Continued from Page 4:

Johnson Deposition
Page 6:  "At that time I do not think I had an option, no. It was all proprietary product mutual fund".Almost every recognized authority on planning has identified the problem with being a "captive agent". The use of only one family of products has invariably led to abuses of fees and commissions as well as a limited or non existent selection of funds Additional commentary notes that Johnson  has a series 7 license. That is equivalent to one college course. He also notes the CFP designation. It is equivalent to one college semester.  The designation and the payment of a financial plan- no matter how sophomoric- establishes a clear fiduciary duty by Johnson  and Samoan Express to know what they are doing. They had to get a formal budget. They had to know about the historical past and its predilection to the future. I focus on 1973/74. They had to know that the presentation of standard deviation was wrong. They had to know that risk of loss went up. They had to know about the (invalid) use of a flat rate return. They had to know that the Brinson material was incorrect. They had to recognize the problems of the inverted yield curve. They had to note the FEDs moves. They cannot defer such knowledge, research, competence and more over to a totally unsophisticated consumer who didn't even know what a Class B fund was.
Page 8: References a fee for the plan. I am assuming that Johnson  was/is a Registered Investment Adviser.
Page 13: Johnson  states that "I think when you look at the S&P 500........... during the recession that first year it was down 26%; the second year it was down 34% or something like that; and then going to
2002 the S&P 500 was down another 18% before March."  Obviously these numbers are flawed since it indicated that the S&P 500 was down 60% in the first two years alone. But that is not the focus of my comment. Any adviser who experienced a 26% loss in one year with effectively no economic viability to the future would certainly not entertain more equities. Looking to the second year of Staub's numbers- at some point you would halt the continued losses of another 34%.
Page 21: Johnson notes that Brumlow's "monies were not going to last him until his life expectancy............... which is 87, 88 of life expectancy." Those figures are incorrect. The actuarial lifetime of Smith at age 65 was approximately another 18 years. That said, given certain planning elements, it is good to add a few years for safety and that is why a planner might use a lifetime to the late 80's. But it was not Brumlow's actuarial lifetime."
Page 23: Reference is again made to DCA into an income type fund. As stated, I have never heard or seen any research advocating DCA into bonds. Actually, there is nothing that validates DCA into equities. Milvesky did indicate that the most volatile of equities might profit from DCA- but no standard consumer would be in those funds anyway. Horton asks, "did he indicate any change in his investment goals at this time period in 1999. Johnson  indicates, "yes,. Wanted to do what he originally wanted, to be in the moderate aggressive risk tolerance. Once in the retirement, wanted to participate in the market in the moderate to aggressive risk tolerance".  I take strong exception both to the question and the answer in that Smith paid for a plan that was to determine what he was supposed to do and why. To suggest that a totally naive and unsophisticated investor is the entity to decide what to do and when is ludicrous in the extreme. Samoan Express and Johnson , by payment for a plan and through commissions from products, took upon themselves the fiduciary responsibility to guide Smith to the retirement they designed- not Brumlow. Be it conservative, aggressive, whatever, Samoan Express and Johnson  were responsible for "doing the numbers" to determine if Smith was headed in the right direction. But, as previously stated, the numbers by both entities were invalid from inception.
Page 30: Johnson 's reply to DCA- "that's when an investor takes a lump sum in a conservative position and wants to move to a more aggressive position and they don't want to do it on a lump sum basis. The market could drop today six points. If you are thinking the market's going to have volatility, then doing some on a monthly basis mathematically has shown to take the volatility out of the market when you are buying more shares lower than higher. The market has come down during that month that
you are putting the thousand dollars over." The problem is that, mathematically, the investor loses money as they utilize DCA. Are both Samoan Express and Johnson  saying Smith wants to do this? Further, Johnson  indicates that this is done when moving to a more aggressive position. I repeat, I have never heard of even a remote suggestion of DCA into a bond fund. Further, I submit that once investors knew how DCA actually worked, they would take a much different position on its use. 
Page 35: Johnson  notes "that the second reason I put him in B was with Samoan Express, different than almost any other company, you don't pay anything coming in for a class B and you have no expenses............." Certainly there are expenses for running the fund so I am at a loss why anyone would say there are "no expenses".
Page 38: Johnson  notes, "I think on the form itself and looking at it..with sitting down with Glenn and talking about, first, how he wanted his portfolio structured, I would have gone through the..from the left hand side of the ultra conservative to the right hand side of the aggressive. Glenn is the driver always, and I am the navigator So he's going through those choices, then he would have chosen the moderate aggressive" Once again I point to the (inadequate) plan. Smith went to Samoan Express and a Certified Financial Planner for the assistance in his retirement. He had no idea what the implications were to his income or retirement since he was unaware that Samoan Express and Johnson  were incompetent in planning his retirement. Smith is NOT the pilot- he is flying blind into an area he knows effectively nothing about. He cannot use a financial calculator, he has no background in the securities market; has not developed a budget and had no idea of statistics. All this was the purview and responsibility of Samoan Express and Johnson . Page 45. Johnson  notes, "my advice was twofold. One, go into cash if you can't stand the heat of this...what's happening in the market. Let's go to cash or let's stick with the plan. You've dollar cashed over into these funds, let's tick with the plan. And, you know, looking into the mirror, I sure didn't know the recession was going to last three years. But, no, he always, always, always had the choice given to him of moving to cash. I repeat- Smith is being led down a garden path to devastation. Any true adviser looking at the economy had to be aware that it was going down at a precipitous rate. Further, and most importantly, Samoan Express and Johnson  knew or should have known of the  severe repercussions to Brunlow's portfolio. They should have known he never had enough money statistically to stay in the market over a long period of time. As such, they had to clearly monitor the market and, fundamentally, the economy to be sure that pervious encounters with major declines were not going to decimate his portfolio, his income and hence, his retirement.
Page 47: Johnson  notes that "Glenn called and said I cannot live with what the money market is yielding, it will not provide me with the retirement funds, you have to be more aggressive" Well, the funds that Glenn had were already known or should have been known by Samoan Express and Johnson  would never provide the income Glenn needed from inception. Glenn did not need to be more aggressive- he had to be told to be less aggressive while the economy was in a tailspin and then, only then, embark on a different strategy. But to engage in more equities in a losing environment is complete folly. To be clear, I do not expect perfection with any investment strategy. But what was provided to Smith was complete incompetence.
Page 51: The commentary for most of the page shows the complete folly of Smith picking the various investment strategies for his retirement. There is comment on emerging markets, utility funds, high yield tax exempt and so on. The statement that the high yield tax exempt was to be utilized for his long term care payments makes no sense whatsoever. By definition, high yield means lower quality. High yields are also directly impacted by interest rates. And as stated, Brumlow's tax bracket was minimal. Illogical use.
Page 57: Johnson  notes he showed the Smith portfolio to his supervisor and "he reviewed the portfolio and felt like the portfolio with Glenn's long term retirement goals at his age was appropriate. Unacceptable since the initial plan did not show the sums necessary for a long term
retirement in the first place. It was about  $160,000 underfunded at inception. The goals could never be reached under a buy and hold notion. And unless the portfolio was carefully monitored for the impact of a 1973/74, Brumlow's opportunity for a dependable retirement was about nil.
Page 63: Johnson  notes that "I made no moves during the recession. I have  made some since we've come out of the recession anticipating going forward." This is a major fault of Samoan Express and Johnson  in recognizing their fiduciary duty to all clients. It is not sufficient to state that you have competency to make adjustments during "good times" but are completely incapable of addressing what to do in a major downturn that could completely decimate a clients portfolio and retirement.

Morningstar Reports
I have already addressed the use of so many funds in a singular portfolio. The consensus of the industry is that you rarely need more than 6 funds- some suggest less. When you use more than that, might as well just index. This commentary refers to the comparison of literally all the funds selected to basic category funds. The AXP funds almost universally underperform their comparable funds. In other words, they are terrible selections. It's simply hard to pick any that reflect a fiduciary duty. Certainly, anyone viewing the bond funds would clearly recognize that the high fees are going to decimate the returns- and the economy was in a scenario of historically low rates to begin with. One can suggest that the use of a bond funds reduces risk overall- but the returns of a bond fund with these types of fees reduce their use. You can then look at Mutual B, Diversified Bond B, Small Company, Partners Small Cap and so on. Even assuming that Smith had adequate monies in order to retire to begin with, it is also obvious that he would need more than normal since the returns of these funds were so much less than their peers- even the S&P 500. More importantly, the returns on bonds was absolutely dismal and that made the overall risk all the higher once interest rates were to change- and they have. The lawsuits generated against Samoan Express seem justified by retirees, at least, since the ability to meet their retirement goals was severely impeded. All in all, these funds should not have been used. The forced use- even though the plan said the investors could go elsewhere- is a breach of duty. Samoan Express knows full well- and has historical validation- that almost everyone who buys a plan will use their agents and products.

Summary
Smith is a completely unsophisticated retiree who knew nothing of the statistics of investing. He was induced to pay for and follow a financial plan that was flawed from the outset. The funds needed for retirement were never available for Brumlow- they were around $160,000 light based on historical returns allowing a 95% probability of success. Additionally, under such underfunding, it was imperative for Samoan Express and Johnson  to insure that the initial balance was maintained (save for the regular drawdown). They knew that a scenario such as 1973/74 had decimated portfolios before and could be realistically anticipated to happen again. The edict about buying and holding was not valid and it was clearly obvious thereafter in 2000- 2002. They breached their fiduciary duty in dealing with Brumlow's monies, his retirement and his future.