© Copyright 2007
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RECOMMENDS NEW SALARY STRUCTURE – A report by the Aspen Institute recommends changes to executive compensation to promote long-term growth. "Excessive short-term pressures in today's capital markets that result from intense focus on quarterly earnings and incentive structures that encourage corporations and investors to pursue short-term gain with inadequate regard to long-term effects." Amen!

FORBES: BUSINESSES NEED "LONG-TERMISM" – Forbes has joined other financial publications in exposing how "quarterly thinking" is hurting American business. "It's all easier said than done, but the inner workings of corporate America are in need of retooling. Whether it's rash decisions to make a quick buck or a bloated chief executive's salary, many believe that much about the mechanisms of modern business could and should be rebuilt. Former SEC Chairman William Donaldson calls corporate America's approach to business "debilitating" due in part to the short-sightedness of its leaders." See the complete report on which the article was based at the Committee for Economic Development site at www.ced.org.

FEES OR COMMISSIONS...OCTOBER DEADLINE – Advisors and the brokerage industry have been granted an extension until October 1 to determine how to handle fee-based brokerage accounts. In March, the Court of Appeals threw out the Merrill Lynch Rule, and consequently mandated that assets held in fee-based brokerage accounts move to commission accounts or other alternatives.  With the delay, Wall Street firms, together with SIFMA, are in talks with the SEC to find ways to maintain the fee-based accounts or to receive guidance from regulators on how to transition the accounts.

FINANCIAL REGS - Treasury Secretary Henry Paulson is planning a review of "the government's regulatory system for financial institutions with the goal of making changes to better reflect modern markets," with the goal of releasing recommended changes early next year.

FED RATE TO RISE? - While the Federal Reserve held its key interest rate unchanged at 5.25%, the Federal Reserve's inflation-fighting policy of raising interest rates is not likely to stop due to stubborn food and gas prices. The position highlights a split between Fed regulators and their staff, who agree with Wall Street that the U.S. economy can't expand rapidly without rising prices.

INTEREST RATE DIRECTION - Bill Gross, manager of the world's largest bond fund, says the glum housing market will force the Feds to cut interests rates in six to nine months. Former Fed Chairman Alan Greenspan disagrees, saying current long-term interest rates are too low. "You pick 'um."

BEAR STEARNS' HEDGE FUNDS – Bear Stearns had set aside $3.2 billion to bail out one of its two struggling hedge funds, but now feels "only" half of that will be required. Apparently the second fund will be allowed to sink or swim on its own. Experts see the Bear Stearns problem as indicative of a larger problem that could result in a broader market slow down. It is difficult to put a value on these securities, which make them difficult to trade quickly. The SEC is investigating why the two funds, which were primarily backed by subprime debt, failed so badly.

NASD ISSUES SRO ON TEXT MESSAGING - NASD and the NYSE have released guidance to brokerage firms on how to supervise electronic communications. The proposal recommends that firms require brokers to obtain pre-approval for business-related use of any personal device (Blackberry, Treo, etc.) and that firms consider obtaining agreements that allow them to access their brokers' devices. Current rules already prohibit brokers from using electronic communications unless those communications are subject to supervisory and review procedures.  To view the Notice, click here. 

MORTGAGE EXPOSURE CLOSES B-D - Brookstreet Securities, a mid-sized, independent-contractor broker-dealer with about $70 million in gross revenue, told its brokers that the firm is likely to close down due to too many accounts on margin and reduced values in all "Collateralized Mortgage Obligations." "Many of those accounts were on margin and suffered horrendous markdowns and unrealized as well as realized losses."

MERGERS PAY OFF, BUT NOT TO SHAREHOLDERS – Bloomberg reports that a record $2.5 trillion in mergers for 2007 will not break an unfortunate trend. For the past 15 years, most shareholders ended up on the losing side of the deals, while executives and those who arranged them profited handsomely. According to Boston Consulting Group, about 58% of acquisitions from 1992 to 2006 reduced shareholder returns. On the other hand, securities firms stand to earn $25 billion in fees in just the first five months of this year.

SUPREMES RULE ON CLASS ACTIONS – Businesses rejoiced as trial lawyers wept over the recent decision by the Supreme Court to make it harder for shareholders to file securities-fraud lawsuits. SIFMA applauded the ruling, saying it curtails the actions of "overly aggressive trial attorneys" by "limiting their ability to drag American businesses before a judge based on only speculative allegations."

POTPOURRI - * U.S. 2007 mergers and acquisitions recently broke the $1 trillion mark in record time this year.  * Four large firms - MML Investors Services, NYLIFE Securities, Securities American and Northwest Mutual Investment Services - have been fined a total of $1.25 million by the NASD for breaking mutual fund rules.          * Nuveen Investments, "money manager to the wealthy," has been acquired for $6.3 billion by Madison Dearborn Partners, both of which are located in Chicago.  * There are indications that investors may be cooling to hedge fund and private-equity investments...some firms have delayed IPO plans, while Blackstone is currently trading below its $31 per share IPO price.

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PENSIONS FOR CONGRESSIONAL FELONS - If Congress wonders why its public approval ratings are in the basement, it need look no further than the issue of paying pensions to former members of Congress who are convicted felons.  Or, as Investment News puts it, "These elected officials were convicted of violating the public's trust, and they should have absolutely no right to a retirement check that ironically is being funded by the very people who were betrayed. It is hard to have faith in Congress." 

THE ADMIRAL - We hear so much negative news about professional athletes that it's nice to be able to report on one of the "good guys"...former San Antonio Spur great David Robinson who, since his retirement from the NBA, has focused his time and resources on community improvement.  In addition to founding the Carver Academy, a private elementary school in San Antonio that gives scholarships to almost all of its students, "The Admiral" is partnering with Goldman Sachs to form a $250 million private-equity fund that supports inner-city improvement.  More information is available at Bloomberg.com. 

SUPREME COURT STOPS IPO LAWSUITS – In a major victory for Wall Street, by a 7-1 vote the Supreme Court reversed a ruling by the appeals court in New York that the anti-trust lawsuit by buyers of Internet and technology stock issues in the late 1990s could proceed. The dispute was over the pricing of initial public stock offerings. Justice Clarence Thomas was the only dissenter and said the lawsuit should be allowed to proceed.

HOUSING "BLOOD BATH" – Who knows, but some believe the U.S. housing market could be facing a two- to three-year downturn, with unsold homes reaching record numbers. Further, the national median home price is expected to post its first decline since the Great Depression. Supporting evidence is confidence among homebuilders is at its lowest level since February, 1991.

WHO IS SIRA? - Securities Industry Regulatory Authority (SIRA) will be the new name for the merged NASD/NYSE Regulatory group. SIRA will regulate all securities brokers and dealers in hopes of eliminating overlap in regulation between the two organizations.

NASD KEEPS OSJ DEFINITION - NASD will not change the current definition of "office of supervisory jurisdiction (OSJ). The NASD had planned to created four new branch office categories to replace the OSJ, but thought better after receiving feedback on the expense to do so...not to mention how stupid and ill-conceived it was in the first place!

SEC FINES JOHN HANCOCK - The SEC has hit four John Hancock companies with $20 million in penalties for using fund and variable annuity assets to pay broker/dealers through revenue-sharing arrangements. It appears that the companies made some disclosures about the compensation, but the disclosures were not adequately disclosed either to investors or to the fund and VA trust boards.

WAL-MART, "SOCKS AND STOCKS" - Wal-Mart Stores may have lost its bid to open its own bank, but the company is still pursuing the financial services sector. The company will open 1,000 financial services centers in its stores and roll out a prepaid Visa debit card nationwide in a major push to sell financial services to its lower-income shoppers.

SHAREHOLDER ADVOCATE? - The WSJ points out that Rep. Barney Frank may not be a shareholder advocate as he portrays himself. Frank will hold hearings examining a proposal to let shareholders settle claims against companies through arbitration instead of class-action lawsuits. "Mr. Frank has cast himself as the defender of shareholder rights...a peculiar notion in this context. In shareholder lawsuits, any verdict or settlement against a company ends up coming out of the pockets of shareholders."

WACHOVIA FINED FOR FEE-BASED INFRACTIONS - The NASD has fined Wachovia Securities $2 million for failing to adequately supervise its fee-based brokerage business between 2001 and 2004, resulting in customers paying millions of dollars in excess fees. Further the NASD is requiring the firm to identify the customers and to pay them back.

FLORIDA DROPS BARRY KAYE INVESIGATION – Florida will not launch a formal investigation into Boca Raton philanthropist and insurance icon Barry Kaye's relationship with a company accused of defrauding the elderly. The state insurance department conducted a preliminary review of Kaye's involvement with Coventry. That report said Kaye and his son had improperly received $800,000 in a scheme to defraud a 73-year-old woman. The information was later proved to be incorrect.

SUMMIT ACQUIRES AGENT MEDIA - Summit Business Media, the company that owns National Underwriter, has acquired Agent Media. Agent Media publishes Agent's Sales Journal, Insurance Marketing, The Agent's Market Pack, and eProducer Connect.


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PROTECTING MEDICARE BENEFICIARIES - In response to charges of unethical sales practices, seven health insurance companies, including Humana and UnitedHealth, have suspended sales of Medicare Advantage fee-for-service plans while they work on new marketing guidelines with the Centers for Medicare and Medicaid Services.  The voluntary suspension of sales will end as a company adopts the guidelines.  This voluntary suspension will have little impact on the companies involved, since the vast majority of their sales take place during the open enrollment period running from mid-November through December.  The larger issue looming over sales of Medicare Advantage plans is whether Congress will lower payments the government makes for Medicare Advantage plans.

HOT POTATO - Alternative minimum tax reform continues to be a "hot potato" for Congress.  True reform of the AMT requires finding revenue to offset the loss of AMT revenue.  Suggestions for finding this revenue include limiting deductions for state and local taxes and/or implementing a surcharge on incomes above specified amounts.  Since it's unlikely Congress will find these suggestions politically acceptable, the likelihood is for another temporary extension of AMT relief to middle-income taxpayers.

LIFETIME GUARANTEED INCOME - According to new research released by AIG SunAmerica, 97% of baby boomers cite a guaranteed lifetime income as their number one retirement goal.  In addition, two-thirds said they would be willing to pay up to 2% of their annual investment returns in exchange for a lifetime income guarantee.  More information on the research is available by clicking here.

SSA ADVISER SITE - The Social Security Administration has designated a section of its website specifically for financial advisers. The resource has information about retirement, disability, taxation of Social Security benefits and theft of a Social Security number. Check it out at http://www.ssa.gov/financialplanners.

UP, UP AND AWAY - HMOs are starting their 2008 price negotiations with large employers by asking for about a 14% price increase...the highest rate increase in four years.  Whatever increase large employers pay, you can bet that smaller employers and individuals will be hit with even higher increases.  According to Hewitt Associates, there are a couple of reasons for the higher rates.  One is consolidation in the HMO market.  The other is a concern on the part of HMOs that the healthiest HMO members are moving into HSA/HRA arrangements, leaving the HMOs with the "sicker" members.

BLOOMBERG, BUSH AND T-BILLS – Bloomberg reports that among the markets that say President George W. Bush is doing "a heck of a job" is U.S. Treasury bills. That's because the unexpected surge in tax receipts may pare the budget deficit by 39% to $150 billion this fiscal year, resulting in the biggest bull market for Treasury bills since 9/11, which caused investors to move to the safety of the securities. Individual and corporate income tax revenues are growing for a fourth straight year in spite of five rounds of Bush tax cuts totaling about $2 trillion from 2001 to 2006. The benchmark 10-year note's yield touched a five-year high of 5.32%.

BANNED BROKER CONTINUES TO SELL - A former branch manager for Raymond James was barred by the SEC in 2005 for neglecting to supervise a broker who stole $16 million from clients in 1999 in 2000. Somehow he managed to continue selling securities. His case is not the only one. The problem is both procedural and bureaucratic: Once NASD bars a registered representative, securities regulators lose track of them. After a broker is barred, his or her records are available for two years through NASD's central registration depository system, but that puts the responsibility on the investor. Seems to us that his current B-D with Investors Capital should have checked him out more carefully.

E&O - If you're a brokerage general agency or an independent agent and need errors and omissions coverage, NAILBA may be able to help.  Visit www.nailba.com for details. 

PPA RESOURCES - If you're in need of legal and compliance resources related to the Pension Protection Act, check out ppa-law.com. 

NOW HOW MUCH AM I PAYING YOU? - According to a recent study, virtually all advisers said they explain their fees, but only 43% of the investors surveyed said they understood the fee structure "fairly well" or "completely."

MAKE MONEY FROM ALTERNATIVE ENERGY – As predicted by many, the free market will play a huge role in the U.S. moving away from dependency on foreign oil. That day may be fast approaching. Large private investors have begun investing in companies that operate in wind, solar, and other alternative power sources. Expect mutual funds, exchange-traded funds and public stock offerings to join the move soon. Reason: Global energy demand will increase by more than 50% over the next 25 years and there ain't enough oil to go around!

CAPITAL GAINS FOR HEDGE FUND MANAGERS - The Senate Finance Committee will investigate the procedure used by hedge fund and private-equity managers to qualify their income for the capital-gains rate by structuring their management fee as a share of profits rather than a percentage of assets. The current capital gains rate of 15% is sure a lot more attractive than the top 35% ordinary income tax rate...especially when you are making billions!

SPITZER'S Ill-WIND BLOWS SOME GOOD – According to Bloomberg, Wall Street analysts are now more bearish but more accurate. Credit goes to former NY Attorney General Eliot Spitzer for his 2003 crackdown on big firms' long-standing practice for analysts to keep their reports upbeat.

MDRT'S BOOMER SITE - As part of its ongoing Boomertirement efforts, the Million Dollar Round Table (MDRT) is encouraging its members to conduct local educational campaigns to help Baby Boomers better prepare for retirement. MDRT is kicking off the effort with its Baby Boomer Retirement Preparedness Week – August 6-10, 2007. See more at the MDRT Boomer site at http://boomertirementnews.com.

CLAT GUIDANCE - The IRS has released guidance that will be of interest to charitable planning advisors.  The first revenue procedure deals with inter vivos CLATs, while the second concerns testamentary CLATs.

"LIVE, FROM NEW YORK" - The Life Insurance Foundation for Education has hired Molly Shannon of Saturday Night Live fame to serve as the national spokeswoman for the group's fourth annual Life Insurance Awareness Month campaign.

DO-IT-YOURSELF PENSIONS – That is how a recent Bankrate.com article described immediate annuities. "Pensions may be going the way of rotary phones, but retirees looking for a substitute may want to investigate immediate annuities. These insurance products are expected to grow in popularity as the number of traditional pensions declines and baby boomers scramble for guaranteed sources of income, according to James Lange, author of "Retire Secure!"

TAXES NUMBER ONE CONCERN OF SMALL BUSINESS – A Small Business Research Board Study reveals that taxes were the leading concern of business owners during the second quarter of 2007. Health care, which previously was cited as being the single greatest issue, dropped to fifth.

BANK ANNUITY SALES DOWN – LIMRA reports bank sales of annuities in March 2007 dropped 14% from the March 2006 total. That is pretty significant, but no reasons were given. Our guess is that a lot of the "low hanging fruit" has already been harvested.