March 15, 2010 Edition

CREDIT GIVEN - A Wall Street Journal forecasting survey of economists found that the Federal Reserve's role in rescuing the economy was key, although the $787 billion stimulus also helped. "A much worse result would have occurred if nothing had been done," said Allen Sinai of Decision Economics. But "the absence of monetary-policy easing [by the Fed] would have resulted in a much worse economy than the absence of the fiscal-policy stimulus."

WHAT KILLED LEHMAN - The court-appointed investigator responsible for examining the causes of the Lehman Brothers' collapse that threw global financial markets into turmoil has issued his report.  In a nutshell, "failings by Lehman Brothers executives and its auditor led to the bank collapse that unleashed the worst of the financial crisis."  Click here for the complete article.  

FINANCIAL OVERHAUL - Senator Christopher Dodd, chairman of the Senate Banking Committee, is introducing proposed legislation that would amount to the most sweeping overhaul of financial regulations since the Great Depression.  The bill is expected to include shareholder provisions, such as advisory votes on executive pay and nominating directors, a consumer financial protection agency as part of the Federal Reserve, a diminishment of the Fed's bank supervision powers and a council to detect systemic risks and trigger a process to seize and dismantle a large financial firm on the verge of failure.  As with healthcare, the legislation has no Republican support.  Instead, the GOP has asked Dodd to slow down the financial reform timetable.  If it was up to the general public, reform would have happened yesterday.  According to a new Harris Poll, 82% of all adults believe Wall Street should be regulated more toughly.

BROKE AND GETTING BROKER – The President recently commented in St. Louis that "I said at the beginning of this thing we would not do anything that adds to our deficit. This plan does not do anything to add to this deficit. And that's how we should be operating." Forbes is at a loss as to how this will be accomplished. "The issue is critical, because America is hurtling towards a debt crisis. On March 5th, the Congressional Budget Office released a report stating that the federal debt will grow far faster than the president is predicting, reaching a staggering 90% of GDP by 2020. That's comparable to the load now crippling Greece. In a decade, says the CBO, one dollar in six of federal spending would go towards paying interest, almost equaling expenditures on Medicare."

ANOTHER RECORD DEFICIT - The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year. The February deficit was $220.9 billion, 14% higher than the previous record set in February of last year. The Obama administration is projecting that the deficit for the 2010 budget year will hit an all-time high of $1.56 trillion, surpassing last year's $1.4 trillion total.

THERE, I'VE SAID IT AGAIN! - A "government expense tipping point" is looming. Health care, "cap and trade," public-sector unions and other expansions of government are "a bridge too far." Here is why:
  • Everything any of us owns (our houses, our clothes, our cars...everything) has its origination in wealth created by free enterprise.
  • Free enterprise has paid for our universities, for Social Security; for Medicare; for Medicaid, for salaries of federal, state and municipal employees; for our parks; for our roads; for all our social programs, our military and our international humanitarian efforts.
  • Free enterprise creates all wealth. Government creates no wealth. It simply taxes free enterprise and spends the wealth created by free enterprise.
  • If government needs more wealth than it can generate from current taxes, it borrows money based upon the free-enterprise wealth creation of future generations.
  • There is a tipping point where free enterprise can no longer support government spending and borrowing. At that point, we will not only lose the free-enterprise system but our personal freedoms and become slaves to government expenditures and debt.
S&P WARNS ABOUT U.S. CREDIT RATING - Standard & Poor's issued a warning that the government needs to adopt a plan to rein in spending or the country's triple-A credit rating will be in jeopardy. There is a risk that "external creditors could reduce their U.S. dollar holdings, especially if they conclude that eurozone members are adopting stronger macroeconomic policies." We do not have an income (read taxation) problem, we have a spending problem.

TAX HIKES - Since spending cuts alone may not be sufficient to deal with the federal budget deficit, don't be surprised if Congress isn't forced to raise taxes.  Possibilities include higher earners paying more in income and capital gains taxes, a payroll tax increase and a surtax on incomes.  Also under consideration is a consumption tax which, according to Kiplinger, even Republicans may support...

WHO DAT SAY VAT? - The U.S. government's debt is triple-A rated and some folks at Bloomberg believe the adoption of a value-added tax could help keep it that way. See details at www.businessweek.com.

PREPARED FOR THE WORST - According to Moody's Investors Services, "most of the world's life insurers have enough cash and access to cash to cope with periods of severe financial stress."
Bend over backwards for your clients!


E-Mail for detail!

NAIFA CALL TO ACTION I - H.R. 3590 contains provisions that will increase the cost of private health insurance and cause damage to our health care delivery system. The bill that passed the Senate includes billions in new taxes, a weak individual mandate that will drive up insurance premiums as people opt out of private insurance until they are sick, the expansion of Medicaid that could cripple state budgets and a new national long-term care program that has been described by Senate Budget Committee Chair Kent Conrad as a "Ponzi Scheme." However, because the reconciliation process is only designed for legislative proposals that have a direct impact on the federal budget and deficit, many of the controversial provisions will likely not be allowed in the final bill. The result is that if the House passes H.R. 3590, provisions like the excise tax on benefit plans, Medicare Advantage cuts and all the backroom deals will become law. Comprehensive health care reform legislation is too important to be passed on such a partisan basis. Please take action today by sending your House member a letter expressing your concerns with the bill. Find your congressional representative by clicking here.

NAIFA AND FINANCIAL SERVICES REGULATIONS - A financial services bill amendment would apply a fiduciary standard of care to all broker-dealers, registered investment advisors and financial planners who perform financial planning duties.  The proposed amendment would affect "anybody who holds himself out to the public as a financial planner and provides, or offers to provide, directly to individuals advice with respect to the management of financial assets in not fewer than two areas of financial planning, including investment planning, income tax planning, education planning, retirement planning, estate planning, and risk management." The National Association of Insurance and Financial Advisors (NAIFA) calls this "a harmful and unnecessary step that would impose additional regulation on already-regulated individuals." The change is also opposed by the American Council of Life Insurers (ACLI).

NAIFA CALL TO ACTION II - Senator Herb Kohl (D-WI) recently circulated an amendment that will add yet another layer of unnecessary regulation to many already heavily-regulated NAIFA members. The amendment would designate "financial planning" as a recognized profession subject to federal regulation. In doing so, this amendment would create a new Self Regulatory Organization (SRO) for "financial planners." This change would impact many NAIFA members who are already regulated at many levels, including state insurance commissioners, state securities regulators, FINRA and the SEC, depending on which licenses they hold.  NAIFA is asking you to recommend to your Senators that they oppose this measure, and instead, support the bipartisan approach taken by Senators Tim Johnson (D-SD) and Mike Crapo (R-ID) which calls for a full, comprehensive study of the current regulatory environment surrounding financial advising. Click here to tell your Senator on the Banking Committee to oppose the Kohl amendment.  

HEALTH INSURANCE COMPANY PROFITS – The attack on our industry is getting tiresome and worrisome. Here are some excerpts from the National Review:

According to the most recent Fortune 500 rankings, health insurers are not even among the top-30 United States industries in profit-margin. Health insurers rank 35th, with a profit-margin of just 2.2 percent -- less than one-fifth the profit-margin of railroads. None of the ten largest American health insurers made profits of more than 4.5 percent, and two of them lost money. Health insurers' collective profit-margin is less than one-eighth that of drug companies and less than one-seventh that of companies that sell medical products or equipment. It's also less than that of medical facilities. Yet when was the last time you heard President Obama rail against greedy hospitals?

The combined profits of America's ten largest health insurers are $8.3 billion. That's less than two-thirds of the profits of Wal-Mart alone, less than half of the profits of General Electric alone, and less than one-seventh of what Medicare loses each year to fraud. Health insurers collectively have one-eighth the profit-margin of McDonald's or Coke, one-ninth that of eBay, and one-fifteenth that of Merck.

In all, the combined profits of the 14 largest American health insurers (the ones who crack the Fortune 1000) are $8.7 billion. That's less than 0.4 percent, or 1/250th, of overall U.S. health-care costs, which are $2.5 trillion.

Anyone but an ideologue could plainly see that insurance profits aren't the problem. The problem is having a health-care system with too many middlemen (government or otherwise); too little competition and choice; and too little opportunity for Americans to control their own health-care dollars, shop for value, or even see prices.

"CAP AND TRADE" NOW "POLLUTION REDUCTION" - Like a savvy Madison Avenue advertising team, senators pushing climate-control legislation have decided to scrap the name "cap and trade" and rebrand their product as "pollution reduction targets."  Whatever the name, it creates a ridiculous system whereby polluters can buy credits to continue polluting and "middlemen" (including the government) can profit off the scheme. Add to that job losses to overseas polluters and this becomes a fraud of historical proportions.

AIG SELLS "CROWN JEWEL" TO PRU (UK) – AIG has approved the sale of the company's crown jewel, American International Assurance, to Prudential of the U.K. for about $35.5 billion. The sale, along with a separate deal, could generate about $50 billion, half of which will go to the Federal Reserve Bank of New York. Prudential's acquisition of AIA was welcomed by government officials because it will generate more cash to repay taxpayers. Here's an interesting article on how the New York Fed made an earlier bet that these AIG units would sell for higher prices and won the bet.  

THE BIG LIE - Without health care insurance, there is no access to health care. The truth is access to the health care providers (professional services) and medicine (products) of the best health care system in the world is already universal and available to every U.S. Citizen, legal resident, illegal alien, prisoner, detainee, or visitor - regardless of whether anyone is covered by any insurance policy or health plan.  For heaven's sake, even the illegal aliens have figured out that anyone who walks into an Emergency Room is required by law to be treated, regardless of the person's ability to pay.

RULE 151A FLY-IN - The National Association for Fixed Annuities is sponsoring a "fly-in" to Washington in opposition to the proposed SEC Rule 151A. The participants will meet with supporters of H.R. 2733, the Indexed Annuities and Insurance Products Classification Act of 2009 bill, which would stop the SEC from classifying FIA products as securities. That bill, which was introduced by Reps. Gregory Meeks, D-N.Y. and Thomas Price, R-Ga., already has more than 70 cosponsors. More information at www.nafagetactive.com.

COBRA BENEFITS AND MORE - The Senate voted last week to pass legislation that includes a COBRA subsidy extension provision through December 31, 2010 and defined benefit plan funding provisions.  These provisions were added in the form of a major amendment to H.R. 4213, the $130 billion American Workers, State and Business Relief Act.  The Senate bill also extends the current Medicare payment rate for doctors and allocates $25 billion to states to help them with Medicaid funding. The legislation must now be reconciled with a House bill that passed last December. 

CFP REQUIREMENTS - Before they can take the 10-hour certification exam, the CFP Board is going to require candidates to take a three-credit course, equivalent to 45 hours of class work, on how to prepare and present financial plans.  The requirement is intended to "bridge theory with practice" and is expected to take effect in early 2012.

POSTPONING RETIREMENT - A survey by the Center for Retirement Research indicates that 40% of individuals from ages 45 to 59 now expect to retire four plus years later than they had planned on prior to the economic slump.  Also, two-thirds reported less retirement savings and 60% reported that they are spending less.

E-MAIL ME – A survey of policyholders and found that more than half of respondents who were not offered electronic delivery of documents and prospectuses said they would choose electronic delivery if it were available. How about your prospects? Would some prefer an electronic annual review?  The Virtual Assistant has many like this Confidential Service Review to offer...and, yes, some are shorter!  

HOME HEALTH CARE COSTS – According to the American Association for Long-Term Care Insurance, the average cost of U.S. home health care has increased this year to $20.50 per hour, up just 2.5%. The range is from $16 in Miami up to $28 in Boston. Further, about 42% of current recipients of private LTC insurance benefits are using the benefits to pay for home care.

UPDATE ON THIRD PARTY MATERIAL - The U.S. Court of Appeals for the 1st Circuit rejected the SEC theory that securities professionals could violate the law by using or referencing third-party materials that are false or misleading about investment products. Kudos to Mass Mutual compliance for being the first to recognize the value of this decision and actually apply it to the benefit of their agents:
"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."

Send this abstract with the embedded video to your compliance department, ask them to review this 8:32 minute video overview of The Virtual Assistant and see if they will take the same position as the Mass Mutual compliance department. 

UPSIDE DOWN VAs - The Wealth Preservation Institute has an interesting variable annuity (VA) purchase program.  When VAs have cash values that are substantially less than premiums paid, clients usually keep the annuity, hoping the account value rebounds, surrender the annuity for the surrender value, or strip the annuity.  A VA purchase program may be a better option...clients can sell their VAs for 110% to 120% of the account value and get a tax loss that can be applied against ordinary income.  See details at www.thewpi.org.

TAX REFUND? NOT SO FAST! - Some citizens may have to wait for their state tax refunds. North Carolina, Alabama, New York, Kansas, Iowa and Hawaii are likely to slow down issuing income tax refunds because of a lack of funds in their budgets. "Where is California?," you may ask. Apparently they used the tactic last year, but believe they have enough cash on hand to fund their tax return obligations this year.

ADVISORS OPTIMISTIC AND SATISFIED - According to a survey conducted by Rydex, nearly 75% of advisors surveyed said their business was currently in a growth phase, and nearly 80% expect an increase their client base this year. Overall, 84% are happy with their jobs.

AGENTS USING SOCIAL MEDIA - The Rydex survey also found many advisors saying they are using social media to communicate with existing clients, attract new ones, and advertise their company...of those, 42% say they use LinkedIn; 27% Facebook, 15% YouTube and 13% Twitter.
 
SMALL BUSINESS CONTRACTING AND REVAITALIZATION ACT - A Senate Committee has unanimously passed S.2989, The Small Business Contracting and Revitalization Act of 2010. This bill will modernize and strengthen the Small Business Administration's government contracting programs to help increase small business sales and create American jobs. The Act will require agencies to consider small businesses when placing orders on large contracts; close many loopholes that give big businesses an unfair advantage; add protections for small firms and sub-contractors; reduce bundled contracts by reserving more contracts for small business concerns; and shine light on which agencies bundle and why.

DIRECT MARKET SALES - LIMRA and LIDMA, the Life Insurance Direct Marketing Association, report life insurance sales through direct channels represented more than 20% of the policies, about 5% of premium and 13% of the face value in 2008. "For the first time, we have been able to quantify the amount of individual life insurance sold through direct channels, like the Internet, direct mail and telephone. This includes both sales generated directly through carriers, as well as by third-party quoting aggregators. Direct marketing accounts for a much larger portion of life insurance sales than previously reported. We believe this will be valuable information for the industry to track the growth of this distribution channel in the coming years."

GREAT EXPECTATIONS NO MORE - According to an Employee Benefit Research Institute survey, only 16% of current workers say they are very confident about having enough money for a comfortable retirement. Even fewer workers feel confident about being able to pay for medical expenses throughout retirement (12%) or long-term care costs (10%).

VAs AND GUARANTEED LIVING BENEFITS - LIMRA's annuity study reveals the rate of election for guaranteed living benefits (GLBs), when offered in a variable annuity, was 84% in the fourth quarter of 2009...a slight decline in percentage but GLBs still enjoy very high market share.

ANNUITY SECONDARY MARKET - While we've been hearing about stranger-originated life insurance sales for awhile, apparently there is also a growing market in stranger-originated annuity sales, which is raising concern on the part of insurers.  Last month, the Interstate Insurance Product Regulation Committee voted in favor of a standard that would allow the issuer of an annuity to terminate the living benefit of a contract upon a change of the contract's ownership.  Meanwhile, state insurance regulators are expected to tackle the issue of insurable interest with regard to annuity sales which may lead to changes designed to discourage stranger-originated annuity transactions.

BEST FUNDS SITE – Here is a neat Website to quickly evaluate mutual funds. 

HIGH COST OF GETTING OLD – Healthcare is and will be continue to be one of the biggest expenses in retirement. Qualifying for Medicare coverage at age 65 helps, but retirees will continue to have significant out-of-pocket costs. According to the Center for Retirement Research at Boston College, a typical 65-year-old married couple without chronic conditions will need $197,000 to pay for out-of-pocket medical costs throughout retirement and have a 5% chance that healthcare costs not covered by insurance will exceed $311,000. Here are the results of other studies:
  • Fidelity Investments estimates that a couple, both age 65 in 2009, will need approximately $240,000 to cover medical expenses throughout retirement.
  • Employee Benefit Research Institute determined that a 65-year-old couple in 2009 will need $210,000 to have a 50% chance of affording their retiree health expenses and $338,000 to have a 90% chance.
Why?
  • Premiums will increase. 
  • Cost sharing will increase.
  • Uncovered expenses...dental care, eyeglasses, hearing aids, etc.
  • Long-term care.
  • Healthcare inflation
GET THAT STRAW OUT OF YOUR NOSE! - Cola cups from Boston Market now warn users, "Please do not insert straw into nose. Thank you." Is this "Lawyers Gone Wild" or a very clever marketing scheme? Regardless, it is pretty funny.
© Copyright 2010 Financial Services Online, Inc.