February 1, 2010 Edition
GDP JUMPS 5.7%, FASTEST SINCE 2003 - The 5.7% increase in the GDP in the last quarter was the fastest pace since 2003 and was the second straight quarter of growth after four quarters of decline. Growth exceeded expectations mainly because business spending on equipment and software jumped much more than forecast. It may not be sustainable because high unemployment and stagnant wage growth will likely keep consumers cautious about spending. Wages and benefits paid to U.S. workers posted a scant gain in the fourth quarter. And for all of last year, employee compensation rose by the smallest amount on records going back more than a quarter-century.

FINANCIAL REPORM - Tapping into voter anger at banks, President Obama is calling for stricter limits on financial risk taking by limiting the size and trading activities of financial institutions.  Based on recent history, it certainly seems reasonable to enact reforms but, as always, the devil is in the details.  Here are some interesting articles you may want to review:
 BERNANKE STAYS - Embattled Federal Reserve Chairman Ben Bernanke has won confirmation for a second term. The Senate confirmed Bernanke by a 70-30 vote, a seemingly solid majority but 14 votes worse than the closest previous vote for a Fed chairman. The opposition was bipartisan and based mainly on criticism from lawmakers that he had failed to see the financial crisis coming and for the Fed bailout for Wall Street while other Americans suffered in recession.

GEITHNER GRILLING - Members of the House Oversight and Government Reform Committee investigating federal financial assistance to American International Group (AIG) have not been kind to former Treasury Secretary Henry Paulson, current Treasury Secretary Timothy Geithner and Fed Reserve Chairman Ben Bernanke. At issue is why federal officials were so quick to have AIG pay 100 cents on the dollar to comply with contractual obligations to counterparties, such as Goldman Sachs, and the role federal officials played in having AIG keep details about those transactions out of reports filed with the SEC.

INTERESTING LOCATION - In just a few days, the Canadian Finance Minister will be hosting his G-7 counterparts in Iqaluit, a town 195 miles south of the Arctic Circle.  The hope is that such a remote location will force participants to be more candid in addressing their diverging policies on the future of bank regulation.  Ready for this?  The average temperature in Iqaluit in February is minus 20 degrees Fahrenheit.  Not to worry though...Canada will supply Treasury Secretary Geithner and the other participants with duck-down parkas, which may prove handy for the planned dogsled rides.  Who knows, Mr. Geithner may find the "cool" weather refreshing after being on the hot seat in Washington.

DEBT AT $14.3 TRILLION – The Senate passed a plan to allow the government to go an additional $1.9 trillion deeper in debt.  The vote required 60 votes and passed along a 60 - 40 party line vote because Republican Sen.-elect Scott Brown has yet to be seated. The move increased the debt ceiling to $14.3 trillion...about $45,000 per citizen. However, unfunded liabilities are now at an additional $347,448 for every American.  It is always "fun" to check out the U.S. Debt Clock at www.usdebtclock.org.
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2009 WAGES UP BUT SLIGHTLY – Wages and benefits were up 1.5% for 2009 and that is the smallest increase on records that go back to 1982. The increase was 2.6% in 2008, which was the previous low for the government's Employment Compensation Index.

COLD WAR – In his new book "On the Brink: Inside the Race to Stop the Collapse of the Global Financial System," former Treasury Secretary Henry Paulson claims Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest U.S. mortgage-finance companies. "The Ruskies" deny it, but they sold all of their Fannie and Freddie debt in 2008...about $65.6 billion.

SPENDING FREEZE - The President has proposed a three-year freeze of government spending - but only for one-sixth of the budget, exempting the biggest, fastest-growing expenditures: entitlements like Medicare, Medicaid and Social Security. Further the "freeze" won't come until next year.  Freezing entitlements is, of course, politically unpalatable.

CFO CONFIDENCE UP - According to a survey by Financial Executives International (FEI), Chief Financial Officers (CFOs) are bullish for the coming decade. However, many remain committed to utilizing some of the important lessons learned during the recent downturn and keeping companies streamlined. This could mean increasing staff is not a high priority.

CBO SAYS "DAUNTING" – According to the Congressional Budget Office, the U.S. fiscal outlook is "daunting," with deficits averaging at least $600 billion a year over the next decade. That could be overly optimistic...this year it will hit $1.35 trillion. Also, the interest on the debt the United States has already accrued will soar between 2010 and 2020 as a share of gross domestic product, in part due to an expected rise in rates. The CBO expects the rate on the 10-year Treasury note, currently 3.6%, will rise to an average of 5.5%.

AIG TO SELL UNIT – Rumors are that American International Group (AIG) will sell one of its largest life insurance units to MetLife. MetLife plans to pay between $14 billion and $15 billion for American Life Insurance.  If the move is made, it would allow AIG to repay billions of dollars owed to the government.

LIFE INSURER OUTLOOK NEGATIVE - Fitch Ratings outlook for the U.S. life insurance sector will remain negative due to both economic and operating pressures that are expected to continue throughout 2010. Fitch expects further deterioration in the commercial real estate market and weaker operating fundamentals.

CALIFORNIA CASH FLOW – The California state controller says the state's cash reserves will be depleted and urged action on nearly $9 billion in budget cuts. Without the cuts, California may be broke by April 1. No, this is not an April Fools' joke, but we are pretty sure the word "fools" should be somewhere in the mix.

POLITICAL DONATIONS AND GRAPH OF THE DAY – Here are a couple of interesting sites that you might want to check periodically. Open Secrets tracks "who gives what" to politicians and parties. Expect the Supreme Court decision to increase activity in this area. We think these are "individual" contributions and assume that is how the entities listed at www.opensecrets.org were able to contribute so much prior to the Court's decision. Another site is The Graph of the Day at randallhoven.com. It has a conservative bent, but very concise and interesting research.

WHAT IS A FINANCIAL PLANNER? - The Financial Planning Coalition, formed in December 2008 by the Financial Planning Association, the CFP Board and the National Association of Personal Financial Advisors, appears to be throwing in the towel when it comes to getting Congress to accept its definition of financial planning, including a uniform fiduciary standard.  More information is available at Investment News.

FISCAL BLISS - Market research at Country Financial reveals that couples with financial plans communicate better and show greater mutual trust than couples without plans. About 88% of the participants with financial plans rated communication about finances as good. Why not help them out. The Virtual Assistant provides 18 Life Guides to help your clients navigate through life's challenges. Check out Marriage and Money and consider providing it to your clients.  

NEW COMPLIANCE PARAMETERS - In what we suspect is a common-sense effort to reduce compliance costs and case flow (and maybe make their registered reps lives a little easier!), a major and well-respected insurance company and a large broker-dealer have made a bold step. Here is their new standard for sales materials:

Producers are no longer required to submit sales materials created and/or published by a third party, as long as:
  • There are no references to (COMPANY) or (BROKER-DEALER), to specific (COMPANY) or (BROKER-DEALER) products, or to securities products or services in general.
  • The producer had no input regarding the content of the sales materials.
For example, items exempt from review would include an educational brochure about the benefits of life insurance produced by an industry trade group, or a reprint of an article about disability income insurance that appeared in a trade publication. (Of course, producers must abide by applicable copyright or distribution restrictions.) However, if biographical information was added to the brochure or a masthead was added to the article reprint, the materials would need to be submitted for review.

This appears to be a sound policy that offers relief from otherwise burdensome and time consuming processes. It is beneficial to compliance personnel and producers alike and we hope other companies and broker-dealers will soon follow suit.

SPEAKING OF COMPLIANCE - According to Investment News, the five biggest mistakes advisers make are (1) keeping lousy records, (2) stretching the truth on business cards, (3) failing to review client goals, (4) forgetting to shred in order to protect clients' privacy and (5) overdoing it on the marketing.  

SOCIAL MEDIA AND BLOGGING - FINRA has released Regulatory Notice 10-06, which is intended to clarify the responsibility of firms to supervise the use of social networking sites, as well as recordkeeping and other responsibilities of firms.  A couple of key points:  "firms must adopt policies and procedures reasonably designed to ensure that their associated persons who participate in social media sites for business purposes are appropriately supervised..." and "firms must have a general policy prohibiting any associated person from engaging in business communications in a social media site that is not subject to the firm's supervision."  

EIGHT TIMELESS LESSONS - Emmett Wright, chief investment officer of Northwestern Mutual Wealth Management Co., has distilled a lifetime of investment experience into "eight timeless lessons" for investors.  Read them here.  

ESTATE TAXES - While the federal estate tax has been repealed for 2010, some states are starting to address the issue as it relates to state death taxes.  For example, the Virginia legislature has introduced a bill, expected to pass this month, that will require all estates and trusts to be treated as if it were 2009, unless Congress acts.  If you advise clients on estate tax matters, you should be familiar with the impact of the federal repeal on your state's death tax and any proposed state legislative actions.

RETIREMENT INITIATIVES - We may be seeing some new retirement initiatives from the Obama administration, including creation of a retirement-savings bond, similar to savings bond administered by the Treasury.  Other possibilities include promoting the use of annuities to transform retirement savings into guaranteed income, enhancing fee and disclosure requirements, automatic enrollment in IRAs if the employer doesn't offer a retirement plan and expanding the retirement saver's credit.

BANK INSURANCE INCOME DOWN - The Bankers Insurance Association reports that bank-owned insurance agencies' total return fell 10.2% for the period ending June 30, 2009 over the same period the year before. Reasons:  rate environment and tough economic conditions   FYI, about 65% of bank insurance revenue comes from property casualty protection products, while the rest comes from life and health.

AMERICANS' TOP PRIORITIES - The poll by the Pew Research Center reveals that strengthening the U.S. economy and improving the job situation are the top domestic political priorities of Americans...defending the country from terrorism ranked third, followed by fixing Social Security.  Fifth on the list was "improving the educational system" and securing Medicare was sixth followed by "dealing with the U.S. energy problem, the need to address the federal deficit and tighter financial regulation."

PRODUCER LOYALTY - What keeps life insurance producers loyal to a company?  According to LIMRA, it's a combination of company support and style.  More information is available at LIMRA.com.

HOME SALES RISE, PRICES DROP - Sales of previously occupied homes rose in 2009 for the first time in four years. However, prices plunged more than 12% last year...the sharpest fall since the Great Depression.

"AIN'T GOT NO HOME" AT NATIONWIDE - Nationwide Financial Network has informed about 200 independent financial advisers to find a new broker-dealer by April 30. Most of independent advisers joined the organization through Nationwide's 2002 acquisition of Provident Mutual Life. NFN has an additional 2,300 independent "personal-producing general agents" who already clear through other broker-dealers.

DESIGNATION VERIFICATION - The College for Financial Planning has launched a new website that allows consumers, regulators and financial services firms to verify professionals who are authorized to use the College's professional designations.  The website is located at www.CFFPdesignations.com.

INVESTORS OPTIMISTIC - According to a Reuters/University of Michigan survey, U.S. investors are feeling more optimistic than at any point in the previous two years.
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