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 March 1, 2006
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"THIS BROKER MAY BE HAZARDOUS TO
YOUR
WEALTH" – Well, the new disclosure rules don't
read
exactly like that, but do start with "Your account is a brokerage
account and not an advisory account. Our interests may not always be
the same as yours." The SEC has mandated that brokers who charge a fee
provide this to their customers. It's the latest effort by the SEC to
deal with the confusion that has arisen in the investment business
during the last few years, as brokers have increasingly attempted to
cast themselves as financial advisers. Consumer advocates
have
called on the SEC to do more to help people understand when they are
receiving credible investment help. They argue that brokers have taken
on an array of fancy titles to create the illusion that they are out to
advise clients, but are actually salespeople in disguise.
COMPLIANCE
COSTS
- A survey by the Securities Industry Association found the cost of
compliance has nearly doubled in the past three years, to more than $25
billion in 2005, up from $13 billion in 2002. Yep, that is billion! The
SIA believes much of these costs are because of duplication,
inconsistent and ambiguous rules and warns investors may end up paying
for the rising cost of watchdogs.
GETHUMAN.COM
– Tired of trying to break through automated interactive
voice-response systems? Well, so was Paul English. So much in fact that
he has published a "cheat sheet" that explains the "codes" for getting
through the number maze and to a real person. His Web site, www.gethuman.com,
sets out
principles for the right ways for companies to interact with customers,
encourages visitors to rate their experiences (the site is to issue a
monthly best-and-worst list), and publishes many more secret codes
unearthed by members of the movement. We hope companies get the word
that these call blocking techniques are bad business.
According
to the "American Customer Satisfaction Index," Prudential and MetLife
may need to pay particular attention to the customer service
issue. Both companies were top performers in the 2004 life
insurance sector, but saw their customer service satisfaction index
decline substantially in 2005.
SCARY:
ONE DOLLAR IN
FIVE TO GO TO HEALTH CARE – The last number we
heard was
that health care represented 16% of Gross Domestic Product, but the
Medicare and Medicaid Services' National Health Statistics Group says
it will be 20% by 2015. That will amount to more than $4 trillion in
annual health-care spending.
HEALTH
SOUTH TO PAY
$445 MILLION - HealthSouth, a provider of rehabilitation
services, said it has agreed to pay at least $445 million to settle
class-action lawsuits over its accounting and financial reporting.
Investors will also receive 25% of net recoveries from judgments that
HealthSouth obtains against former CEO Richard Scrushy, former auditor
Ernst & Young, and former lead investment bank UBS.
BOA
RESTATES
FINANCIALS - Bank of America will restate financial
statements
going back to 2001 to adjust for accounting under standards adopted by
the Federal Accounting Standards Board. The decision will cause
shareholders equity to be adjusted upward by $308 million, or less than
1 percent, as of December 31, 2005, the bank said.
LIFE
APPLICATIONS UP
- MIB reports life insurance applications were up 2.7% in January 2006
versus January 2005. Application activity rose 0.6% for consumers age
60 and over, 2.2% for consumers ages 0 to 44, and 4.7% for consumers
ages 45 to 59.
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FORMER
OKLAHOMA COMMISSIONER CONVICTED
- Former Oklahoma Insurance Commissioner Carroll Fisher will spend
three years in prison and pay a $20,000 fine for embezzlement and
perjury. He still faces additional charges for tax evasion. Sure makes
you think about all the regulators who are creating the regulations we
have to follow.
WAL-MART
PLEA - Addressing the
National Governors Association, Wal-Mart chief executive H. Lee Scott
Jr. urged the nation's governors not to pass health care legislation
aimed at Wal-Mart and pledged to work with the states to move Wal-Mart
workers off state Medicaid rolls. Here's the problem:
according
to a Wal-Mart memo, the company has 1.3 million employees who make, on
average, $20,000 a year and spend 8% of their income on health care,
nearly twice the national average. In addition 46% of
employees'
children are either uninsured or on Medicaid. Mr. Scott
pledged
to address the problem by expanding Wal-Mart's benefits and opening
low-cost medical clinics in its stores.
SEC/METLIFE
- The New England
Securities unit of MetLife is being formally investigated by the SEC
concerning whether the unit sold universal life policies that were
unsuitable for customers. In February, New England Securities
agreed to pay $2.6 million to settle charges that it promised to
rebalance asset allocations within various clients' accounts and then
failed to do so.
ANTI-MONEY
LAUNDERING RULES - With a
May 2, 2006 compliance deadline looming, U.S. life insurers are
training thousands of independent agents how to comply with new
anti-money laundering regulations issued by the U.S. Treasury. Enjoy!
DOW
AT 4 1/2-YEAR HIGH - U.S. stocks
closed higher as a benign retail inflation report and a drop in
crude-oil prices lifted the Dow Jones Industrial Average to its best
level in more than 4 1/2 years.
BROKER-DEALERS
SHRINKING - Growing
compliance burdens are partly responsible for the shrinking number of
broker-dealer firms. In 2005, 80 firms (about 2%) ceased doing
business. However, the number of registered investment advisers grew
about 4%. Additionally, the trend toward small brokerage firms' merging
with larger ones continues.
GE
TO SELL REMAINDER OF GENWORTH -
General Electric will sell its remaining stake (about 18%) in Genworth
for about $2.8 billion. GE wants to exit the insurance business and
focus on faster-growing businesses.
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INSURANCE
IS A GOOD INVESTMENT
– That is the opinion of columnist Don McNay with the Richmond Register.
This is a must
read article located here.
SENIOR
SUITABILITY
FOR JUNIORS – The NAIC has offered the Senior
Protection
in Annuity Transactions model regulation for public comment. However,
they amended the regulation by replacing references to "seniors" with
the word "consumers." NAIFA and ACLI support the change.
RETIREMENT
WORRY
- According to a survey by Wachovia, most Americans fear they will not
save enough money for retirement, and nearly half are not counting on
the Social Security system to provide the money they need to retire
comfortably, a new survey shows. 90% say they worry how well prepared
they are for retirement and 85% said they are no better than "somewhat
confident" that they are saving enough. 48% fear that Social Security
will not provide enough for them.
WORKING
ON
– Employee Benefit Research Institute reports "retirees" over
age
70 are getting more income from working and far less from earnings on
assets than they did back in the 1980s. The share of total income
coming from work increased to 37% in 2004 from 26% in 1987 in the 65-69
age group; to 14% from 7% in the 75-79 age group; and to 3.4% from 2.4%
in the 85 and over age group.
RETIREMENT
HOME
– "Retirement home" is taking on a whole new meaning as,
increasingly, the home is paying for retirement. New data from the
Federal Reserve shows that for the elderly, like Americans in general,
housing wealth has soared even as other forms of savings have declined.
This is fueling the increase in popularity of reverse mortgages. VSA subscribers
can click
here to see the VSA presentation on this increasingly popular
retirement planning tool.
LTC
COSTS -
John Hancock has an interactive map of the U.S. illustrating the cost
of long-term care services in the major cities of each state.
You
can access the map at www.johnhancocklongtermcare.com.
MDRT
PRODUCTION
REQUIREMENTS - Here are the new minimum commission levels
for
2007: Basic MDRT: $75,700; Court of the Table: $227,100; Top of the
Table: $454,200. At least 50% must come from individual and group life,
accidental death and dismemberment, annuities, disability income, long
term care and critical illness insurance.
ESTATE
TAX REPEAL
- According to Kiplinger,
a
Senate vote on estate tax repeal will take place in May, but repeal is
still a long shot. High deficits and tax cuts for the wealthy
are
the primary roadblocks to passage.
BENEFIT
COSTS
OUTSTRIP WAGES – National
Underwriter reports on a GAO report that, "U.S. employer
spending on health coverage and retirement plans grew far more rapidly
than spending on wages between 1991 and 2005." Although benefit costs
increased about as fast as wages from 1991 to 2002, a sudden jump in
health and retirement plan costs pushed benefit costs far higher than
wage growth between 2003 and 2005. A copy of the GAO report can be
found here.
ANNUAL
PORTFOLIO
REVIEW PROCESS - Steve Gresham writes in Investment News
that investors
should consider an annual portfolio review and re-balancing as
"required maintenance." Institutional investors tend to
outperform individual investors before they follow a "four-step process
to help ensure the consistency that fuels long-term success: 1.) A
written investment policy provides the process blueprint. 2.) Asset
allocation maximizes opportunity while limiting risk through
diversification. 3.) Evaluation and selection of truly complementary
investments. 4.) Periodic monitoring and re-balancing of the
portfolio." Click here
for
the entire article (registration required).
REINVENTING
THE
DEFINED CONTRIBUTION PLAN - Prudential Retirement, a
business of
Prudential Financial, has released a white paper on how to reinvent the
defined contribution plan "to help ensure that modern American workers
have a better opportunity to achieve a secure retirement."
For
your copy of the white paper, click
here.
INVESTOR-INITIATED
LIFE POLICIES - Investor-initiated life policies, in which
investors lend wealthy individuals money to pay life insurance premiums
for a designated period, are scheduled to be discussed by the NAIC
during its national meeting this month. If the individuals
die
within a designated period, their beneficiaries get the death benefits
less the premiums and interest. After the period expires, the
individual has three options: repay the loan with interest and keep the
policy, sell the policy and repay the loan with interest or transfer
the policy to the investor, usually a hedge fund. If the policy is
transferred, the investor receives the death benefits when the insured
individual dies. The interest rates often are double digit and can be
as high as 28%. New York has banned these arrangements as a
"speculative investment for the ultimate benefit of a disinterested
third party" lacking an insurable interest and several other states may
do the same.
AUDITS
FOR SOLE
PROPRIETORS – The IRS released data on random
audits of
46,000 tax returns for 2001 that showed a tax gap of about $354 billion
a year. Since sole proprietors, independent contractors, self-employed
workers and others accounted for a significant percentage, they are at
least 10 times more likely to be audited this year than other business
entities. Red flags? Late or underpayment of quarterly
estimated
payments, income-to-deduction ratio, failure to sign and date the
return, large home office deductions, use of vague expense categories,
such as miscellaneous, incorrect Social Security numbers and more.
BUY
IMMEDIATE
ANNUITY, DELAY SOCIAL SECURITY – Here is an
option for
clients if they are coming up short for retirement income. Try
purchasing an immediate annuity, and delaying Social Security payments.
Immediate annuities are fairly low-risk and they can provide a
reasonable amount of income. At 65, a $100,000 immediate annuity
produces annual lifetime income in the neighborhood of $7,800 for males
and $7,400 for females. Delaying Social Security from age 62 to age 66
can increase monthly payments by about 25%.
PENSION
COMPROMISE
- National Underwriter
reports that House and Senate conferees are starting work on a
compromise pension bill to address issues such as automatic enrollment
in 401(k) plans, favorable tax treatment for long-term care riders sold
with annuities and a relaxation of rules agents and companies must
follow when offering investment advice to defined contribution plan
participants.
MET'S
SURVIVOR
INCOME RIDER – The more things change, the more
they stay
the same. MetLife has introduced a guaranteed survivor income rider and
has applied for a patent on the product. The concept of helping
consumers understand the need to guarantee survivors an adequate
lifetime income stream is really not new, but it sure is a good idea.
REPS
FINDING SUCCESS
IN BANKS – Many wirehouse and broker-dealer
representatives are finding the going easier in a bank environment.
Apparently, prospecting is easier but the overall results are sometimes
less lucrative. Additionally, increases in compliance costs are forcing
more banks to use third-party marketers to handle their clients'
investment, insurance and annuity business. Some claim bank rep
retention rates have been 90% plus.
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