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 November 15, 2006
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COMMON
SENSE - In a victory for common sense, a federal judge has ruled
that homeowners who suffered losses from Hurricane Katrina can't
recover insurance payments that exceed the amount of their loss.
In the case in question, a Mississippi resident who had already
received $280,000 in flood insurance payments for the loss of his home
appraised at $280,000 to $285,000 prior to Katrina went on to sue State
Farm in order to also collect under his homeowner's policy. In
his ruling the judge wrote, "It is a basic proposition that insurance
law is based on the principle of indemnification and is aimed at
reimbursement. The benefit derived from insurance should be no
greater in value than the loss."
RAISE TAXES, LOWER
SHORTFALL – Former Treasury Secretary Robert Rubin urged
lawmakers to increase taxes in order to rid the U.S. economy of its
$250 billion fiscal shortfall. Some think taking that much out of the
economy could have an unwanted effect. We think it may be time to try
something novel, like cutting expenses or collecting all of what people
owe currently.
PUBLIC PENSIONS AND
PRIVATE EQUITY – Most of the nearly $180 billion in this
year's already record private equity deals are coming from public
pension funds. Let's hope they do well because many such pensions are
seriously underfunded. In fact, an article in The New York Times warns that "a
number of state and local governments are quietly challenging"
government worker's pension guarantees by finding ways to "scale back
existing promises and even shrink some current payments."
POLITICAL PREDICTIONS
- Well, we suppose someone has to do it...in fact, lots of "someones"
are making predictions as to the impact of the Democratic takeover of
Congress in January. Here's a summary of the predictions we've
seen that relate to issues of interest to our industry:
- Taxes: The prediction is that
the Democrats will return to the old "pay as you go" rules, which
require that any new tax cuts or extensions of existing tax cuts be
paid for with spending cuts. That probably means permanent repeal
of the estate tax is off the table, at least for now, and it will make
it more difficult to pass an above-the-line tax deduction for LTC
premiums. In addition, it's unlikely that a Democratic Congress
will move forward with the lifetime savings account proposal advocated
by the Bush administration Tax Reform Commission.
- Insurance regulation: The
extent to which federal insurance regulation moves forward depends to
some degree on which Democrats chair the committees dealing with the
issue.
- Health care: Democrats are
likely to spend more on hospital and health-care services and protect
Medicare payments, which could benefit the health care industry.
There may be an attempt to narrow or eliminate the "doughnut hole" in
the Medicare Part D prescription drug benefit, as well as repeal the
prohibition against negotiating drug prices with pharmaceutical
companies.
- Executive pay: Current tax law
encourages the granting of stock options to executives. Companies
must pay taxes on salaries above $1 million per year, but compensation
linked to a company's performance, such as stock options, can be
deducted. Look for compensation law to be modified, very possibly
on a bipartisan basis.
KUDOS TO MDRT, LAIFA AND NAILBA -
The Million Dollar Round Table and the Louisiana Association of
Insurance and Financial Advisors provided a team volunteers from
Louisiana, Canada and South Africa to help rebuild homes in New
Orleans. NAILBA has started a foundation of its own and expects
to give away about $250,000 this year alone.
SINGLE REGULATORY
FIRM? – The brokerage industry will be in for a single
regulatory entity if SEC Chairman Christopher Cox's opinion
matters. His support for a single, self-regulatory organization
comes as the National Association of Securities Dealers and the New
York Stock Exchange discuss the possibility of combining their
regulatory functions. There sure does appear to be a great deal of
redundancy in the regulation "industry."
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PUTNAM WANTS MONEY BACK - Putnam
Investments wants $21 million back from a yet unnamed broker-dealer for
misleading the company about a security Putnam bought.
MISLEADING DESIGNATIONS -
Massachusetts is proposing to become the first state to prohibit the
use of misleading titles by financial services professionals and the
Financial Planning Association has endorsed the action. "There are way
too many titles floating around out there which imply expertise where
none exists. FPA supports the Division's goal of protecting
senior investors from fraud and abusive sales practices." We're
for protecting everyone from "fraud and abusive sales practices."
MEDICAL COSTS AND RETIREMENT SAVINGS
- This isn't good news. PricewaterhouseCoopers predicts that
employers who do not make changes to their benefit packages should
expect double-digit increases in healthcare costs in 2007. More
information can be found here.
The expectation, however, is that employers will adjust their health
benefit design to avoid large cost increases and one way to do that is
to pass more of the cost along to employees. In light of a recent
Ameriprise Financial study, that's bad news. The Ameriprise
study, "Benefit Cost Increases: Impact on Worker Financial Health and
Retirement Savings," found that as employees pay more for their health
care, the tendency is to then save and invest less for
retirement. More information on the Ameriprise survey is
available here.
HARTFORD TO PAY $55 MILLION -
Hartford will return $40 million and pay a $15 million penalty to
settle charges of using fund assets to pay for the marketing and
distribution of its mutual funds and annuities. According to the SEC,
Hartford funds' prospectuses said that it used its own assets to pay
for "shelf space."
AHIP PROPOSAL - America's Health
Insurance Plans (AHIP) has released what it calls a "comprehensive new
set of targeted policy proposals" designed to extend health insurance
coverage to the 40 million Americans who are currently uninsured.
The organization estimates that the cost of its proposals to the
federal government would be $300 billion over 10 years. For more
information on the AHIP proposal, click here.
UNEMPLOYMENT EVEN LOWER – The
Labor Department reports that the unemployment rate dropped to 4.4% in
October (lowest level since May 2001) and employment grew by 437,000 to
145.3 million.
NATIONAL UNDERWRITER OWNERSHIP CHANGE
- Wind Point Partners, a private equity firm, has acquired Highline
Media, the corporate parent of National Underwriter, and Pfingsten
Publishing. Highline Media and Pfingsten Publishing will operate under
the corporate umbrella of a newly formed publisher, Summit Business
Media. Pfingsten publishes Life Insurance Selling and American Agent
& Broker.
WALL STREET'S BIG BONUSES –
For the fourth consecutive year, annual bonuses will be fat on Wall
Street. Bloomberg reports that the top five Wall Street firms are set
to give their 173,000 employees $36 billion...a 30% increase over last
year's bonuses.
CHASE AND MET FINED - Chase and
MetLife have been fined $1.66 million by the NASD for failing to
provide systems and procedures to govern the sale of 529 college
savings plans.
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FUND OWNERSHIP NEARS RECORD HIGH -
The Investment Company Institute Fund reports that nearly 55 million
households now own mutual funds. That is slightly below 2001 levels,
when about 56 million households owned funds. On an individual basis,
nearly one-third of all Americans now own some mutual funds.
2007 INFLATION
ADJUSTMENTS - The IRS has realized the 2007 inflation
adjustments, including tax brackets, standard deductions, personal
exemptions, eligible long-term care premiums and benefits and HSA
amounts (plus let's not forget the ever-important tax on arrow
shafts!). Complete information is available on the IRS website.
NAILBA'S CONTINUING
SUCCESS - NAILBA 25, which took place November 2-4 in Dallas,
will go down in the record books as another incredibly successful
industry event, featuring more exhibitors and attendees than any
previous NAILBA event. Over 1,400 attendees participated in this year's
exclusive event and 120 companies showcased their products in 143
booths. Congrats to NAILBA for a great conference and for 25 great
years of service to the industry.
DEFINED
CONTRIBUTIONS AND DEFINED BENEFITS – A study by Barclays
indicates that defined contribution plans are not adequate methods to
save for retirement and the Employee Benefit Research Institute reports
fewer people are participating in employer-based defined benefit and
defined contribution plans. Further, some experts predict federal laws
governing pension plans, accounting modifications and funding
shortfalls signal the demise of defined benefit plans. This is not good
news.
E-MAIL INVESTMENT
SCAMS – The NASD is warning against e-mails that encourage
the purchase of specific stocks. Some of the e-mails may seem as if
they were "misaddressed," but all attempt to create a "pump and dump"
situation. The price is pumped up by misleading investors into buying
the stock and the "dump" occurs when the "perps" sell the stock for an
inflated value. "The best way to avoid being taken in is to ignore the
e-mail entirely. And a cardinal rule of investing is to never rely
solely on information you receive from an unsolicited source - whether
it's in the form of an e-mail, a fax, a text message or a phone call."
NASD also suggests forwarding stock spam e-mails to spam@nasd.com, but we aren't sure they
can handle the volume...we are getting a lot of this junk! More
information is available at nasd.com.
MARKET DATA FEES
- In the wake of fee increases by the NYSE and Nasdaq, an Internet
trade association that represents some Internet "biggies," such as
Yahoo and Google, is asking the SEC to examine the fees that exchanges
charge in return for access to market data. The fee increases
have led a number of sites, such as Yahoo, AOL and Forbes, to pull the
plug on real-time quotes.
SEC, VARIABLE
ANNUITIES AND EIAs – SEC and NASD inspections are finding
specific problems with the methods used to sell annuities to senior
citizens and pre-retirees. Again, most of the inspectors' attention is
being devoted to individuals and groups selling to senior citizens.
SENIOR MARKETING
WARNING – NASD Chairwoman, Mary Schapiro, is being very
candid to those selling financial products to aging baby boomers...be
careful of what you sell and how you sell it. NASD officials see the
aging of the baby boomers as a looming compliance problem.
LAME DUCKS -
It seems a pretty good bet that the current lame duck session of
Congress will renew several tax breaks retroactively to the beginning
of this year. These include the sales tax and college tuition
deductions, as well as the deduction for up to $250 of teachers'
classroom supplies.
CHARITABLE
ENTREPRENEURS AND HEIRS – According to a study by Indiana
University, when it comes to charitable giving, self-made entrepreneurs
are more than twice as generous as millionaires who acquired their
wealth through inheritance. Rather than seeking tax shelters, more than
86% of respondents said they were motivated to give by the opportunity
of "meeting critical needs" in society, while 82.6% said they were
moved by a "feeling that those who have more should give to those with
less."
CHARITABLE TRENDS
- Last year Americans donated some $62.7 billion to the largest U.S.
charities - matching the highest year-over-year percentage increase.
Many are now looking at "give now chose later" via a charitable gift
fund run by a mutual fund company or broker. Here is how it works: The
mutual fund itself is organized as a charitable organization. You can
open an account and give it a name like "The Smith Family Fund" for
instance. When you contribute to your account, you get a tax deduction
for the amount of your contributions. You can leave the money there as
long as you want and add to it whenever you want. It gets invested and
grows. When you are ready to donate some or all of it, you simply let
the mutual fund company know and the company cuts a check on your
behalf. The charity knows it's from you, but you don't get any
additional tax break for the check that goes to the charity.
REPS WOULD PREFER TO
BE "FEE ONLY" - National Financial's second annual "broker
sentiment index" reports that while just 5% of registered reps surveyed
are "fee paid," 23% would prefer to be paid in that way.
WHAT DO RICH WOMEN
WANT? – According to a survey by the Spectrem Group of
women decision makers in households with incomes in excess of $500,000,
they want one-on-one financial advice. Seminars, newsletters and other
impersonal means of communicating are not the way to sell to this
group.
BODY WEIGHT AND LIFE
PREMIUMS – In addition to other underwriting factors, The
Hartford subsidiary, Phoenix Companies, is giving discounts based on
Body Mass Index. What is a BMI? Calculate yours here. Looks a lot
like a height-to-weight table to us.
FEED THE PIG - That's the name
of a website designed to encourage Americans age 25 to 34 to take
control of their financial futures by feeding their piggy banks, rather
than consuming their incomes.
WORKERS AND THEIR
HEALTH BENEFITS - The Employee Benefit Research Institute's
ninth annual Health Confidence Survey shows workers rate the health
care system poorly, but they are very pleased with their own
employer-sponsored plans. So much so that 75% say they would prefer
$6,700 in employment-based health coverage to an additional $6,700 in
salary.
IRS FREE FILING
SERVICES – The IRS is planning on expanding its Web site
to include a free-filing service. According to the IRS Commissioner,
this is being offered in response to the poor quality of tax return
preparation by private companies and "predatory" refund anticipation
loans. This move isn't sitting well with some and is creating a debate
as to whether the IRS should allow taxpayers to file their federal
income tax returns online without assistance from a tax preparer. The
IRS already allows free electronic tax filing, but only to taxpayers
with adjusted gross incomes of $50,000 or less.
WHAT IS RESTRCTING
LIFE SALES? - According to a LIMRA panel, upfront loads and a
lack of diversity in marketing staffs are major roadblocks.
"Compensation drives behavior - that's why changes are needed in the
industry's current front-loaded commission structure." Another
problem is that insurers' agency forces are aging, and older agents
tend to target older clients. One potential solution discussed by the
panel is bringing women with child-care responsibilities into the sales
ranks and giving them flexible, part-time schedules.
SOCIAL SECURITY
RETIREMENT INCOME - The Retirement Corporation of America found
that 23% of Americans intend to rely on Social Security as their main
source of income in retirement. Further 61% believe they will need to
save $500,000 or more before they retire and, while 59% believe that
they are likely to reach their savings goals, only 38% say they are
saving or investing enough. 70% say they are saving regularly, but only
38% say they are saving enough. That is a gap you can fill and the
Virtual Sales Assistant offers a wealth of financial tools to help you
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MEDICARE MSA
- WellPoint has created a Medicare medical savings account program.
Like traditional HSA plans, it will combine a high-deductible Medicare
health plan with an MSA.
SLIGHT SAVING RATE
IMPROVEMENT - The U.S. personal savings rate improved during the
third quarter from a -0.6% to a -0.5% rate. Okay, that's probably
newsworthy strictly from the standpoint that it's still a negative
figure.
METS TO PLAY AT
CITIFIELD - Citigroup will pay a record $20 million for the
naming rights to the new home of the New York Mets baseball team. The
Mets will leave Shea Stadium for Citifield beginning with the 2009
season.
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