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 April 15, 2006
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ECONOMY
IS VERY, VERY GOOD – That is the conclusion of
Federal
Reserve Governor Susan Bies. "When you look at it, this economy is
about as good as it gets. So things are very, very good. The economy is
growing close to potential. Employment is growing very robustly."
Household credit quality is solid and businesses have refinanced with
low interest rates and have record cash flows.
WATER
DAMAGE
EXCLUSION UPHELD - A U.S. District Judge for the Southern
District of Mississippi recently upheld the water damage exclusion in a
homeowners policy. A Mississippi couple whose home was
damaged by
flooding from Hurricane Katrina sued Allstate for denying their claim
for water damage. The Court concluded that, "The exclusions
found
in the policy for damage attributable to flooding are valid and
enforceable policy provisions."
IRS
SNOOPING VIA
PAYPAL - EBay says its PayPal unit has received a summons
for
customer records to help the IRS identify tax evaders. The company has
not complied as yet.
WACHOVIA/RBS
MERGER?
- A merger of Wachovia and RBS (Royal Bank of Scotland) was
thought to be in the works, but Wachovia CEO Kennedy Thompson seems to
have denied the rumor.
MET'S
GOOD DEEDS
– Kudos to MetLife...in 2005 it donated nearly $225 million
to
charities.
MASSACHUSETT
HEALTH
CARE BILL – In a move toward universal health
care,
Massachusetts has become the first state to require residents to have
health insurance. The bipartisan bill will provide health care for
about 95% of the state's uninsured residents and is seen as a possible
national model as traditional employer-based coverage shrinks
nationwide. The plan will likely be centerpiece to Governor Mitt
Romney's expected run for the White House in 2008.
INSURANCE
SELF-REGULATION PROPOSAL - The Insurance Marketplace
Standards
Association (IMSA) believes that the new Senate bill, National
Insurance Act of 2006, "will enliven the debate on the need for more
modern and efficient insurance regulation. Regulatory recognition of
sound insurance compliance programs that include ongoing self critical
analysis is consistent with the existing federal regulatory framework
for other segments of the financial services industry."
COSTS
MAY DWARF
PENSIONS - It's beginning to dawn on many states that
their
costs to provide health care to retired state employees may dwarf what
they pay in retirement benefits. Adding to the concern is the
fact that it can be difficult for states to cut health and/or pension
benefits. Such changes frequently require a change in state
law.
EXPENSIVE
BLUNDER
- The SEC has fined MetLife $250,000 for the failure to supervise one
of it reps. Apparently, Met hired a registered rep despite knowing
about a somewhat questionable background. The rep then proceeded, among
other things, to convince the Fulton County, Ga., sheriff's office to
invest $2 million in a non-existent bond fund and $5.2 million in a
MetLife variable annuity, which violated state law. There may be money
in a sheriff's office, but even Willie Sutton wouldn't approve of
trying to steal it! In addition to the fine, MetLife has
returned
the annuity purchase payment and reimbursed the sheriff's office $1.5
million for the non-MetLife investment. Lincoln Financial is
facing its own problems...it hired as a registered rep a convicted
felon who had been banned from the securities business. This
upstanding citizen is now charged with stealing $2.25 million from nine
clients in a Ponzi scheme.
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WAL-MART
BANK – No indication
as yet on how federal regulators might decide on Wal-Mart's bank
application, but it appears that any approval will have strict limits
on the banking activities allowed. Some analysts predict that Wal-Mart
will be explicitly prohibited from opening full-service bank branches
in its stores.
INSURANCE
SECTOR STABLE –
Moody's says revenue, net income, general account assets and separate
account assets of insurance companies are all rising and that points to
a stable future for the industry.
MOTIVATED
BY GREED - A Goldman Sachs
analyst and a Merrill Lynch investment banker made more than $6.7
million through an insider trading ring by enlisting an analyst for
information, bribing a forklift driver for advance copies of a
market-moving magazine and getting strippers to coax stock tips from
investment bankers about pending mergers and acquisitions. "We've never
seen before a case involving so many different attempts to obtain
information illegally." These young men in their twenties face maximum
prison terms of 15 to 70 years.
NASD
UPS FINES
- Under NASD sanction guidelines that went into effect March 31, the
regulatory agency has doubled, tripled or quadrupled the prior
recommended fines. First-time offenses of various trading rules have
risen from $1,000 to $5,000. Worse yet, there is no grandfather clause.
Last year, NASD fines hit a record $125 million. In 2001, it collected
just $13 million in fines, but fines now are about 20% of the NASD
operating revenue.
GOLD
AT 25-YEAR HIGH - Gold bullion
hit a new 25-year peak of almost $600 an ounce, and silver touched its
highest in more than 22 years. Causes: shaky U.S. dollar and oil
prices. Silver is at just over $12 an ounce and platinum is about
$1,080.
STOCKS
HIT MULTI-YEAR HIGHS –
In the last two weeks, all the major U.S. stock indexes traded at
multi-year highs. The Nasdaq hit a five-year and the Russell 2000
(small companies) reached a record high.
JOB
CUTS STARTING - With its merger
with Jeff-Pilot underway, Lincoln National has begun notifying some
Hartford-based employees that their jobs will be cut. No word
yet
on the total expected job loss.
AMERICAN
GENERAL FINED – The
NASD has fined the AIG sub American General more than $1.1 million for
violations of the NASD's Anti-Reciprocal Rule, which forbids firms from
favoring the sale of shares of particular funds on the basis of
brokerage commissions received by the firm.
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TAXPAYER
BLUES - If tax filing day
has you down, listen to a few of the songs at Taxpayer Blues.
If "The Battle Hymn of the Taxpayer" doesn't catch your fancy, check
out "The IRS Audited Me and Ran Off With My Wife."
BROKERS
WANT SALES
SUPPORT – A Celent survey of independent agents
and
brokers concerning what they want from their carriers indicates a 22%
increase in the past year of those wanting sales support. In fact,
sales support jumped from fifth to third in factors influencing their
decision to do business with certain carriers with similar products.
"New business and underwriting support" and "underwriting speed" were
the top factors followed by commission rates. FYI, the Virtual Sales Assistant
is not only
the most comprehensive sales support tool in the industry, it may also
be the most cost efficient way for BGAs, MGAs and IMOs to provide sales
support to their producers. For details: E-mail Bill O'Quin,
CLU,
ChFC, RFC at boquin@fsonline.com.
RETIRING
EARLY TAKES
MORE THAN MONEY – Many employees in their
mid-50s dream
about "taking early retirement and going into business for myself."
Their children are raised, they have enough money in the bank to make
up for a step-down in pay, but there is a problem...no health
insurance. They can count on needing $50,000 to $100,000, or more, to
cover health insurance until they qualify for Medicare...assuming they
are healthy enough to qualify at all. The problem affects companies
also. Watson Wyatt surveys find that retiree health insurance plays a
bigger role in the timing of retirement than pensions and it can play a
big role in workers' productivity.
NASD ON
INDEXED
ANNUITIES – See a free seminar on what the NASD
thinks
about IAs by clicking here.
YOUNG
SAVERS
– The New
York Times
reports that households headed by individuals under 35 with an income
of $129,400 or more are bucking the national zero-savings trend and
storing money for retirement. Their savings average $90,000
plus...nearly triple the average for the same group just 10 years ago.
SIMPLER
WAY TO SAVE
FOR RETIREMENT – The Wall
Street Journal reports that, "Many baby boomers could
salvage
their retirement dreams by buying immediate-fixed annuities, which
would convert their modest savings into a healthy stream of lifetime
income." An example given is a 65-year-old woman with $100,000 to
invest, trying to decide between high-quality bonds and an annuity that
provides lifetime income, both offered by Vanguard. The immediate-fixed
annuity would pay her $7,336, but if she dies soon after purchase, the
$100,000 gone. The bond is yielding 5.7%, but she will need to
liquidate some of it each year to equal the immediate annuity. The
problem with the bond is she would be pulling out $7,336 each year, but
the amount of interest she earns keeps shrinking as her fund balance
gets smaller. By age 88, she would be out of money, but her life
expectancy is 85. In other words, picking the bond fund over the
annuity would be a problem if the woman lives more than three years
beyond her life expectancy...and the definition of life expectancy is
that half are dead but half are alive. VSA subscribers can
see a good
immediate annuity presentation at Main Menu => Presentations
=>
Product Solutions => An
Immediate Income Annuity Review (with variable products) and A
Fixed Income Immediate Annuity Review (without variable
products).
HAPPY
TAX DAY
- Want to know where some of your hard-earned tax dollars
went?
Would you believe $13.5 million to an Irish group that funds the World
Toilet Summit? How about $500,000 for a teapot
museum? If
you have a strong stomach, check out the Congressional Pig Book at www.cagw.org.
QUALITY
OF LIFE,
MONEY AND LIVING WILLS – Most talk surrounding
living
wills centers on quality of life issues, but there are also serious
financial considerations. Medical technology can keep people with no
hope of recovery "alive" for decades, but the cost can be nearly six
digits. So, who pays? Medicare covers the elderly and
disabled,
but does not pay for nursing-home care. However, Medicaid will and many
middle-class families attempt to transfer assets to make the parent
"poor" and eligible for Medicaid. Recent laws, however, have
made
this more difficult. Here are two alternatives...buy LTCI and get a
living will.
YOUNG
SEE PERSONAL
SAVINGS AS RETIREMENT – According to a American
Institute
of Certified Public Accountants (AICPA)/Harris Poll survey, members of
Generation X by and large understand that Social Security and pensions
may evaporate by the time they leave the workforce and, instead, are
looking to themselves to fund their retirement. More than half the
Gen-Xers surveyed (55%) indicated they will rely on savings and
investments to carry them through their golden years; 65% don't expect
Social Security to be a retirement option; and 68% don't see pensions
as a safety net either.
OUR
COMPLEX TAX
SYSTEM – The Washington
Post reports that the tax code is so convoluted that 60%
of
taxpayers have to rely on professionals to do their taxes for them. In
the last 20 years, Congress has made 15,000 changes to the tax code.
REVERSE
MORTGAGE
DOWNSIDES – Most peoples' homes have appreciated
in value
rapidly during the past few years, but during that same time, the
savings and net worth of many have stagnated or fallen. This fact has
created a surge in reverse mortgages. At least one expert does not see
using the equity in homes to pay a large portion of retirement as a
good thing. He points out that if you sell your home, you will have to
pay back what you borrowed on your reverse mortgage or when you die,
your children will have to pay back the loan from the sale proceeds. We
really don't see what is so bad about that but we do like his
solutions..."Max out" IRA and 401k contributions while working, delay
taking Social Security and purchase an immediate annuity.
DESIGNATIONS
MAY BE
HEALTHY - Researchers at the Mayo Clinic now have found a
strong
link between education levels and developing Alzheimer's. About 25% of
participants in a Mayo study who had an eighth grade education or less
had mild cognitive impairments, while the disease only showed up in
only 8.5% of participants with more than a college degree. Maybe all
the study for industry designations will pay off health wise!
RETIREMENT
HOLES
REVEALED - According to the 16th annual Retirement
Confidence
Survey, a large majority of Americans expect to enjoy a comfortable
retirement, but many have not taken the actions needed to turn their
aspirations into reality. The survey showed many Americans' retirement
expectations are like a piece of Swiss cheese -- full of holes. For
example, many have accumulated only modest retirement savings,
underestimate income they are likely to need in retirement, and have
made no estimate of how much they will need to live comfortably once
they retire. See executive summary at www.ebri.org
TAX-WISE
RETIREMENT
- Prudential believes that the traditional approaches to tapping
retirement assets might not be tax-efficient. Tax Wise Retirement
Distribution Planning suggests the conventional sequence for tapping
retirement assets -- access taxable accounts (such as a taxable savings
account) first, partially tax deferred assets (such as stock or a
mutual fund held outside of an annuity or qualified plan) second, and
tax deferred accounts (an IRA, annuity or qualified retirement plan)
last -- may not be the most economical course for asset longevity or
maximum wealth transfer. A copy of the complete white paper is
available at www.prudential.com/tax-wise.
HIDDEN
FICA TAX
– A single taxpayer earning $48,000 per year will have a
regular
income tax of $6,615 and another 7.65% ($3,672) in FICA taxes. But many
people don't understand that to know your full tax you need to add
another $3,672 - the "employer's share" of FICA. True wages would be
$51,672 ($48,000 + $3,672 hidden), true tax $13,959 ($6,615 + 3,672 +
3,672 hidden), or 27% of income. The FICA tax applies only to wage
earners. If the $48,000 in income came from bond interest instead of
wages, your tax would be the $6,615, or 13.8%.
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