FSO E-NEWS WEEKLY

August 1, 2009 Edition

HEALTH CARE BILL – Undoubtedly, health care is the biggest financial issue of the day. Just in case you have some spare time you can read the full house bill (all 1,036 plus pages)...it's available at www.opencongress.org. If that is too much reading, the Kaiser Family Foundation has a frequently updated comparison chart of the major health proposals available at www.kff.org.

THIRD PARTY PAYERS...HEALTH CARE – I believe part of the solution to current health care costs resides in making sure the recipients of the care have "skin (pardon the pun!) in the game." I will be off to MD Anderson on Monday for some prostate cancer tests. Do you think the doctor and I will discuss cost? I doubt it because, candidly, I don't care what the cost is...the insurance company is paying for it. Now, if I were expected to pay 25% of the cost, you can bet your sweet bippy that the doc and I would talk. Am I different than any other patient? I don't think so. If a third party is paying, it is as good as free. Who knows where health care is going, but you and your clients can take advantage of high deductible plans that require some participation from the patient. Check out these high deductible concepts from The Virtual Assistant such as Health Reimbursement Arrangements and Health Savings Accounts.

I'M JUST A BILL – Some of us remember the jingle, "I'm Just a Bill on Capital Hill", but things have gotten a lot more complicated since "Bill" sang about his exploits in 1975. Here is the current approach.

Introduce a Bill, But Not the One You Really Plan on Passing
Do Not, Under Any Circumstances, Read the Bill
Make the Bill Very Long and Very Complicated
Bypass Your Committee
Keep the American People in the Dark
Censor the Opposition
When the CBO Says Bad Things, Bring the Director in for a "Chat"
Finally, Pass the Bill on a Friday

Details at http://blog.heritage.org/2009/07/27/how-a-bill-becomes-law-chicago-style/

DO NO HARM - "First, do no harm." Let's hope those words apply to Congress when it comes to health care reform and small business. Under the House bill, businesses that do not offer health coverage to their workers would pay an 8% payroll tax to help subsidize coverage, but apparently most small businesses would be exempted.

NO VOTE AND NYT POLL - President Barack Obama says there will be no vote on his proposed reforms of the U.S. healthcare system before autumn. According to the latest New York Times/CBS News poll, President Obama's ability to shape the debate on health care appears to be eroding as opponents aggressively portray the effort as a government-takeover that could limit Americans' ability to choose their doctor and course of treatment. Details at www.nytimes.com.

JOBLESS UP - More than 90% of the nation's largest metropolitan areas saw their unemployment rates climb in June from the previous month. Biggest hits were to college towns and cities tied to the auto industry. Only 22 of the more than 370 metro areas had positve or neutral job growth. The jobless rate was 9.5% in June and is expected to rise to 9.7% in July.

MILITARY READIES FOR H1N1 OUTBREAK - The U.S. military wants to establish regional teams to help civilian authorities respond to possible outbreaks of "swine flu." The proposal is awaiting final approval from Defense Secretary Robert Gates. The military could provide support services, such as air transport and large-scale testing.

IT'S INFLATION, BEN - After two years of pumping money into the financial system to keep the economy afloat, Fed Chairman Ben Bernanke will have to reverse the process or risk an opposite problem: inflation. After much anticipation, Bernanke announced the Fed's "exit strategy" from its vast intervention, declaring it will happen "in a smooth and timely manner." Let's hope he and "they" can pull it off.

BAILOUT BUCKS - Nearly 700 firms have received bailout money, and many of them are still in rough shape. Bailout architects like Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke have argued that the government is likely to get most of the bailout money back, which would make it more like an interest-bearing loan than a giveaway. You bet.

FEDS WANT MORE MODIFIED LOANS - The Obama administration, scrambling to get its main housing initiative on track, extracted a pledge from 25 mortgage company executives to improve their efforts to assist borrowers in danger of foreclosure. Current pressures from the Obama administration will likely fall far short of the original goal of helping up to 3 million to 4 million troubled borrowers with modified loans.

REVERSE STIMULUS? - Barack Obama promised near-universal health care and a mass conversion to green energy when he launched his presidential campaign. President Obama hasn't wavered from plans to remake entire business sectors, but is he now faced with the possibility that his own agenda will choke off the economic recovery, which will then define much of his legacy? We will see.

OTHER PEOPLE'S MONEY (OPM) – While I'm on the subject of OPM, is this not the problem with our entire government? If the tax payers are paying and the government officials will never be personally responsible for the expenditures, what is the difference between a million, a billion, a trillion or a quadrillion dollars?

NO PAY FOR RISK – A House panel voted to prohibit financial firms from offering corporate pay packages that encourage executives to take big risks, going further than what President Barack Obama wanted to curb excessive salaries and bonuses on Wall Street. This is probably a good idea but who decides...the new core of U.S. Czars?

CEOS AND OTHER C-LEVEL EXECS FACE SALARY REDUCTIONS – The House bill not withstanding, insurance executives have seen significant decreases in compensation as a result of the recession. A recent survey from SNL Financial finds that total compensation decreased by 11% across all lines of business, with executives in the mortgage and financial guarantee sector seeing the most significant declines. CEOs saw year-over-year compensation decrease 73%, while CFOs experienced a 46% decline.

ECONOMY STABILIZING - According to the Fed's Beige Book survey of economic conditions, the U.S. recession has slowed or stabilized in most parts of the country, with labor markets remaining "extremely soft." Expect a protected period of economic weakness as the economy transitions into a recovery mode.

BERNAKE: ECONOMY WILL BE STRONGER - Federal Reserve Chairman Ben Bernanke says he feels that the economic strife experienced by the U.S. throughout the past year or two will only leave the economy stronger upon its rebound. Click here for more. We hope he's right, but we can assure you that most of the so-called experts have been dead wrong in the past.

RECESSION WORSE THAN REPORTED - According to revised Commerce Department figures, from the recession's start in the fourth quarter 2007 through the last three months of 2008, the world’s largest economy contracted 1.9 percent, compared with the 0.8 percent drop previously on the books. More information at www.bloomberg.com.

HOW LONG CAN IT LAST? - The Dow Jones industrials topped the 9,000 mark, but are the markets getting ahead of themselves? Many analysts say they're not...at least by too much. Who knows, but with the level of national, state and local debt, as well as the decline in the value of the dollar, "How high can a dead cat bounce?" seems to be an appropriate question.

FINRA FINES – FINRA has fined five bank broker/dealers a total of $1.65 million for deficient supervision and procedures related to variable annuity, mutual fund, and unit investment trust transactions. Major problems were suitability in sales to seniors. The five firms are McDonald Investments (now KeyBanc) ($425,000), IFMG Securities ($450,000), Wells Fargo Investments ($275,000), PNC Investments ($250,000) and WM Financial Services (now Chase Investment Services) ($250,000).

STATE GOVERNMENT WOES - In closing out fiscal 2009, state legislators and governors are dealing with deficits totaling $142.6 billion. The fiscal year ended June 30 for 46 states, according to the National Conference of State Legislatures, while three states have yet to pass balanced budgets for the next fiscal year. Already, at least 12 states and the District of Columbia face gaps totaling $23 billion in budgets adopted for the new year, according to the Center for Budget Policy and Priorities.

BANK ANNUITY FEES UP - Bank holding companies earned a record $734.5 million in annuity fee income during the first quarter of 2009, an increase of 12.4% year-over-year.

CASH FOR CLUNKERS...GOING FAST - The government's "Cash for Clunkers" program is off to a fast start. Reports are that the program's $1 billion appropriation was used up in the first week since the program was launched on July 24. The House has voted an additional $2 billion for the program, with a Senate vote scheduled for Monday. If you're in the market for a new car, you can really save some bucks since many dealerships are matching the $3,500/$4,500 government rebate, at least on some models. Program requirements are available at www.cars.gov. Assuming additional funding is approved by the Senate and the program is extended, don't hesitate...it doesn't look like it will last for long.

SEC TOLD TO RECONSIDER 151A - The U.S. Court of Appeals has ordered the SEC to reconsider Rule 151A, saying the SEC "failed to properly consider the effect of the rule upon efficiency, competition and capital formation." Rule 151A would name indexed annuities a security and increase oversight of the product. While the Court did acknowledge that SEC regulation would better safeguard sales of indexed annuities, it said the Commission failed to analyze the impact of this adjustment as required by law.

SELL TO WOMEN – The old Willie Sutton line as to why he robbed banks ("Cause that is where the money is.") seems appreciate here. Consider these gender numbers: Nearly 80% of all consumer purchases are made or influenced by women. Yet 90% of ad agency creative directors, 97% of Fortune 1000 company CEOs and 66% of chief marketing officers at the 100 biggest advertisers are men. We suggest that advisors get women on their marketing staff,

FAT TAX – Brace yourself, fat people. The government plans an excise tax of 20% on fattening foods and claims the tax could raise $937 billion to defray the costs of health care reform and/or to curb the rise in obesity. We are unsure how this will affect "Jack Sprat and His Wife." Smokers and drinkers beware...your "sin" taxes may go up again.

BROKER SATISFACTION - J.D. Power released broker satisfaction results and Edward Jones and Charles Schwab topped the list of U.S. brokerage firms in overall client satisfaction. Edward Jones replaced last year's leading firm, Raymond James, in the top spot while LPL climbed from fourth to second place and Charles Schwab jumped from ninth place to third.

PERFORMANCE-BASED FEES - Putnam Investments is proposing wide-ranging changes to the management fees on its retail mutual funds and plans lower management fees on many of its mutual funds next month. On certain funds, management fees will be tied to investment performance. Sounds like a good plan.

PIGGY BANK FOR RETIREMENT? - Click here for a National Underwriter report on the shift in thinking regarding use of their home equity to generate income among people with a higher net worth. In a nutshell, advisors who provide income planning services need to be conversant about the ways to use home equity to provide income (e.g., home equity loans, lines of credit and reverse mortgages). Also be aware that the FBI has issued an alert concerning a rise in reverse mortgage scams.

SOCIAL SECURITY ESTIMATOR – The Social Security Administration's online Retirement Estimator is so popular that people have visited the Web site more than 3 million times in the past year. You can visit it online at http://www.socialsecurity.gov/estimator. The online Retirement Estimator is a convenient, secure and quick financial planning tool that lets workers calculate how much they might expect to receive in Social Security benefits when they retire.

MDRT HOLDS QUALIFICATION LEVELS - The Million Dollar Round Table shelved an annual production standards increase that was slated to take effect for the 2010 membership year. The U.S. production requirements structure will be based on a minimum of $87,900, in U.S. currency, in eligible commissions, or $175,800 in eligible paid premium. The requirements will remain at $263,700 (commissions) and $527,400 (paid premium) for Court of the Table members; and at $527,400 (commissions) and $1,054,800 (paid premium) for Top of the Table members.

BUSINESS OWNERS AND RETIREMENT - A new research report from Principal Financial Group reveals that 66% of business owners have no exit plan to transition their business in the event of death, disability or retirement. Sounds to us like they could use some financial advice!

C.L.A.S.S. ACT IN LONG TERM CARE – Once again the government is adopting the Annie Oakley approach of "I can do anything better than you." Senator Edward M. Kennedy would like to establish a national long-term care insurance program. The C.L.A.S.S. Act (short for Community Living Assistance Services and Support, if you're wondering) could transform the way people pay for long-term care. Participants would receive daily benefits — money they could use to pay for home care, adult day programs, assisted living or nursing homes — whether they're elderly or young and disabled.

NAVA NOW IRI - The Insured Retirement Institute - IRI - is now the official name of what was once NAVA, the National Association for Variable Annuities. The new name signals that the trade group has rebranded itself as an organization that focuses on the insured retirement strategies industry and its consumers and advisors.