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 July 1, 2006
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The
cause of
America is in a great
measure the cause of all mankind.
Thomas
Paine, Common Sense, 1776
Citizens
by
birth or choice of a
common country, that country has a right to concentrate your
affections. The name of American, which belongs to you, in your
national capacity, must always exalt the just pride of Patriotism, more
than any appellation derived from local discriminations.
George
Washington, Farewell Address,
September 19, 1796
Every
government degenerates when
trusted to the rulers of the people alone. The people themselves,
therefore, are its only safe depositories.
Thomas
Jefferson, Notes on the State of
Virginia, Query 14, 1781
The
fabric of
American empire ought
to rest on the solid basis of THE CONSENT OF THE PEOPLE. The streams of
national power ought to flow from that pure, original fountain of all
legitimate authority.
Alexander
Hamilton, Federalist No. 22,
December 14, 1787
They
that can
give up essential
liberty to purchase a little temporary safety, deserve neither liberty
nor safety.
Benjamin
Franklin, Historical Review of
Pennsylvania, 1759
America
united with a handful of
troops, or without a single soldier, exhibits a more forbidding posture
to foreign ambition than America disunited, with a hundred thousand
veterans ready for combat.
James
Madison, Federalist No. 14,
November 30, 1787
Government
is
instituted for the
common good; for the protection, safety, prosperity, and happiness of
the people; and not for profit, honor, or private interest of any one
man, family, or class of men; therefore, the people alone have an
incontestable, unalienable, and indefeasible right to institute
government; and to reform, alter, or totally change the same, when
their protection, safety, prosperity, and happiness require it.
John
Adams, Thoughts on Government, 1776
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NASD STILL LOOKING AT INSURANCE
-
The NASD continues to ask for more "clarity" (read, involvement) in the
oversight of insurance products...annuities in specific. This from NASD
CEO, Robert Glauber: "The degree of protection that investors get when
buying annuities is far from equal. For example, sales of variable
annuities are covered by extensive suitability rules, but the sales of
fixed annuities are not. These disparities are indefensible, and the
only way to erase them is for the various regulators to work together
on harmonizing the rules covering the three annuity types. NASD
recently took the first step in this direction by convening a summit
meeting of securities and insurance regulators to start discussing how
to achieve this goal."
BIG
GIFTS
– Warren Buffett, the Oracle of Omaha and Chairman of
Berkshire Hathaway, announced that he will give away about 85% of his
estimated $44 billion to various charities with the bulk going to going
to the Gates Foundation...created and soon to be run by Bill Gates.
Somewhat upstaged by Buffett's announcement, Sandy Weill, former
Citigroup chairman, pledged to give away all of his estimated $1.4
billion net worth as part of a "deal with God." Regardless of
motivations, these are truly great decisions by some of the wealthiest
people in the world. Maybe Bill Gates' generosity got them to realize
that "there are no trailer hitches on hearses." On a more
general
note, the Giving USA foundation released a report estimating that
Americans gave $260.28 billion in 2005, an increase of 6.1% over the
previous year. The increase in giving appears to have been
fueled
by three major natural disasters -- the tsunami in Asia, earthquake in
Pakistan and hurricanes Rita, Katrina and Wilma.
LET'S
HAVE LUNCH
- Reports are that an unidentified bidder has agreed
to pay $620,1000 to have lunch with legendary investor Warren Buffett,
the second-richest man on earth. The auction, held on eBay, raises
money for the Glide Foundation, a nonprofit group that serves the poor
and homeless in San Francisco.
GRASSO
AND THE FIFTH
– Removing any doubt that many tycoons in
the financial industry are becoming thieves and "white collar
mobsters," former NYSE chairman Richard A. Grasso invoked the Fifth
more than 150 times in a deposition about whether he urged traders to
shore up AIG stock prices while he was head of the NYSE. Same guy that
New York State is suing over the $189.5 million pay package he received
from a "not-for-profit" organization.
I
PLEDGE ALLEGIANCE
- Merrill Lynch is questioning some of its top producers about their
commitment to the firm and if they have considered moving to competing
firms. Merrill is asking some to sign loyalty oaths. Wonder if it
contains, "Under God."
BUSH
DEFENDS
SURVEILLANCE – After the New
York Times elected to print classified documents about the
operations of a heretofore secret banking surveillance program,
President Bush declared the secret monitoring of international banking
records of potential terrorist supporters as legal and chastised the
media for disclosing the program.
SEC,
INDENTY THEFT
AND HYPE – The SEC has begun a series of checks
of
broker-dealers, investment advisory firms and mutual fund companies to
assess their vulnerability to identity theft. At the same time, many
experts are saying that the "identity theft crisis" may be more "hype
than harm."
SEXISM
AT MORGAN
STANLEY? - Morgan Stanley is facing a class action sex
discrimination suit brought by female brokers who were employed at the
firm from August 2003 to the present. We at least hope there are some
female attorneys on the legal team pursuing Morgan.
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ALLIANZ
CUTS - Allianz plans to cut
about 7,500 jobs from its German operations as part of a restructuring
it began last year. That represents about 4% of its worldwide
workforce, but the American insurance arm is not expected to be
affected. Allianz is currently the number one seller of annuities in
the U.S. In other employment-related news, UBS announced that
it
will be outsourcing data processing and information technology
infrastructure to India.
BILL
CLINTON TO SPEAK AT LIMRA -
LIMRA will have former President Bill Clinton as its keynote speaker at
the group's 2006 annual meeting on Oct. 29-31 in New York. The theme of
the meeting will be "It's Time To Shine," and sessions will focus on
how insurance and financial firms can serve the financial needs of baby
boomers who are approaching retirement. Clinton is an appropriate
speaker for the meeting because he is the first baby boomer to be
elected president, LIMRA says. Make your reservations early!
SENATE
APPROVES PAULSON –
Facing "softball questions" at his hearing, the Senate approved former
Goldman Sachs chairman Henry M. Paulson Jr. to serve as U.S. Treasury
secretary. Paulson will sell his shares in Goldman
Sachs to
avoid any conflict of interest. We are sure that has him "crying all
the way to the bank." At the same time, Nicholas Burns, a top State
Department official, is resigning to join Goldman Sachs as a vice
chairman.
UNIFORM
REGULATIONS
- Speaking at a Congressional hearing on behalf of the American Council
of Life Insurers (ACLI), David Gates, general counsel at Generali USA
Life Reassurance Company, Kansas City, Mo., made the argument that the
current 50-state system for regulating the U.S. life reinsurance
industry needs to be replaced. The hearing was convened to
look
at H.R. 5637, a bill that would create a uniform regulatory system for
surplus lines insurance and reinsurance. The ACLI supports
H.R.
5637, but it also continues to support broader proposals to let
insurers choose between state regulation and federal regulation, Gates
said.
EXECUTIVE
PENSIONS – A WSJ article
indicates that as much
as 8% of some companies' total pension obligations can be attributed to
executive pension obligations. Additionally, some companies have
accumulated more than $1 billion in obligations and the pension
shortfalls in companies are due entirely to the unfunded liabilities of
executive pension plans.
UNIONS
NEXT FOR
SPITZER - Attorney General Eliot Spitzer's office reached
a
settlement with the New York State United Teachers union following an
investigation. His office determined that the union's member benefits
unit was receiving payouts of as much as $3 million a year for its
coffers from ING and its predecessor Aetna and wasn't disclosing the
information to members. Bet you see more of these.
HEALTH
CARE MAY
BANKRUPT STATES - Starting in December, a new accounting
rule
(GASB 45) will require that states publicly disclose the cost of health
care benefits promised to teachers, police officers and other public
sector workers who are retired or will retire in decades to come.
Standard & Poor's says the numbers will be scary and the states
will have to find enough to money to cover the liabilities or risk
hurting their credit rating. The total state and local governments may
face in unfunded liabilities for retiree health care benefits will be
at least $500 billion. That figure exceeds the estimated $300 billion
that states will owe in funding retiree pensions. "The size of this
liability [for retiree health benefits] may astonish the public and
most government officials."
FEDS
JUMP RATE TO
5.25% - The Federal Reserve increased interest rates to
5.25% in
its seventeenth straight quarterly hike and signaled that further
increases may be needed to keep inflation at bay.
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BOOMER
MONEY – According to
SIA, without a "substantial and sustained saving effort," one in five
baby boomers could wind up living in poverty after retirement. In order
to forestall this, many will need to double their current saving to at
least 20%. In an apparent disconnect, however, the 2006
Allstate
Retirement Reality Check revels that 70% of Americans surveyed describe
themselves as "financially independent," but 40% admit that they "are
not saving seriously for retirement." And here's an eye
opener:
43% of baby boomers say that providing support to adult children has
affected their ability to save for retirement.
BOOMER:
DON'T BANK
ON AN INHERITANCE – An AARP study shows that as
of 2004,
only about 19% of boomers had received any inheritance. Of those, the
median amount received was $49,000. This is not good news for those
boomers who are counting on an inheritance to plug holes in their
retirement savings. Further a Boston College study found that 43% of
workers may not be able to maintain their standard of living in
retirement. What about the trillions of dollars in wealth that boomers
were supposed to receive? Experts have estimated that boomers are
expected to receive $7 trillion to $10 trillion, but the primary
beneficiaries will be families who are already well off. The perfect
solution? Work during retirement.
I'M
RESPONSIBLE
BUT... - According to National Association for Variable
Annuities (NAVA), 81% of Americans believe that, aside from Social
Security payments, they are almost entirely responsible for ensuring
their financial well-being in retirement. This number is up sharply
from the results of a study conducted in January 2005, which found that
only about 65% of working Americans felt this way, indicating a growing
national belief that individuals must take personal responsibility for
their financial futures. Yet surprisingly, when asked if they believe
that their current or future employer would offer a guaranteed pension
plan, 49% of all respondents who have not yet retired answered yes.
NAVA maintains and supports an educational website for consumers at www.RetireOnYourTerms.com.
NAVA
RETIREMENT
INCOME RULES OF THUMB -
1.
100% Rule: Past analyses have indicated that retirees can
live
on 70-80% of their pre-retirement income. However, given rising health
care costs and longer, more active lifestyles, you will most likely
need 100% or more of your pre-retirement income in retirement.
2.
15% Plus Rule: Saving is the starting point to building
your
retirement income plan. However, forget the old rule that says you
should save 10% of your pretax income each year. With the decline in
pension plans and higher retirement-related expenses, you should plan
on saving a minimum of 15% per year...possibly much more if you are
starting to save later in life.
3.
Once a Year Rule: It is important that you review your
retirement income plan regularly during retirement. Goals, activities
and expenses will change as you advance in years, and inflation and
market conditions may also change, which may have a significant impact
on your retirement income. A good rule of thumb is to sit down with a
financial advisor once a year to review your plan and make any
necessary changes.
MORE ON
CHARITABLE
GIVING – The Virtual
Sales Assistant has just made available to its subscribers
calculators for seven of the most popular charitable giving ideas. Take
the VSA folks up on their 30-day free look and check them out. You
and/or your clients may not be a Gates, Buffett or Weill, but many may
be able to make a significant contribution to the future. As a side
benefit, you might even make a significant sale by helping others do
good.
INSURERS
ONLINE
SERVICE POOR - A report from The Customer Respect Group
found
the insurance industry scored lowest in "respecting Web site visitors."
The overall average customer respect index (CRI) score for insurance
firms was 5.1 against the overall average for all companies of 5.7.
Property/casualty companies scored an average of 5.3, life insurers
5.2, and health care companies 4.8. When you consider that the
Independent Insurance Agents and Brokers of America estimate that 85%
of people go online to research before purchasing insurance, this could
be a problem that needs addressing. See company ratings by clicking here.
CONTRADICTIONS
- A recent John Hancock survey found Americans are less worried today
than they were about a decade ago about needing and paying for
long-term care services. At the same time, a greater number
of
people believe they will live to age 85 and more felt that the cost of
LTC could significantly reduce their retirement income and
assets. According to Laura Moore, a John Hancock SVP,
"Clearly,
long term care is difficult for Americans to think about - in fact, our
survey suggests that they are in denial, taking a chance they won't
need care or just ignoring the fact that they might."
VA
SALES UP IN FIRST
QUARTER - National Association for Variable Annuities
reports
that variable annuities had a net gain of $7 billion during the first
quarter. That is up from a net of $4.8 billion for the first
quarter of 2005.
GLOBAL
WEALTH GROWS
– A report by Merrill Lynch and Capgemini shows continued
growth
in global wealth, but at a slower rate. At the end of 2005 there were
about 8.7 million people worldwide with over $1 million in investable
assets...a 6.5% increase over 2004. However, the report predicts about
6% growth for the next four years.
CLOSING
THE RED
UMBRELLA? – Let's hope it isn't so, but
Citigroup may dump
the famous Travelers Red Umbrella logo. The logo debuted in 1870, but
is associated with insurance. Since Citigroup no longer has a much of a
presence in that arena, the icon has become dispensable. Maybe Snoopy
needs a little red umbrella!
MUTUAL
FUNDS POPULAR
IN COMPANY 401(k)s – The Wall Street Journal
reports that
as companies change 401(k) providers, they are turning to mutual fund
companies rather than financial-planning firms and banks. Mutual-fund
firms' market share use increased to 26% from 23%, while
financial-planning firms' market share fell to 4% from 6%, and banks'
market share fell to 14% from 19%.
HOMES
OUT OF REACH
- Since 2000, the cost of a home has more than doubled in about 30
major metro areas. In seven U.S. cities, the median home now costs more
than a half-million dollars. Even though the real estate boom peaked
last year, there's no end in sight. Nationally, home prices are still
climbing and are expected to rise about 5% this year. Coupled with
higher interest rates, gas prices and property taxes, those prices are
creating an "affordability crisis" throughout the country.
PROPOSED
VA SALES
RULES - The NASD has released its third attempt at setting
deferred variable annuity sales practices and supervisory
requirements. NASD Rule 2821 would require that sellers of
deferred variable annuities make sure the products sold are suitable,
that the buyers understand the products and that a company principal
review the suitability of all sales. A copy of the third
draft is
available here.
GOING,
GOING...
- A Watson Wyatt study found that 95% of Fortune 500 companies expect
to continue restricting retiree health care plans over the next five
years, with 14% planning to discontinue the coverage
entirely.
Further evidence of the decline in retiree health benefits...a recent
Kaiser Family Foundation study found that only about one third of U.S.
employers offered retiree health coverage in 2005, down from about two
thirds in 1988.
STOCKING
UP ON CASH
- The findings from an HSBC Bank survey indicate that wealthier
Americans are stocking up on cash. Not too surprising in an
environment where cash investments, such as some CDs and money market
funds, are approaching or outperforming stock and bond
yields.
The good news is that these investors should have plenty of ready money
to invest when sentiment shifts back to stock and bond investments.
GRANDPARENTS
PAYING
FOR EDUCATION – A MetLife survey found that
about 55% of
grandparents say they are helping to pay for their grandchildren's
education, and 35% plan to provide a total of $50,000 or more over
their lifetimes.
NAIC
CONSUMER HEALTH
SITE - To help clear up confusion and provide consumers a
better
understanding of the costs of their coverage, The National Association
of Insurance Commissioners (NAIC) has assembled useful information
about health insurance on its new consumer education Web site at www.insureuonline.org.
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