© Copyright 2006
US FlagSeptember 1, 2006 Edition
1stLifeSettlements


FLOOD EXCLUSION JUDGMENT – The homeowner insurance industry won an initial round in the post-Katrina test about the validity of the flood exclusion when a U.S. District Judge ruled in favor of Nationwide. The suit also claimed that the agent told the homeowners they did not need to purchase flood insurance because they were covered for hurricanes. However, the court noted that the agent had sold flood insurance to several neighbors, indicating it was not his general practice to discourage the purchase of such policies. It's interesting to note that about $14.5 billion in insured losses due to Hurricane Katrina have been paid in Louisiana.  This figure does not include National Flood Insurance payments.

RECORD NUMBER OF UNINSURED - A new Census Bureau report finds that a record 46.6 million Americans, or 15.9% of the population, were without health insurance in 2005.  Most of the increase in the uninsured is attributable to a drop in employer-provided insurance, as well as fewer people purchasing individual plans.  We don't have "the" solution to this problem, but we do know that it's going to require a broad commitment of government, business, insurers, unions and the general public to arrive at a system of affordable health insurance coverage for all citizens.

THIS ISN'T THE NBA – The recruiting war for top brokers remains fierce, but apparently some brokerage firms are taking a firm stand against brokers who break contracts and defect to rival firms. Piper Jaffray is suing several former employees and their new firms and Merrill Lynch recently won a TRO against reps who "transferred" to Morgan Stanley. Major point at issue is who owns the "client relationship"...broker or firm.

ANOTHER BROKER CONTRACT ISSUE - Raymond James added itself to the inter-brokerage pact set up by Merrill Lynch, Smith Barney and UBS that makes it easier for advisers to defect without the fear of being sued. Under the agreement, firms can allow their brokers to leave with client information so they can ask customers whether they wish to transfer accounts to the new firm. Brokers, however, are required to leave behind account details.

WOODS TO LEAVE NAIFA - David F. Woods, CEO of NAIFA since Jan. 2003, plans to step down next August. Before leaving, Woods, 70, wants to complete work on a new strategic plan that he hopes will revitalize the association. The big issue will be membership, as the association's membership has declined from a high of about 150,000 to 62,221 and lost 1,200 members in the past year.

BERNANKE AND PROTECTIONISM - Fed chairman Ben Bernanke has warned against "social and political opposition" and "protectionist measures" that can wreak havoc on the global economic landscape. "The emergence of China, India, and the former Communist-bloc countries implies that the greater part of the earth's population is now engaged, at least potentially, in the global economy." He warned that an open economy is "likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity and output overall."

BERNANKE ON HOUSING  – Ben says rising incomes should support the U.S. economy even as the housing market slows and consumers lose the boost they were getting from home equity. Further Bernanke said that should be the case even though smaller gains in home equity would likely lead U.S. households to save more out of their current income.


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SOFT LANDING? - Based on data about housing, manufacturing and employment, as well as Ben Bernanke's forecast for moderating growth and diminishing inflation, some experts feel that the economy is in for a "soft landing. However, others warn that growth could plunge far lower if inflation persists at higher levels than the Fed expects. With a recent Gallup Poll showing the lowest confidence level in five years, the naysayers could be right.

ADVISOR OR BROKER? - The SEC passed the Broker-Dealer Rule last year, which included a provision requiring that brokers give new clients a statement that the broker's interests may not be the same as the client's. The FPA, which took exception to the part of the rule that allows brokers to call themselves financial advisors and to give investment advice without adhering to the fiduciary duties in the Advisers Act, filed a lawsuit against the SEC.  The SEC is now planning a study "intended to determine whether or not investors are confused about the different roles and responsibilities of brokers and investment advisors."  We can't speak for investors, but we're confused by the advisor/broker differentiation and have to agree with the FPA when it asks why wasn't a study completed before the rule was issued?

PRUDENTIAL FINED – Following a Bank of America settlement of $675 million in 2004 for market timing of mutual funds, Prudential Equity Group, the broker-dealer subsidiary of Prudential Financial, will pay $600 million in fines, restitutions and penalties to settle investigations into the same action going back to 1999. It leaves us to wonder who ultimately ends up paying the cost of these multi-million fines...investors?...stockholders?

REHIRE SOMEONE WHO SUED YOU? -  Hydie Sumner who successfully sued Merrill Lynch for $2.2 million for sexual discrimination wants Merrill to rehire her. Merrill isn't happy about the request, but rather than "just saying no," the company has asked an arbitration panel to decide.

EXPECT MORE RATE HIKES – Despite early optimism, Fed members are saying that the central bank might need to resume increasing interest rates in order keep inflation at bay.

HOME MARKET COOLS - Existing home sales fell 4.1% to a seasonally adjusted annualized rate of 6.33 million in July. National Association of Realtors reports July is the slowest sales rate since January 2004.

UBS COVER-UP - According to transcripts of testimony given to federal investigators, a senior UBS banker concealed his and his firm's connection to a $250,000 payment that led to the conviction of former HealthSouth CEO Richard Scrushy and former Alabama Governor Don Siegelman.  The money was funneled through another investment banking client so that HealthSouth would not be visible in the transaction and UBS wouldn't appear as a political contributor. Prosecutors say the money was a kickback paid for a seat on a major health-care oversight board in the state.

UBS BUYS PIPER JAFFRAY'S BROKERAGE - Piper Jaffray completed the $750 million sale of its retail brokerage unit to UBS and intends to focus on its investment banking business.

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HIGH TOUCH, MORE SALES, BETTER JOB – We just returned from the NAIFA Convention in San Francisco and the presentation of the winners of the 2006 Real LIFE Stories was certainly a highlight. These awards are given each year by the LIFE Foundation to agents and clients whose actions dramatically illustrate the value of life, health and disability insurance. These stories are then converted into print and video and advertised throughout the nation. Here is a sales tip...nothing sells better than a well-told story. Unfortunately, good storytelling isn't easy but, fortunately, the LIFE Foundation can help you be a great storyteller. Just go here and review the Real Life Stores. Then go to the catalog and order some booklets and/or one pagers and use them as a needs discussion during your presentation or as a pre-call flyer. If you are one of the many in our industry who have been lulled to sleep by high tech sales, spreadsheets and the like, we promise that using these great "need illustrations" will increase your sales and help you do a better job for your clients.

PENSION PROTECTION ACT OF 2006 - Click here for a summary of the recently-enacted Pension Protection Act of 2006.  Be sure to check out the combination LTC/annuity provisions. A few other highlights of the legislation follow: 

INHERITED 401(k)s – Here is some relief. The new tax law allows you to transfer your profit-sharing and 401(k) plan balances to someone other than your spouse as beneficiary and still use the minimum distribution rules. Beginning in 2007, non-spousal heirs will have the ability to roll over the retirement plan balance to an IRA instead of taking payouts over five years or less.

CHARITY AND THE PENSION PROTECTION ACT – If you or any of your clients are over age 70-1/2, consider the provisions of the new pension act.  In 2006 and 2007, an individual can directly donate assets held in an IRA to charity — as much as $100,000 per year. If done correctly, the amount will not be included in the donor's "gross income." An additional benefit is the amount transferred to a charity will count toward satisfying the "required minimum distributions" (RMDs) an IRA owner must start taking after reaching age 70-1/2.
 
NASD, NYSE TO MERGE? – The rumor is that talks are under way to merge some of the regulatory functions of the NASD and the NYSE. Hurdles still remain including questions about the arbitration systems of the two.

ALZHEIMER'S STUDY - MetLife has released a new study on the impact of Alzheimer's disease on caregivers.  This study could prove to be a real eye-opener to those prospects still debating on whether or not to purchase long-term care insurance.  Click here for a copy.

RETIRING ON HOME EQUITY – Many boomers are counting on their home equity to provide retirement funds, but the recent dramatic drop in home sales combined with a new report about older adults and their housing, indicate that boomers might need another plan. According to a new study by Boston College, current retirees are not converting the equity in their homes into income, but rather saving it for a "rainy day." Older Americans homeownership rates are stable until age 80 and after 80 tend to decline slowly. Not everyone agrees with the need for a "Plan B." Certainly not the reverse mortgage industry or McKinsey & Company. In fact, earlier this year McKinsey suggested that financial firms and advisers could gain market share by helping Americans convert the equity in their homes into income.

BEST COLLEGE DEGREES – Current college graduates are continuing to enjoy the strongest job market in five years.  Here are a few examples of starting salaries in various disciplines:
Hospitality services management: Up 9.7 % to $36,480
Business administration/management: Up 6.3% to $42,048
Accounting: Up 5.5% to $45,656
Economics/finance: Up 5.1% to $45,112
Information sciences and systems: Up 8.5% to $48,593
Computer engineering: Up 2.3% to $53,651
Electrical engineering: Up 3.2% to $53,552
Mechanical engineering: Up 3% to $51,732
History: Up 3.1% to $32,697
Psychology: Up 1.2% to $30,218
Communications: Down 0.4% to $31,876
Political science and government: Down 2.6% to $32,665
Sociology: Down 2.7% to $30,944
English: Down 4.1% to $30,906

COLLEGE COSTS CONTINUE TO RISE – Reports indicate you can expect a 5% increase in both tuition and fees for the 2006-2007 academic year. Last academic year, the median annual tuition for a four-year private college jumped 5.7% to $16,950 and for students attending a public university in their home state, median tuition rose 6.3% to $4,224 per year according to an annual college cost survey by Peterson's. And that doesn't include room and board and other fees that can easily push the cost of a private college education above $22,000 a year. Room and board costs, which rose approximately 5% at both public and private schools for the 2005-2006 academic year, are also expected to rise.

MORE SAVERS – A MarketWatch article predicts more than 10 million workers could join the ranks of retirement savers now that President Bush has signed sweeping pension-reform legislation, and mutual-fund firms are lining up to serve this new business. "There will be millions of new savers in the 401(k) system," said David Wray, president of the Profit Sharing/401(k) Council of America. "At least 10 million, and probably more."

WOMEN FRET - A study conducted by Allianz, "Women, Money and Power Study," tells us that half of the women surveyed "worry about losing all their money and becoming destitute" and 90% of women said they "feel only somewhat or not at all financially secure."  The question then becomes, "What are women going to do about their financial insecurity?"  According to the study, 18% of them are dealing with it by having "a secret stash of money that their spouses or partners don't know about."

FEAR, FINANCIAL RUIN AND LTC – We saw a recent article subtitled "Fear of family fiscal ruin potent LTC weapon." The article went on to say that, "Financial advisers trying to convince clients to purchase long-term-care insurance are learning what mothers have known all along: Guilt can be an effective motivator." Well, that may be true, but it is also true that the lack of LTC can financially ruin a family. To see how families avoided financial and emotional ruin because they had LTC, click here.

ANNUITY SALES DOWN – Beacon Research reports that fixed annuity sales in the second quarter dropped 14% from the second quarter in 2005 to $17.9 billion. Indexed annuities fell 15%, to $6.2 billion. Major causes were thought to be lower rates and some bad press for indexed annuities.

SMALL BUSINESS HEALTH MARKET TO SHRINK – A SurePayroll survey of small business owners last month shows that 11% of those that currently offer health benefits say they may not do so in 2007. "If you think that we've got health insurance issues now, imagine if 350,000 small businesses stopped offering health insurance in 2007."  One problem is that small business health insurance plans tend to be hit harder by higher premium rate increases.

SOCIAL SECURITY DEPENDENCY - Here's an interesting perspective on the Social Security debate presented by Laurence Kotlikoff, an economics professor at Boston University.  In a nutshell, Professor Kotlikoff makes the case that the wealthy, and not just lower- and middle-income retirees, will take a hit in their standard of living if Social Security benefits are cut.  Why?  Because it takes a large amount of capital to replace the power of guaranteed Social Security benefits.  The complete study, "Americans' Dependence on Social Security," is available here.

PAYING CREDIT CARD MINIMUM - Ever wonder how long it would take to pay off a credit card if you just made the minimum required payment?  Not forever but almost. Most card issuers set your minimum payment at 4% of your debt -- so a $5,000 credit card balance with an 18% interest rate would have a $200 monthly payment. At the minimum payment, it will take 12.5 years to pay off your credit card debt, during which time you'll pay the card company a total of $2,916 in interest.

NAIC LOOKS AT LTC TRAINING - The National Association of Insurance Commissioners is looking at a proposal that would standardize LTC training and require 8 hours of training before an agent could sell LTC insurance and 8 additional hours every 24 months.

CA SMALL BUSINESS HEALTH COALITION CLOSES - On December 31, 2006, 116,000 Californians will be looking for new health insurance. PacAdvantage, the state's attempt to provide affordable small business coverage, has decided to shut down. The last remaining insureds just could not make it financially viable. We suspect the culprit was "adverse selection"...healthy individuals and groups leaving for better rates outside the coalition, leaving the coalition with a growing number of unhealthy insureds.