FSO E-NEWS WEEKLY




 
 
 
 
 
 
 
 
 
 

 

 

 

 

 

 

 
© Copyright 2007
US FlagJune 15, 2007 Edition


REVISED ETHICAL STANDARDS - The CFP Board of Standards has adopted a revised version of the Standards of Professional Conduct that apply to the some 54,000 CFPs.  The biggest change requires that a CFP "at all times place the interest of the client ahead of his or her own."  The revised standards also state that CFPs who provide financial planning services do so with the duty of care of a "fiduciary" ("one who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client").  The new standards go into effect on July 1, 2008.  Click here for side-by-side comparisons of the current and updated standards (scroll to the bottom of the page). 

SAVING BILLIONS - An analysis published by the American Council of Life Insurers claims that giving life insurers the option to choose between state and federal regulation could cut their annual regulatory costs by an estimated $5.7 billion.  Those estimated savings come from eliminating duplication of compliance costs, such as licensing fees.  For more on the ACLI's position on an optional federal charter, click here.

MEDICARE REFORM OPTIONS - With the Medicare trust fund now predicted to be depleted in 2019, the American Academy of Actuaries has issued a report outlining potential Medicare reform options.  The options include increasing the Medicare payroll tax, making the Medicare payroll tax progressive, increasing Medicare funding from general revenues, increasing beneficiary premiums and out-of-pocket costs and/or investing Medicare trust fund assets in stocks.  Another option is to increase the Medicare eligibility age from age 65 to age 67 or 70.  A copy of the report is available here. 

FAIL SAFE BACK-UP FOR WALL STREET – The NYT is reporting that Pennsylvania and New York states are vying for back-up locations for Wall Street in the event of a disaster. Pennsylvania plans to build a $24 million fiber-optic network connection between New York and northeast Pennsylvania.  The area, which is being promoted as Wall Street West, is 100 miles from Manhattan and outside of a theoretical nuclear blast zone. That's a cheery thought! 

STATE RESULTS - According to the nonprofit Commonwealth Fund, where people live makes a big difference in health care outcomes.  The report found a strong link between access to health care coverage, particularly insurance, and high quality care. The top five ranked states were Hawaii, Iowa, New Hampshire, Vermont and Maine, of which Hawaii, Vermont and Maine are moving toward total coverage.  The five worst-performing states were Oklahoma, Mississippi, Texas, Arkansas and Nevada.  On average nearly 90 percent of working-age adults have insurance coverage in the top five states, versus roughly 75 percent adults insured in the bottom five states.

WACHOVIA/A.G.EDWARDS - Wachovia is buying A.G. Edwards for some $6.8 billion in cash and stock.  When the deal closes (likely late this year), A.G. Edwards will be merged into Wachovia Securities, creating the second-largest retail brokerage in the U.S.  A little history:  Albert G. Edwards was appointed assistant secretary of the Treasury by Abraham Lincoln and served in that capacity under five presidents until 1887, when he formed A.G. Edwards together with his son.

WACHOVIA/PRUDENTIAL - When Wachovia acquired Prudential Securities in 2003, the deal was a joint venture, with Wachovia owning 62% of Prudential Securities and Prudential retaining a 38% stake.  Wachovia's purchase of A.G. Edwards means that Prudential, which is reported to have proposed the A.G. Edwards deal, will need to make a decision on the level of ownership they want to retain in the new Wachovia Securities.  If you're interested, The National Underwriter has an article outlining Pru's options. 

SPEAKING OF PRU - Prudential Financial is shutting down its institutional stock research and trading business, "ending a rocky 26-year stay on Wall Street."  The company is essentially admitting that the research and trading markets business is not an area in which Prudential has achieved success.

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SWEEP PROGRAM LAWSUIT - According to Investment News, "Merrill Lynch, Morgan Stanley, Smith Barney and Charles Schwab are being sued for allegedly illegally forcing clients into lower paying deposit account, enabling the firms to reap 'billions' in extra profits."  Wachovia Securities may be added to the suit.  The contention is that the sweep accounts pay less than market rates, with the firms reaping the profits.  For more detail, check out the Investment News article. 

NASD HITS CITIGROUP FOR $15 MILLION - The NASD has fined Citigroup $15 million for using purposefully misleading materials in retirement seminars and meetings. One of the documents showed a hypothetical 53-year-old employee would earn more than $1.8 million on a $300,000 investment and could withdraw between $27,000 and $69,000 every year and still have roughly $770,000 in principal left 30 years later, at age 83. A couple of important points here if you are an OJC or a compliance officer:

  • This was for misleading numerical projections.
  • Numerical and suitibility issues constiture virtually all of advisor level compliance problems and very few, if any, compliance issues result from generic sales ideas.

Why not do your producers a huge favor and provide them with thousands of generic and NASD reviewed sales ideas from the VSA?  Did I mention that the VSA is only about 20 bucks a month with substantial discounts for broker-dealers, companies and MGAs? Subscribe to the VSA at http://vsa.fsonline.com or e-mail boquin@fsonline.com for details!

MAKE WAY FOR MORE M&As – Standard and Poor's reports that mergers and the battle to maintain market share will dominate the agendas of many life insurers over the next 12 to 18 months. Pushing the trend is that smaller life insurers are finding it difficult to maintain market share without resorting to aggressive pricing and many are having difficulty obtaining shelf space with distributors. Expect a continued "foreign invasion" from AGEON, Great-West and others.

MERGERS AND CEO MONEY – In a Journal of Finance study, CEOs of companies that make acquisitions make money even if the acquiring company's shareholders lose money.

MORE ON 12b-1 FEES – The SEC review of 12b-1 fees is not likely to result in elimination of the fees, but more likely a reform. Concern centers on mutual fund companies using the fees to pay brokerage commissions.

BROKERS VOTING - As shareholders raise concerns over executive pay and corporate governance, some are questioning the current regulation allowing shares not voted by shareholders to be voted by the brokers who hold those shares. Despite rhetoric, shareholder activists have failed to persuade many investors to cast even symbolic votes against management on compensation issues.

HEALTH CARE AND AUTOMAKERS - GM, Ford and Chrysler begin formal wage and benefit negotiations on a four-year contract with the UAW next month.  Expect the cost of health care and life insurance benefits to be a priority in the negotiations.  The Detroit automakers have unfunded liabilities of $47.4 billion for GM, $25.9 billion for Ford and about $17 billion for Chrysler.  The UAW would prefer to address the spiraling cost of heath care through an overhaul of national health care policy.  It's unlikely the automakers, however, can afford to wait for the legislative process to address the problem.

FPA OKAY - The FPA has said it will not oppose the SEC's request for a delay in enactment of the broker-dealer rule regarding fee-based brokerage accounts.  The SEC has asked the D.C. Court of Appeals for an October 1 effective date.  While agreeing to October 1, the FPA also made it clear that it would not support a series of deadline extensions.  On the other hand, SIFMA (Securities Industry and Financial Markets Association) has indicated it doesn't feel that an October 1 deadline is sufficient time to transfer about one million accounts out of fee-based brokerage programs.

POTPOURRI - Inflation appears to be heating up, which means that the Federal Reserve probably won't be cutting interest rates this year.  Mortgage foreclosures continue to climb...up 90% in the last year (up 19% between April and May alone).  Foreclosures are adding to the downward pressure on home prices in many parts of the country.  Long-term bond rates remain low by recent historical standards.  The FDIC and the Fed are at odds, with the FDIC wanting regulators to ban certain high-risk credit practices, while the Fed is concerned that excessive regulatory action could block access to credit.

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BENEFITS OVERHAUL - Under a proposal from the ERISA Industry Committee, made up of some of the largest U.S. employers, health care coverage and retirement plans for American workers would be delivered by third-party administrators, such as banks, insurers and investment companies.  While employers would continue to fund the benefits, they would pool their purchasing power and outsource administrative functions to realize cost savings.   The National Underwriter points out that the proposal, if adopted, "might affect the role of many current health insurance agents and benefits brokers."  More information on the proposal is available at www.eric.org. 

KIDDIE TAX CHANGE - With the capital gains tax for the two lowest ordinary income brackets scheduled to go to zero in 2008 (from 5% this year), Congress has closed a potential kiddie tax windfall.  Currently, investment income above $1,700 for a child under the age of 18 is taxed at the parents' tax rate, assuming the parents' tax rate is higher than the child's.  The age limit has been expanded, effective with the 2008 calendar tax year, to under age 19, or under age 24 if the child is a full-time student.  The expanded age provisions apply only to children whose earned income does not exceed one-half of the amount of their support.  This effectively closes the loophole that would have allowed the transfer of appreciated assets this year to children who would have been 18 or older next year and could have realized a zero capital gains tax on the sale of the assets.

MET'S TIPS ON "THE TALK" – Many baby boomers have already had "the talk" about finances with their children, but have been reluctant to do so with their aging parents. MetLife Mature Market Institute suggests that some of the topics that should be covered are paying for long-term care and setting up powers of attorney, and offers strategies for starting a productive discussion.  Click here to review the publication. 

VSA'S TIP ON "THE TALK" – The VSA (http://vsa.fsonline.com) has a great generic presentation on long term care. Why not prepare one for your parents and give them a copy to review at their leisure? Very eye-opening with no pressure on your parents. How about preparing one for your boomer clients' parents? Did I mention that the VSA has a 30-day free look and is only about 20 bucks a month?

HEDGE FUNDS STILL RISKY - The U.S. Treasury is concerned that investors had been lulled into a sense of complacency after the relative lack of fallout from last year's multibillion-dollar losses at hedge fund Amaranth. "We must be humble enough to realize a systemic risk in the financial markets cannot be discounted."

AFFLUENT SECURE BUT MANY DON'T HAVE ADVISORS – Phoenix reports that although most millionaires feel that their wealth is "extremely secure," many still don't have a financial advisor...about 34% of millionaires of all ages don't have a primary financial adviser.

MUTUAL FUNDS LOSE CLOUT – The Wachovia and A.G. Edwards merger will create the nation's second-largest retail brokerage firm, with nearly 15,000 advisers and $1.1 trillion of client assets. According to Putnam, the acquisition also will increase the leverage big brokerage firms have over fund companies trying to reach brokerage firm advisers. "If there's one less distributor, does that make the wirehouses more powerful when it comes to pricing? When it comes to dictating what fund companies need to do? The answer is yes. You took two 800-pound gorillas and put them together."

BOOST THEIR TAXES - Robert Rubin, former Treasury secretary and current chairman of Citigroup's executive committee, feels that hedge fund managers and private equity partners should be paying more than double their current tax rate.  These money managers receive a 20% fee based on the profits earned, which is currently taxed at the 15% capital gains rate.  Mr. Rubin, who was expressing his own views and not those of Citigroup, feels the 20% fee is received for providing a service and, as such, should be taxed as ordinary income.  It appears that Mr. Rubin's sentiments are at least partially shared by the Senate, as bipartisan legislation has been introduced that would curtail use of the 15% capital gains rate on the share of income that investors receive from publicly-traded partnerships.  Instead, all publicly-traded partnerships that derive most of their income from managing the assets of other people would be taxed as corporations after five years.

HYBRID POLICIES - Both AXA and Hartford are offering a rider that adds LTC coverage to their variable universal life policies.  The rider, which accelerates the death benefit and makes it available to pay LTC expenses, costs about 20% of what a separate LTC policy would cost.  Concerns raised about this approach include adding one complicated product - LTC - to another complicated product - VUL.  Then there's the issue of the life insurance policy lapsing and the client being left without either life insurance protection or long-term care insurance protection.

I AM DEAD FILE – In essence this is a "Read This If I Am Dead" file providing a living, loving and constantly evolving book for my family. You can use the topics provided below as a guide or you can download the VSA Financial Workbook on my site at http://finsecurity.com/boquin. Oh, did I mention that you can have a Website just like mine and prepare personalized Financial Workbooks for your clients for only about 20 bucks a month? Subscribe to the VSA at http://vsa.fsonline.com.  
  • Lists all our accounts and assets, including our home, credit cards and insurance policies, with a basic description, account numbers and contact information, including passwords when required.
  • Identifies individuals and organizations to be contacted when I die (for example, professional advisers and the Social Security Administration). 
  • Tells where our important documents are, including insurance policies, birth certificates, Social Security cards, wills, living wills, health-care proxies and our final wishes for simple and inexpensive funerals.
  • Gives information on matters that may seem trivial, but could cause needless frustration in times of grief, such as how to run the sprinkler system.
  • And going beyond cold facts, this document allows me to write a personal farewell to my loved ones and my wish they continue to lead full, happy lives as the best way to honor my memory.
WORKSITE SALES UP REMARKABLY - Eastbridge Consulting reports that worksite sales of voluntary employee benefits rose to more than $4.7 billion in 2006, up 8% from the 2005 total...in the previous three years, annual worksite sales growth rates ranged from 1% to 3%. Aflac has the largest market share  at about 31%.

MDRT BOOMER SITE – MDRT has new information on its "boomer site" at http://www.boomertirement.com about ways to help the baby boomers cope with retirement, including video recordings of recent seminar sessions.

HEALTH ACCOUNT DISSATISFACTION - A new Towers Perrin report indicates that HSA and HRA owners are considerably less satisfied with their coverage than are users of traditional managed care plans.  More information on the report is available at www.towersperrin.com.

SEC TO POST EXECUTIVES' COMP – In the near future, the SEC will make it easier to analyze top corporate executives' retirement benefits by posting an "executive compensation viewer" on its Website.

BANK BROKERAGE REVENUE – According to LIMRA, the average financial advisor in a community bank produced gross sales commissions of $16,692 per month during the first quarter. Including trailer and advisory fees from managed money, average productivity per financial advisor was $21,794. Breakdown: VAs, 29%; FAs, 6% and mutual funds, 28%.

FA SALES DOWN – Beacon Research reports sales of fixed annuities fell to about $14 billion in the first quarter, down 18% from the total for the first quarter of 2006. Indexed annuities accounted for $5.6 billion, immediate annuities accounted for $1.4 billion in sales, market-value-adjusted (MVA) annuities accounted for $1.7 billion. Of significance is the MVA sales increase of 71% from the first-quarter 2006.

BOND YIELDS AT 5-YEAR HIGH - The sell-off of Treasury notes has pushed U.S. bond yields to a five-year high of 5.248%, up from 5.154%, while also pushing the major U.S. stock indices down.

LTC PARTNERSHIPS - The Government Accountability Office (GAO) has concluded that LTC partnership programs offered by states probably will not result in Medicaid savings.  Why?  It turns out that most of the people who purchase the partnership coverage have income and asset levels high enough that they would be unlikely to eventually become eligible for Medicaid.