© Copyright 2007
US FlagJune 1, 2007 Edition


NASD WATCHING "MERRILL RULE" SITUATION - When courts invalidated the SEC's "Merrill Rule," which exempted fee-based brokerage accounts from the Investment Advisers Act of 1940, many institutions found themselves in a "gray" compliance situation. It may not be gray long, as the NASD is closely monitoring the industry. Critics of the broker-dealer rule say it created differing regulatory coverage for fee-based accounts, depending on whether they were set up as brokerage accounts or advisory accounts.  In a recent speech, NASD vice chairman Doug Shulman called for a "harmonized approach" to investor protection, providing investors with choices in how they invest, and the "same basic protections" regardless of what type of product investors own.

MORE ON MERRILL RULE – The SEC won't appeal a federal court decision that blocks its governing of brokerage fees, so it is back to the drawing board. They will need to rapidly come up with rules for fee-based brokerage accounts, which had grown increasingly widespread. Investors in fee-based brokerage accounts now pay an average annual fee of 0.99% on their assets and an alternative account — one for which the broker is acting as an adviser with fiduciary duties — could charge average fees of 1.05%. Looks like the investor may pay more unless an alternative is developed.

EVEN MORE MERRILL - Brokerage firms, preparing to transition existing customers into alternative fee programs, are putting the freeze on new fee-based brokerage accounts. As a result of the court decision, assets in fee-based brokerage accounts must be moved to either an advisory account or a traditional commission account.

NAILBA (AND OTHERS) FOR OPTIONAL FEDERAL CHARTER - The National Association of Independent Life Brokerage Agencies has thrown its support behind the National Insurance Act of 2007. The Act establishes an Optional Federal Charter (OFC) under which insurers operating under multiple state jurisdictions could choose to be regulated at the national level under an OFC.  Makes sense to us.
 
SEC CHANGES SOX – The SEC has relaxed the rules in the Sarbanes-Oxley Act to make it easier for businesses to check their financial records. Many have felt that onerous U.S. compliance requirements have made us less competitive in international markets, although some studies have been done that do not support this. Regardless, companies will now be allowed to comply with the law by foregoing extensive checks and instead identifying the largest risks to their books.

GREENSPAN GONE BUT NOT FORGOTTEN - As Chairman of the Federal Reserve Board, Alan Greenspan's words were carefully evaluated and had an immediate effect on the financial industry.  He may not be the Fed chairman any more, but his comments can still affect the market. He has also recently taken a job with Pimco, Allianz SE's Pacific Investment Management Company.  For more insight, check out the MarketWatch article, "Greenspan unavoidable for comment."

EVEN BIGGER WALL STREET BONUSES PREDICTED - Johnson Associates predicts that bonuses on Wall Street this year may be up 20% or more. Private equity managers can expect even more and investment bankers should expect their bonuses to exceed last year's by 10% to 15%. You really have to wonder what these folks are adding to our economy to warrant these "big bucks."

NOW FOR THE REALLY BIG BUCKS...HEDGE FUND MANAGERS - Alpha magazine has released its annual list of the highest paid hedge fund managers. James Simons was at the top of the list, earning $1.7 billion, which equaled the amount of money that the federal government spent last year running its vast network of national parks. Down at No. 3 on the list, Edward S. Lampert, the investor who owns a large chunk of Sears, made $1.3 billion, which, if you forget about taxes, would have allowed him to buy the entire economic output of Sierra Leone. My goodness!

APPALLED - Referring to Wall Street compensation, ex-Goldman Sachs co-chairman John Whitehead said in an interview, "I'm appalled at the salaries."  Referring to his former firm, Mr. Whitehead said, "They're the leaders in this outrageous increase."  For another perspective on money, here's a conversation that Joseph Heller, author of the novel Catch 22, is reported to have had with Kurt Vonnegut at a party given by a billionaire on Shelter Island:
I said, "Joe, how does it make you feel to know that our host only yesterday may have made more money than your novel Catch 22 has earned in its entire history?"
And Joe said, "I've got something he can never have."
And I said, "What on earth could that be, Joe?"
And Joe said, "The knowledge that I've got enough."
Attention Insurance and Financial Advisors!

It is not often that you get a sales idea that can change your life! What if there was a way to:
  1. Eliminate most of your travel time (and the nerve-racking driving!),
  2. Dramatically reduce transportation costs,
  3. Reduce evening activity, and
  4. Shorten the sales cycle.
Click here to learn how!!

Attention Wholesalers, BGA's, GA's and Trainers!
  • If you are not conducting Webinars for your producers, you are losing money!
  • If you are conducting Webinars for your producers and not using Gatherplace, you are losing money too!
Please check out www.gatherplace.net/?r=fsonline for a free trial to see how inexpensively and simply you can use the Internet to inform, train and even recruit producers. If you have needs beyond the standard packages quoted, please contact Fiona Streckler at fiona@gatherworks.com.

MARKET MERGE – NASDAQ is set to buy the Swedish exchange, OMX, for about $3.7 billion.  The deal will give NASDAQ a beachhead for more European deals, including another run at buying the London Stock Exchange.

UBS BUY BACK - UBS, currently the world's largest money manager, will sell about $3.3 billion of its holdings in Julius Baer and use the proceeds to buy back stock. Julius Baer's stock climbed 34% on speculation that the Zurich-based company might be a takeover candidate.

ALLIANZ ANNUITY CLASS ACTION LAWSUIT - A federal judge has certified a pending class action lawsuit against Allianz that could include 400,000 claimants.  The lawsuit charges that Allianz fraudulently marketed some of its most widely sold annuity products, specifically equity-index annuities.  More information on the lawsuit is available here. 

LEGAL COLD WAR – Is this what Khrushchev meant about the United States falling from within? The Bank of New York was hit with a lawsuit from Russia demanding $22.5 billion (more than two thirds of the bank's market capitalization) in damages over an alleged money-laundering scheme. The Russian claims stem from a $7 billion money laundering scheme by Lucy Edwards, a former BoNY VP, and her husband. The husband-and-wife team pleaded guilty and served six months of house arrest.

PRINCIPLE-BASED REGULATIONS – We are hearing a lot about this new direction for regulating the financial industry and we hope to hear a lot more.  Marc Lackritz, CEO of SIFMA testifying before the Senate said, "A principles-based approach to regulation involves a regulator moving away, where possible, from dictating how a firm should reach a desired regulatory outcome. This approach considers first whether firms, supplemented by guidance as appropriate, could assume the responsibility to achieve the desired outcomes in the context of their business processes and existing supervisory obligations.  We suggest that a paradigm whose foundation is more clearly based on principles and the achievement of outcomes tied to those principles may better serve investors, the markets and its constituents."

HEALTH COST "ONLY" UP 8.4% - Milliman says the typical family health cost will increase only 8.4% in 2007 over 2006. I suppose that's some consolation, but the typical family of four will still spend $14,500 on medical care.  A new Watson Wyatt survey found that rising health care costs are taking a toll on U.S. workers, both financially and in terms of increased stress.  Click here for more information on the survey. 

NASD FINES DOWN – The NASD collected only about half as much in fines in 2006 as it did in 2005. In 2006, the self-regulatory body levied $75 million in fines, down from $148.5 million in 2005. Big drop was in the "block buster" fines. Unfortunately, the number of customer complaints grew to 5,671 in 2006 from 5,137 in 2005, a 10% increase.

CREDIT RATING FIRMS AND THE SEC – As congressional pressure continues, the SEC is set to decide on their role in regulating credit-ratings firms.  The SIFMA has called for an approach that would give rating firms "complete freedom" in issuing ratings, but require them to justify any notching of competitors' ratings.



VSA...The Most Comprehensive
Sales Tool Ever!
Don’t take our word for it, click here to see what some of our
10,000 subscribers are saying and go to the Table of Contents for proof.
 
Now get a free personal Website just for subscribing to the VSA!
 
Virtual Sales Assistant (VSA) has been described as an interactive library, but it is much more than that. It is truly a very knowledgeable assistant that can put virtually everything you need to operate a financial practice at your fingertips. Your Assistant is available to you on any computer, anywhere in the world and is on call 24/7/365. Some specific products and services include:
 
     Personal Websites
     E-newsletters
     Lead generators
     Dozens of prospecting ideas
     Hundreds of "One-pagers"*		      Scores of presentations*
     Retirement calculators*
     Education calculators*
     Estate calculators*
*Personalized for you and your client

All this and the price is no more than $21.95 per month (discounts may apply), no annual contract and there is a 30-day “free look.”

Check out the more than 60 VSA Sales Ideas. Take advantage of the VSA’s 30-day “free look,” use just one of the ideas and the VSA will pay for itself!
 
IRS ENFORCEMENT - According to The Kiplinger Tax Letter, expect to see the IRS step up its enforcement activities.  Enforcement targets are expected to include sole proprietors, S corporations and partnerships, gamblers, "hobby" farmers, Schedule A itemized deductions, earned income credits and capital gains.  Other parts of the effort to close the tax gap, estimated at around $300 billion a year, will include additional reporting requirements, higher penalties on users of abusive tax shelters and systems to spot compliance problems faster.

LTC NOT GETTING TLC – According to MarketWatch, insurers are having a tough time convincing Americans to buy insurance that could cover the costs of health expenses, home health aides, assisted-living facilities, nursing homes, etc., but that "may change as insurers revisit the way they sell LTC insurance. Instead of focusing on the odds of Americans' needing long-term care and the risk of not having LTC insurance, insurers will soon 'help' buyers see and smell the consequences of not owning the product." Well, that's one opinion but there are others.

ONE PROBLEM WITH LTC - A congressional committee has launched an investigation into allegations that "unusually high numbers of policyholders have complained of improper denials of valid claims" by Conseco and Penn Treaty, two major providers of long-term care insurance. That certainly doesn't help public confidence in the product.

LTC, ANOTHER TAKE – A John Hancock survey reports that, according to agents and brokers, consumer interest in long term care insurance is growing.  Nearly 90% of the MDRT members queried said they have seen an increase in consumer interest in LTCI over the last few years. Further, 98% agreed that LTC insurance is a "vital part of a complete financial plan."

MEDICARE ADVANTAGE - The issue of the higher costs of Medicare Advantage fee-for-service plans isn't going away.  The estimates we've seen claim that Medicare Advantage plans cost from 15% to 19% more than traditional Medicare.  The industry defense for the higher costs is that these plans provide more benefits than traditional Medicare.  Congressional hearings continue. 

ANNUITY-LIKE FUNDS FROM FIDELITY - The latest idea from Fidelity Investments comes in the form of a number of Income Replacement Funds, for which the firm is now seeking regulatory approval. This group will consist of 11 funds maturing in two-year increments from 2016 to 2036. So, investors commit principal that they will receive back at a predetermined date based on the fund they choose. Similar to an annuity, the funds offer a monthly dividend that Fidelity pays from earned income and appreciation of underlying assets

LIFE INSURANCE TUNE-UP- Today's cars indicate when it's time for service, so why not do the same for life insurance policies? That is the inspiration for Planned Performance Tracking from Pac Life. This new web-based system uses state of the art technology to deliver automated reminders, completed inforce illustrations, no lapse calculators and a host of tools to insurance professionals selling the companies' life insurance products.

DE-CLUTTER YOUR FINANCES - Bankrate.com reports that "finding a path through financial clutter may not be easy, but the results will soothe your nerves.  Financial instruments and vehicles accumulate over the years like single buttons and paperclips in the kitchen junk drawer." De-cluttering forces you to prioritize, can help you understand what you have and whether it will be enough to live on after you retire, help ease these worries because it forces you to become familiar with all your resources and helps your loved ones in the event of death or disability.
 
DE-CLUTTER YOUR CLIENTS' FINANCES – That is easy with the VSA Financial Workbook. A 14-page booklet that helps clients organize the eight most important parts of their financial lives. Get copies free by going to Bill O'Quin's VSA Website at http://finsecurity.com/boquin and click on Financial Worksheets.  Now, if you would like to be able to personalize these Workbooks and e-mail them directly to your clients AND have a Website like Bill's, just go to http://vsa.fsonline.com and sign up for the VSA Professional...the first month is free and you'll have the above resources plus the "most comprehensive sales support tool in the industry." Cost is only about 20 bucks a month. You owe it to your career to check it out!

AMERICAN DREAM NOT DEAD – Some in the media are telling us that the American dream is dead, but a recent USA Today article put the class warfare story we often hear in a different light. "The growing divide between the rich and the poor in America is more generation gap than class conflict."  As baby boomers reach their peak earning years (age 57 to be exact) and head into retirement, the scale is tipping in their favor.  "Inequality within age groups hasn't changed much. People in their 30s or 60s have roughly the same wealth distribution among themselves as in 1989. What's changed is inequality between age groups. The implications are far-reaching and can turn conventional wisdom on its head." That "conventional wisdom" has focused on the top 1% of taxpayers, such as high-paid CEOs and hedge fund managers, and has produced countless class-warfare stories of rich vs. poor.

BUT THE RICH ARE RICHER – According to a Phoenix study, 81% of U.S. millionaires say they are wealthier now than they were in 2006.  Also, 60% said they may never fully retire due to concerns about future health care or long term care expenses. Bet they were all old!

SS AND MEDICARE SHORTFALL – USA Today also points out how we rich old folks are taking from our younger citizens. "Social Security and Medicare increasingly are functioning as a transfer of money from less affluent young people to much wealthier older people" and the two programs' shortfalls over the next 75 years amount to $340,000 per household.

MONEY MARKET RECORD - Money Fund Report says that money market total assets have reached a record $2.454 trillion. Institutional investors contributed $14.72 billion and individuals added $6.64 billion to reach this total.

CHARITABLE SETTLEMENTS? - Barry Kaye is a big-time insurance producer, but the following articles on some of his charitable giving ideas are not producing good PR for Barry or the industry: 
Who knows what is right, but if this allegation is true, something ain't right..."The 20-page complaint claims Howard Kaye and Barry Kaye Associates earned $800,000 in commissions although it had "nothing to do" with a transaction in which a 73-year-old woman was paid $968,832 for two insurance policies worth $19.4 million."

2008 HSA LIMITS - The IRS has released the cost-of-living adjustments for Health Savings Accounts for 2008.  They're available at www.irs.gov. 

RETIREMENT AGE REGS - The IRS has issued a final rule dealing with allowing older employees to start collecting pension benefits while working past the normal retirement age.  The final rule is available here. 

MORE ADVICE FOR THE YOUNG – Largely ignored by the financial planning industry because of a lack of wealth, investors in their 20s and 30s are staging a comeback. Many companies are beginning to target this group. Reason: 401(k) plans and property acquisitions.

BIGGER BETTER AGAIN – The returns of exchange-traded funds show that the stocks of big companies might be catching up to the explosive growth over the last six years of small-cap companies. Word to the wise...this growth in the big caps is expected to continue.

$10 GAS? - While that might be high, $5 to $6 a gallon or more is not out of the question, according to an A.M. Best special report.  U.S. refinery capacity is already having trouble meeting demand for gasoline.  In addition, much refinery capacity and offshore drilling is located in a fairly compact geographical area.  A large hurricane hitting the Houston/Galveston area through the northern Gulf "would dwarf energy industry disruptions from Katrina and Rita.  Forty percent of U.S. refinery production could be shut, as well as nearly all offshore production facilities.  In the short term, a spike in gasoline prices proportionate to that seen as Katrina targeted the Gulf and made landfall would take the national average for all grades within striking range of $5 a gallon.  In a protracted disruption to supplies, $6 a gallon or more would not be out of the question."

MUNI TAXATION - Because of conflicting rulings from state courts, the Supreme Court has agreed to hear a case that could impact the tax-free status of municipal bonds.  The case will be heard in the next term, which begins in October 2007.

COMSUMER DIRECTED, AGENT LED – According to an article for NALU, the future of health care may be in the agents' hands. Check it out at nahu.org.

CHINA IN PRIVATE EQUITY - China will invest $3 billion in Blackstone Group, the private-equity firm that is planning an initial public offering. Apparently China hopes for greater returns on its $1.2 trillion of foreign-exchange reserves. Is this an amazing world or what?

HOME SALES EQUAL NO INTEREST RATE CUTS – The boom in new home sales and other indicators of a growing economy have "lowered the boom" on the possibility of interest rate reductions in the near future. Blowing past expectations, sales of new homes skyrocketed in April to 16.2%. Economists had forecast a gain of just 0.2%. Those gains came at a price to sellers, however: the median price of a new home fell 11.1%, to $229,100.

AMERICAN COLLEGE ALUMNI - In just one year, The American College Alumni Association has grown to include 18,000 registered members.  That is an impressive feat, but we hope many of them are also maintaining their affiliation with the Society for Financial Service Professionals.

WEIRD INSURANCE - Let's close this issue with a link to an Investment News article, "Antidote to alien impregnation? Insurance."  It's something of an eye opener to read about the various types of insurance protection actually available...if you have a client concerned about being injured by a ghost or being hit by an asteroid, read the article!