Software Engineer Positions Available

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Permalink Reply by David Jacobs on May 8, 2009 at 9:56am

I debated with myself on whether to make this post or not, but I think it is important for people to know what kind of company they might be going to work for. This is especially true in start-ups where founder ethics drive the company's culture.

101Financial takes a simple idea (i.e., paying extra principal on your debt) and makes it look complicated (i.e., magic savings through daily principal reduction rather than monthly using their fancy software).

Let me demonstrate. Assume the following

Mortgage: $300K 30yr mortgage at 5% with a monthly payment of $1610 (ignoring property taxes).
Income: $4K/mo
Expenses (excluding mortgage): $2K/mo

When we plug this into their calculator we get: "you can expect to be debt free in 20 years saving you more than $109,700.00 in interest payments!!!"

Sounds great. And for me to use their "system" they will charge me 1-2 points of my total debt (from their FAQ). In other words, in this case they would charge between $3,000 and $6,000 for their service.

So what's the magic? If we look at the total income of $4K and subtract out the $2K of expenes and $1610 of mortgage payments we are left with $390/mo of savings. If we simply apply the $390/mo towards the principal of the mortgage every month (via a simple extra check) we will pay off the mortgage in 20 years (i.e., virtually the same benefit). You can use BankRate's mortgage calculator to check this for yourself.

How much does their "system" actually save you above what you would get by simply making the extra payments yourself? The upper bound is the interest differential between your mortage and your checking account on a single payment. So if your mortage is $1610/mo and your mortgage interest rate is 5% higher than your checking, your savings would be around $80/year. Even after 20 years you would not have made back the fee you paid for this additional savings.

From: http://www.101financial.com/plan/
In their promotional material (e.g., "Imagine the principal reduction if added monies were applied daily instead of monthly!
") you can see how they try to lead people into thinking it is the daily application of money towards principal that is doing the heavy lifting rather than simply paying additional principal. People desperately need systems to help them get more educated and be more disciplined, and if this was presented as such I would be all for it.

You can now go back to your regularly scheduled programming.

Mahalo,
David B. Jacobs, Ph.D., CFP®
Pathfinder Financial Services, LLC
555 Paakiki Pl., Kailua, Hi 96734
Ph: 808-728-4396 Fax: 808-728-4396
Email: david@pathfinderfs.com
Web: www.pathfinderfs.com
Blog: www.wealthpathfinder.com

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Permalink Reply by Laurence A. Lee on May 8, 2009 at 10:53am

David,

Thanks for stepping forward and presenting this information. I had been considering this posting to see if this is a company I'd be comfortable working for, and caught your post before I started doing the R&D.

While I'll keep my thoughts on ethics to myself here, your analysis of the underlying business model is quite sobering.

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Permalink Reply by Kai Holland on May 9, 2009 at 10:25am

Thank you David for your concern and thoughts about our company. I would like to give you a more precise overview of 101 Financial so you can see how we are truly helping Hawaii's local families in a big way and possibly a help to you and your business.

Our mission is to help people achieve Financial Peace of Mind by conquering their debt and taking control of their financial lives. We’ve help thousands of families in Hawaii (http://www.101financial.com/testimonials) with our system and ongoing education. We teach simple but proven financial strategies that anyone can do with or without us. However, as you can tell from the recession that we are in, most people have not taken care of their financial lives. We believe that one of the major causes of this financial mess that we are in is the lack of basic financial education. That is where we come in. "101" Financial goes into the homes of families across the state of Hawaii to hand-hold them through individual classes on: Basic budgeting, setting up their banking tools, managing debt and building credit. All of this is done at our client’s kitchen table. We spend hours upon hours with each of our clients.

Yes our clients do pay a fee, but it’s a one-time only fee which Central Pacific Bank and/or First Hawaii Bank helps our clients with. Our clients do not have to pay a quarterly/yearly fee like your firm charges: http://www.pathfinderfs.com/content/view/24/46/ $6000 a year for your lowest level. We do not charge them anything for coming back to us in the future either (they can call us or schedule an appointment at anytime.) Your firm charges a flat fee of $650 payable at end of meeting.

I think the best way to honestly learn more about our company is to see what our clients are saying (http://www.101financial.com/testimonials/). You can also check us out with the BBB. In fact 101 Financial won a BBB Torch Award for "Advancing Marketplace Trust." http://hawaii.bbb.org/torchawards08/
All of our business is from referrals and we have been doing this for the last 6 1/2 years. In 2007 & 2008 101 Financial was ranked #5 on the Pacific Business News Fastest 50: http://pacific.bizjournals.com/pacific/event/4312

The President of 101 Financial is one of the greatest guys you will ever meet. This is a man that really cares about the people of Hawaii. Alan Akina was born and raised here in the island and is very passionate about bringing much needed financial education and literacy to the middle income families in Hawaii. You should come to one of the seminars that we host to meet him. I'm sure he would take the time and would love to chat.

I think Bank of Hawaii said it best as they gave Mr. Akina the 2007 Bank of Hawaii Community Leader of the Year Award: http://pacific.bizjournals.com/pacific/stories/2007/06/25/focus2.html

He was also selected to be part of our Mayor Mufi Hannemans Pacific Century Fellows Class of 2008: http://the.honoluluadvertiser.com/article/2008/Feb/20/bz/hawaii8022...

See what Alan had to say on the Howard Dicus show: http://www.pbshawaii.org/ourproductions/eb20080924_akina.htm

In fact, if you really think about what we are doing, we are actually helping you as a stock broker/financial adviser to potentially gain more clients. Most stock brokers/financial advisers like you do not focus on our "middle-income" market simply because they do not have more than $500,000 in liquid assets. 101 Financial is the only companies that is going in and helping these people to get their financial foundation set so they can one day take advantage of your great services. I think if you spent more time truly learning about us, you will see that we are not a threat to your business, but helping to prepare clients for you.

And the software being developing will be taking all that we do and turning it into a great web tool that will further help people take control of their financial lives.

David and Laurence, so sorry for the long message. I'm just so excited about the results our clients are experiencing that it’s hard to hold in. So in closing, Laurence if you want to work with a company that you can feel good about and that is changing people’s lives for the better every day, you should not be afraid to send your resume over.

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Permalink Reply by Nate Sanders on May 9, 2009 at 1:14pm

Kai,

David has a pretty straightforward analysis of the math behind 101Financial's plan. Would you care to respond specifically to that?

Thanks,
Nate

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Permalink Reply by David Jacobs on May 10, 2009 at 9:48pm

Kai,

I don't believe you addressed my point that 101Financial takes something simple and dresses it up as something complicated so that its service can be sold at a premium.

I applaud efforts to help people become more educated and disciplined in their spending and savings habits. Helping people understand that they should pay off their most expensive debt first and be disciplined about applying monthly savings to debt payments before it burns a hole in their pocket is a great service.

What concerns me is that people who have met with 101financial agents come away with false financial beliefs. They believe that without changing their lifestyle, using the i101 system will reduce their debt faster though the "magic" of changing the WAY they make their debt payments (rather than the amount). When I explain to them the majority of the benefit is coming from additional principal payments from their positive net cash flow (i.e., savings) they tell me I'm wrong and that they were told the benefit was derived from changing amortized interest to average daily balance interest (e.g., take a lump sum from a HELOC each month and apply that towards the mortgage and then have income pay off the HELOC as it comes in). Of course, if you do that with all your income it has the effect of applying all your savings towards making extra principal payments (people generally don't see this :-). This interpretation is not an isolated case, so either the presentations are very poor or intentially misleading.

The web site also makes statements that lead people towards thinking the benefit comes from the product design rather than extra principal payments.

Looking at http://101financial.com/plan/ we see the following:

With 101 Financial, there is:
* NO paying more toward your monthly mortgage payment!
* NO change in current lifestyle!
...
we will teach you how to use your money more efficiently to combat the dreaded Daily Calculated Interest (D.C.I.). When you make your current monthly mortgage payment, the principal portion is applied to your mortgage once a month. This means interest cost is affected one time per month. A bi-weekly program affects the interest cost every two weeks.

Imagine the principal reduction if added monies were applied daily instead of monthly!

(David Speaking again): Really???

The first bullet implies people will not need to make additional principal payments on their mortgage (then how does it get paid off faster?). I suspect 101Financial is playing semantic games and would say that principal payments separate from the monthly morgage payments is not "paying more toward your monthly mortgage payments".

The second bullet implies they don't need to cut back on their spending. So where are those extra principal payments coming from? The only possibility is that there is other savings (i.e., positive net cash flow) that they are going to redirect towards the mortgage.

You wrote "our clients do pay a fee, but it’s a one-time only fee which Central Pacific Bank and/or First Hawaii Bank helps our clients with". By help, do you mean they forward money from a line of credit (putting them in even greater debt) to pay for your services, or do the banks subsidize your service hoping to earn greater fees from your clients?

I notice 101Financial is very careful to position themselves as purely educators to avoid being regulated. Did you know that financial planners, who are regulated by the State and SEC, are not allowed to use testimonials. Do you know why? Because businesses can easily present distorted views of themselves through them (hence why they are a favorite of infomercials).

Just so 101Financial does not feel singled out, there are many other companies advertising this way. Do a google search on mortgage accelerators and you will find a plethora of others (as well as plenty of articles explaining how the marketing is deceptive). Other local players people have told me about include Tardus Financial Services and CMG.

Now if 101Financial were to more accurately advertise what they do (e.g., enhance discipline and financial organization) and drop the promised "magic" I think they could have a wonderful service. Of course, people might not be willing to pay their current fees then.

I think this group is full of smart people who can do the math. So at this point I will let that speak for itself.

I definitely need to find something positive to post on after this. Dealing with delicate subjects like this is never pleasant. My apologies to those who found anything I wrote offensive. Offense was not my intention, just illumination.

Aloha,
David

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