© Copyright 2007
US FlagSeptember 15, 2007 Edition


NAIFA GOES TO THE HILL – The National Association of Insurance and Financial Advisors just concluded its annual convention in Washington, DC. One of the highlights of the event occurred when 1,400 NAIFA members went to Capital Hill to ask for support of Life Insurance Awareness Month (this month!) and to discuss issues important to our industry. The three targeted issues were:

1.    Prevent the government from using the new “Pay-Go Rules” as justification for taxing the internal build-up of insurance, annuities and qualified plans. See position paper here.

2.    Support the continued payment of fees under SEC Rule 12b-1 to registered representatives as compensation for providing continuing service to their mutual fund clients. See position paper here.

3.    Prevent undermining of the McCarran-Ferguson Act and state insurance regulatory authority by the creation of an additional layer of federal oversight at the Federal Trade Commission and Department of Justice. See NAIFA’s position paper by clicking here.

JOIN NAIFA! - Take a good look at the three issues above...especially one and two. Would changes in those areas affect your business? I know many advisors who would literally be put out of business. Further, the changes would have a disastrous effect on the public. The U.S. is close to a 0% savings rate now, and without these incentives to save and sell, it will only get worse. Please join with us by joining NAIFA...it is the most powerful tool we have to protect our clients and ourselves. Go to http://www.naifa.org for details.

JUST HOW IMPORTANT ARE FED RATES? – Many are predicting that the U.S. will face a significant economic downturn if the Federal Reserve does not make a substantial cut to the federal funds interest rate. 

JUST WHAT WILL HAPPEN WITH THE RATES? – Many believe it is a foregone conclusion that rates will be reduced when the Fed next meets on September 17, but will they? In recent speeches, Fed Chairman Bernanke has avoided the issue and the Fed governors are increasingly showing signs of division. However, conventional wisdom seems to point toward a reduction or maybe two before year end...but who knows.

RECESSION LIKELY? - A WSJ survey of “economic forecasters” reveals that 36% believe we are likely headed for a recession. That is up from 28% last month. Individual forecasts ranged from 5% to 90%, however.

JUNK BOND DEFAULTS TO GET WORSE - Moody's Investors Service says junk bond defaults are likely to triple within the next year...from 1.4% currently to 4.5% in 2008 and 5.6% in 2009. They further predict that “the era of easy access to credit” is over.

BASIC AND ESSENTIAL HEALTH SERVICES – The Government Accountability Office (GAO) has produced a report indicating that many agree the federal government should take the lead in ensuring that all Americans have coverage for “basic and essential health care services.”  In the preface to the report, available here, Comptroller General and GAO head David Walker writes, “Unless we fix our health care system—in both the public and private sectors—rising health care costs will have severe, adverse consequences for the federal budget as well as the U.S. economy in the future.”

THE PUBLIC BENEFIT MESS – Recent good times in the market (Okay, maybe we are reporting on an article that is a little dated!) have lessened the crisis situation in the public retirement arena because they have assets, but are just underfunded. The real problem is in the public retirement health benefit arena...mainly because, as the Center for Retirement Research puts it, "We know precisely what the assets are -- zero."  New Jersey's unfunded obligations could amount to $78 billion. California's could run $70 billion, and New York's is somewhere around $50 billion. Alabama's and North Carolina's are roughly $20 billion.  Will taxpayers be asked to pay for these generous benefits? Maybe but "Many taxpayers have no retirement plan whatsoever. Asking them to shore up a system of very generous benefits doesn't seem equitable."

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INSURANCE COMPANIES STRIKE BACK AT SETTLEMENTS – National Underwriter reports that a yet “unnamed life insurer has asked regulators about whether it could offer a loan program aimed at policyholders whose health has changed since their contracts were issued. Eligible policyholders who met program underwriting criteria could borrow unusually high amounts against the contract’s death benefit.” If allowed, such a program would enable insurers to offer a “second opinion” for policyholders considering a life settlement.  

RATING AGENCIES PROBE – According to the WSJ, regulators ranging from the SEC to state attorneys general are probing how the major credit rating agencies, such as S&P and Moody’s, are paid and their independence from Wall Street firms that issue bonds to determine if there is any inappropriate linkage.

LOAN CLOSING RATIO SUFFERING - The collapse of the subprime-mortgage market has prompted investors to back away from riskier borrowers. That in turn has resulted in nearly one third of home loans originated by brokers in August failing to close. 

WORK WITH ME – Following the President’s lead, the Federal Reserve and other regulators are establishing guidelines, which are not mandatory, for loan-service companies to work with borrowers threatened by default. Probably won’t work without incentives or penalties, however.

IT IS A SMALL WORLD AFTER ALL - As the world economy grows, the role and importance of the International Monetary Fund will undoubtedly increase. Hope they are “up to the task” and not “up to something.” 

WALL STREET LAYOFFS – Expect layoffs across the investment-banking industry, as the Wall Street job market becomes a casualty of the credit crunch.

SUBPRIME COLLAPSE LEADS TO LAWSUITS – It seems that “no cloud is without a silver lining” for the legal “industry.” Fallout in the subprime-mortgage market has already prompted a flurry of lawsuits, with many more suits expected to follow. 

HUMANA BUYS KMG - Humana is set to buy KMG, an insurance benefits and third-party administration company, for about $137.7 million in cash and taking on about $50 million of KMG's debt.


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NO SUCH THING AS A FREE LUNCH – The amount of “copy” devoted to the topic of “senior seminars” would indicate a coming storm. The SEC says it wants to crack down on “scam artists who prey on retirees.” The SEC reviewed 110 seminars...half of them involved "exaggerated or misleading" claims and most were sales promotions billed as educational events. FINRA is also looking hard at seminars and other tactics being used to sell seniors. Their probes include an examination of professional designations, as well as reviewing the objectivity and suitability of early-retirement seminars.  Expect more state insurance departments to issue guidelines regarding the proper use of designations, such as this one from the Iowa Insurance Department.  Several industry organizations like SIFMA have issued statements saying "flimflam artists and fly-by-nighters with their gimmicks and come-ons undermine the public's trust and have no place in the financial-services industry."  Meanwhile, the New York State Insurance Department has established an Elder Protection Unit, with special emphasis on sales to seniors of life settlements, Medicare Advantage and Medicare supplement plans, LTC insurance and assisted living arrangements.

SEC AND CONGRESS LOOKING AT DESIGNATIONS – The SEC says the federal government will have to do something to protect older consumers from financial professionals with confusing or misleading credentials. SEC Chairman Christopher Cox told the Senate Committee on Aging that ““There’s a lot of alphabet soup” and that during an upcoming “seniors summit,” the SEC and others will talk about the role the federal government should play in resolving concerns about designations. Some on the Committee believe that insurers should bear more responsibility for advisor quality and annuity sales practices. In the hearing, NAIFA defended the value of annuities...“It is not the products that are abusive. Rather, it is the use or misuse to which they are sometimes put.”   Meanwhile, the CFP Board of Standards is investigating “whether its name is being improperly used by groups that promote bonus certifications.”

NO LIFE INSURANCE FOR NEWLYWEDS - According to a survey by Allstate, 61% of newlyweds have not purchased life insurance and 64% of those still had not purchased any by their third anniversary. You can do something about this with the Virtual Sales Assistant’s Life Guide, Marriage and Money. Just send a copy to every newlywed you know! Check it out by using the VSA’s unique 30 day free look.

OFC SAVINGS – According to a new report, the availability of an optional federal charter, giving insurers and producers the ability to choose between state regulation and a new federal insurance regulatory system, could cut producer licensing costs $268 million to $377 million per year.  For more information on the study, click here. 

SPECIFIC RULES ON SELLING DEFERRED VAs – The SEC has blessed a new FINRA rule designed to protect senior citizens from deceptive sales practices in purchases and exchanges of deferred variable annuities. It establishes suitability standards and requires principals to review transactions before the customer's application is forwarded to the insurance company for processing, to maintain specific written supervisory procedures and to conduct specific training programs to insure reps understand the material features of deferred variable annuities. BGAs and IMOs selling Indexed Annuities should take heed.

IMSA ON ANNUITY SALES - Insurance Marketplace Standards Association (IMSA) testified to the Special Senate Committee on Aging concerning sales practices to seniors. IMSA called for sound compliance practices by companies and distributors to protect all consumers.

FEE-BASED ACCOUNTS TO COMMISSION ACCOUNTS – Effective Oct. 1, about a million fee-based accounts must either become commission-based accounts or the brokers will have to register as financial advisers. From our standpoint, little seems to have changed thus far. Maybe brokers will go back to calling fee-based accounts what they are...flat-commission accounts.

EMPLOYEE PREMIUMS DOUBLE SINCE 2001 – The Kaiser Family Foundation reports the portion of group health insurance premiums paid by employees has nearly doubled since 2001. Although the increase in premiums slowed for the fourth consecutive year, findings indicate that for the average family, premiums for employer-sponsored health insurance totaled $12,000 and $3,300 is paid for by the employee.  While it’s good news that the increase in health insurance premiums continues to slow, the bad news is that premiums for family coverage have increased 78% since 2001, while wages have gone up only 19% and inflation has increased 17% during the same period.

ANNUITY PRODUCT GAINING IN POPULARITY – The third annual “Use of Insurance Products in Financial Plans” conducted by InvestmentNews reveals that with pricing improvement, annuities are now the most popular insurance product among financial advisers. The percentage of advisers who said they recommended annuities grew to 37% this year, from 32% last year.

ANNUITY SALES UP AGAIN – According to LIMRA, sales of annuities for the first half of 2007 were $124.5 billion. That is up 3% over the first half of 2006. The gain came from variable annuities, as fixed annuities were down 12% and indexed annuities fell slightly.

LIFE INSURANCE BY THE NUMBERS - With the 2007 Life Insurance Awareness Month at hand, LIMRA International has produced a set of fact sheets that give the numbers on sales, ownership and attitudes towards life insurance consumers. The fact sheets are available to LIMRA members and the public at LIMRA’s website.

POSTPONED – The IRS has postponed until December 31, 2008 new rules concerning deferred compensation plan deferral elections and payment timing.  A copy of the IRS extension notice is available here. 

CHINA TO OPEN SECURITY INVESTMENTS - The China Securities Regulatory Commission is set to open to foreign investments in China's securities industry. Few would argue that China is the largest “emerging-market” opportunity in the foreseeable future. On the same front, China's securities regulators will allow NYSE Euronext to become the first foreign stock exchange to open an office in China.  It will be located in Beijing.

SUCCESSION PLANNING IN THE FAMILY – Many older advisors are finding “diamonds in their own back yards” when it comes to succession planning for their practices.  Specifically, they are hiring their sons, daughters and other relatives to carry on for them. One problem is who and how to train them. We have a solution. The Virtual Sales Assistant contains everything any planner needs to succeed. Perhaps the most important for a new planner is a book entitled “Building a Financial Service Practice.” If you are planning to bring someone into your business, check it out by using the VSA’s unique 30 day free look.

YOUR RETIREMENT HOME? - According to Financial Freedom, only about 25% of seniors ages 62 to 75 say it is “very likely” or “somewhat likely” that they will pass their homes on to heirs. That number is down 42% since last year. Implication? More will be using the equity in their homes for a source of retirement funds.

MORE REVERSE MORTAGES – The above would indicate that reverse mortgages are likely to increase in popularity.  Genworth Financial and Bank of America think so. Genworth just acquired Liberty Reverse Mortgage, the fourth-ranked company in the reverse mortgage industry, and BOA bought the number three company, Seattle Mortgage. Expect more interest from big players in this arena.

HISTORY OF ESTATE TAXES – Did you know that the estate tax had it beginnings when the cost of the Civil War led the federal government to impose a tax? At that time, the “estate tax” was 1% on property left to descendants, 2% on property left to siblings, and 6% on property left to all others. Want to know more? Check out this history of the estate tax from the IRS.

TROUBLE – According to InvestmentNews, Leona Helmsley’s $12 million bequest to her dog, Trouble, is far from the only strange will request that advisors deal with.  Read on...