© Copyright 2006
US FlagJanuary 1, 2007 Edition
1stLifeSettlements


THANK YOU! – To all our FSO publication subscribers and to our Virtual Sales Assistant members, thank you for making 2006, our 10th full year of business, our best ever! We welcome any thoughts and comments on how we can serve you better. Just e-mail us at info@fsonline.com.  We wish you a happy, healthy and prosperous 2007!

LIFE INSURANCE OUTLOOK - According to Ernst & Young, the life insurance industry faces six key issues in 2007: economic and industry fundamentals (consolidation among companies; unease about long-term financial security leading to increased interest among consumers in financial services products); organic growth (opportunity for growth in the "middle wealth" retirement market; need for innovative income-generating protection products); risk management (economic capital, suitability and market conduct and hedging); capital management (securitization and retaining more of the risks on their balance sheets); finance transformation (finance and actuarial organizations need to better support strategic and tactical decision making); and regulatory and compliance (greater emphasis on compliance and ethics practices).  According to the report, the greatest opportunity for growth comes from "an aging population looking for a full-spectrum of retirement services."

PUTNAM SOLD – After several investigations, scandals and fines, Marsh & McLennan has agreed to sell its Putnam Investments unit to Power Corp. of Canada for $3.9 billion.

WATCH FOR INCREASED 401(k) SCRUTINY - Bolstered by numerous lawsuits and a GAO finding that some 401(k) practices may not be in the best interest of investors, Congress is likely to call for public hearings. The 401(k) industry could be headed for the sort of intense scrutiny that led to earlier overhauls of mutual fund sales and other Wall Street activities. Could IRA and Rollover practices be far behind?

CONTINUING TO FALL - Employment-based health coverage continues to decline, down to 62% of the U.S. population in 2005 compared to 64.4% in 2004.  Who has the highest coverage rate?  Public-sector employees, which leads us to...

PAYING HEALTH CARE FROM PENSIONS - The NY Times reports that many local governments used their pension funds to pay for retiree health care in the 1990s and the chickens are now coming home to roost.  Money for retiree health care is running out and pensions are in jeopardy.  Of particular concern are public pension funds in Chicago, Battle Creek, Michigan, Cincinnati and the state of Alaska.  Of course, these local problems only foreshadow the challenges of funding Social Security and Medicare in the years to come.

AMERIPRISE PAYMENTS – Following on the heels of a $16.3 million arbitration payment to former employees of Exxon, Ameriprise and a former broker must pay $9.3 million to three retired American Airlines pilots for misdirecting their retirement funds into high-fee mutual funds. Considering the large payouts and the relatively few payees, this could develop into a very expensive situation for the industry.

FIDELITY "FINES" ITSELF - Fidelity will pay at least $42 million in penalties to its funds to clear allegations that gifts and other perks improperly influenced traders there. An internal probe concluded that "it was not possible to prove" that shareholders were harmed, but apparently there was serious smoke if the company saw fit to voluntarily make $42 million in restorations.

DOW HITS RECORD - Riding high on news of falling oil prices and reports of strong new home sales, the Dow closed above 12,500 for the first time on December 27.

DONE DEAL - NYSE Group shareholders overwhelmingly approved the $14 billion plan to merge the New York Stock Exchange with Paris-based Euronext.  NYSE Euronext will have a combined market capitalization of about $27 billion.  Next logical place for expansion:  Asia.

LUXURY TRIPS FINED – An "institution" for many funds, the promotion of a given investment through luxury trips for high producing brokers, suffered another blow. Evergreen Investments, Wachovia's brokerage unit, will pay $4.2 million for improperly promoting its mutual funds and sending brokers on luxury trips.


SPIN OFF - Morgan Stanley is planning to spin off its Discover unit, probably in the third quarter of 2007.

HOUSING MARKETS - If you're interested in how the housing market in your area might fare in 2007, check out Fortune's predictions at CNNMoney.com.

FEWER FINANCIAL CLASS ACTIONS – There were "just" 110 securities-related class-action lawsuits filed last year. The good news is that this represents a 38% drop from 2005 and is the lowest number since Congress passed securities class-action reform legislation in 1995. Some say the decline is partially due to Sarbanes-Oxley requirements.

MARKET CLOSES IN FORD'S HONOR – Most financial markets closed on Tuesday, January 2 to mark the passing of former President Gerald R. Ford. Ford, 93, was the 38th president of the United States who became president during the Watergate era, when the country had lost faith in its leaders. Although he is the only president to never have been elected as either president or vice-president, many credit him with helping to restore the country's faith in its leaders.

STILL GOOD JOBS - Pay for the six top investment professionals who oversee the Harvard University endowment plummeted to $13.3 million this year. Last year they received $56.8 million.

BETTER JOB - Morgan Stanley boss John J. Mack took home the largest bonus ever awarded to a Wall Street CEO...about $40 million.

SEC RELAXES COMPENSATION RULES – The SEC has changed the rules on reporting pay for top executives, allowing companies to report lower total compensation figures. We can't figure out any reason for doing so and, apparently, neither can some members of Congress. Expect some Congressional inquiries as to why this decision was reached.  To put this matter into better perspective, consider this from The NY Times: "Over the last 25 years, the average chief executive's compensation at big companies has increased more than 600 percent, to $8 million dollars a year after adjusting for inflation.  Meanwhile, the ratio between the average pay for a top executive and a worker, which held steady in the 30 years before 1980, has more than quadrupled, to a multiple of 170."

SCHWAB BUYS 401K - Charles Schwab will pay $115 million to Nationwide Financial to acquire The 401(k) Company. The company manages about $21.7 billion in assets.  

PIPEs CLOGGED – The SEC is expressing concern about a new way for public companies to raise cash...PIPEs (private investments in public equity). They are worried that shareholders don't understand the risks involved and by allegations of insider trading by hedge funds.

ALLIANZ FINED – The NASD fined USAllianz Securities $5 million for "widespread supervisory and record-keeping deficiencies" with the comment that "the severity of the fine reflects the magnitude of USAllianz's supervisory failures."

SEC STOPS "PUMP AND DUMP" GROUP – The SEC is finally getting a handle on e-mailers that tout stocks to inflate the value and then sell the stock to reap a profit. The regulatory group obtained an emergency asset freeze to halt an Estonia-based scheme. Not sure it is related, but we have noticed a 40% drop in known spam in the last several weeks.

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GREAT OPPORTUNITY FOR INSURERS – Via the National Underwriter, Robert Henrikson, CEO of MetLife, reports that despite flat-to-declining sales, there is "a tremendous need for life insurance if carriers take the right approach."  And that "right approach" is to give salespeople the support they need. "People like to face people when they are buying," he said. "People will not part with money without talking to someone."  Mr. Henrikson's observations bring me to my favorite subject...the Virtual Sales Assistant. While the VSA is becoming increasingly popular with individuals and BGAs, many insurers have never even taken the opportunity to see why this inexpensive and effective sales and marketing tool is so popular with the folks who count...the end user, the producer. So to our home office friends and subscribers to Financial E-News, please give us the opportunity to help you help your field force. Call or e-mail, Bill O'Quin, CLU, ChFC, RFC at 225-387-9845 or boquin@fsonline.com.

NEW TAX ACT - The Tax Relief and Health Care Act of 2006, signed into law by President Bush on December 20, not only extends a number of popular tax breaks, but also expands health savings accounts, enhances some tax incentives, revises certain deadlines, includes some "technical corrections" to existing tax laws and includes some miscellaneous tax relief.  A summary, courtesy of the Virtual Sales Assistant, is available here.

WOMEN RETIREMENT WOES – According to experts, women are most vulnerable to retirement insecurity, particularly to financial catastrophe late in life.  Reasons: Women live longer then men, and often spend years outside the workforce raising children. Consequently, a divorce and/or a spouse's death can have a more dramatic impact.  Obviously, one solution is adequate insurance on their husbands. Why not use realLIFEstories to help educate women on their need? VSA subscribers should check out the Sales Idea High Touch Tools...RealLIFEstories in the Virtual Sales Assistant for a great "how to."

PHASED RETIREMENT - The IRS is asking for comments on how to best implement phased retirement benefits to workers who have reached age 62, but are not yet at the normal retirement age and who continue to work.  If you want to share your "two bits" on this subject, the notice is available on the IRS website.

VA GUARANTEES - A Milliman survey confirms that Guaranteed Living Benefits (GLBs) continue to drive variable annuity sales, with 89% of the VA sales during the first half of 2006 offering a GLB.

BULLISH MARKET - Money managers and other finance professionals see a "promising" year for the stock market in 2007. We aren't sure why the prediction, but we do hope they're right!

RETIREES MOVE TO INCOME-PRODUCING STOCKS – Because of low dividend tax rates, many retirees are moving from bonds to income-producing stocks. Eaton Vance reports that equity-income funds have risen in popularity since a tax cut on dividends in 2003.

UNIVERSAL 401K? – The NY Times reported on a plan where the government would match contributions that the poor make to individual retirement accounts, essentially paying the poor to save in the same way that the earned-income tax credit pays poor people to work, which could have a dramatic a dramatic change on the plight of the poor. 

INTERNET SALES TOP $100 BILLION - According to comScore Networks, online retail spending topped the $100 billion mark for the first time ever this year. This means that several billion in sales tax revenue was lost. As we have said in the past, don't expect states and municipalities to overlook the "loss" for much longer!