a business.
Then it was suggested that ‘more credit unions should be doing this [Pigeon Park style]’ but then a breath later they admit that no one does it because it’s expensive. And that brings us to our next topic.
Loans are very simple actually. The rate of interest goes up in proportion with the amount of risk taken on by the lender. If you have botched up your credit history for whatever reason, the banks will kiss you goodbye. You can now go to a place like a payday loan company and borrow money at high rates.
I also think it’s quite amusing that no one ever compares Visa or Mastercard in the same light as payday loan businesses. Their rates are a couple of percentage points lower but equally if not more dangerous. With a payday loan company you can only go so far but with credit cards you can go much deeper. Although I have not yet done the research first hand, I was told that after declaring personal bankruptcy Visa and MC are still legally allowed to come after you somehow. If that’s true you should look very dimly at these two ‘well branded’ companies.
Now let’s look at a mortgage. Articles like the ones I mentioned above about how they are worried that people are getting sucked into the ‘get it now, pay the consequences later’ mentality. What do you call a mortgage? It’s a house you can’t afford now, loaned to you by a payday loan business called a ‘bank’. If you stop paying them on the promised cycle (same as payday loan business) they will take your house. I’m struggling to see why they are less ‘evil’.
So, who really wants to get rid of payday loan businesses? Have you ever tried to start a bank account at a bank so you can run your payday loan company? I dare you to try. Tell them that you are starting a payday loan and cheque cashing business and you would like to open a bank account. They will tell you to take a long walk off a short dock, most likely. Why? You are competing against them, of course. You are starting your own ‘bank’. They don’t like this at all but they let it slide because it’s better that someone else deal with ‘these people’ than them. It’s better to appear ‘clean’ and ‘civilized’ and not loan money to ‘these people’. They will cover that by telling you that it’s related to money laundering legislation – but then ask them how Money Mart gets their cash.
Through all these articles, though, the one thing that everyone agrees upon is that the customers are making what is viewed as a bad financial decision. It could probably be quickly proven that the customers are indeed lacking in financial literacy. So the root of the ‘problem’ is a lack of financial education.
Where, people, can we point the fingers for that one? I’ve got a good idea. How about *schools*? Tell me when the Burnaby School Board implemented mandatory financial education courses? If we go and check the requirements for graduation, of all those courses, how many of them involve money? I’m too lazy to check but I bet the number is zero. So we’ve got our scapegoat: the education system. Let’s move on.
Let’s say everyone agrees that payday loan businesses are ‘bad’. Now the question is, should we allow them to exist? The fine gentleman in the broadcast above would ‘run these birds out of town’. Is alcohol bad? Are there people who, even though they received proper education about alcohol, can’t control their drinking? Yes. So, let’s get rid of alcohol. From now on, no more liquor stores, or alcohol to be served anywhere because these people can’t control their drinking. I’m game. Let’s do it. And while we are at it, I’ve noticed that government-endorsed casinos are popping up like popcorn. Mr. Councillor, I didn’t hear you mention anything about those. Should we run those birds out of town, too? I’m thinking the tax dollars from those slot machines are probably not hurting your salary. I’m guessing you aren’t going to be raising a large stink about those institutions. What is your solution for gambling problems? I think I saw it on a bus stop “When gambling isn’t fun any more, call us.”
So, how about instead of wasting your time trying to destroy an industry that is getting people out of short term jams (ie. to put gas in their tank so they can get to their job) without going to back alley loan sharks, that you create financial literacy courses in school and support programs for those who are lost in debt? Isn’t that the Canadian way?
I’m just saying.
… I’m just saying.
Further Unflattering Reading on Payday Loans
- Mobile apps make ‘the problem’ worse
- Ontario files suit against payday loan operator
- Wonga downplays 5,853% interest rate
- more? Send em in the comments. Positive ones would be cool, too.