© Copyright 2006
US FlagSeptember 15, 2006 Edition
1stLifeSettlements


NEW NASD CHIEF TO FOCUS ON SCAMS - Incoming NASD chief Mary Schapiro will be working to shield boomers and seniors from unregistered securities and annuities, scam artists from acquiring seniors' retirement savings, as well as other such scams.  Apparently it's not just the NASD zeroing in on senior scams...state securities regulators speaking at the recent Financial Services Institute's annual meeting cautioned broker-dealers and registered reps to use caution in the types of products sold to the elderly.  Special concern was voiced over the complexity of some products being sold to seniors, such as equity indexed annuities.

"COCKROACHES" - Registered Rep reports that the securities industry and regulators have had little success in stopping "the cockroaches of the investment business" -- the boiler room con-artists that specialize in fleecing the elderly. Unfortunately these "insects" are getting smarter while enforcement officials are being overwhelmed. Click here to read the full article.

NAIC WORKING ON VIATICAL MODEL – A proposed NAIC model would require most life insurance policyholders to hold policies at least five years before selling the policies and prohibits consumers from settling any time prior to the application or issuance of the policy. Exceptions to the five-year moratorium would let consumers who have experienced major life changes, such as divorce or the death of a spouse, settle policies early.  Not surprisingly, the insurance industry is generally in favor of life settlement restrictions, while the life settlement industry opposes them.

WALL STREET SLOWS?  – Some experts believe that after a terrific first half of 2006 ($14.6 billion in pretax profits), securities industry earnings could fall as much as 40% in the second half. Reasons: Bond underwriting volume plunged, corporate mergers have slowed and companies going public have slumped.

FEDERAL REGULATION - National Underwriter reports that "optional federal charter" legislation is expected to be introduced in the House sometime this fall, joining similar legislation already introduced in the Senate.  If the legislation passes, life and property-casualty insurers would be able to choose between the current state insurance regulation system and supervision by a new federal insurance regulatory agency.

DEMOCRATIC FED? - No, not the Democratic Party. Federal Reserve Chairman Ben S. Bernanke is moving to give other Fed officials more say in the decision process. One concern is that too many opinions being voiced by Fed members could confuse investors.

EXPENSIVE SCANDAL PAYOUTS - Mutual fund companies have begun an expensive and difficult process of paying restitution to investors who were hurt in trading scandals. In many cases, the cost of processing the refund may exceed the payments themselves.

HEALTH PLAN HITS – In addition to revealing that the uninsured total increased by 1.3 million from 45.3 million in 2004 to 46.6 million in 2005, the latest U.S. Census Bureau report also shows that the number of people covered by employment-based health insurance is falling. The decline is based on rising health costs to employers.

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MORNINGSTAR COMPETITION - Athena Investment Services is out to challenge Morningstar as the premier fund results provider. Athena has plans to use a methodology that evaluates funds on how well managers stick to their stated investment process, rather than on how the assets in their funds are allocated.

MORGAN STANDLEY FINED - NASD has levied fines totaling $2.9 million against Morgan for extensive violations dealing with reporting obligations, best execution, short sales, and a range of other violations.

STILL SEARCHING - According to Conning Research, life insurers are still searching for success in the middle market.  "Distribution remains the critical issue to solve in the middle market," according to Stephan Christiansen, director of research at Conning.  For more information on the study, including purchase information, click here. 

MANAGING COMPLEXITY - Also from Conning Research is a study suggesting that while an increase in product features and guarantees have driven variable annuity growth in recent years, the complexity of the products and their associated management effort have also greatly increased as a result, making managing product complexity a key competitive requirement for insurers.  Information on this study, including purchase information, is available here.

BANNING CSA - Investment News reports that, "citing regulatory concerns and questionable educational substance, one of the most popular 'senior specialist' certifications used in the financial services industry has been banned by a growing number of firms."  Genworth Financial has joined Principal, Waddell & Reed and Prudential Financial in disallowing use of the CSA (Certified Senior Advisor) designation by employees and agents.

MEDICARE DRUG PLAN TOO COMPLEX – A Kaiser Foundation study reveals that nearly 75% of pharmacists believe that the large number of options in the new Medicare drug plan confuse consumers. The objective of the plan was to stimulate competition, but that is nearly impossible when confusion exists.

LAY ESTATE TO PAY – Ken Lay's estate has agreed to pay about $12 million to settle claims by participants of Enron Corp. pension plans. The actual amount that the pension plans will recover depends on the total amount of assets available for distribution from the Lay estate, officials say.

PILOT PENSIONS - Looks like the U.S. will pick up about $913 million to cover the benefits for pilots at Delta Air Lines. Retired pilots will average about $75,000 in pension benefits annually. A spokesman for the Pension Benefit Guaranty Corp. said the amount is about a third of the nearly $3 billion in pension obligations the bankrupt airline says it can no longer afford if it is to continue operating. United Airlines and US Airways also dumped pension obligations on the PBGC to the tune of nearly $10 billion.

GRASSO DESIRES CEO POSITION - Former NYSE chairman Richard Grasso wants to run a company once the trial concerning his $187.5 million pay package is finished. "I have to run something one more time. It's got to be with people I like, and a product or business or service that I know something about and can lend some expertise to." Bet he gets the chance.

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FACTS OF LIFE - According to a recent LIMRA study, "44% of all U.S. households either don't own life insurance and believe they should, or own life insurance and believe they need more."  In support of "Life Insurance Awareness Month," the NAIC has released information about the type and amount of life insurance appropriate at different life stages.  Take a look at www.InsureUonline.org.

TOO LITTLE, TOO LATE - The latest Principal Financial Well-Being Index reveals that, "nearly half of American adult workers (45%) and a third of retirees (32%) surveyed indicated that their biggest financial planning regret was they started saving too late."  There is some interesting information in this survey...check it out here.

401(k)s AND SMALL BUSINESS - A Fidelity Investments study indicates that many small businesses (those with fewer than 20 employees) cite cost as the reason for not offering a 401(k) plan to their employees.  Others saw fiduciary responsibility and complexity as obstacles.  Pointing out the viability of 401(k) plans in the small business market, 25% of the business owners surveyed believe that 401(k) plans aren't available for businesses their size. Estimates are that some 13.6 million small business employees do not have access to a 401(k) plan!  More information on the survey is available here. 

HSA SURGE – As predicted, a survey by Inside Consumer-Directed Care shows that HSA assets have soared in the last six months. Assets are now about $1.5 billion...up 54% in the past six months. More than 1.17 million HSAs have been opened with an average balance now at $1,260.  That's the good news.  The bad news is that "few members of employer-sponsored health savings account programs seem to have much luck negotiating, or even determining, prices before receiving medical care," according to a GAO report.  It's difficult to be a good healthcare consumer when you can't find out what something costs!

MOODY TO RATE HEDGE FUNDS - Moody's has become the first rating agency to rate individual hedge funds. Further, they will depart from their customary approach of looking at the likelihood of a default, and instead examine the "the nuts and bolts" of the fund.

REDUCE RETIREMENT HEALTH COSTS – According to Investment News, advisers aren't fully prepared to help retiring baby boomers with the skyrocketing costs of health care. Here are some hints. If your client is retired (voluntarily or involuntarily) before becoming eligible for Medicare, first, see if they can qualify for any retiree health insurance from their former employer (COBRA or otherwise). It is expensive, but is probably the best bet. Second, buy an individual policy. As long as your client is relatively healthy, according to America's Health Insurance Plans the average premium is $4,185 per year for people age 60 to 64 ($7,248 for family). You can cut costs even further by establishing an HSA with a high-deductible policy.

RETIREMENT RED ZONE - Prudential uses the term "Retirement Red Zone" to describe "a window consisting of the five years immediately before retirement and the first five years into retirement."  This time is critical because "it's during this period that market downturns or negative investment performance can have a devastating financial effect felt years later when it's too late for retirees to recover."  A primary "red zone" message concerns life insurance during this critical financial period, for income replacement needs (retirement and an 'empty nest' don't necessarily coincide anymore), replacement of a deceased spouse's pension benefits and using life insurance proceeds to pay off mortgages or other debts the surviving spouse may have in retirement.

TOP SAVINGS CITIES - As you may be aware, Americans aren't "into" savings.  In fact, the U.S. personal savings rate was a negative 0.5% last year.  According to the A.G. Edwards' Nest Egg Index though, if you live in Los Alamos, NM, Fairfield County, CT or San Jose, CA, you're in one of the American cities doing the best job of building wealth.  For more information and to see where your city or state ranks, click here. 

TOP RECOMMENDATIONS...TERM LIFE AND VAs - According to a survey by Investment News, the vast majority of financial advisers recommend term life insurance instead of whole life to clients, and those who recommend annuities prefer variable over fixed. Here is a thought...why not variable life for both protection and accumulation? Lots of advantages to this approach.

ADVISERS NOT USING HSAs – In the same Investment News survey, advisers don't seem to be embracing HSAs for their clients. Only about a third of the advisers said that they were recommending that their clients open a health savings account.

RETIREMENT WITHDRAWAL BENCHMARK RISING – Financial distribution planning guru, William Bengen has upped his benchmark for withdrawal percentages in retirement. He used to recommend not more than 4%, but has recently said his studies now indicate retirees willing to assume significant risk can start with as much as a 7.62% withdrawal. The apparent key is adjusting the withdrawal percentage in "bull and/or bear" markets. To us, a safer plan is to set it in the 4-5% range.

WOMEN LIVE LONGER BUT DON'T KNOW IT – The Society of Actuaries reports that middle-aged women who are not yet retired are more likely to underestimate their longevity. This may cause them to also underestimate the amount of money they will need in retirement.

RETURN OF THE FAMILY PLAN – "What is old is new again." New York Life has announced the introduction of Family Protection Insurance - a comprehensive family life insurance plan that can meet families' changing needs over time, all in one simple term policy. "With September being Life Insurance Awareness Month, this is a perfect time for families to take stock of their insurance coverage. This innovative new product may be just the thing many families need to get started with an insurance program to protect their future. Young couples and hardworking families often recognize the need for life insurance planning and coverage, but the complexities of finding the right policy can be daunting. Family Protection Insurance provides one-stop shopping, making life insurance simple and accessible for the entire family." We wholeheartedly agree with everything except the "innovative new product" part.

ANNUITY OWNERS NOT SURE WHY – A study by Financial Research indicates that over 17% of retirees who own annuities are not quite sure why they do. Other retirees cited guaranteed death benefits as the top reason to own an annuity and guaranteed income as second.

DON'T FORGET BUSINESS INTERRUPTION - The Insurance Information Institute reminds us that although most small business owners know they need property and casualty insurance, many forget about the vital need for business interruption insurance. Make sure your clients are aware of and purchase this type of insurance -- or they could see their hard work and dreams become a casualty of a fire, flood, earthquake or storm. The III's Web site has a section at www.iii.org/individuals/business that discusses the kinds of policies needed for disaster coverage.

YOU PICK 'UM – This is what makes reporting on the financial industry so much fun and a lot like weather forecasting. Here are two headlines that appeared next to each other in our Daily Financial E-News:
Rates on 30-Year Mortgages Increase
Mortgage interest rates fall again

GAS PRICES LOWER THAN 1980 – This may not make you feel any better about the big bucks necessary to fill-up the "family roadster," but adjusted for inflation and "minutes worked," we are paying significantly less for gas than we did in 1980. Nationwide, gas recently averaged around $2.60 a gallon - the inflation-adjusted high in 1980 was around $3.15. Moreover, in 1980, the average American had to work 105 minutes to buy enough gas to drive the average car 100 miles, but in 2006 that figure is 52 minutes.