Airline lounges shouldn't quit their day jobs

Airline lounge service and amenities are hit or miss, according to a Journal article. Nothing I read in the article would want to make me pay for a day pass for an airport lounge. A sampling of the negative examples:

... In San Francisco, the lounge had very few seats and the lack of windows gave the space a claustrophobic feel. At La Guardia, the men's bathroom was dingy -- the tiles on the floor were cracked and the walls were scuffed.

...Besides Atlanta, all of the Admirals Clubs we visited had serious cleanliness issues. At La Guardia, crumbs and other unidentifiable detritus were scattered on the carpet, on tables and on chairs. In the ladies' room, there was a large puddle on the floor and toilet paper was strewn around. At LAX, several seat cushions had huge gashes, and the bar area was sullied by crumbs and orange peels.

Even the praise of some lounges given is pretty faint.

In Atlanta, the spread was pretty lavish for the low price tag: Complimentary drinks flowed freely from a well-run bar. There was also plentiful snack food (also free) including trays of olives, celery and carrots, as well as cookies, pretzels and nuts.

Wow, free olives. Prices for a day pass range from $25 to $50. I've included links to the Big 6's airline lounge programs below.

American Airlines
http://www.aa.com/aa/i18nForward.do?p=/travelInformation/airportAmenities/AdmiralsClub.jsp

Continental
http://www.continental.com/web/en-US/content/travel/airport/lounge/default.aspx

Delta
http://www.delta.com/traveling_checkin/airport_information/crown_room_clubs/index.jsp

Northwest
http://www.nwa.com/services/bustrav/worldclubs/wclub.shtml

United
http://www.united.com/page/article/0,6722,52673,00.html

USAir
http://www.usairways.com/awa/content/traveltools/club/default.aspx

Foreign airline lounges rule

A final note, the lounges of non-U.S. airlines sound far superior:

Indeed, U.S. lounges are often no match for those of foreign carriers in overseas airports. Lufthansa's first-class lounge in Frankfurt has a cigar room and passengers are driven to their planes in a Mercedes or Porsche. Virgin Atlantic's "Clubhouse" at London's Heathrow Airport has a Jacuzzi and its own movie theater. There's also usually plenty of free food and drink. But many foreign carriers restrict access to first-class passengers and don't offer day passes.

Rich get richer - this is not a capital gains tax rant

This week's Getting Going column in the WSJ discusses how 'wealth begets wealth' (free WSJ Digg link). Mass affluent consumers should be taking advantage of everything mentioned. Looking at the points made:

Financial-account fees. For instance, once you've built up some savings, you are less likely to get hit with bank charges, you will avoid the account-maintenance fees often levied on smaller brokerage accounts, and your mutual-fund company might waive its annual individual retirement account fee.

Keep over the minimum balance in order to avoid these fees. The minimum balances I've seen range up to about five thousand dollars. Also, I make absolutely sure that each individual account kept with a financial institution meets these minimums. Some financial institutions do a total balance across all accounts for fee determination, but some make the fee determination per individual account, and many mutual fund companies set up a separate account for each fund of theirs in which you invest. You could have hundreds of thousands of dollars with a mutual fund company, but if the company has a $5,000 per account minimum and just one of your accounts falls below that $5,000 threshold, you'll get hit with a fee. (Of course, you should call and complain to them and point out how much money you have with them if this happens.)

Even bigger savings could lie ahead. Fund investors with $25,000 or $50,000 invested may pay reduced commissions on broker-sold "A" shares. Favor no-load funds? If you have $100,000 in a Vanguard Group fund -- or $50,000 and you've been invested 10 years -- you can qualify for the firm's lower-expense share class. Similarly, Fidelity Investments offers lower-cost shares to index-fund investors with a $100,000 fund balance.

I'm not even going to get into how anti broker-sold mutual funds I am, so I'll skip that sentence. I didn't know the fact about the Vanguard no-load funds, but sure enough, when I looked at some of my funds' prospectuses, it says that you will get a break on annual expenses the more you have invested.

I'm skipping the part about credit cards because I don't carry a balance, and I wish it was within everyone's means not to have to carry a balance. Borrowing costs, ok,;buy car instead of lease; avoid PMI, yep. Next up, insurance, all right:

Insurance premiums. With your wealth ballooning, your tolerance for financial risk will rise. Before long, you may be comfortable raising the deductibles on your homeowner's and auto insurance, because forking over $1,000 or $2,000 toward fixing storm damage or repairing your crashed car will no longer seem like a financial catastrophe.

Automobile deductibles. My personal feeling on cars is that I don't need a big fancy nice car, and I have the highest possible car insurance deductible. I have some scratches and a cracked plastic panel on my car that I just don't care enough about to get fixed. I'd rather use the money on something else. Now, that will change, of course, when I can get a classic mint condition gas guzzling American muscle car, but I'd still take the highest possible deductible on that. (It's only coming out for Sunday drives. The enviro-liberal-commie in me won't let my childhood fantasies take over that much. Besides, I'll be washing and waxing it the other 6 days of the week.)

May you all have these choices to make

This week's Barron's cover story was on big private banks at large financial institutions vs. small boutique private banks. Cut to the end to get their recommendation:

FOR CUSTOMERS, THEN, PICKING the right bank is going to start with an honest evaluation of your needs -- not only for now but for five or 10 years down the road. A wealthy family that plans to sell its business shortly may need sophisticated cash management, access to corporate-lending products and investment-banking advice in the short term. That would suggest a big bank. But once that business is sold, issues like estate planning, trust creation and philanthropic ventures may become more critical, and firms of all sizes can excel in that area. Since you won't want to switch banks, you might want to consider a smaller institution with a core expertise in estate planning but with good access to outside M&A experts and bankers specializing in family-business sales. That could stand you in good stead for both now and the long haul.

If you want sophisticated hedge-fund strategies, a giant bank is probably the best bet. But if your goal is to structure the right kind of trust for, say, a disabled grandchild, a trust company might give you more attention.

How to get free financial planning advice - part 3

This is the third in an occasional series on getting free financial planning advice (part 1, part 2). This time I'll go over Vanguard's free benefits (I'm using a list of mutual fund companies from Morningstar as my starting point). All information is from the company Web site.

Program Name: Vanguard Financial Planning Services - Voyager Select Services, Flagship Services

Assets Needed: $500,000 for Voyager Select Services, $1,000,000 for Flagship Services

Type of advisor: Certified Financial Planner

Frequency of advisements: Initial financial plan and annual checkups, unlimited consultations for Flagship Services

Fee benefits: reduced commissions on online trades

URL: https://personal.vanguard.com/us/accounttypes/services

Beware fund redemption fees

Mutual funds have had trading restrictions and redemption fees to prevent market-timing for a while now. For example, fund investors may be prevented from making a round trip (purchase and sale) of a fund within 90 days, or they may be hit with a 1-2% redemption fee for selling a fund within 30 days of a purchase. 401(k) plan investors may have been avoiding these restrictions and fees in the past, but that is changing (free WSJ Digg link).

The short version of what's happening:

While redemption fees and trading restrictions aren't new, some investors have been able to avoid these penalties if they hold funds through an "omnibus" account such as a 401(k) plan, which can make it tough for fund companies to detect who's trading and how often. The new rule, which was issued by the SEC in early 2005 after the effects of widespread market-timing became well-known, helps fund companies to peek inside these omnibus accounts and enforce their short-term trading restrictions.

Rules are hitting those who aren't market-timing

But applying these rules are having unintended consequences:

One 47-year-old participant in the plan had a portion of his account automatically switched into the Artisan International Fund. But one week later, he decided to adjust his allocation and moved more than $24,000 from the Artisan fund into a real-estate fund. The participant, who has made only three other trades this year, is hardly a market-timer, Mr. Kaye says. But his move cost him nearly $500 because the Artisan fund charges a 2% redemption fee on shares held less than 90 days.

The participant "felt the system was gamed against him and initially was very resentful," Mr. Kaye says.

[...]

In some cases, retirement-plan participants making regular rebalancing trades -- a practice advocated by many financial advisers -- have been flagged by fund companies as potential abusive traders. In plans provided by ePlan Services Inc., a 401(k) administrator and recordkeeper based in Denver, two participants making regular rebalancing trades were singled out by fund companies for potential trading abuses in the past 90 days, says Mark Gutrich, ePlan's president and chief executive. The firm spent hours researching their trades and calling the participants and ultimately convinced the fund companies that the trades weren't abusive, Mr. Gutrich says.

How to not fall into this trap

To avoid this conundrum, I read and understand the fund's prospectus. The restrictions and fees are all disclosed in the prospectus. My own 401(k) plan has several restrictions on a few of the funds it offers. I make sure I understand the round trip rules and redemption fees. It seems that at least once a year the plan sends me another note about another short term trading restriction being put in, so I don't ignore any notices I'm sent.

Income annuities

A study by UPenn shows that income annuities can ensure an income stream for life at a cost less than that of other assets. The study is cosponsored by a life insurance company that sells annuities, so I'm taking it with a grain of salt.

What it means is that retirees who need a nest egg of, say, $1 million, can live the same lifestyle with as little as $600,000 in an income annuity. Looked at another way, $1 million in an annuity will currently generate about $86,000 a year in income for a healthy 65-year-old male, while the same amount invested in a traditional securities portfolio would currently generate between $40,000 and $50,000 annually, depending on the annual withdrawal rate.

That news could offer hope for the millions of workers about to retire with inadequate retirement savings.

"At 65 years old, you're going to need money, on average, until you're 85," says David F. Babbel, an insurance and risk-management professor at the Wharton School who co-wrote the paper with Craig B. Merrill, an insurance and finance professor at Brigham Young University. "But the problem is that 'on average' means half of the people will need continuing income between the ages of 86 and maybe past 100. That's where [retirement-income planning] breaks down."

Outliving retirement funds is a big risk. I fail to see, however, how an insurance company is going to generate returns from your initial annuity purchase to fund the income stream it has to pay you. I'm skeptical of this study, and annuities don't have a great reputation.

Yet the study also found that consumers have been tepid buyers of income annuities to this point. Many worry about costs, illiquidity in a financial emergency and the bad reputation the industry as a whole is often saddled with because of well-chronicled and dubious sales tactics with some variable annuities.

Negotiating hotel deals

Jim Thomas, the author of Negotiate to Win, provided some tips for getting a better hotel deal. My favorite is calling the hotel you want to stay at directly instead of the 800 number.

Scoring first class seats

Use check-in kiosk upgrades and coach instant upgrade fares to score a cheap first class airline seat (free WSJ Digg link).

Airlines have expanded their offers of upgrades at check-in kiosks, priced anywhere from $50 to $300. They are also making it easier to find coach tickets that come with instant upgrades (known as Y-UP fares in industry jargon) on their Web sites. AMR Corp.'s American Airlines launched a feature on aa.com a few weeks ago that lets users see Y-UP fares with one click (Hit "Search by Price & Schedule.")

[...]

American says it incorporated Y-UP fares into its new online function. Before, Y-UP fares, also known as Q-UP and M-UP in airline coding nomenclature, were almost impossible to find on American's Web site (they don't show up under first-class tickets or unrestricted coach). But the fares, sold with coach-class ticket coding so they don't violate corporate travel policies if they prohibit domestic first-class tickets, have grown in popularity, hunted by smart travel agents, road warriors and savvy vacationers in particular. FareCompare.com, a ticket-searching site, has a search option specifically for Y-UP and Q-UP fares.

Updates:

FareCompare's Y-UP search is located at http://www.farecompare.com/search/yupfares.html.

American still has the Y-UP fare finder feature, as described in the story. I was unable to find a similar feature on Delta.com, United.com, Continental.com or USAir.com. I did a quick search of the FlyerTalk forums and couldn't find a mention of the other airlines having the upgrade feature, but I don't have time to do a detailed read through and deciphering of the forum to try to rule it out for certain.