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 December 1, 2006
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NYSE
and NASD FORM SINGLE SRO – The NYSE and the NASD
have
agreed to merge their regulatory functions and create a single Self
Regulatory Organization. Most in the industry see this as a positive
step, since it will combine "routine examinations, enforcement and
rule-making." National Underwriter reports that the
consolidation
"could simplify compliance for large insurers with securities
affiliates that belong to the NYSE."
FIRSTS
- Here
are a couple of firsts: Bank of America is now the largest bank in the
world. Based on reported shares outstanding, Bank of America's market
capitalization totaled $243.71 billion as of Tuesday, while Citigroup's
totaled $243.52 billion. Also, U.S.-based mutual fund assets
rose
by $286.6 billion in October, topping the $10 trillion mark for the
first time.
SOFT
LANDING
- Federal Reserve Chairman Ben S. Bernanke doesn't believe that the
threat of inflation is over, but inflation is "better behaved of late"
and "the economy appears likely to expand at a moderate rate, close to
or modestly below the economy's long-run sustainable pace." This should
avoid a hard recession as inflation declines.
PAULSON
AND
EXCESSIVE REGULATION - Treasury Secretary Henry Paulson is
urging officials to strike a regulatory balance that will inspire
investor confidence, not stifle competition. Sometimes we
question if company compliance officers really understand the problems.
Many seem to be comfortable in just saying and/or cloaking the real
issues with confusing legal jargon. As many of you know, our "flagship"
product, the Virtual Sales Assistant, now contains a personal homepage
for subscribers to use with their prospects and clients. (Check out
mine at finsecurity.com/boquin
and get your own through the VSA.)
The length of the disclaimers and the lack of common sense regarding
what is required on stationary, business cards and home pages are
ridiculous! It's hard to believe that "mumbo jumbo" disclaimers address
the real problems caused by greed and dishonesty.
PUTNAM
SALE NEAR
– Marsh McLennan is moving quickly to sell its Putnam mutual
fund
unit. Bidders are likely to be Amerprise and Lincoln National, along
with several foreign firms.
NEW
SCANDAL?
- What a great way to start the new year, with a new scandal
brewing. This one involves guaranteed investments contracts
or
GICs. Investment
News
reports that the SEC, the Department of Justice and the IRS are
conducting an investigation of "whether tainted bidding for GICs by
insurers and brokers caused investors to receive lower investment
returns." So far two insurers - AIG and Genworth - have been
subpoenaed concerning their alleged involvement in a bid-rigging scheme
for municipal-GIC business. Don't be surprised if the
investigation widens.
HOME
PRICES FALL
- In October, the average home price nationally was $306,258. That is
down from $306,759 a year ago. The drop was the first in the 12 years
that the Federal Housing Finance Board has reported the data.
STRANGER-OWNED
LIFE
INSURANCE – ACLI, AALU, NAIFA and NAILBA are all
calling
for changes to state regulation to protect the vital, social purposes
of life insurance from transactions known as stranger-owned life
insurance (SOLI). In SOLI arrangements, speculators who have no
relationship to insured persons initiate coverage on older people and
fund the premium payments for investment purposes. These arrangements
circumvent the intent behind state insurable interest laws, which are
in place to ensure that the person taking out an insurance policy has
an interest in the insured's continued good health. In
addition,
some insurers are placing increased scrutiny on policies written on
people over age 65, as well as inserting policy language intended to
restrict the use of premium financing.
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LIMRA
AND LOMA LIKELY TO MERGE -
LIMRA International and LOMA have announced plans that will likely
result in the merger of the two organizations with the next year. A
merger would make sense because the groups currently offer
complementary services, and "teaming up could create a bigger,
stronger, more efficient organization."
FLOOD
DAMAGE RULED INSURABLE LOSS IN
LOUISIANA - A Louisiana federal judge has ruled many New
Orleans
homeowners whose houses sustained water damage after Hurricane Katrina
are not excluded from coverage under their insurance policies, a
judgment that represents a loss for the insurance industry. The
insurance companies argued the industry standard wording for what
constitutes a flood covers any inundation of dry land by water. But his
decision, which insurers are expected to appeal, drew a distinction
between flooding that occurs naturally versus from man-made causes,
such as levee failures. One insurance industry official said he
believed the ruling will be overturned on appeal, as it appears to
ignore that companies are using the well-established standards accepted
by federal regulators.
SPITZER
VERSUS GRASSO – The NY
Attorney General hired a finance professor to evaluate just how much of
Dick Grasso's $187.5 billion pay package was "ill-gotten." The
professor is charged with determining just how much Grasso's job was
worth.
COX
ON SOX – SEC chairman
Christopher Cox will unveil significant changes in the Sarbanes-Oxley
law soon. Reasons are said to be the complaints about compliance
expenses, but mostly because the SEC fears companies will elect to move
overseas where the rules are not so tight.
FRAUD
RECOVERIES - For the fiscal
year ending September 30, the Justice Department recovered a record
amount of more than $3.1 billion in cases involving fraud against the
government. About 72% of the amount recovered was in the
health
care sector, primarily for Medicare/Medicaid fraud.
GLOBAL
SLOWDOWN – Morgan
Stanley predicts a slowing of the growth of the global economy in 2007.
The prediction is based on possible changes in the relationship between
U.S. consumers and Chinese producers. Amazingly, the U.S. and Chinese
economies have accounted for two-thirds of all of the increase in
global activity in the past five years.
401(k)
LAWSUITS – Recent
lawsuits alleging that revenue-sharing agreements with 401(k) providers
are illegal could put some advisers in jeopardy. Big companies have
been the target of the suits, but experts say that future actions are
likely to include financial advisers and others involved in
establishing and administering 401(k) plans. Forbes has a good
article titled
"Retirement Rip-Off" on this subject available here.
FEWER
LIFE APPS...AGAIN - MIB
reports U.S. life insurers wrote 3.3% fewer individual life insurance
applications in October than they did in October 2005. The MIB activity
index has fallen during most months during the past three years.
KILLER
GRANNIES VERSUS MIB - In May
2006, Helen Golay and her accomplice Olga Rudderschmidtt, both women in
their 70s, were arrested in Los Angeles for insurance fraud after they
befriended two unemployed homeless men, took out multiple life
insurance policies, waited until the contestable period had expired and
allegedly had them murdered. Discovery of the fraud was a chance
meeting between two detectives, one who investigated the first unsolved
death in 1999 (significant life insurance benefits were paid to the
women that time) and one who investigated the June 2005 death of the
second man. His demise spurred a series of 11 life insurance claims on
policies from nine different companies totaling more than $3.6
million. MIB has introduced its Claims Activity Index (CAI),
the
first industry-wide database, to help prevent life insurance claims
fraud like this.
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NASD
VA SUITBILITY - NASD has
clarified the VA suitability rule first proposed in 2004. Brokers still
have to inform customers of the fees, surrender periods, tax penalties,
etc., but only in general terms. They must sign and submit
their
suitability determinations and a principal must also approve a VA
application within five days of submission to a carrier. The proposed
rule also requires firms to check for brokers who have unusually high
VA exchange rates.
KIDS,
MONEY AND
CHRISTMAS - Looking for a gift that keeps on giving for
your
kids and/or grandkids? Check out the suggestions from CNNMoney by
clicking here.
Here is another thought, since two of the five gift suggestions are an
IRA and a 529 plan, why not e-mail it to your clients?
RADICAL
REDESIGN
- According to a new Prudential survey, "America's youngest workers are
eager to embrace a new approach to the design of the nation's
retirement programs," including auto-enrollment, mandated minimum
contribution rates, automatic gradual increases in contribution levels
and investment option defaults. Looks to us like the
"do-it-for-us" types outnumber the "do-it-ourselfers." More
information on the survey is available here.
MEDICARE
PART B COST
ESCALATES - Beginning in January, seniors whose income is
greater than $80,000 ($160,000 if married) will pay a higher premium
for Medicare Part B coverage. In 2007, most beneficiaries will pay
$93.50 per month (a $5 increase over the 2006 premium), but seniors
with higher modified adjusted gross incomes will pay:
- incomes
between $80,000 and $100,000 ($160,000 and $200,000 if married):
$105.80 per month;
- incomes
from $100,000 to $150,000 ($200,000 to $300,000 if married): $124.40
per month;
- incomes
from $150,000 to $200,000 ($300,000 to $400,000 if married): $142.90
per month; and
- incomes
above $200,000 single/$400,000 married: $161.40 per month.
MORE
IRS AUDITS FOR TOP EARNERS -
This year, the IRS audited the returns of 17,015 tax filers reporting
income of $1 million or more...up 33% from the 12,835 audits of
million-dollar earners it conducted in 2005. Audits of
taxpayers
with reported incomes over $100,000 rose 18% from last year, to more
than 257,000 returns. Overall, the agency audited nearly 1.3 million
individual returns, up 6% from 2005.
RISING
FASTER
- A new study by Families USA finds that family health insurance
premiums are generally rising much more steeply than workers'
earnings. Nationwide, health insurance premiums rose an
average
of 74% from 2000 to 2006, six times the 12% increase in median worker
earnings in the same period.
PERSONAL
ACCOUNTS
AND SOCIAL SECURITY - Social Security reform is likely to
come
to the forefront, perhaps in the form of personal savings accounts that
are not tied to Social Security. The "Universal 401(k)" would extend
the benefits of 401(k) saving to workers whose companies don't offer
such accounts and offer a government contribution as a match, with
greater matches going to low-income workers. This could include some
reduction in future Social Security benefits and, thereby, place the
program on a sounder financial basis.
BETTER
EDUCATION FOR
WORKERS – Many experts believe that investor
education is
not adequate to help workers save for retirement. We believe this
probably varies with companies and advisors, but we do agree that one
of the problems is that many employers are so concerned about being
sued that they are afraid of providing meaningful education.
THE
INDEX OF
CONSUMER SATISFACTION DOWN - The index of consumer
satisfaction
dropped from 93.6 in October to 92.1 in November. The drop is
attributed to the drop in home values; overall, however, the index
indicates that Americans remain upbeat about the economy.
CONGRESSIONAL
GRIDLOCK – Polls of private economists generally
agree
that the Democrats are likely to raise the minimum wage, but don't
expect much action on the economy.
HSAs
THREATENED
- Health Savings Accounts are not very popular with the
Democratic-controlled Congress and could have problems for the future.
Reason: They are viewed by many as tax havens for the wealthy. However,
even that might have a silver lining. Some industry pundits believe
more people will buy Long Term Care Insurance rather than establishing
an HSA to pay LTC costs. (FYI, a recent LIFE survey found that only 15%
of U.S. adults had LTCI.) Interestingly, a recent Kaiser
Family
Foundation survey reveals that holders of personal health accounts,
like HSAs, may be more likely than members of conventional health plans
to go without needed medical care and, as a result, miss more work.
THE
DANGER WITHIN
- Banks are spending big bucks in order to protect their systems from
computer hackers. Apparently, however, they are just now
waking
up to what could be a bigger danger...the theft of client information
by criminals in their own office.
WE WANT
IT ALL
- Several articles in the current edition of Health Affairs, a
health care
administration journal, are of interest. One article
concludes
that Americans want their health plans to be more flexible, but they
are unwilling to pay for that flexibility, instead feeling that
employers and the government should pay more for their
coverage.
Another article points out the decline in companies providing retiree
health coverage, down from 32% in 1997 to 25% in 2003. Still
another article points out the challenges faced by insurers as the
employees covered by employer-based health coverage are getting older,
with fewer younger people who have lower health care costs covered by
these plans. Something's gotta give!
THE
LAST TAX FREE
CHRISTMAS? – Sounds like a movie title, but this
may very
well be the last Christmas season you can purchase tax free online.
Technically, online purchasers owe sales tax to their home states, and
sometimes their cities or towns, at combined rates averaging nearly
7.5%, but states can't constitutionally require a merchant to collect
the tax unless the merchant has some physical connection to that state.
However, there is nothing to stop Congress from authorizing states to
require collection by out-of-state sellers. There is now a system in
place called SSUTA (Streamlined Sales and Use Tax Agreement) that will
make collection possible. Expect politicians to start eyeing this tax
revenue stream.
WHAT'S
IN A NUMBER
– Ever wonder what those 9 digits in your Social Security
number
represent? The SSN is divided into three parts: the area, group and
serial numbers. The first three digits are the area number. The area
number reflects the state where you applied for your number or the
mailing address on your application for the number. The middle two
digits are the group number. It serves to break the number into
conveniently sized blocks. The last four digits are the serial number
and represent a straight numerical sequence of digits from 0001-9999
within the group. The SSA has issued more than 420 million SSNs and
issues about five and a half million new numbers each year.
To
date, no numbers have been repeated.
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