© Copyright 2007
US FlagMay 1, 2007 Edition


MERRILL RULE DEAD (FOR NOW) – Despite efforts from proponents, a U.S. Court of Appeals has shot down the SEC's Merrill Rule. The rule exempted brokerage firms that charge asset-based fees from investment advisory regulations.  If the SEC does not appeal the U.S. Court of Appeals decision to dismiss the broker-dealer exemption rule, it will have the effect of shifting up to one million fee-based brokerage clients into commission or advisory accounts. Some feel the decision will allow investors to learn more about their brokers than "they ever knew before."  More than 90% of investors surveyed believe that "the same investor protection rules should apply to both stockbrokers and financial planners when they offer the same kind of investment advice services."  On the other hand, the Securities Industry and Financial Markets Association (SIFMA) wants the SEC to appeal the court decision.  The SEC has until May 14 to appeal the ruling.

SOX, GOOD OR BAD – According to a recent study in the WSJ, the much-assailed Sarbanes-Oxley Act has not made U.S. markets less competitive.  The Senate has voted down an amendment that would have exempted most publicly traded companies from the act and voted to stand behind the efforts by the SEC to revise the section.

DOW LEVEL AND ECONOMIC GROWTH – Many consider a strong stock market as an indicator of a strong economy, but consider this. From the beginning of 2004 through the first quarter of 2006, economic growth averaged 3.4%, yet the Dow rose just 6%. Since then, economic growth has slowed to about 2%, but the Dow has jumped 18%.

WHAT NOW, BIG DOW? - The Dow Jones industrial average has topped the 13,000 mark for the first time ever and is up 6% for April. Got to wonder what happened to all the dire predictions of a market slowdown because of expected low corporate earnings, the housing market's glut of unsold properties and problems in the mortgage business. We do know this, what goes up will come down...sooner or later. The good news is that, over time, the Dow has always returned to and exceeded its previous high.

ANTI-MONEY LAUNDERING TOOL - For broker-dealers who need assistance in their anti-money laundering compliance efforts, the SEC has released its "AML Source Tool, available at www.sec.gov. 

MFA RESOURCE CENTER AVAILABLE - That's the McCarran-Ferguson Act Resource Center, launched by the National Association of Mutual Insurance Companies (NAMIC), which opposes repeal of McCarran-Ferguson, the legislation that provides insurance companies with a limited anti-trust exemption.  The objective of the website is to address "the concerns and misconceptions about the McCarran-Ferguson Act." 

FUNDING REPORT - S&P reports that the funding status of S&P 500 company pension funds improved significantly in 2006, a direct result of improved stock market results.  Other post employment benefits, such as retiree health insurance, however, remain substantially underfunded.  According to the report, "as a post retirement benefit, medical coverage now has to be put on the endangered species list."

LIAR'S LOANS - The Office of Thrift Supervision, which oversees savings and loans, says that cheating on mortgage applications is so widespread that it's fueling foreclosures and will prolong the housing slump (in fact, March housing sales posted their sharpest drop in 18 years). The major problem is brokers exaggerating an applicant's income and therefore qualifying the borrower for a home he otherwise couldn't afford. According to the Mortgage Bankers Association and the FBI, fraud cost lenders an estimated $1 billion last year. One study found almost 60% of stated income was exaggerated by at least 50% and thus the term, "Liar's Loans."  Additional background is available here. 

GENETIC TESTING AND INSURANCE - The House has joined the Senate in passing legislation that bans discrimination in insuring people based on genetic testing.  The legislation, support for which appears overwhelming, now heads for a conference committee to reconcile differences in the House and Senate versions.

REGULATORY COOPERATION - In a White House summit on Monday, President Bush and German Chancellor Angela Merkel agreed that the time was right to "enhance economic cooperation and lower regulatory barriers across a range of areas including financial services."

ARBITRATE SHAREHOLDER DISPUTES? – The SEC is considering a change that would allow companies to settle disputes with shareholders via arbitration. Since the plan would limit the shareholders' right to sue, you can bet on heavy opposition from trial lawyers. 

FORECLOSURES UP – RealtyTrac reports that foreclosure filings in the first quarter rose 27% from the prior quarter and 35% from a year earlier. Many analysts expect rising defaults will add to an already large inventory of homes for sale, slowing already sluggish home sales and cooling the broader economy.

BOMB THREAT ARREST - You may recall the violent threats being sent to U.S. financial firms in the Midwest over about the last 18 months by someone calling himself "The Bishop."  Well, "The Bishop" is now "The Prisoner," having been arrested in Iowa by U.S. Postal Inspection Services agents last week. 

FED SAYS INFLATION ISN'T DEAD – The Fed is saying that its effort to reduce inflation "may take time" and "uncertainties surrounding the economic outlook have increased recently, and I remain concerned that the persistence of inflation at the recent elevated rate could have adverse consequences for economic performance."

MORE SAY ON PAY - The House approved a measure giving shareholders of public corporations a nonbinding vote on the compensation of executives. Democrats supported the bill while some Republicans argued that Congress should stay out of the business of running businesses. No similar legislation has been introduced in the Senate as yet.

SALLIE MAE SOLD – Several investment companies and banks have agreed to buy the education lender SLM Corporation (known as Sallie Mae) for $25 billion. The sale comes at a time when Sallie Mae board members are being investigated and the company is being scrutinized for possible abuses regarding government supported student loans. Shares of Sallie Mae surged nearly 18% on the announcement and the shares of smaller players in the student loan arena also jumped significantly.  There is, however, the possibility that Congress might cut subsidies to lenders, in which case the investment group poised to purchase Sallie Mae could pull out of the deal.

CHASE THREATENS TO LEAVE NYC - JPMorgan Chase says it will move thousands of employees from NYC to Stamford, CT if New York officials do not give it a larger subsidy package to build a 50-story skyscraper near ground zero. Critics say bowing to the demands is giving into corporate extortion for corporate welfare.

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BATTLE RAGES ON - According to Investment News, "the fight over the pending consolidation of the regulatory units of the New York Stock Exchange and the NASD is proceeding apace on two fronts: in court and at the Securities and Exchange Commission."  For a good recap of this issue, the article is available at www.investmentnews.com. 

MEDICARE AND SOCIAL SECURITY WON'T FIX THEMSELVES - By 2017, Social Security will pay out more in benefits than it collects in taxes and the "trust fund" is projected to be exhausted by 2041. Medicare is in worse shape since it will pay more than it collects this year, with its hospital insurance trust fund projected to be bankrupt by 2019. Both plans will be strained by the aging of nearly 78 million baby boomers. While these predictions are slight improvements over last year, it is obvious that we have a severe problem that no one appears ready to tackle. FYI, Social Security expenditures will be $594 billion this year. For Medicare, the figure is $438 billion.

PUTTING IT IN PERSPECTIVE - Did you know that the U.S. government has promised $63.7 trillion more in benefits then it will collect in taxes?  If that's not enough to make your hair stand on end, read on by clicking here. 

BABY BOOMER RETIREMENT - Here's a good article from the National Center for Policy Analysis for your review: Ten Steps to Reforming Baby Boomer Retirement. 

WHY PEOPLE BUY OR IS IT WHEN THEY BUY? – There are lots of reasons why people make their first financial purchase, but a recent study of client acquisitions reveals that nearly half of all people who have a financial adviser got into that relationship due to a specific "trigger event." Fully 27% of clients hired an adviser after receiving a lump sum of money due to an inheritance or job change and 21% did so after a change in household composition...change in marital status, the birth of a child or the death of a partner.  Sales point...how do you know when a "trigger event" is likely to occur with a prospect? The Virtual Sale Assistant has a novel approach...just ask them with a Priority Planning Review (PPR). The PPR is a very simple but effective approach tool that is completed by clients or prospects themselves, and not only reveals what your clients' financial priorities are, but also provides you with "trigger events" that may be in your clients'/prospects' future. Take the VSA 30-day free look and try the PPR...it will pay for itself on the first use.

ALZHEIMER'S REPORT - The Alzheimer's Association reports that an estimated 5.1 million Americans have Alzheimer's disease and predicts that there will be 454,000 new cases of Alzheimer's by 2010 with the numbers increasing each year thereafter.  "The number of Americans surviving into their 80s and 90s is expected to grow because of national demographics as well as advances in medicine, medical technology and other social and environmental improvements," the report states. "Since the incidence and prevalence of Alzheimer's disease increase with advancing age, the number of persons with the disease is expected to grow as a proportion of this larger older population."  Read on...

A FRESH LOOK AT LONG-TERM CARE - Take a few minutes to read this article from Kiplinger's Personal Finance magazine at www.kiplinger.com.  It describes in real-life terms the challenges families face when a loved one needs long-term care services.

TAX OVERHAUL - According to The Kiplinger Tax Letter, the Bush administration has given up on a tax overhaul.  Congressional Democrats, however, have unveiled their proposed Fair Flat Tax Act, giving us some idea of Democrats' goals for tax reform.  They include reducing the current six tax brackets to three, greatly increasing standard deductions, providing larger earned income credits, ending the alternative minimum tax, limiting deductions for mortgage interest and charitable deductions, providing a credit for state and local taxes paid, taxing long-term capital gains and dividends as ordinary income, allowing fewer tax-free fringe benefits and implementing a flat 35% corporate tax. 

FINAL ROTH RULES - The IRS has published a number of final rules dealing with Roth IRA distributions.  If you work in this market, you can review these final rules here. 

NAIFA NEWS - NAIFA was considering a proposal to let members opt out of joining local chapters.  After consideration, however, the proposal has been shelved.  A letter from NAIFA President John Davidson is available at www.naifa.org. 

BEST ONLINE BROKERAGE – Consumer Reports gives Firstrade Securities the top overall score in their latest survey of online brokerage firms. Following in order are E*Trade, TradeKing and Charles Schwab.

DOL LOOKING INTO 401(k) FEES – Following Congressional hearings about fee disclosure and the effect of fees and expenses on retirement savings, the U.S. Department of Labor is seeking comments about fee disclosure for 401(k) plans and other defined contribution plans. The department will use the information in formulating disclosure information for 401(k) plans.

SCHWAB LOWERS MINIMUMS - Charles Schwab has followed the lead of other discount brokers and eliminated and/or reduced account opening fees. Further, the firm has eliminated any charges for accounts falling below the minimum.

BIGS VERSUS SMALLS - It probably shouldn't come as any surprise that employees of small businesses are at a disadvantage as compared to employees of large businesses when it comes to retirement savings.  That's the conclusion reached by the 8th Annual Transamerica Retirement Survey. 

MILLION PLUS MULTIMILLIONAIRES - The Spectrem Group's Affluent Investor Index shows the number of U.S. households with a net worth of $5 million or more, not including primary residence, rose to a record 1.4 million in 2006, surpassing 1 million for the first time. The data represent a 23% increase over 930,000 households in the category in 2005, and a quadrupling of the 250,000 ultra-high-net-worth households in 1996. 

SELF-DELUSION AND PENSIONS - Humberto Cruz points to the 17th annual Retirement Confidence Survey to conclude that Americans have "reached a new level of self-delusion."  "American workers are dreaming they'll be all right in retirement — this year 72% are confident — even though they've saved a pittance or in some cases nothing.  In this dream, most think they'll get Social Security benefits before they're actually eligible. Many are counting on pension, health and long-term-care benefits they won't have. They underestimate the amount of money they'll need and overestimate how long they'll be able to work."

EXPENSE CONTROL – A study by the National Foundation for Credit Counseling found that less than 40% of Americans keep track of expenses and about one-third do not know where to turn for financial advice. Someone needs to be calling on these folks! 

GROUP DI SALES UP - Group short- and long-term disability inforce premium grew to more than $12 billion in 2006, up about 7% from 2005.  On the subject of disability, the Life and Health Insurance Foundation (LIFE) is launching its first Disability Insurance Awareness Month in May.  The effort is intended to "teach consumers about the risk that an illness or injury could wipe out their income."