Featured Stories:
RIIA announces that DTCC market data now available
Tracking health insurers across a shifting landscape
Body Beautiful: Top health tips for 2012
Half of small business believe America's best days are behind it
American General launches web-based Quick Ticket
Will Fed's interpretation of Volcker constrain recovery?
Health costs threaten retirement savings
Kitchen Table Finances: Increased responsibility for Americans
Daroff: Making tax law
College Funding Solutions announces agreement with Security Mutual
DTCC Market data made available
Market Inflow, outflows now easily available; A wealth of information for advisors
Francois Gadenne, chairman and executive director of the Retirement Income Industry Association, announced today that the Depository Trust & Clearing Corporation (DTCC) has just released the full year 2011 market data for all insurance CUSIPs that it processes. This is a first for annuity and life companies to be able to see marker inflows, outflows and net flows, based on actual transactions, so early in the year.
The report contains a wealth of market data for the companies that report through DTCC. If you are a DTCC client, this data gives you the ability to benchmark your own results against annuity market performance of other leading insurers.
This data will be incorporated in the RIIA Market Insight Advisory Board analysis, which is RIIA's core research database. Firms that join the RIIA Advisory Board will have first access to this competitive information. Any questions or comments please respond to this email and I will get you to the right contact.
View the report here.
A.M. Best Special Report
Tracking Health Insurers Across a Shifting Landscape
Replaces Criteria for Rating Health Insurance Companies
OLDWICK, N.J. - While broadly similar to those for life insurers, A.M. Best Co.'s criteria for analyzing health insurance carriers focus on additional factors such as benchmarks, ratios and qualitative factors relevant to the health care operating environment. Health insurers face a constantly evolving operating environment that now includes the Patient Protection and Affordable Care Act (PPACA), which is changing not only market dynamics for certain segments, but mandatory benefits and other requirements that can impact pricing.
- Capitalization and earnings have improved over the past few years, but new, mandated minimum loss ratios and changes to the rate approval process may impact pricing and margins.
- The implementation of health insurance exchanges in 2014 will overhaul distribution, particularly for the individual and small group markets.
- Small health carriers concentrated in the individual and small group markets may be more vulnerable, lacking the scale and resources to develop innovative responses to changes in the environment and reduce administrative costs.
- When evaluating health insurers' balance sheet strength as part of the rating process, for a Secure rating, B+ (Good) and higher, A.M. Best calls for companies to have substantially more capital than what is assessed under the National Association of Insurance Commissioners' Managed Care Organization
Risk-Based Capital (MCORBC) company action level
- A.M. Best's analysis of capital adequacy begins with calculating each operating insurer's Best's Capital Adequacy Ratio (BCAR), but beyond the BCAR assessment, other significant quantitative factors may include NAIC RBC; current and overall liquidity; underwriting leverage; equity per member per month (capital and surplus to member months); asset leverage; amount of debt or surplus notes; and changes in reserves.
- In assessing operating performance, A.M. Best looks at trends in growth of earnings and return on revenue, but other important considerations, especially after the implementation of PPACA, are medical loss ratios and administrative cost ratios.
- The business profile component of A.M. Best's rating evaluation acknowledges that insuring health care is a local business and that the carrier's dominance of the market in a state or even in part of a state can be an advantage, but geographic concentration also can make a company's business vulnerable to regional regulatory constraints; less disciplined local competition; the local economy; and exclusion from opportunities to grow elsewhere.
As part of its continual review of its rating methodologies, A.M. Best has determined that the analytical approach used when rating health insurance companies is broadly similar to that used for rating life insurers and does not require a separate criteria publication. As such, the criteria report, Rating Health Insurance Companies, has been withdrawn and replaced with this special report, Tracking Health Insurers Across a Shifting Landscape.
Visit A. M. Best here.
Body Beautiful: Top Health Tips for the 2012 New Year
Now's the time to take a fresh new look at your life
by Michael Shahani
Mr. Shahani serves as the Director of Operations at Nebraska Cultures, Inc. He oversees all aspects of manufacturing, new product development, customer service and marketing, as well as coordinates all scientific resources and activities for the company. Visit www.nebraskacultures.com
The New Year is a time when many take a fresh look at their lives (an inventory of past action and inaction) and choose areas where they wish to make a change, presumably for the better. Starting with a review of your personal health regimen is always a great way to begin. People are much more savvy these days when it comes to the importance of diet and exercise to one's health, but there's still much misinformation out there. To help ensure you are not overlooking something major, here's a list of some of the oft-overlooked areas of health concern for us all:
Detox...throwing out the good with the bad?
With the growing popularity of 'detoxing' (e.g. colon cleanse, colonics, fasting, etc.) many often overlook the fact that while your body may be purging itself of negative 'junk' that's been built up over the years, you are also ridding your body of potentially needed nutrients and probiotics. It's important to follow your detox with an appropriate course of nutritionally stable probiotics.
Diet Fads Need to Fade
It's no secret that a healthy diet and exercise burns calories and burning calories reduces weight. So why all of the fad dieting? Drastic diets can harm your body and digestive tract by depleting your body of essential nutrients. A healthy digestive system increases energy and improves your metabolism. So skip the fad diets in 2012...
Don't forget your vitamins
Certain probiotics (L. acidophilus DDS-1) have been shown to produce B vitamins naturally, which support and increase the rate of metabolism, help maintain healthy skin and muscle tone, and enhance nervous system function. Vitamin B9, or Folic Acid, is essential for children, adults, and especially expectant mothers.
Strep throat or other bacterial infection in 2011?
Remember, if you took a course of antibiotics in 2011, it's extremely important to replenish your body's balance by reintroducing probiotics in to your gut/system. This will help bolster your immune system and help ensure a healthier 2012.
You're only as confident as you feel
Regardless of how much exercise you've invested to look your best, it's always hard to feel your best when you're not conditioning your inside as well! Digestive roadblocks can cause unwanted side effects like feeling constipated or bloated if you're not eating enough of the right foods to produce healthy bacteria. Supplementing with probiotics can aid any exercise routine helping you to feel just as strong as you look.
Slow and steady wins the race
Losing weight to be healthier is a commendable goal, but for some, the task can be intimidating. Resorting to extreme diets is not only unhealthy but sometimes life threatening, so losing at a pace your body can 'understand' will only benefit you in the long run. Keep in mind that for every two pounds of excess weight lost, you also drop your cholesterol an average of three points, so shedding a few points can have a significant impact on your health. By setting realistic goals that are manageable and regulating your food intake with probiotic supplements that can help break down food for a healthy digestive system, you’ll be well on your way to a successful 2012.
Where's the love?
Caring for your health is not only a smart move for your body, but also for your well-being! By eating right, staying active, and taking your probiotics regularly, you're giving your body the care and attention it deserves, plus a little extra love!
I don't know what you've been told
Probiotics should be cold! If you're following a regimented plan of fitness action, make sure the 'tools' you use like probiotics aren't abused. Keep them cool and dry so they will be alive when they get into your body. For best results and for long-term storage, most probiotics need to be kept refrigerated.
Quality Over Quantity!
Losing weight can sometimes be a daunting task! We all want to look and feel our best, and we want it right now! This makes it easy to forget how harmful fad dieting can really be, especially on your digestive system, a vital component to weight loss. By keeping a well-balanced and realistic diet, as well as adding probiotic supplements to your health regimen, the frustrations of weight loss will slowly but surely disappear for good, along with the pounds!
The Pulse
Nearly Half of Small Businesses
Believe America's Best Days are Behind It
82 percent agree that Washington should get out of the way of small businesses;
59 percent believe the recent healthcare law makes it harder for small businesses to hire more employees
RENO, Nev. - Nearly half (46 percent) of small businesses believe America's best days are behind it, according to a recent Small Business Opinion Poll conducted by ORC International, commissioned by EMPLOYERS, America's small business insurance specialist. Similarly, small businesses share negative feelings about Washington D.C. with 82 percent agreeing federal government should get out of their way and 72 percent agreeing federal taxation, regulation and legislation make it harder for small businesses to hire more employees.
Though many small business decision-makers are decidedly pessimistic about the U.S. economy and legislation coming out of Washington D.C., they maintain a much more positive outlook about their individual circumstances with 65 percent believing their businesses are headed in the right direction. The EMPLOYERS Small Business Poll also found that only 39 percent of small businesses feel their best days are behind them compared to the 46 percent who believe the national economy's best days are behind it.
EMPLOYERS Small Business Opinion Poll Snapshot:
- 46% agree that America's best days are behind it
- 82% agree that Washington should get out of small business' way
- 65% feel their own business is moving in the right direction
- 34% believe that economic uncertainty is the biggest challenge to small businesses today
- 70% feel that federal government regulations on small businesses today are not reasonable
About the Small Business Opinion Poll
The study commissioned by EMPLOYERS surveyed 501 owners or managers of small businesses with 1-99 full-time employees. Data was collected through telephone interviews during the period Oct. 6 – Oct. 13, 2011 at the 95 percent confidence level. The sample is stratified across business size and industry grouping, including manufacturing/construction, transportation/ communication, wholesale/retail, financial services, or personal/professional services businesses. The survey was conducted by ORC International, an Infogroup company through their Small Business CARAVAN.
About Employers Holdings, Inc.
Employers Holdings, Inc. (NYSE: EIG) is a holding company with subsidiaries that are specialty providers of workers' compensation insurance and services focused on select small businesses engaged in low-to-medium hazard industries. The company, through its subsidiaries, operates throughout the United States. Insurance is offered by Employers Insurance Company of Nevada, Employers Compensation Insurance Company, Employers Preferred Insurance Company, and Employers Assurance Company, all rated A- (Excellent) by A.M. Best Company. Not all insurers do business in all jurisdictions. Additional information can be found at: www.employers.com.
Technology
American General Life Companies Announces
Simplified Web-Based Life Insurance Application: 'AG Quick Ticket'
Streamlining the application process, from submission to commission
HOUSTON, TX. - American General Life Companies (American General) has announced the availability of "AG Quick Ticket," a web-based life insurance application that allows producers to complete and submit applications electronically via a computer or tablet and ensures fast turnaround times for the interview, exam and submission of the full application to American General.
American General partnered with Ebix, Inc. and ExamOne to develop AG Quick Ticket. Producers can access and complete the online application through single-sign on to www.agquickticket.com or through American General's eStation producer business resource center website which provides access to a wealth of product and client information. Once a producer submits an online ticket application using AG Quick Ticket, ExamOne will follow-up with the client to conduct the interview, complete health information and schedule the required paramedical exams.
"We have always invested in technology that allows our valued distribution partners to spend less time on administrative issues and more time serving their clients and growing their business," said Mary Jane Fortin, president and chief executive officer of American General. "In a single click, producers can access AG Quick Ticket and reap the benefits of reduced paperwork, quicker policy issuance, quicker receipt of commissions and more time in their very busy schedules."
Producers can check an application's status at all stages, 24-hours a day, via eStation or ExamOne's website.
A number of life insurance products are currently offered through AG Quick Ticket, including AG Secure Lifetime GUL, AG Select-a-Term, and AG ROP Select-a-Term.
For more information about American General's new AG Quick Ticket, call the company's National Sales Desk at (800) 677-3311.
Federal Interpretation of Volcker Rule
Would Lead to Constraints on U.S. Economic Growth and Recovery
Finance professor Darrell Duffie of the Stanford Graduate School of Business
proposes alternative capital requirements for banks to eliminate potential unintended consequences of financial reform
STANFORD, Calif. - (BUSINESS WIRE) - When the Dodd-Frank financial regulations became law in 2010, the reforms were put in place to promote safety and soundness within the U.S. financial system and lower the risk of future financial crises. However, the government's interpretation of one of those reforms, the Volcker Rule, could have unintended and adverse consequences for the U.S. economy, says Professor Darrell Duffie of the Stanford Graduate School of Business.
These non-bank firms would be outside of the bank regulatory framework
Duffie, the Dean Witter Distinguished Professor of Finance at Stanford, details these potential consequences and proposes an alternative solution in an analysis submitted January 17 to the responsible agencies. They include the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Securities and Exchange Commission. The agencies are taking open comments from experts on the Volcker Rule until February 13. They will finalize their interpretations of the rule by July 12 when the Dodd-Frank reform legislation takes effect.
Duffie reveals a host of potential outcomes from the agencies' current regulatory interpretation, which would effectively reduce the quality and capacity of market-making services that banks now provide to U.S. investors by discouraging market makers from significantly increasing their risk levels in order to handle large imbalanced requests to buy and sell. This would limit an important source of liquidity for financial transactions and create less efficient markets and higher capital-raising and borrowing costs for homeowners and corporations. Duffie argues that it would also eventually lead to the migration of market making outside the banking sector, with potentially bad effects on financial stability.
"These consequences would potentially hurt economic growth at a time when we can least afford it," observes Duffie. "However, we're in a position now to make adjustments in the agencies' interpretation of the Volcker Rule so as to allow effective market making while maintaining low systemic risk through high capital and liquidity requirements for banks engaged in these activities."
Market makers provide immediacy by selling assets to investors that wish to buy them, and buying assets from investors that want to sell. The agencies' proposed restrictions would substantially discourage market makers from doing so, except for trades with predictable risks and predictable profits from bid-ask spreads. The bigger or riskier trades requested by investors would often be shunned by market makers, leading to thinner markets and more price volatility.
Duffie warns that under the proposed rule interpretation, some banks may exit the market-making business altogether, while others may significantly reduce the amount of capital that they devote to market making. This would contribute to higher trade execution costs for investors; greater difficulty in obtaining liquidity; higher borrowing costs for corporations, homeowners, and governments; and higher costs of equity capital for firms issuing common shares.
Duffie suggests that non-bank providers of market-making services would fill some or all of the lost market-making capacity, with unpredictable impacts on financial stability. "These non-bank firms would be outside of the bank regulatory framework," says Duffie. "Our experience with non-bank broker-dealers in the last crisis was not a happy one. Further, Dodd-Frank does not allow individual non-bank market makers to access lender-of-last resort financing from the Federal Reserve," says Duffie. His report points to the relevance of lender-of-last-resort liquidity provided by the European Central Bank during the current Eurozone debt crisis.
As an alternative, Duffie recommends establishing rigorous capital and liquidity requirements for market makers, combined with effective supervisory monitoring, with the objective of ensuring that banks have abundant capital and liquidity to cover their market-making risks. These requirements should continue to be strengthened as deemed appropriate by regulators to robustly protect the Deposit Insurance Fund and the soundness of the financial system.
Duffie cites the work of Stanford Graduate School of Business finance colleagues Anat Admati, Peter DeMarzo, and Paul Pfleiderer in their paper with economist Martin Hellwig of Germany's Max Planck Institute, regarding why high capital requirements should not lead banks to cut back inefficiently on their provision of banking services.
After being approached to prepare an analysis of the Volcker Rule for the Securities Industry and Financial Markets Association (SIFMA), Duffie declined consulting fees in lieu of SIFMA's charitable contribution of $50,000 to the Michael J. Fox Foundation for Parkinson's Research.
Contact:
Stanford Graduate School of Business
Barbara Buell, (650) 723-1771
Director of Communications
buell_barbara@gsb.stanford.edu
The Cost of Care
Escalating Health Care Costs
Threaten to Erode Americans Retirement Savings
Nearly Two-Thirds of Baby Boomers are Not Confident
They Will be Able to Cover Medical Expenses in Retirement
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) has released its report, Health Care Expenses and Retirement Income: How Escalating Costs Impact Retirement Savings. This exclusive report examines the impact of rising medical expenses on Baby Boomers' retirement income planning and strategies that may alleviate some of the financial burden. The report found that a healthy 65-year-old male can expect a total cost of health care expenses, including premiums, for the rest of his lifetime to top $350,000, and a 65-year-old woman can expect at least $417,000 in health care expense, a 13% increase compared to her male counterpart. It also found that the average person on Medicare will have out-of-pocket medical expenses totaling more than $4,300 per year.
Baby Boomers do not believe they are financially prepared to cover future medical expenses. IRI research has found that 63 percent of Baby Boomers lack confidence that they will have enough money for medical expenses they incur during retirement. This concern is especially strong among younger Boomers ages 50 to 54 with 72 percent stating they are lacking confidence that they will have enough money to take care of medical expenses during retirement.
"Health care costs are one of the biggest concerns for Boomers as they enter retirement and is also one of the largest threats to Americans' overall retirement income security," said IRI President and CEO Cathy Weatherford. "This report underscores the importance for Americans to properly plan for retirement and to consult with an advisor to ensure they will have enough money to cover health care costs and other necessary expenses in retirement. It also demonstrates the unique role insured retirement strategies can play in a holistic retirement plan and can help alleviate some of the financial burdens of covering health care costs."
The report provides ways investors can plan for increased medical costs and Medicare premiums when developing their retirement financial plan. Annuities can help cushion health care costs and can reduce the investment needed to cover future health care costs. An annuity with a guaranteed minimum withdrawal benefit (GMWB) can provide a base level of guaranteed lifetime income and supplement income from Social Security.
The report also found that:
- The 2012 Social Security cost-of-living adjustment (COLA) of 3.6% represents an increase, on average, of $42 per month, or approximately $500 for the year.
- Per capita health care expenses increased by 5.75 percent in the twelve-month period ending September 2011.
- For 2012, Medicare Part B premiums will account for 8.2% of the average Social Security benefit, up from 5.1% in 2000.
- While the average Social Security check is 31 percent higher than it was in 2001, premiums for Medicare Part B have doubled.
- Although there is no decline in the COLA net of Part B premiums (net COLA) for 2012, Part B premiums have negatively impacted the COLA for 12 of the past 20 years.
- While 63% of all Boomers lack full confidence in their ability to cover medical expenses in retirement, the concern is most pronounced among younger Boomers with 72 percent of Boomers ages 50-54 concerned about their ability to cover medical costs in retirement, and middle-income Boomers (70 percent) compared to 52 percent of Boomers making more than $75,000 per year. However, concern is consistent among men and women (63 percent) and marital status (63 percent among both married and single Boomers).
- A 55-year-old man can reduce the total investment needed to fund future health expenses by more than 70 percent by adding an annuity.
The full report can be found here.
About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
Kitchen Table Finances
Survey: Increased Personal Financial Responsibility among Americans
With Goals to Save More and Reduce Debt
A Few Recognize What Could Be a Game-Changer For Them: Advice
NEW YORK - Fifty-seven percent of Americans are reporting that they plan to reduce their debt in 2012, and 50% plan to save more, according to the New York Life Kitchen Table Pulse, a new survey of over 1,000 adults aged 30 and older sponsored by New York Life.
Even with these important steps toward more personal financial responsibility, the survey revealed Americans' continued concerns around their financial future. In the year ahead, only 30% agree that their family will be more financially secure and better prepared for the unexpected, and just 24% believe that they will be in better financial shape for retirement.
"The continued economic unsteadiness has hit American families hard, and the survey results echo the concern that our 12,250 agents hear across kitchen tables around the country. Clients are expressing a stronger desire to take personal financial responsibility by saving more and reducing debt. But, with the realization that they cannot rely on traditional financial safety nets any longer, they're asking: 'How do we protect ourselves, take care of our children now and in the future and even prepare for our own retirement needs?'" said Mark Pfaff, executive vice president, New York Life. "We know these kitchen table conversations can assist families with being better prepared and perhaps feel more positive about their financial futures. We hope that many more Americans seek financial guidance in 2012 and take some of their worry off the table."
Some interesting findings from the survey include:
- Those most likely to say that they will reduce their debt in 2012 include those aged 45-59 (65%), men (61%), married adults (61%), and full-time workers (60%).
- Adults ages 30-59 are more likely to intend to save more next year than are those who are older (55% vs. 37%).
What Can Make the Difference in 2012
"In 2012, saving more and spending less is the order of the day, but this is not giving Americans a better feeling about their financial situations and certainly not preparing them for the unexpected. Those who are doing the right thing for their families and their finances want to have some peace of mind. Studies have shown that people who engage with a professional financial representative feel better about their financial strategies and future. That's why our agents reach out to families and businesses in their communities and offer professional assistance that results in peace of mind," said Mr. Pfaff.
According to the survey, only 14% of Americans report they plan to seek professional help managing their finances in 2012. "Looking more closely at responses to this question, it is encouraging to see that those most likely to say that they will seek the help of a financial professional include parents, college graduates and those ages 30-44. But it is important for more Americans to think about engaging a professional. While many believe they can go this alone, or hide their heads in the sand, the continued economic uncertainties that persist today would be better managed with professional assistance” added Mr. Pfaff.
Survey Methodology
These are some of the findings of an Ipsos poll conducted November 10-14, 2011. For the survey, a national sample of 1,011 adults aged 30 and older from Ipsos' U.S. online panel were interviewed online. Weighting was then employed to balance demographics and ensure that the sample's composition reflects that of the U.S. adult population according to Census data and to provide results intended to approximate the sample universe. A survey with an unweighted probability sample of 1,011 and a 100% response rate would have an estimated margin of error of +/- 3.1 percentage points 19 times out of 20 of what the results would have been had the entire adult population of adults aged 30 and older in the United States had been polled. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.
About New York Life
New York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest mutual life insurance company in the United States and one of the largest life insurers in the world. New York Life has the highest possible financial strength ratings currently awarded to any life insurer from all four of the major credit rating agencies: A.M. Best (A++), Fitch (AAA), Moody's Investors Service (Aaa), Standard & Poor's (AA+). Headquartered in New York City, New York Life's family of companies offers life insurance, retirement income, investments and long-term care insurance. New York Life Investments provides institutional asset management and retirement plan services. Other New York Life affiliates provide an array of securities products and services, as well as retail mutual funds. Please visit New York Life's Web site at www.newyorklife.com for more information.
Watching tax law being made
One person's entitlement is another's necessity
Not voodoo economics. Meaningful tax deductions that support meaningful job creation
by Herbert K. Daroff, J.D., CFP
Mr. Daroff is affiliated with Baystate Financial Planning in Boston. He can be reached at hdaroff@baystatefinancialplanning.com
It has been said that watching tax law being made is like watching sausage being made. Both will make you sick to your stomach.
- What changes will be made during 2012 (an election year)?
- What will we have to look forward to if Congress gets real about offsetting the $15B (likely, much higher) deficit?
Let's first put that number, $15B, into perspective.
Imagine a family who spent $38,000 last year, but only took in income of $25,000. They added $13,000 to their already existing debt now totaling $150,000. As their financial planner, what would you recommend? How much less spending would you suggest? The Federal Government cut its spending by $35B. That's a big number. Right? But let's compare that to the Family Budget by simply removing eight (8) zeroes.
Family Federal Government Translation
Spending $38,000 $3,800,000,000,000 $3.8T
Income $25,000 $2,500,000,000,000 $2.5T
Total Debt $150,000 $15,000,000,000,000 $15T
Reduced Spending $350 $35,000,000,000 $35B
That's right!! $350! This is how a local newscaster made the comparison. Well done! The government's $35B doesn't look all that big anymore. Does it?
So, what changes will occur in an election year?
Don't hold your breath. Who wants to campaign for higher taxes or reduced spending? Of course they will all tell us that they will be more fiscally responsible. By doing what? Some programs will get cut. Some more jobs will be lost. We need alternative energy. Right? But, don't put the windmill farm in my backyard. We need better cell phone coverage. But, don't put the tower in my backyard. I did a seminar last year on charitable planned giving. I explained that the government is providing fewer dollars to programs in their community that they may want to benefit. I demonstrated the tax savings available from a number of different programs. One of the attendees said, "But if the government collects less taxes, won't the budget problems get worse?" I said, "What if you help fund an after school program that results in less crime in your community. The government could spend less money on police details and courts." The attendee said, "That will hurt the police officers who lose their jobs."
First and foremost, we need more jobs.
But, that doesn't include increasing crime so that we can hire more police officers. We need to have a NET increase in jobs. Some more jobs will be lost. Others will be created. The idea is to create more that we lose. We need alternative energy sources. We need infrastructure re-building. You want government money? Create jobs. Create jobs that last.
Here are some of my suggestions:
1. Put people to work who are receiving government income for not working. One of my pet peeves is road signs covered by the over growth of trees and bushes. If you are able to work and receiving unemployment income, why not assign sections of roads and trim the trees. The work is NOT being done by municipal services employees now. But, the work needs to be done. This one does NOT save taxes or reduce spending, but it does get people outside, working, and gets work done that needs to be done.
2. We are spending money re-building our roads and bridges. More needs to be done. How do we fund it? Let's increase the tax rate to 60%, but then create meaningful tax deductions for investments in infrastructure re-building. By the way, that is NOT a tax increase. It is a tax rate increase. It may actually lower your taxes. If you want to pay more in taxes, then don't support infra-structure re-building.
I pay more in taxes as a percentage of my income now in a 35% top tax bracket (and the Alternative Minimum Tax) than I did when I was in a 50% tax bracket, but could take advantage of meaningful deductions. How? Tax advantaged limited partnerships. Before you scoff, please remember, many of them failed because the government changed the rules, not because of fraud. The old joke went like this: A limited partnership has two groups of parties. General partners who have a great deal of experience; and Limited partners who have a great deal of money... Then, they change places. The general partners walk away with all of the money; and The limited partners walk away with an interesting experience.
But, during the heyday of these programs, medical facilities funded new and better equipment (e.g., CAT Scan machines for Mass General), new buildings got built, and much more.
3. The same works for developing new sources of energy. Increase tax rates without increasing taxes. T. Boone Pickens, an oilman, came up with an elegantly simple approach. Match sources with uses.
USES SOURCES
Office buildings
(primarily used during the day) Solar Power
Shipping Nuclear Energy
(already in use by the U.S. Navy)
Homes Wind Power
Cars, Trucks, and Buses Electric Power or Bio Diesel or both
Airplanes Gas and Oil
Will entitlement programs be cut?
Someone's 'entitlement' is someone else's 'necessity'. Hard decisions need to be made. There is an old adage, 'In times of great trouble, great leaders emerge.' So, times must not be all that bad. We do need great leaders right now to help us make hard decisions. And, to my mind, that is not a so-called Super-Committee of existing people who created the problems. It is more like the Manhattan Project. Put the best financial minds from around the world in the desert and have them build an intelligent financial plan for America, and the rest of the world. What we need is a Declaration of Financial Independence and a Financial Constitution to go with it. What to keep and what to cut. And, how to pay for it.
Non-partisan. Non-political. How's this for a Bill of Financial Responsibility:
1. No President, Senator, or Representative can run for re-election if the deficit goes up during their term in office. That's term limits.
2. When we send troops, make sure they are properly equipped. Clearly define the mission, its goals and objectives, and the exit strategy. Then, you have 6-months to find a plan to pay for it. Raise revenue (not just taxes). Cut spending. That's what families do. We make tough choices. Imagine if we had created 9/11 Bonds like War Bonds. How much money do you think we would have raised?
3. When you want to add a program, include how to pay for it. A real cost-benefit analysis. Who benefits? Who will be hurt? What will it cost? Real numbers. Not a bunch of weighted assumptions. Not a bunch of projections of pay off 10-years from now. Get sign off by independent accountants on the assumptions and the numbers. Just imagine real audited financial statements for the Federal Government.
4. All Federal Employees are provided health care and retirement benefits under the same rules that govern their constituents.
5. All Elected Federal Employees (and Cabinet Secretaries) must complete their own tax returns. We'll have tax reform by Friday.
What can we expect, as planners, for our clients?
Roth conversions without income limits should remain. Why not? It is a revenue generator. Pay your taxes sooner rather than later. Even if in a higher bracket later, the present value of money now should win out.
Estate Taxes should remain the same, at least until December 15, 2012. On the eve of returning to a $1,000,000 exemption and 55% rate in 2011, December 15, 2010, Congress enacted the current $5,000,000 portable exemption and 35% rate for 2011 and 2012. Will we see changes in 2012? Not likely. In 2013? Let’s see who gets elected next November.
Income Taxes should remain the same. Though, the surtax on incomes over a specified level can still play well even in an election year. The specified level just needs to be high enough for the average person not to realistically expect to ever reach it, like income over $1,000,000. Of course, if I were foolish enough to run, I would recommend higher tax rates with lower taxes. Not voodoo economics. Meaningful tax deductions that support meaningful job creation and provide needed efforts in infra-structure re-building and alternative energy development.
Western & Southern Files Patent Application
Sought for innovative ETF administration methods behind VAROOM variable annuity
CINCINNATI - Western & Southern Financial Group (Western & Southern) and Mid Atlantic Capital Group, Inc. have finalized their formal filing with the U.S. Patent and Trademark Office on the key business methods behind the first variable annuity to offer subaccount options that invest in individual exchange-traded funds (ETFs).
VAROOM (Variable Annuity for Roll Over Only Money) is issued by Western & Southern member companies Integrity Life Insurance Company (Cincinnati, Ohio) and National Integrity Life Insurance Company (Goshen, N.Y.). Initially launched in Jan. 2011, it remains the only variable annuity offering subaccounts investing in individual ETFs.
The application seeks to patent the business methods that enable an individual ETF to be offered as the underlying investment in a variable annuity. In addition, the business methods employ index-based ETFs exclusively, enabling Western & Southern to better manage the associated market risk of VAROOM through improved hedging.
"This is another important step in securing our competitive advantage with VAROOM," said Mark E. Caner, president of W&S Financial Group Distributors, Inc. (W&S Financial), the wholesale distributor of annuities and life insurance from Western & Southern member companies. "We are excited about this innovative process that provides access to subaccounts that invest in individual ETFs from iShares and Vanguard. VAROOM represents a compelling new option for retirement-oriented investors with tax-qualified rollovers as they pursue cost efficiency and investment flexibility."
For more details on VAROOM, visit the website geared to helping representatives introduce it to their clients here. For information on W&S Financial, go here.
Important information. Please read.
VAROOM is a flexible premium variable annuity available to age 80 for a minimum contribution of $25,000 and a maximum contribution of $1 million. An annual contract charge of 1.90% applies to subaccount assets. The Guaranteed Lifetime Withdrawal Benefit is available at issue for an additional charge for ages 45-80. The annual charge, 0.65% for the basic allocation strategy and 0.85% for the self-style allocation strategy, applies daily to subaccount assets and can increase to a maximum of 1.50%. A premium-based withdrawal charge applies to amounts withdrawn in excess of the free withdrawal provision for the first five years after each premium is received. The charge is 7% for premium years one and two, then declines by 1% a year, to 4% in premium year five and 0% thereafter.
Allstate Files $1.1 Million Insurance Fraud Case in NY
Suit contends that professional service corporations were actually owned and controlled by laypersons
HAUPPAUGE, N.Y., - Allstate Insurance is seeking to recover more than $1.1 million from sixteen New York-area defendants in its ninth insurance fraud lawsuit of 2011. The complaint, filed in Federal District Court, on December 30, 2011, as a Declaratory Judgment/Recovery action, alleges that a chiropractor, along with one layperson and two lay entities illegally owned and controlled three professional medical corporations allegedly owned on paper by a medical doctor and used them to submit fraudulent billing to Allstate. In addition, four other individuals and four other companies were also named as being part of the overall scheme to submit fraudulent bills to Allstate. Since 2007, Allstate has filed thirty-six fraud lawsuits in New York, seeking nearly $199 million in damages.
According to the Insurance Information Institute, the state of New York is in an insurance fraud crisis and no-fault fraud is costing New Yorkers millions of dollars year-after-year. "In essence, honest, hardworking New Yorkers are paying a 'fraud tax'," said Krista Conte, spokesperson for Allstate's New York office. "We need lawmakers to enact meaningful insurance reform that puts the citizens of New York first."
As detailed in the lawsuit, Allstate contends that professional service corporations were actually owned and controlled by laypersons, rather than by licensed medical professionals. In addition, the lawsuit alleges that the defendants submitted claims for services that were performed by independent contractors in violation of the No-Fault Law. There were also incidents of illegal referrals to a person who had a financial interest. The suit contends that B.J.Y. Freeport Medical, P.C., B.Y.,M.D., P.C. and Innovative Medical, P.C. were fraudulently incorporated through a scheme using the name of a licensed medical doctor, Benjamin Yentel, M.D. However, those medical entities were actually run by Stanley Anderson, D.C. and his wife Jill Anderson. Not one of these individuals is a medical doctor. There were also two management companies that were utilized to effectuate this scheme. They were HISLI, Inc. and Steady Management Corp.
Included in this lawsuit are claims for improper self-referral against Mary Jean Palma Endozo and her company Oasis Physical Therapy, P.C. There is also an unjust enrichment claim against Anna Neidorf and her company, Ranj Corporation, Ashraf Hafez and his company Top Rehab Inc as well as Olga Bard and her company Soft Touch Acupuncture, P.C.
Allstate is joined by other insurers and many New York State leaders in its pursuit for comprehensive reform of the no-fault system. "The no-fault system is being exploited and responsible citizens are the victims," Conte said. "Without the support of lawmakers, incidents of fraud will continue to increase. We need to work together to fix the broken no-fault system."
The lawsuit was filed following an investigation by Allstate's Special Investigative Unit and seeks reimbursement for personal injury protection benefits Allstate paid on behalf of its customers during timeframes specified in the lawsuit. The lawsuit is the latest in a string of actions taken by the insurer to protect consumers from these and similar activities.
For more information on the dangers of insurance fraud, and how you can help fight it, please visit Fraud Costs NY.
Collegiate Funding Solutions Announces
Marketing Agreement with Security Mutual Life
A college planning and funding platform at a discount
Collegiate Funding Solutions (CFS), a provider of web-based college planning and funding solutions, and Security Mutual Life Insurance Company of New York, have entered into a marketing agreement. The agreement will give Security Mutual agents access to the CFS college planning and funding platform at a discount. The CFS platform includes web-based college planning software, 'hands-on' college admissions and financial aid services, a monthly e-newsletter subscription for clients, and a web-based advertising program.
"Security Mutual Life is always looking for tools and services such as the CFS program, that will help our insurance agents better assist individuals in reaching their financial goals," said George Kozol, Security Mutual's Senior Vice President for Marketing.
"We are excited to be able to offer our services to Security Mutual and its agents," said Roger Lorelle, president of Collegiate Funding Solutions. "With today's skyrocketing college costs, we believe parents want and need strategies that can help them achieve a best outcome and reduce their out-of-pocket college costs, as well as strategies for college savings. Our comprehensive and integrated services are designed to help advisors meet that need, for 'middle-Americ' families, as well as for the 'mass affluent.'"
About Collegiate Funding Solutions: Collegiate Funding Solutions (CFS) is a leading provider of web-based college planning and funding solutions for financial services professionals and financial institutions. For more information about Collegiate Funding Solutions, visit www.collegiatefundingsolutions.com or call 919-469-1996.
About Security Mutual Life Insurance Company of New York: Security Mutual was founded in 1886. Today it is one of the leading mutual life insurance companies in the United States. It is licensed in all fifty (50) states. Security Mutual is rated 'A-' (Excellent) by the A.M. Best. Co., the oldest and largest company devoted to issuing financial strength ratings of insurance companies. Security Mutual’s 'A-' rating is the fourth highest on a 16-step rating scale.
Brighter outlook for equity markets in 2012, continued strength in debt markets
But risks from Europe, China and U.S. politics pose challenges
NEW YORK- Prudential market experts expressed optimism for gains in the financial markets for the coming year, but outlined risks that could weigh on the markets at Prudential Financial, Inc.'s (NYSE:PRU) 2012 Global Economic and Retirement Outlook briefing in New York yesterday.
Ed Keon, managing director of Quantitative Management Associates, said that this was an unusually uncertain time. Europe remains his top concern, noting that China, India and other economies and global hot spots could face major problems in 2012 that could disrupt U.S. markets. Turmoil in U.S. politics adds to the worries.
"A stronger-than-expected 2012 stock market is more likely than a very weak one, with U.S. economic data on employment, housing and manufacturing consistently better than expected for months now," said Keon. "True, some of that is due to temporary factors, and a likely recession in Europe, weak U.S. income growth and ongoing concerns about household real estate are likely to constrain growth in 2012. But the financial obligations ratio is at a generational low, suggesting that on average, even though many families continue to struggle, folks are finding it easier to pay their bills now than they have in a generation. Household de-leveraging might be in the seventh or eighth inning, and the drag from this might be mostly over. And any improvement in Europe could lead to a major rally. So 2012 could look a lot better than 2011, provided the U.S. continues to heal and if, and it's a big if, other trouble spots don’t bite us."
Quincy Krosby, a Prudential market strategist, noted that despite the more positive domestic economic landscape, investors will be particularly sensitive to corporate top line revenue growth and guidance. "Slower European growth, coupled with a stronger U.S. dollar, will impede traction for U.S. markets, but a potential slowdown in hiring and continued weakness in the housing market will probably lead to more Federal Reserve intervention, providing positive stimulus for markets," said Krosby. "Similarly, European Central Bank action will continue to provide liquidity, and confidence, for markets."
For global markets, John Praveen, chief investment strategist for Prudential International Investments Advisers, agreed that Europe remains a significant concern, but that attractive valuations, low interest rates, further rate cuts and other liquidity measures, multiple expansion, and healthy earnings growth should help stock markets in 2012.
"Global financial markets and the global economy are likely to remain under the shadow of the continuing Eurozone debt crisis in 2012," said Praveen. "Global equity markets are likely to struggle in a volatile 2012 but eke out modest gains. Further, U.S. and Emerging Market stocks are likely to outperform Europe and Japan."
In the fixed income markets, Michael Lillard, chief investment officer of Prudential Fixed Income, said that despite the 2011 bull market in U.S. Treasuries, he believes there is still value, particularly corporate bonds, emerging markets debt and select structured products, and expects the credit sectors to dramatically outperform government debt in 2012.
"Fundamentals in the U.S. investment grade and high-yield bond corporate sectors remain healthy overall, and yield spreads over U.S. Treasuries are generous for this stage of the credit cycle," said Lillard. "Emerging economies continue to offer value, supported by improving sovereign creditworthiness, productivity growth and investment flows. Volatility will likely remain high, however, due to bouts of risk aversion in response to the European crisis and a potential slowdown in global growth."
Harry Dalessio, senior vice president for strategic relationships at Prudential Retirement, says the likely environment of slow growth, low inflation, low interest rates and volatile financial markets described by Prudential's market experts will continue to challenge investors in their pursuit to reach their retirement goals.
"Although the worst recession in a generation is technically behind us, it likely doesn't feel that way to many individuals," said Dalessio. "Contributions to defined contribution retirement plans are lower than pre-recession levels, and the number of people taking withdrawals are near record highs. Therefore, 2012 is also likely to be a period where new approaches and solutions to help will be needed more than ever."
For more information, visit Prudential News here.
Best's Review Recognizes Innovative Insurance Organizations
Announcing The Innovator's Showcase
OLDWICK, N.J., The Innovators Showcase, published in the January 2012 issue of Best's Review magazine, is a forum for recognizing forward thinking among insurance organizations.
The companies recognized in the inaugural showcase include:
- American General Life Companies. Exam Right, a digitized version of the traditional paramedical paper exam, has been proven to improve life insurance underwriting accuracy. Its Prescription Database tool has allowed American General to achieve substantial pricing and mortality gains by reviewing the prescription drug usage of people applying for life insurance.
- Crump Life Insurance Services. The RiskRighter project evolved into a stand-alone company that provides information that allows underwriters to process informal insurance application files in a timelier manner and at a lower cost.
- Eastern Alliance Insurance Group. ParallelPay, a pay-as-you-go plan, allows workers' compensation policyholders to pay their premium one payroll period at a time. Since its inception in 2009, the program for the middle market has written more than 1,000 policies for approximately $38 million in direct written premium.
- FM Global. RiskMark, a global, fact-based, property risk-quality benchmarking tool, allows risk managers to define the basis for prioritizing risk improvement and administer scenarios to maximize the impact of their risk improvement budgets.
- Hartford Life Insurance Co. LifeAccess Accelerated Benefit Rider begins paying once the client is certified as chronically ill. The benefits can be used for any expense and no receipts are required. The Preferred Credentialing Underwriting takes a holistic approach to underwriting the individual vs. the applicant’s medical characteristics. The company estimates a threefold increase in the number of older applicants who will qualify for the most-favorable preferred rate, and finds a significant number of all applicants qualify for a lower rate by using these new criteria for assessing risk.
- Lexington Insurance Co. Pandemic Rx is an enhancement available to Lexington's commercial property policy for acute care medical facilities. It provides coverage for business-income loss sustained and extra expense incurred by these facilities during a declared influenza public-health emergency.
- Medical Mutual Insurance Company of North Carolina. Risk Assessment Process for Improving Patient Safety Outcomes has been proven to
reduce risk exposures when compared to claims that resulted from malpractice process errors.
- Minnesota Life Insurance Co. Project Galileo is an initiative created to reinvent the company's product development process, simultaneously developing new products faster and more efficiently. Since 2006, the company increased its productivity, going from one product launch a year to 24 new products or product enhancements in four years, while reducing the number of home office associates required.
- Optimum General Insurance Co. Green Home Endorsement for homeowners policies is designed to appeal to a growing number of environmentally conscious policyholders. It is a bundled package designed to reduce the home's carbon footprint and promote the use of ennvironmentally friendly materials as an alternative choice in repair or replacement materials.
- National Interstate Insurance Group's Safety, Claims and Litigation Services. The Accident Event Recorder program provides commercial transportation insurance customers with a valuable loss-control tool that can record both video and audio when a driving incident occurs, can help to improve driver performance, reduce accidents and save lives.
- RGA Reinsurance Co. Automated Selection Assessment Program is a proprietary Web-based facultative underwriting process that provides an instant decision on select single or double impairments. Using ASAP, a client underwriter is able to obtain a quick standard or low substandard facultative decision on 17 different impairments, and bind RGA on the risk more quickly and with less documentation. Prescription History Query Tool has been used to define underwriting rules for more than 50,000 individual drugs, with risk assessment variations by gender, age, mode of delivery and frequency of drug fills and deliver results to clients via RGA’s proprietary automated underwriting tool.
- Western World Insurance Co. Integrated Platform is a complete underwriting guide, rating and policy administration system that supports multistate, multilocation and multiline processing. Launched in 2010, Western World says it is the first carrier to offer a Web-based product in the surplus lines marketplace that provides the flexibility required for writing nonadmitted risks while also optimizing efficiency for the entire underwriting process within a single system.
View the entire Innovators Showcase here
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Money Isn't Everything
Financial Planning With A Twist
Southlake, TX, - Hard times aren't just a figure of speech. Guy Hatcher knows even middle-class American families have to really stretch just to make ends meet. In spite of that, he passionately believes making a little extra to leave behind for our kids is not the most important part of our financial planning. That is the central premise of his message: the new economic world we live in may be the best thing that's ever happened to our country.
"America became so wrapped up in having things," Hatcher says, "we forgot about spending time with the ones we love. The recession forced us to rethink our priorities. Of course we need money to live but it's too easy to forget what it means to have quality of life."
Hatcher himself is no stranger to success. A sought-after Certified Financial Planner, he is the founder and president of Advanced Planning, Inc. His areas of expertise include wealth management, estate planning and business coaching. Since 1987, Hatcher has focused on helping his clients enjoy financial freedom, creating and achieving their own personal definition of a 'great life.'
For Hatcher, the center of his foundation begins with the relationship he enjoys with his young daughters. "I was telling them a story on the way to school one morning when I realized that I used to listen to the stock report and financial news while they sat quietly in the back seat," he explains. "That's the gift I've been given by the economic downturn and this new world we live in, an authentic, meaningful connection with my children. It was just a simple story, but it meant the world to them."
The main thrust of this new 'quality of life' approach has its beginnings in the fact that the past recession has forced us to go back to the basics: faith, family and friends. "Millions have realized they were making great money but sacrificing being around the ones they love." That simple observation led Hatcher to a series of questions: When we achieve what we're chasing, are we happy? Why do we need a bigger house, more stuff? Could you be less stressed in a smaller home with fewer things and be able to see your kids grow up? What impact would you like to have on the next generation?
"Making great money is awesome! But what are you sacrificing to get it? After all, you're probably not going to leave your legacy to Siri, your virtual assistant." Dynamic, compassionate, and intuitive, Hatcher has a unique gift for understanding people and their needs, as well as a rare ability to render complex financial issues into straightforward terms. He is a nationally recognized speaker at industry conferences and has trained successful individuals and business owners in hundreds of educational workshops and seminars.
Please visit Guy Hatcher's website at www.apnow.com
Being There
State Representatives Experience Effects of Aging
During SCAN Health Plan Arizona 'Trading Ages' Program
PHOENIX--(BUSINESS WIRE)--Six legislators as well as several key state staffers took part in SCAN Health Plan Arizona's Trading Ages senior-sensitivity program in Phoenix this week. Trading Ages, an interactive program developed by SCAN, provides insight into some of the physical and emotional challenges that come with aging.
"SCAN Health Plan's Trading Ages program provides a firsthand look at the challenges people face as they age, which allows all of us to identify solutions that best meet seniors' needs"
Trading Ages allows participants to experience a series of age-related conditions such as hearing loss, vision changes and loss of dexterity. The training underscores how challenges associated with aging can affect everyday activities, behaviors and actions. According to past participants, this awareness often translates immediately to increased compassion, patience and ultimately better service.
"As legislators it is important that we gain an in-depth understanding of issues associated with aging, as it allows us to use that knowledge to better represent Arizona’s seniors," noted Sen. Nancy Barto (R-7), chairwoman, Arizona Senate Healthcare and Medical Liability Reform Committee.
The Trading Ages program was initially created as a way for SCAN employees to better understand the needs and mindset of its health plan members. In recent years SCAN has offered the program to other community groups, including the Boys and Girls Club of Greater Scottsdale, Brookline College of Allied Health, Arcadia Neighborhood Learning Center and DMTS Transportation.
"SCAN Health Plan's Trading Ages program provides a firsthand look at the challenges people face as they age, which allows all of us to identify solutions that best meet seniors' needs," added Sen. Linda Lopez (D-29), ranking Democrat on the Senate Healthcare and Medical Liability Reform Committee. In addition to senators Lopez and Barto, other legislators who participated in the training included Sen. Linda Gray (R-10), Rep. Heather Carter (R-7), Rep. Cecil Ash (R-18) and Rep. Katie Hobbs.
"As our community ages, it is more relevant than ever that we all become more aware of how to best serve seniors," said Elizabeth Russell, CEO of SCAN Health Plan Arizona. "We are honored that these community leaders took the time to participate in Trading Ages and learn more about the unique challenges seniors face, which is highly relevant to the work legislators do every day."
For more than 30 years, SCAN Health Plan has been focusing on the unique needs of people with Medicare and today is the fourth-largest not-for-profit Medicare Advantage plan in the United States. SCAN Health Plan Arizona serves approximately 15,000 members in Maricopa and Pima counties. Further information is available at scanhealthplan.com.
Photos/Multimedia Gallery Available here.
Pay yourself first
And pay yourself forever
by Mark E. Caner, MBA, AEP, ChFC, CLU, CFP
Mr. Caner is president of W&S Financial Group Distributors, Inc.
Everyone knows the age-old saying 'pay yourself first.'
It reminds us to save for long-term goals. Upon receiving a paycheck, before spending on fashion, recreation, entertainment and other discretionary purchases, put yourself first by conserving funds for the future.
Old Saying. New Considerations.
Baby Boomers learned those wise words from their parents and grandparents. Now, as thousands of boomers turn 65 every day (and continue to do so for the next 17 years), they face challenges generations before them seldom did. Among the changing variables: longer lifespans, fewer guaranteed sources of income, the threat of diminished Social Security benefits and the continued impact of market volatility on retirement accounts.
To that end, consider a unique corollary to this concept: Pay Yourself First … and Pay Yourself Forever.
Funding a ''First and Forever' Approach
What’s meant by 'forever' in this situation is lifetime income for one person, or a couple. Income such as you can receive from an annuity.
A traditional annuity provides a multifaceted approach for consumers to address both saving and income needs. Contributing to an annuity they 'pay themselves first,' thereby pursuing their accumulation goal. Spending down an annuity with a lifetime payout option they 'pay themselves forever,' thus securing their distribution goal. To adopt a familiar saying, they kill two financial goals with one product stone.
Even Uncle Sam Agrees
The U.S. government concurs that an annuity can help address both these needs. In fact, a recent report from the Government Accountability Office (GAO) states, "Given the long-term trends of rising life expectancy and the shift from DB [defined benefit] to DC [defined contribution] plans, aging workers must increasingly focus … on how to manage assets to have an adequate income throughout retirement."
The report goes on to cite annuities as a source of retirement income certainty in an increasingly uncertain environment. Retirees should delay Social Security benefits and either use savings to buy an annuity or select annuity options from qualified plans, recommends the GAO.
So the next time you hear the old saying 'pay yourself first,' add 'and pay yourself forever.' It's a great way to update an old saying with new information and go after multiple goals for retirement income oriented clients.
Decoding Economic Turmoil...
And guiding Clients Through Political Uncertainty
byVan Mueller, LUTCF
Mr. Mueller is a Registered Representative with The Wisconsin Agency of New England Financial Services.
Recent IRS information found annual income for insurance and financial professionals had declined by more than $100 million dollars from 2007 to 2009. How is that possible? This is the greatest time ever to be an insurance and financial professional. More money is about to transfer from one generation to the next than at any other time in history.
The greatest saving generation of all time, our parents' Silent Generation, is about to transfer money to the worst saving generation of all time, the Baby Boomers. These are the people that were born between 1946 and 1964 with the largest birth year being 1957. These two groups of people desperately need our help if our country is to maintain our current standard of living.
Of course, we have serious competition for the Silent Generation's money, and it is not from each other. Our competition is government, nursing homes and hospitals. They are serious, well organized adversaries, and we must perform at the top of our game if we are going to successfully help our prospects and clients preserve enough wealth to enjoy retirement. This is both the challenge and the opportunity for our industry. We must inspire our prospects and clients to take action, but it will prove difficult if we doubt our own recommendations. We must believe in the benefits of our products and our industry's safety and strength. We must overcome the mixed messages sent to our prospects and clients.
Making Sense of Mixed Messages
What are these mixed messages? Let me give you an example: the government has championed annuities as a great retirement vehicle. However, this same government then denigrates various forms of annuities (such as variable or fixed-index annuities) as too costly or too complex. This not only creates uncertainty for our clients, but it also creates uncertainty in financial service professionals. We must help clients translate these general suggestions into specific applications tailored to their individual situation.
Secondly, our government encourages stock market exposure to off-set the effects of inflation. But market volatility is increasing. It is happening faster and faster. Many of our clients have not fully recovered from 2007, and some have not fully recovered from losses incurred in 2000, 2001 and 2002. The Buy and Hold strategy has not worked for these people and we have other ways to help keep them safe. Do not be afraid to use them.
However, the mixed message that causes the most damage is the debate about whether our prospects and clients should either pay commissions on stocks, mutual funds and variable products or buy no-load and pay fees for the advice they receive. I believe both are the right answer, with commissions being the right answer for most Americans.
The Value of Advice
The math supports my view. USA Today reported 50 percent of Americans make less than $26,400 per year, two-thirds make less than $50,000 per year, and 80 percent make less than $72,000 per year in income. These people will not pay fees because they cannot afford to. Their only access to advice is through commissions. And they need advice. Our financial world is becoming more complex by the minute.
Commissioned people give worthwhile advice; they have to. Contrary to popular belief, they do not make enough commission to survive unless they receive referred business. They depend on referrals to other prospects and clients to maintain their businesses. If they don't do a good job, they will not receive those referrals. But I also believe fee-based advice is important and necessary in our complex financial world. Many wealthy people would be better served if they developed ways to preserve assets and provide safe, guaranteed income. Methods to safely grow assets are vital. And, most importantly, methods to leverage the assets of the wealthy so they become more valuable are critically important to the generations that follow.
The benefits of our products can be provided whether our prospects and clients are paying commissions or fees. Either way, we must make it clear planning is essential to their financial success, and we must inspire them to take action. Then we can help them identify which method is more affordable. Remember, we are all in this together.
The Only Certainty is Uncertainty
Instead of these distractions, I believe the real obstacle for our clients and the insurance and financial professionals who serve them is the absolute uncertainty of our economy. Governments contribute to this uncertainty with policies that are contradictory, ever-changing and filled with unintended consequences.
After all, how can you plan for decades in the future when you do not know what tax policy, monetary policy, and fiscal policy will be even next year? Advice can become less appropriate or even incorrect because of changed government policy. How do we guide our clients through this maze when there are consequences for our recommendations? Asking thoughtful questions about these challenges can be used to begin a wonderful discussion with prospects and clients about their financial goals and aspirations.
Think about the big picture to get started:
- What impact will the economic disarray in the European Union have on our economy?
- Is China's economy doing as well as we have been led to believe? What happens to the global economy if China has problems dealing with its inflation and demographic issues?
- Japan is in a 20 year deflation. The earthquake and tsunami have pushed their economy back near the bottom of its slide. Japan has now had three quarters of negative GDP growth. That is a recession. What impact does that have on your financial plan?
- Where will the United States get the money to pay our debt? How will we provide Social Security and Medicare to Baby Boomers? Healthcare costs, which include an ever-growing Medicaid program, are enormous. Unemployment, Defense, and crumbling infrastructure present future costs that are almost overwhelming.
Our Industry's Finest Hour
Now, the government does not have answers for any of these questions. That is why this is the greatest time ever to be an insurance and financial professional. It is time the American people took responsibility for their own lives, and our industry is in the best position to help them. But to do that, we need to take responsibility for our own careers. Please interpret my message clearly. This is not a doom-and-gloom, end of the world message. This will eventually correct itself. The danger is a reduction in the standard of living for the American people in the meanwhile. It does not have to happen for any of our clients. We can protect them against harm from financial challenges and even position them to take advantage of those very challenges. It is the most exciting time ever to do what we do!
Be the Catalyst for Change
Once you have begun this important discussion with your prospects and clients, you can inspire them to take action by asking just a few questions:
1. Do you believe taxes will be higher in the future? Do you want to pay those higher taxes? Do you want to take action before or after they change the tax laws?
2. Do you believe benefits will be lower in the future? Do you have a strategy to replace those lost benefits? Would you like one?
3. Do you believe higher taxes and lower benefits will repair all the shortfalls in our economy? No? Then that means the government will have to print what? Money! What is that called? Inflation! Inflation is one of the great dangers we face. If there was seven percent inflation, you would need twice as much income in a decade to maintain your current purchasing power. How can you prepare for inflation?
4. With all these uncertainties, won't we have serious volatility? Do you have a strategy to not be hurt by it, and what is your strategy to take advantage of increased volatility?
None of the mixed messages we stress over are as important as our mission of providing financial security. We have a chance to be of service both to our clients and to our country. Our industry was designed for times like these. We have the greatest products we have ever had. We have easily identifiable challenges. Finally, and most importantly, we have the right answers.
All that remains is for our industry to get in front of and help as many people as possible. Ask the questions! You will be astonished by your success!
Employee Financial Wellness a Growing Global Concern for Employers
Case Studies Provide Insights for Helping Employees Achieve Financial Health
NEW YORK - As the effects of the recent financial crisis continue to be felt across the globe, financial stress is an issue for both women and men. MetLife's 9th Annual Study of Employee Benefits Trends found that 58% of employers state that financial 'illness' plays a role in employee absenteeism and 78% said that concerns over financial problems while at work can have a negative impact on employee productivity. And it has been estimated that 15% of workers are experiencing stress from their poor financial behaviors to the extent that it reduces their job productivity.
In recognizing that employees need assistance in managing their financial future and understanding the value of employee benefits aimed at building financial wellness, employers are, in increasing numbers, providing employees with the financial education they need, according to a new white paper released today by MetLife. In coordination with the Boston College Center for Work & Family, MetLife examined how two large multinational firms have taken strategic measures to address the financial wellness of their employees. The MetLife Study of Financial Wellness Across the Globe is available here.
"Financial wellness is a relatively new but growing concept, and there is an increasing recognition, across the globe, of the negative impact of financial distress on employee health and productivity," said Michael Malouf, senior vice president, global strategies and sales, MetLife. "The MetLife white paper provides insights into how multinational employers can address the financial wellness of their employees by providing them with the financial education they need to successfully manage their personal financial, retirement and savings plans."
The MetLife white paper, Study of Financial Wellness Across the Globe, highlights practices of multinational corporations American Express and EMC, focusing on their financial wellness programs at sites in Hong Kong, India, Ireland, Mexico and the U.S. The paper reveals how government provisions and cultural variations in different countries impact company decisions regarding benefit allocation as well as financial training. As these employers face challenges and opportunities that vary across the globe, the study looks at the specific steps they have taken to enhance their employees' financial wellness to attain solutions that fit business and employee needs. Rich with external research that profiles worldwide financial trends, the paper also includes valuable information that will help employers better understand the issues their employees are confronting.
"American Express recognizes that financial distress can negatively impact employees' productivity. In response to what we perceived as a need for employees to better manage their financial future, we instituted the Smart Saving program to provide them with financial education, as well as financial planning services that include one-on-one financial counseling sessions, at no cost to them," said Barbara Kontje, director, Global Retirement at American Express. "We believe that the program has had a positive impact on their financial wellness, and are very pleased with the results we've seen. Since the launch of Smart Saving, there has been a 71% increase in calls to the financial planning counseling service and an 8% increase in 401(k) participation."
"At EMC, we believe that there is a direct correlation between financial security and physical health. That is why we provide services in both areas. WealthLink was developed with an objective to increase our employees' financial acumen. It provides them with personalized and action-based tools to understand and optimize their compensation and benefits. We see it as an important tool to attract and retain the best employees and to keep EMC positioned as an employer of choice," said Kevin M. Close vice president, Global Compensation and Benefits at EMC. "During the 2008- 2009 recession, we were gratified to see that among WealthLink users, there was no scale back in contribution to 401(k) programs, as compared to a 7% decrease among non-users."
Key Findings from the White Paper
- Financial difficulties can have a negative effect on worker productivity. There is evidence that financial distress may have a direct impact on employee health and well-being which can reduce worker productivity and increase absenteeism.
- Carried out correctly, financial education can have a beneficial effect on employee wellness. Financial education programs have the potential to lower financial stress, reduce absenteeism, increase productivity and lead to a more loyal workforce.
- Consumers are generally poorly prepared to make good investment choices. Consumer financial illiteracy is widespread globally and consumers are not sufficiently committed to their own financial well-being. While most people recognize that the government will not provide them with an adequate retirement income, this realization does not translate into increased savings or investments.
Best Practices for Global Companies
Malouf highlights the following best practices from the study as considerations for employers when implementing a successful global financial wellness program.
- Set a target and measure the results. Think about what the company wants to achieve with a financial wellness program- is it reduced employee stress, increased company loyalty, enhanced financial wellness or something else? Based on these desired outcomes, a formal assessment of the outcome of a program may be designed appropriately.
- Craft a message relevant for the target audience. Consumers vary in their financial needs and literacy depending on their life-stage and national culture, as well as their readiness to receive financial advice. These considerations, taken together with recognition of cross-cultural, generational and gender differences in financial literacy, risk aversion and attitudes to retirement, will help to make messages relevant for each target group and increase the probability of success in marketing a program.
- Use creativity to gain participation. Lack of immediate gratification; lack of time, money or knowledge; or plain denial; all prevent consumers from improving their financial literacy. In light of these factors, making the issue more real for employees through creative communications and delivery channels may help.
Methodology
Interviews were conducted during March-July 2011 with global benefits executives in China, Hong Kong, India, Ireland, Japan, Mexico, the Netherlands, the United States and Singapore. Secondary research was done of prior financial wellness studies and also of government policies that have a bearing on financial wellness. Interviews also were conducted with three human resources executives at American Express and EMC with corporate responsibilities for different geographies. Additionally, reviews of company materials such as presentations and internal reports also informed the study.
About MetLife
MetLife is a subsidiary of MetLife, Inc. (NYSE: MET), a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers in over 50 countries. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and the Middle East. For more information, visit www.metlife.com.
At One Year Anniversary, IRI/RegEd Annuities Training Platform
Delivers More Than 150,000 Courses
Providing a one-stop national portal for financial advisors and producers
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) and RegEd today announced that their industry wide solution to the NAIC annuity suitability training requirements, the Annuities Training Platform (ATP), has delivered more than 150,000 courses to financial advisors and insurance producers. This milestone comes as the ATP reaches its one year anniversary.
Since its launch, IRI and RegEd have welcomed more than 40 clients, including most of the top 25 insurance companies, and more than 42,000 advisors and producers who are actively using the ATP platform. The number of advisors and producers using the platform will grow significantly as the NAIC Model Law becomes effective for all advisors in the over 40 remaining states which have not adopted the Model yet or which are not currently effective for the much larger existing licensee population.
"In just one short year, our platform has become the resource of choice by the financial services industry in meeting the NAIC annuity training requirements," said IRI President and CEO Cathy Weatherford. "From the early stages of development, it was our goal to ensure that the entire industry had input in the development of this training platform. It is clear that our efforts to bring the industry together to create a seamless and efficient solution have brought us the tremendous acceptance and success that we see today. We thank IRI's members, and all of the platform's users, for their support, and we look forward to continuing to work together to ensure the platform continues to be a dynamic educational tool."
"Working with the IRI as a strategic partner, RegEd has created something entirely unique: an industry wide solution that aids in the efficient and compliant sale of critical insured retirement products. The clearinghouse we have created, which has been adopted by every major manufacturer of annuities, is a sterling example of RegEd's mission: using best practices and technology enablement to speed compliance," said John M. Schobel, CEO of RegEd.
The ATP provides a one-stop national portal for financial advisors and producers to view and complete all required annuity suitability courses, including company specific product training courses, and provides confirmation that all resident and non-resident state requirements have been met. The system determines applicable state annuity training requirements for each financial advisor and producer for all states, and then applies the annuities training course completion(s) to these multi-state requirements. Participating carriers and distributors can view an individual's real-time compliance with multiple state regulations, access online reports and receive exports of data on their entire financial advisor/producer population.
About the Insured Retirement Institute
The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI’s mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
About RegEd: RegEd is a leading provider of licensing and registration technology and outsourcing services, broker-dealer compliance management solutions and training and continuing education for financial professionals. Since 1994, RegEd has set the standard in the industry for rule-based compliance automation and technology-enabled outsourcing services. RegEd solutions deliver new levels of operational efficiency and allow firms to cost-effectively comply with state and FINRA regulations.
The American Dream is Now Do-It-Yourself
Fifth Annual MetLife Study Finds Shifting Definition of the Dream,
and a Weak Financial Safety Net Supporting It
NEW YORK - A new American Dream that is less conventional and more personalized is emerging, according to the fifth annual MetLife Study of the American Dream. The nationwide survey reveals that although the American Dream is alive across generations of Americans, they are replacing the traditional definition of the Dream with a 'do-it-yourself' model as they forsake a more collective vision and build their own based upon personal values.
MetLife's 2011 Study also uncovers significant gaps in financial safety nets that help Americans achieve and protect their Dream, even as desire to build adequate safety nets remains strong. Nearly three quarters of those surveyed believe that having a financial safety net is key to achieving the American Dream, yet only 30% feel theirs is adequate. Gen Y is making progress, but nearly 3 in 4 Baby Boomers, many nearing retirement, say they lack an adequate safety net.
The non-financial elements of the Dream are also in clearer focus than ever before. These include personal fulfillment, close friends and meaningful relationships. Career and financial success have been overshadowed.
"Times are tough, but people are adapting and pursuing their own version of the Dream," said Beth Hirschhorn, executive vice president and chief marketing officer for MetLife. "It's as if Americans are saying, 'Don't tell me what the American Dream is; I have my own Dream. Yours may be different, and that's okay.'"
Rise of the Do it Yourself American Dream
Achieving the American Dream remains very important to those who have yet to achieve it, especially the younger generations. However, the study reveals that Americans no longer place importance on traditional elements of the Dream: 70% say you don't have to be wealthy to achieve the Dream; 65% say you don't need a college degree; 71% and 70%, respectively, say marriage and children aren't essential; 59% percent say you don't have to own a home.
Instead, Americans say that a sense of personal fulfillment is key in assessing whether they have achieved the Dream. Materialism, once symbolic of achievement, has waned significantly. In October 2011, 74% of all Americans reported that they already have what they need, compared to only 58% who said the same in April 2010.
It also appears that the Dream has 'gone social.' Across generations, more Americans have difficulty choosing between a roof over their heads and having close friends and family. Gen Y places the highest premium on relationships with 33% rating close friends and family as most important compared to just 23% who say it is most important to have a roof over their head. With 52% of Gen Y also saying the America Dream is more about personal achievement than opportunity for all, the DIY American Dream is clearly taking shape.
Americans Do Whatever it Takes
Regardless of whether the vision of the Dream is individualized or shared, the majority of Americans says their standard of living does not need to be higher than their parents' in order to feel they have achieved the American Dream. Still, this year, more Americans say they are working harder than their parents did at their age. Gen Y is working additional hours (26%), freelancing (24%) and working second jobs (21%) to get ahead. Baby Boomers are surprisingly willing to relocate for a job. More than a quarter (27%) are willing to relocate to another part of the country to sustain or achieve the American Dream. Across generations, a third will take a job they are overqualified for.
Financial Safety Nets Important, but Difficult to Achieve
A financial safety net includes savings to cover living expenses in the event of illness, job loss, or other serious emergency, as well as financial and protection products such as life, home and health insurance, annuities and retirement accounts.
While most Americans recognize the importance of having a financial safety net, achieving one is proving extremely difficult, with only 30% of all Americans saying that they have an adequate safety net in place. Living paycheck to paycheck tops the list of issues preventing Americans from achieving an adequate safety net, with more than half identifying it as the top issue standing in their way. A weak retirement savings plan follows a close second for 50% of Baby Boomers, and younger generations say they are not making enough money to build a financial safety net.
Download the 2011 MetLife Study of the American Dream here.
Methodology
From September 26th to October 10th 2011, Penn Schoen Berland in partnership with Strategy First Partners conducted 2,420 online surveys amongst the general population as part of the 2011 MetLife Study of the American Dream. This is the fifth annual edition of the Study.
About MetLife
MetLife, Inc. is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers in over 50 countries. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and the Middle East. For more information, visit www.metlife.com.
Receives the 2011 Chairman's award for work on Agency Successor Networking group
Christi Daughenbaugh, 2011 Chairman of the National Association of Independent Life Brokerage Agencies (NAILBA), has selected Melinda Meyer, Vice President, Member Office Development for ValMark Securities, as the recipient of the 2011 NAILBA Chairman's Award. The honor was presented this morning at the association's annual meeting, NAILBA 30, in Phoenix, Arizona.
The award, created in 2009, was developed to recognize the efforts of a NAILBA volunteer who has performed 'over and above' normal expectations during the Chairman's term.
In presenting the award to Meyer, Daughenbaugh observed, "Melinda is an active member of the Government Affairs Committee, an active PAC contributor, and an active member of the Editorial Advisory Panel." Daughenbaugh also recognized Meyer as the 'driving force behind the development and launch of our new Agency Successor Networking Group,' a group which held their inaugural meeting at the Annual Meeting.
The honor came as a complete surprise to Meyer, who had taken the stage during the Opening General Session to deliver an address from the Professional Development Committee. In addition to her other volunteer commitments with NAILBA, Meyer served as the 2011 Chair of the Professional Development Committee, which is responsible for the program development for the Annual Meeting.
Daughenbaugh continued, "I am grateful for Melinda's tremendous efforts on NAILBA's behalf and for our industry. "
The National Association of Independent Life Brokerage Agencies (NAILBA) is the premiere insurance industry organization promoting financial security and consumer choice through the use of independent brokerage distribution. NAILBA member agencies represent 250,000 producers who deliver more than four billion dollars in first year life insurance premiums annually. For more information visit www.nailba.org.
MassMutual Adds $23+ Million Taft-Hartley Retirement Plan
Labor Unions 401(k) Plan Selects MassMutual as New Recordkeeper
SPRINGFIELD, Mass., Nov. 17, 2011 - MassMutual's Retirement Services Division has been selected as the new provider for the Labor Unions 401(k) Plan based in Southern California. The Taft-Hartley plan has more than $23 million in assets under management and serves over 3,500 union members employed in the hotel, food service, gaming, textile, laundry, manufacturing, and distribution industries.
"In just 10 years, the Labor Unions 401(k) Plan grew from a few local members to thousands spanning the United States," says Jef Eatchel, chairman of the board of trustees, Labor Unions 401(k) Plan. "With this exciting growth, we needed to find a recordkeeper who could help us support the diverse needs of our members nationwide. We are very pleased to have selected MassMutual as the new provider for our Labor Unions 401(k) Plan. MassMutual shares our mission of providing quality service, a hands-on approach, and the ability to manage the needs of an ever-changing market with a positive and professional approach. We interviewed many companies and MassMutual was the clear choice for all the Trustees of the Labor Unions 401(k) Plan," adds Eatchel.
"In association with Pension Fund Evaluations, Inc., the plan's investment consultant, MassMutual is very pleased to welcome the Labor Unions 401(k) Plan as a valued new Taft-Hartley retirement services client, and we look forward to helping its hard-working members plan and save for retirement," says Scott Buffington, national sales manager for MassMutual's Taft-Hartley market segment. "We are committed to delivering value and service excellence to the Trustees and members of the Labor Unions 401(k) Plan," adds Buffington.
MassMutual has been serving the Taft-Hartley retirement plan market for more than 50 years. For more information about MassMutual's Taft-Hartley retirement services, please contact your retirement advisor or contact Richard Cartier, Taft-Hartley practice leader, at MassMutual (413) 744-6733.
About MassMutual
MassMutual's Retirement Services Division has been serving retirement plans for 65 years. It offers a full range of products and services for corporate, union, nonprofit and governmental employers' defined benefit, defined contribution and nonqualified deferred compensation plans. It serves approximately 1.3 million participants.
Underfunding of Liabilities Identified as
the Most Important Pension Risk in Both the US and UK
This Risk Not Yet Successfully Managed on Either Side of the Atlantic
NEW YORK - Market volatility is causing plan sponsors in the United States (US) and scheme sponsors and trustees in the United Kingdom (UK) to identify Underfunding of Liabilities in the US and its UK counterpart, Funding Deficits, as the most important risk affecting their defined benefit (DB) pension plans today. However, this risk is reported as only the 11th most successfully managed risk by those in the US and 12th in the UK, demonstrating that the importance ascribed to certain risks does not always correlate to the reported success at managing them. Comparing Pension Risk Attitudes and Aptitude in the United Kingdom and United States, a new MetLife report released today, juxtaposes these and other findings from two studies, the 2011 MetLife US Pension Risk Behavior Index and the 2011 MetLife Assurance UK Pension Risk Behavior Index.
The studies surveyed plan sponsors in the US and scheme sponsors and trustees in the UK on 18 investment, liability and business risks to which their plans are exposed. Data from each survey were used to assess respondents' attitudes toward and aptitude for managing pension risk. The new comparison report, which also contains a primer on the US and UK DB pension landscapes, is available for download here.
Both Countries Take a More Deliberate Approach to Pension Risk Prioritization
The new comparison report reveals that respondents are taking a more selective approach to pension risk management. This is evidenced by the Importance Selection Rate that respondents ascribed to each risk or, said another way, the number of times a risk factor was selected as the most important when it was presented to respondents.
In the US, the most important risk factor, Underfunding of Liabilities, was selected 66% of the time, and the least important risk factor - Early Retirement Risk - was selected 4% of the time. In 2010, the most and least important risk factors were selected 29% of the time and 21% of the time, respectively.
In the UK, the range between the most important risk, Funding Deficits, and least important risk in 2011 is 57 percentage points, with the most important risk being selected 58% of the time, and the least important risk, Inappropriate Trading, selected just 1% of the time. This compares to a range of just eight percentage points in 2010.
Liability-Related Risks Rise to the Top in US and UK
The economic downturn and subsequent volatile economic environment is leading plan sponsors in the US and scheme sponsors and trustees in the UK to focus more intensely on their plan's liabilities. In addition to ranking Underfunding of Liabilities (US) and Funding Deficits (UK) as the most important risk factor, Asset and Liability mismatch ranked second in the US and third in the UK.
In the UK, the emphasis on Funding Deficits has also been accompanied by a concentration on the Employer Covenant, selected as the second most important risk in 2011. While Employer Covenant was ranked second in importance in 2010, the number of times it was selected as important increased from 28% in 2012 to 49% in 2011.
"While plan sponsors in the US and scheme sponsors and trustees in the UK are both focused on liability management, there are key differences in their approaches," said Cynthia Mallett, Vice President, Corporate Benefit Funding, MetLife. "Our research shows that UK respondents may be more concerned about securing contributions to their scheme in order to meet their obligations, whereas US plan sponsors are more concerned about seeking excess returns from their assets to meet their liabilities."
"This marks a fairly significant turning point in the U.S. away from seeing absolute asset performance as a key driver of meeting pension obligations, and moving to managing assets in the context of plan liabilities," Mallett added.
"The prominence of Funding Deficits and Employer Covenant demonstrate how critical the role of the sponsor as ultimate guarantor of the scheme is in the UK. Trustees play an incredibly important role in assessing and routinely monitoring the company's financial ability - and ongoing willingness - to support the scheme," said Emma Watkins, Director of Business Development at MetLife Assurance Limited.
"Given trustees cannot rely on investment performance alone to address deficits, particularly in volatile financial conditions, the strength of the employer covenant is critical in driving investment risk decisions and determining the ability to meet often increasing contribution demands," Watkins further commented.
Alignment Between Importance and Success Reveals Some Inconsistencies
In the UK, 80% of scheme sponsors and trustees say they are successfully managing risks facing their plans, and 79% of plan sponsors in the US report the same. However, the comparison study also found that some risks identified as highly important were reported to be low in success, even though they should garner more attention than risks that are identified as low in importance but reported to be successfully managed. In addition to Underfunding of Liabilities (US) / Funding Deficits (UK) reported as not being successfully managed in the US and UK, Asset and Liability Mismatch, which is the second most important risk factor in the US and third most important risk factor in the UK, was reported to be only the 13th most successfully managed risk in the US and the 11th in the UK.
"The good news amid a challenging economic environment is that both plan sponsors in the US and scheme sponsors and trustees in the UK are tackling the measurement of their liabilities. This is the first step in successfully managing the risks facing their plans," said Mallett. "Moving forward, we expect plan sponsors in the US and scheme sponsors and trustees in the UK to refine and deepen their focus on a core set of risks, and over time to implement new strategies to successfully manage them."
About the Research
A complete report of the findings for the MetLife US Pension Risk Behavior IndexSM (and detailed description of the research methodology) is available at www.metlife.com/pensionrisk. The MetLife Assurance UK Pension Risk Behaviour Index (and detailed description of the research methodology) is available here.
About MetLife
MetLife, Inc., through its subsidiaries and affiliates, is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers in over 50 countries. MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and the Middle East. For more information, visit www.metlife.com.
A.M. Best Special Report
Prolonged Low Interest Rates Take Longer-Term Toll
Cash is key
OLDWICK, N.J. - U.S. life/annuity insurers' earnings are being pressured by the prolonged low interest rate environment. In the near term, writers of single-premium deferred annuity and flexible-premium deferred annuity products are not expected to be significantly impacted, except perhaps structured settlement annuity writers. Insurers actively hedging interest rate risk across product portfolios are expected to experience less of an impact, although most hedging programs have been more narrowly focused on variable annuity product lines.
Companies that have diversified their earnings by maintaining larger percentages of less interest-rate sensitive business lines - group retirement, supplemental health lines, traditional life, fixed indexed annuities - are likely to fare better from a capital and earnings perspective.
While interest rates remain a key concern, the risk has been partially offset by lower levels of credit impairments, higher levels of capital and overall stability in credit spreads. Nevertheless, the negative impact of interest rates on statutory capital requirements may be longer term because many insurers cash flow testing assumptions include reversion to the mean in their interest rate and equity market scenarios, which may deviate substantially from actual results.
Although the capital impact has been partially mitigated by substantial capital raising in recent years, additional capital requirements are likely to emerge if low interest rates persist.
In the near term, A.M. Best expects the earnings' impact to be significant, although manageable. The ability to weather prolonged low interest rates partially depends on an insurer's growth strategy. An important consideration will be the growth of higher margin business that can offset embedded low-margin products.
To view a replay of a webinar on this subject titled The Impact of Low Interest Rates on Life and Annuity Insurers, please visit here.
Access a copy of this special report. BestWeek subscribers can download a PDF copy of all special reports as well as the associated spreadsheet data. Non-subscribers can access an excerpt of each special report and purchase individual reports and spreadsheet data.
AIG Board of Directors Authorizes Repurchase
of up to $1 Billion of AIG Common Stock
NEW YORK - American International Group, Inc. (NYSE: AIG) yesterday announced that the AIG Board of Directors has authorized the repurchase of shares of AIG Common Stock, par value $2.50 per share, with an aggregate purchase amount of up to $1 billion from time to time in the open market, through derivative or automatic purchase contracts or otherwise. The timing of such purchases will depend on market conditions, AIG's financial condition, results of operations, liquidity and other factors. This authorization replaces all prior Common Stock repurchase authorizations.
American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.
AIG Repays Approximately $1 Billion to the U.S. Treasury
Reducing Government's Interests in AIG
- AIA SPV Balance Reduced to Approximately $8.4 Billion After Partial Release of MetLife Sale Escrow
- U.S. Taxpayers Recoup Nearly $45 Billion from AIG in 2011
- Sixth Major Payment in 2011
- Taxpayers A Step Closer to Recouping Investment in AIG
NEW YORK American International Group, Inc. (NYSE: AIG) announced today that it had paid the United States Department of the Treasury ('Treasury') $972 million to reduce the liquidation preference on one of the special purpose vehicles (SPVs) created as part of the government's assistance to AIG.
"We continue to make steady progress toward our goal of America's taxpayers recouping their entire investment in AIG"
AIG's payment to the Treasury came primarily from funds released from the escrow held in connection with AIG's sale to MetLife, Inc. (MetLife) of American Life Insurance Company last year. As a result of the payment Tuesday, the remaining liquidation preference Treasury holds in the AIA Aurora LLC (the AIA SPV) was reduced to approximately $8.4 billion.
"We continue to make steady progress toward our goal of America's taxpayers recouping their entire investment in AIG," said AIG President and Chief Executive Officer Robert H. Benmosche. "I am confident that AIG's employees will continue to work hard so we can achieve this goal."
The non-controlling, nonvoting, callable, preferred equity interests in the AIA SPV were created by AIG and the Federal Reserve Bank of New York (FRBNY) on December 1, 2009, in exchange for a reduction of the balance outstanding and the maximum credit available under the original $85 billion credit facility provided by the FRBNY to AIG in September 2008. The original liquidation preference for the AIA SPV was $16 billion.
The money paid today is the sixth major payment to the government in 2011 and brings the total repaid in 2011 to approximately $45 billion.
American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.
How Can a Young Professional, or Key Employee, Afford to Buy Your Practice?
And how can you add the value of the business to your nest egg
By Herb Daroff, JD, CFP
Mr. Daroff is affiliated with Baystate Financial Planning, in Boston. He can be reached at hdaroff@baystatefinancialplanning.com
Sometimes, the best exit strategy to sell your professional practice or business is to look inside. It's time for you to retire. You have some retirement savings, but you were hoping to add the value of your professional practice or business to your nest egg.
Of course, you may be fortunate enough to sell your medical practice, for example, to a hospital or large medical practice, just in time to retire. Or, you may be lucky to find a strategic buyer for your business. If not, in order to maximize the net after tax value of your practice or business, if sold to a younger professional or key employees, you need to recognize that you are both an owner and an employee, SO:
- Every dollar that the business or practice allocates to you as an owner (EMPLOYER) is a very tax INefficient dollar. It is either paid to you as a non-deductible expense, or the value attributed to you is included in your taxable estate.
- The same dollar allocated to you by the same business or practice, but this time as EMPLOYEE is a very tax Efficient dollar. It is either paid to you as a tax deductible expense, or the value can be excluded from your taxable estate.
If you start the planning for ownership and management succession at least 10-year in advance of retirement, then you can take advantage of one of the most tax efficient, cost effective, BUT much maligned planning techniques, the defined benefit pension (qualified) plan.
I started my career in financial services in June 1973. For the first 10 years, all I did was create defined benefit pension plans. For the next 20 years (from 1983 to 2003), all I did was terminate defined benefit pension plans. Since 2003, we have seen a resurgence of defined benefit pension plans, especially in professional practices (i.e., doctors, lawyers, accountants, etc.) and other tax pass through entities (P.C.s taxed as S-Corporations, S-Corporations, or LLPs/LLCs).
Here's how it works. Younger professional or key employee joins your practice or business with plans to succeed you in ownership and management. However, he or she does not have the funds to buy you out and with significant student loans still outstanding, may never have adequate funds. As long as the defined benefit plan contribution allocates to you at least as much as you would net from taking that amount as compensation, net after taxes, then the strategy will work.
For example, a $100,000 plan contribution would have to allocate at least $60,000 to you, which is the same amount as you would net after income taxes if you took that $100,000 as compensation and paid $40,000 in state and federal income taxes (40% bracket), netting $60,000 after taxes.
Typically, you are the oldest, highest paid, employee with the most years of service to the practice. However, if you have many other employees who are of similar age to you, this strategy may not work.
If you start the process much closer to retirement, then we need to use non-qualified deferred compensation.
With either a qualified or non-qualified retirement plan, you can accept a LOWER purchase price (EMPLOYER benefit dollars), which when added to your EMPLOYEE benefit dollars, provides you with a higher net after tax result.
I want to buy your practice for $1,000,000. Let's assume that I will pay you $100,000/year for 10 years. I need to earn $166,666/year in order to net after taxes (40% state and federal income tax bracket, assumed) the $100,000 that I pay to you. Assuming that you have zero cost basis in your practice, you lose $20,000 (20% state and federal capital gains tax bracket, assumed) and net $80,000/year for 10 years.
BUYER needs to earn $1,666,666 so that SELLER can net $800,000
Who's the big winner in that transaction? The IRS and State Department of Revenue. They collect $866,666 in taxes from you and me.
Instead, I agree to pay you $1,333,333 in retirement income (qualified or non-qualified). You net the same $800,000 after taxes, but I save $333,333. Alternatively, I agree to pay you $1,666,666 in retirement income. You net $1,000,000. You net $200,000 more.
Or, we split the tax savings between us.
Point/Counterpoint: The Volcker Rule
What is a reasonable approach to financial responsibility?
POINT: Washington, DC - Americans for Financial Reform, a coalition of more than 250 national, state and local organizations working together for strong Wall Street reform, issued the following position:
"The Volcker Rule, with its clear ban on both proprietary trading and conflicts of interest, is one of the short list of places where the Dodd-Frank Act imposes an outright ban on Wall Street practices central to the financial crisis. Unfortunately, the proposal issued [earlier this month] falls well short of what the Volcker Rule could and should achieve. It is too weighted toward preserving bank freedom of action, rather than creating the changes in bank practice and culture required by the statute," said Lisa Donner, executive director of Americans for Financial Reform. "We strongly urge major improvements in the final rule. The serious and widespread economic pain caused by the failures of our financial system, and the growing expressions of public outrage - with more and more people taking to the streets - help make it clear how important it is to get this right," she added.
The proposed rule does include some positive commitments in areas like controlling the use of trading accounts to stockpile risky assets, and designing trader compensation to limit negative incentives. But the vagueness of the proposed rule and the broad scope of the exceptions permitted raise serious doubts about whether this framework will actually produce the significant changes in bank practices that we need.
The statute itself includes exemptions from the proprietary trading ban for traditional practices like hedging and market making. The experience of the past decade shows that for the rule to work these exemptions must be tightly controlled and carefully circumscribed. But in this proposed rule the exceptions to the proprietary trading ban are outlined in a broad and general way that leaves enormous scope for discretion by both banks and regulators. There is significant emphasis on bank self-regulation and few clear 'bright lines' for either regulators or bank managers to rely on. In addition, the proposed rule also adds major new exemptions not included in the statute.
The vagueness of the rule, and the hundreds of questions it includes, underline the fact that regulators are still in the midst of crafting a final product. Some of the questions they pose show pressures to weaken the rule even further, to the point of total uselessness. Instead, we call on the regulators to revise the rule so that it accomplishes the goal of producing a safer financial system, and one that serves the real economy instead of preying on it.
COUNTERPOINT: Boston, MA - Herb Daroff, JD, CFP responded with the following:
NO. Too early. However, the issue is simple:
Do you tighten the reins on the horses so much that they can't pull the Stagecoach, or do you let the horses run wild? Both are bad ideas. In my opinion, we should approach this all in moderation. Tightening too much is like the zero tolerance policies in schools- zero tolerance on alcohol, so a kid gets expelled for taking cough syrup. Clearly, that is an unintended result, but that's what you get when you take thinking out of the rules.
I suspect that the Americans for Financial Reform might want something like a zero tolerance policy in response to the Wild West of our financial crisis. The Volcker Rule or Plan was intended to tighten the reins in order to stop the horses from running wild. But you have to approach it one step at a time: tighten up, then loosen, then tighten, then loosen, as any old Stagecoach operator would understand. But we stopped thinking like that. Freedom of choice begat zero tolerance policies, but what we need is RESPONSIBLE freedom of choice. The question then is, who gets to judge what's reasonable or responsible?
The Retirement Income Industry Association
Partners with Texas Tech University
To offer intensive seminar program to prepare financial professionals for advanced education in retirement income management
Boston, MA (October 20, 2011) - Texas Tech University, based in Lubbock, TX, is now the second university approved by the Retirement Income Industry Association (RIIA) to teach the Retirement Management Analyst curriculum in preparation for the RMA examination. Boston University Center for Professional Education, a RIIA university partner since May 2010, currently offers a distance learning program to potential candidates.
According to Francois Gadenne, RIIA's Chairman and Executive Director, the new Texas Tech Retirement Management Certification Seminar is a one-week, intensive program which will include lectures, lab assignments and final exam, and will take place in the new Charles Schwab Technology Complex on the Texas Tech campus. Students who successfully pass the final exam receive a certification from the university and are fully prepared to take the RMA exam to earn the RMA designation. "The RMA certification is the only one across the industry to focus specifically on providing retirement income planning and management centered around structuring a plan built on the solid foundation of first build a floor and then expose the portfolio to upside potential," explained Gadenne.
Spearheaded by the faculty of the Texas Tech Personal Financial Planning Division (PFP), the seminar is taught by experienced instructors and faculty, as well as doctoral students who will assist with the applied lab sessions. Notable faculty and instructors include:
- Renown financial planning authority, Harold Evensky, CFP, AIF, RMA and president of Evensky & Katz, a nationally respected wealth management firm
- Dr. Michael S. Finke, Associate Professor and Director of the PFP PhD program and co-winner of RIIA's first Academic Thought Leadership Award
- Dr. John Salter, CFP, AIF, Assistant Professor in the Texas Tech PFP Division and Director of the bachelors' degree program
- Francois Gadenne, CFA, RMA, co-Founder, Chairman, and Executive Director of RIIA.
Dr. Michael Finke, Associate Professor and Director of the Personal Financial Planning PhD program at Texas Tech, believes strongly in the importance of retirement planning education and is interested in providing additional executive education opportunities for non-traditional students. "With our focus on financial planning, it was only natural to reach out to RIIA to find ways to expand the RMA program by offering a different learning environment and approach to potential candidates," said Finke.
The aim of the new seminar is to provide a thorough, science-based overview of retirement management that advisors, managers and executives from across the financial services, insurance, investment and retirement planning industries can use to more effectively serve consumers looking for professional advice and appropriate product recommendations to meet retirement income goals.
The first seminar is scheduled for February 20-25, 2012, and the cost is $1,975, including hotel accommodations. Online registration is now open on the RIIA website's section relating to the RMA program. To learn more, please contact Michael Finke at michael.finke@ttu.edu.
About the Retirement Income Industry Association
A not-for-profit organization with national and international members, the Retirement Income Industry Association (RIIA) was founded in 2006 by leading financial services companies, advisors and academics who wanted a focused approach to retirement income with a broad view across the financial services industry to address the major challenge facing an entire generation of Americans about how to create durable, inflation-adjusted retirement income. Its mission is to bring the retirement income industry (commercially, academically and through affiliated associations) together with a View Across Silos to create a forum for sharing the freshest outlooks, the most modern thinking, the latest research and education, and the newest advances in product development within the realm of retirement income. Visit RIIA here.
LIMRA: Forty Percent of Americans 18+ Save Nothing Towards Retirement
Pre-retiree picture not much better
WINDSOR, Conn., Oct. 18, 2011—In a recent survey of Americans age 18 and older (not yet retired), 40 percent said they currently save no money each month toward retirement.
"These findings are alarming," said Matthew Drinkwater, associate managing director, LIMRA Retirement Research. "Our research indicates that fewer future retirees will have pensions to pay for their living expenses and more will be relying on their personal savings to fund their retirement. Without a significant change in savings behavior, many Americans will not have enough money to afford to retire."
The eNation survey, conducted on behalf of LIMRA in October 2011, also found that 19 percent of adults not yet retired typically save less than $100 a month, while more than a quarter (27%) of consumers save $100 to $499 a month. Even those with household incomes of $50,000 or more, a sizeable proportion (42%) are either saving $100 or less, or nothing, each month.
Looking at pre-retirees, the results were not much better. Forty-one percent of pre-retirees are not putting aside any money for retirement and a little more than one-fifth (21%) of pre-retirees save less than $100 a month.
"People may think they will just continue to work until they die, but our research shows that 56 percent of retirees retired before they expected; 43 percent were involuntary. So the option may not be theirs," noted Drinkwater.
Employer-sponsored retirement plans (401(k), 403(b), etc.) are an easy way for employees to save for retirement tax-free. LIMRA’s study revealed that many Americans who have access to one of these plans do not take full advantage of the tax-deferred savings.
While 55 percent of surveyed adults do not contribute at all to an employer-sponsored plan, of those that do, 48 percent contribute less than five percent of their annual earnings. Overall, more than 20 percent fewer women contribute to their employer-sponsored retirement plan than men (39% vs. 50%). In addition, the survey found that women are more likely than men to contribute less than three percent of their earnings (19% vs. 13%, respectively).
The good news is, despite the poor economy, only 12 percent of plan participants have decreased their contribution rate over the past year. Twenty-four percent increased their saving rate (i.e., the percent of annual earnings saved) and 64 percent kept their contribution rate constant.
"Obviously, educating people about the benefits of systematic saving is critical," said Drinkwater. "But research proves that auto-enrollment and auto-escalation programs within employer-sponsored retirement plans are valuable tools to help employees get to adequate contribution levels that will help them reach their financial goals in retirement."
About LIMRA
LIMRA is a worldwide research, consulting and professional development organization that helps more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Visit LIMRA at www.limra.com
Opinion
The Great Collapse of the 21st Century
Time travels through catastrophes; looking back at our demise
by Jay DeVivo
Mr. DeVivo is a principle with String Financial, LLC, specializing in the development of applications to enable DC plan participants to better prepare for retirement. He is also the editor of the blog 'The Retirement Report.' He can be reached at jrdevivo@gmail.com
Author's Note: One bright spot in the current economic malaise is the surprising availability of gently used time travel equipment at very reasonably prices (I practical stole my Wenger quad-lithium SRP-22 from Seth MacFarlane). While flitting about space-time, openly mocking Hawking's chronology protection conjecture, I brought back a chapter from a 22nd century textbook titled "American Economic History- The New England to the Martian Colonies, 500 Years that Changed Everything". Enjoy.
The Great Collapse of the 21st Century
The Great Collapse, was different than the other depressions and recessions that preceded it. It was not simply market speculation, shenanigans, and bad fiscal policy (though those undoubtedly played a part), nor was it just a particularly nasty downward slope in the business cycle. Rather, it was the build-up of decades of pressure from unsustainable societal choices with respect to spending, taxation, domestic policy, and labor, combined with stunning political cowardice, that resulted in a tectonic explosion that was the Great Collapse.
What fascinates anthropologists and economic historians is that not only were the warning signs visible well in advance of the Great Collapse, they were widely recognized. Many prominent economists, academics, policy experts, and thinkers of the day beseeched the government and the public at large to embrace the economic, social, and publicly policy changes necessary to avert certain economic ruin. Unlike Galileo and Copernicus, these men and women were not thrown into prison or ridiculed; indeed several were generally well received by their contemporaries and the trade and popular press of the day. Instead, their warnings and advice were simply overwhelmed. Overwhelmed by fear and denial, by profoundly intellectual lazy populist rhetoric, and by inertia and not-so-blissful ignorance.
With the benefit of hindsight, one is tempted to chalk up the Great Collapse to simply the collapse of common sense. However, unlike the first American Civil War that had a single, clear, unambiguous cause (slavery), the catalyst of the Great Collapse was the reaction of economic and policy decisions with rapid social and technological change. Seeing the events in their historical context, perhaps we can better comprehend why early 21st century America appeared to opt for economic failure. If we hope to summon the wisdom and discipline to respond thoughtfully to emerging risks to our own economic security and stability, we should endeavor to gain a better understanding of the challenges and failures of our forbears.
The Growth of Debt
American sovereign and personal debt was the albatross that ultimately sank the US economy into the Great Collapse that plunged the nation into economic purgatory for nearly one-quarter of the 21st century. The roots of the debt problem stretched back to the last quarter of the 20th century.
Consumer debt
At the end of World War II in 1945, American veterans fighting under ghastly conditions returned to families that had spent years living in an economy where several staples including meat, coffee, gasoline, and shoes were rationed, and some goods, such as automobile tires, were virtually unavailable. Understandably, the result of this tremendous pent-up demand was a boom in consumer spending.
The reverberation would prove louder than the boom.
The last 50 years of the 20th century saw greater technological advancement than the preceding 950 years of the millennium. This spawned, for a society unaccustomed to such rapid change, a veritable explosion of new products and services, large and small, available for purchase. Overwhelmed with availability and choice, consumption became almost a compulsion, and with access to easy credit, personal debt soared.
Debt as percent of earned income was less than 50% in the 1950s and the savings rate was at 8.5%. By 1990, debt-to-income had doubled to 100%. It hit 150% in 2004 and 175% in 2009 while the savings rate fell to effectively 0%. Debt-to-income reached 200% in 2015, and, exacerbated by a decade of high unemployment, peaked at 250% in 2020.
The 'Great Spend,' which began reasonably enough with the lifting of rations at the end of WWII, did not end until the second decade of the 21st century when it imploded in the Great Collapse. The economic and social implications are discussed more thoroughly in chapter 14.
Government Debt
Though the capital demands on a government are clearly much different than those of its citizens, the arc of government debt accumulation followed very closely that of the consumer. After declining steeply from its World War II high (when 1 in 8 U.S. citizens were serving in the military) to a low of 33% in 1979, national debt as a percentage of GDP rose steadily to 100% in 2011, before topping out at 118% in 2018.
The two sections below introduce some of the major foreign and domestic policy initiatives that contributed to the increase in government debt. Chapters 15, 16, and 18 will provide slightly less superficial overview of nearly 75 years of government spending drivers.
Foreign Policy Initiatives
Post World War II saw the United States embark on the Marshall Plan, an ambitious campaign to rebuild war-torn Europe and thwart communism from taking root on the continent. This marked the start of the 'Cold War' with the Soviet Union - a confederation of Eastern European, Baltic, and Asian states - and cemented America's role as global policeman and chief economic benefactor, a role it continued to play even after Western democracies flourished.
All foreign policy (and many domestic policy) decisions were made against this Cold War backdrop. When the Soviet Union dissolved in 1991, America's respite from enforcer was brief, as new threats from Islamic terrorist organizations not clearly aligned with a single state or government brought new, and now armed, conflicts. As battles in the Middle East and Africa entered their second decade, U.S. foreign policy became more circumspect as it finally relinquished its role as democracy's sole protector and benefactor.
Domestic Spending
At home, new Great Society programs aimed at helping the plight of the poor and elderly were launched in the 1960s, while other programs created in the aftermath of the Great Depression were expanded. As will be discussed in Chapter 16, the exponential growth of two programs- Social Security and Medicare - contributed mightily to the federal government's debt burden.
In 1970, federal expenditures on Social Security and Medicare were $30 billion and $6 billion, respectively. They skyrocketed to $707 billion and $452 billion (2,200% and 7,200% increases, respectively) in 2010. By 2015, 1 in every 2 dollars spent by the federal government went to those two programs, and by 2020, Social Security, Medicare, and interest on the national debt accounted for 75% of all government expenditures.
While Social Security and Medicare represented the largest government outlays prior to the Great Collapse, these programs were neither the cause in and of themselves nor the government's only miscues. (Note: see Extending Social Security's Early Retirement Age)
Taxation
One cause of the huge run-up of personal debt (and the corresponding cessation of personal savings) was tax policy. Prior to 2032 federal tax was not collected on the purchase of goods and services, but instead assessed against income and reported to the government each year. With a few exceptions, income and gains from investments were included in the tax. In the early 21st century, the field of behavioral economics was still in its infancy, though a few prominent economists (notably Laurence Kotlikoff and David Tuerck) championed a consumption tax to encourage saving and dissuade excessive spending. It took decades for Congress to implement the plan.
The reluctance to embrace a consumption tax appears baffling when one considers the inefficiency of the income-based collection system.
After the 16th Amendment to the Constitution was ratified in 1913 resolving the constitutionality of a direct federal tax, the entire income tax code was about 400 pages and instructions for completing the tax forms were detailed on a single page. The tax code increased an average of 800 pages a year and by 2010, it had ballooned to 75,000 pages, with 175 pages of instructions. This complexity gave rise to an industry; millions of people were employed by individuals and businesses to stay on top of the constantly changing rules and to figure out ways to minimize their clients’ tax bills. The federal government employed up to 150,000 people to process and investigate returns.
The result, of course, was tens of billions of dollars of waste each year in compliance and enforcement costs, tax avoidance schemes, and the inefficient deployment of capital. Far worse, because the policy failed to incent savings, it exacerbated consumers' present bias, discounting future needs and elevating present wants, resulting in highly indebted consumers who vastly under-saved for retirement. This ultimately reduced consumers' incomes, reduced government revenues, and increased burdens on already over-stressed social welfare programs.
Tightening Business Cycles and Domestic Policy Responses
Capitalism is characterized by 'creative destruction'; a term popularized by 20th century economist Joseph Schumpeter to describe the cycle of economic innovation that sees new business models rise out of the destruction of those that came before it. As the rate of technological change hit a big inflection point in the last half of the 20th century speeding up and shortening these cycles, a major input to the 'creative' part of the cycle became increasingly scarce until the innovation machine finally stalled in the early part of the 21st century. That input was an educated and energized workforce.
Rapid technological change ushered in huge productivity gains. In the last half of the 20th century, the manufacturing and industrial sectors saw the largest productivity increases and began the steady march toward a slimmer workforce. At the turn of the 21st century these gains began to be felt meaningfully for the first time in the larger 'white collar' sectors of the economy. As these gains accelerated, college-educated workers accustomed to relatively well-paying jobs as cogs in large corporate machines, could not find work. Put bluntly, the new economy needed fewer worker bees.
For the cycle of innovation and expansion to continue, a steady supply of smart and highly skilled workers become the single critical input. The United States had two options for obtaining this resource: 1) grow our own (invest in education); or 2) import from elsewhere (encourage immigration). America did neither.
Read the entire blog here
a new White Paper from MetLife
Fiduciary-Level disclosures for ERISA retirement plans
Determining 'reasonable compensation' has always been difficult
by Andrew Varady, Esq.
Mr. Varady is an Associate General Counsel in the MetLife Law Department and is responsible for ERISA and employee benefit law matters.
As an ERISA plan fiduciary, you have important responsibilities related to your plan and must act in the best interests of your participants and their beneficiaries.
These responsibilities include:
- Carrying out your duties prudently
- Following the terms of your plan documents
- Diversifying plan investment choices
- Paying reasonable compensation for plan services
For most of these responsibilities, the Department of Labor (DOL) and the courts have provided guidance and interpretations which have helped plan sponsors meet their fiduciary duties. However, the ability to determine reasonable compensation for plan services has historically been a difficult one, due to the lack of regulatory guidance. In recognition of this problem, on July 16, 2010, the DOL issued an interim final regulation on fiduciary-level fee disclosure that should help plan sponsors. It is expected that the DOL will release the final rule before year-end 2011.
Effective April 1, 2012, the interim final regulation on fiduciary-level fee disclosures (alternatively referred to as the 408(b)(2) regulation) generally requires certain companies that provide services to ERISA employee pension benefit plans to disclose the direct and indirect fees charged for their services. The regulation sets fee disclosure standards for plan service providers, resulting in a more clear and consistent communication of fees across the service provider community.
The purpose of this paper is to help you understand the new DOL interim 408(b)(2) regulation and how it affects your role as a plan fiduciary.
Historically, there has been little guidance for plan sponsors.
Background
In recent years, the DOL has issued fee disclosure rules and regulations in three separate phases covering both plan sponsor and participant level disclosures. These regulations have increased the types and detail of required disclosures as follows:
Phase One
Effective for the 2009 plan year, the DOL amended the ERISA 5500 Schedule C rules by requiring plan sponsors to annually report additional details on compensation received by pension and welfare plan service providers.
Phase Two
On July 16, 2010, the DOL issued the 408(b)(2) interim final regulation which provides that no contracts or arrangements for services between a pension and profit sharing plan and a covered service provider will be considered reasonable under ERISA unless all disclosure requirements of the regulation are met.
Phase Three
On October 20, 2010, the DOL published final regulations that require plan administrators to disclose certain fee and investment information to participants and beneficiaries in ERISA participant- directed individual account plans, such as 401(k) and 403(b) plans. This new rule includes uniform fee and investment performance disclosure requirements.
408(b)(2) Fee Disclosure Interim Final Regulation
Under ERISA, a contract or services arrangement between a service provider and a plan must be necessary for the establishment or operation of the plan for which no more than reasonable compensation is paid. This is generally referred to as the 'reasonable services' exemption under ERISA Section 408(b)(2).
As noted earlier, there was little guidance for plan sponsors to rely on to ensure they are complying with the 'reasonable services' exemption. For this reason, the DOL determined that plan sponsors needed assistance to understand and evaluate fees charged by their retirement plan service providers. The Department also thought that plan fiduciaries need to be in a better position to assess any potential conflicts of interest between service providers and third parties where service providers receive compensation through plan investments.
If the plan fiduciary fails to comply with ERISA Section 408(b)(2), the service arrangement will be treated as an ERISA prohibited transaction because the arrangement and fees are not considered reasonable. A prohibited transaction is a violation of the plan fiduciary's obligation to the plan, resulting in monetary penalties. The requirements of the 408(b)(2) regulation are independent of any other fiduciary obligations under ERISA.
Covered Service Providers
The 408(b)(2) regulation requires certain companies that provide services to ERISA pension and defined contribution plans, such as a 401(k) or ERISA 403(b) plan (e.g., a covered plan), to disclose the compensation the company receives for its services. Under the regulation, a covered plan does not include SEPs, simple retirement accounts and IRAs.
While most plan service providers are subject to the 408(b)(2) regulation, technically, only 'covered service providers' need to comply. A 'covered service provider' is a service provider that enters into a contract or arrangement with the covered plan and reasonably expects that it, or its affiliates or subcontractors, will receive $1,000 or more in compensation in connection with providing specified services.
Specified services include
- Services provided directly to the covered plan as an ERISA fiduciary or as a fiduciary to investment contracts or products that hold plan assets where the covered plan has direct investments.
- Services provided directly to the covered plan as an investment advisor (either the Investment Advisors Act of 1940 or under state law).
- Record keeping or brokerage services provided to a covered plan that is a participant-directed individual account plan, such as a 401(k) or ERISA 403(b) plan, and if one or more designated plan investments are available in connection with record keeping or brokerage services.
- Services for indirect compensation (i.e., compensation received from sources other than the plan, plan sponsor, covered service provider, affiliates, or subcontractors). The regulation provides a list of activities which constitute indirect compensation (including third party administration, auditing, actuarial and consulting services).
Download the entire White Paper here
The Economy and the Markets
Economic Outlook cites a 'general economic malaise'
from Advantus Capital
It was anything but happy days for the economy and the markets in the third quarter. In August, the federal budget impasse and Standard & Poor's downgrade of U.S Treasuries rattled investors. Concerns over European sovereign debt reached a new level in September, driving the markets down. A stream of negative economic statistics, including the first drop in personal income in two years, highlighted the weak condition of the U.S. recovery. While many looked to the Federal Reserve for new answers, the Fed is limited in its ability to spur the economy back to health. The Fed has already dropped interest rates so low that further reducing the cost of capital would not have a significant impact.
Percentage returns
Third quarter Year-to-date
30-year Treasury 31.04 33.01
10-year Treasury 12.16 15.76
2-year Treasury 0.51 1.44
S&P 500 Index -13.87 -8.68
REITS (wilshire
REIT Index) -14.64 -5.35
A flight to quality in the third quarter lifted Treasuries but sent equities down.
Equities
Although third quarter was the worst quarter for stocks since late 2008, stock prices actually reflect a more positive outlook than bonds. The Standard & Poor's 500 Index was off almost 14 percent for the quarter, leaving it down 8.68 percent for the year. Volatility returned to the market in a big way, with the S&P Index rising or falling by more than 1 percent in 35 of 64 trading days. In the bond market, extremely low yields indicate bond investors expect another recession. Stock prices, while off significantly from highs reached in April, are more consistent with expectations that the economy will continue to muddle along in a low growth mode. Stock prices of companies in the S&P 500 are at 11 times expected earnings and 13 times actual earnings, which is below historic averages. This market holds greater appeal to investors seeking value than those looking for growth.
Fixed Income
Standard & Poor's downgrade of long-term U.S. Treasury debt grabbed headlines, but investor demand for Treasuries actually rose, driving Treasury yields down and prices up. Concerns over European sovereign debt and European banks prompted a flight to quality, and on those flights Treasuries remain the investment of choice. Spreads, the difference between yields on Treasuries and other types of bonds, rose as investors moved to less risky issues. Corporate bond spreads increased. As shown in the table, Treasuries were one of the best performing segments with the 10-year increasing 12.16 percent in the quarter ending September 30, leaving it up 15.76 percent for the year.
Real Estate
While commercial real estate fundamentals for the most part remained strong, the market faces headwinds. Hotel revenues, which rise and fall with economic growth, are still surprisingly solid. Potential cuts to 2012 business budgets could pose problems. Other segments are mixed. Office space, which tracks with employment, remains generally weak. Some commercial business districts are doing well, but suburban markets are not. Demand for retail space is soft, while warehouse markets are stable. Apartments continue to be strong. Existing properties benefit from the absence of new supply. The commercial real estate lending spigot was turned off in 2007 and, except for apartments, never got turned back on. Many real estate deals are on hold, with prospects of spending cuts, higher taxes, and lower growth keeping them there. Institutional investors, however, are still a source of demand for commercial real estate. High quality properties are likely to hold or increase market share, while lower quality properties will take the brunt of lower prices and values. Residential housing prices continue to dribble down, with new home construction hitting a 40 year low. Housing is not providing the ½ percent Gross Domestic Product lift it would bring to a normal recovery. Instead, the continued fall of home prices is acting as a drag on the economy.
Outlook
Unemployment at 9 percent and likely rising adds to the country's general economic malaise. Consumers spend when they feel good about their jobs and see their household net worth rising. But leading indicators for jobs are weak, and the drop in the stock market makes consumers feel less ealthy. Europe continues to falter. European money is going to stabilize Greece, and not being invested, limiting growth. Economic weakness that is spreading across Europe is having ripple effects elsewhere. China and Asia, important drivers of global economic growth, are experiencing lower demand from the continent.
Growth expectations have been lowered to the two percent range, and could drop even further. The risk of recession has risen. With no readily apparent source on the horizon to spur growth, this low/slow/no growth mode may be with us for a while.
Download the PDF report here.
Coming soon to a retirement near you
RetireSmart: "Ready or Not, Retirement Is Coming"
Vera Gibbons Provides Tips for Participants Who Are Not Feeling Prepared
SPRINGFIELD, Mass., - MassMutual Retirement Services continues to expand its web-based RetireSmart participant seminar series with Ready or Not, Retirement is Coming, featuring special guest Vera Gibbons, finance journalist and national TV correspondent. Gibbons is one of the latest additions to MassMutual's panel of industry experts established to help participants make smarter decisions about their finances.
MassMutual's live online seminar is scheduled for Wednesday, October 19 at 12:00 p.m. ET. During the 30-minute presentation, Gibbons will address current issues pre-retirees are facing and offer suggestions for those who are not feeling prepared. The session will conclude with financial tips to help prepare individuals for living on a fixed income followed by a 30-minute interactive question and answer session.
"I'm excited to be a part of MassMutual Retirement Services' online seminar series," says Vera Gibbons. "MassMutual truly cares about its participants and strives to provide the knowledge they need to plan for the future. I hope to engage with individuals nearing retirement and share current trends and tips to help them better prepare for the next phase of their lives," she adds.
"We are so pleased to welcome Vera Gibbons to our RetireSmart interactive participant education series," says E. Heather Smiley, chief marketing officer for MassMutual's Retirement Services Division. "Not surprisingly, our post-event surveys tell us the pre-retiree participant population is looking for more information as they move closer towards retirement. Our collaboration with Vera is a winning combination due to her extensive financial experience and passion for helping individuals achieve their financial goals," adds Smiley.
MassMutual saw record registrations for its previous seminar, "Managing & Maximizing Your 401(k) Today...And Tomorrow." In this presentation, Farnoosh Torabi, independent Generation Y money coach, best-selling author and personal finance journalist, covered the advantages of investing in a 401(k) plan and provided strategies based on age and risk tolerances. The session concluded with information on catch-up provisions for those participants over 50 years of age. A free replay of this seminar can be accessed from www.retiresmartseminars.com.
Space for the upcoming "Ready or Not, Retirement is Coming" seminar is prioritized to retirement plan sponsors and participants on MassMutual's platform. MassMutual retirement plan clients can register by logging in to their retirement plan account at www.retiresmart.com.
For more information about MassMutual Retirement Services, please contact your retirement plan advisor or call MassMutual at 1-866-444-2601.
The information within this presentation is solely the opinion of the speaker, Vera Gibbons, an independent orator, who is not an employee of MassMutual Financial Group.
Fraught with uncertainty and risk; often deferred
By Ray Chodos
Mr. Chodos is a Managing Member of Wealth Preservation Group LLC. Greenwich CT. www.WealthPreserve.com
Closely held business owners are often the engine that drives an ongoing enterprise due to the energy, vision, experience and commitment of these special men and women. As with all leaders, age and achievement begin to diminish their effectiveness in adapting to changing market conditions, as well as innovative advances. While most if not all closely held business owners understand the need for business succession planning, the process is fraught with uncertainty and risk as it has never been done before by them. As a result business owners often defer such discussion into the 'future' when more may be known as to where the best new management options lie.
Issues that deter decision makers from tackling succession planning
- Family considerations are usually at the top of the list.
- If I select an operational successor, how will the rest of the family react?
- How can I test this candidate while I am active and reject him/ her if they do not meet my standards?
How can I equalize equity to my heirs when the business is not well divisible without diluting the operator's ability to manage or reap the rewards of success? If I believe an 'in-law' is the most capable; what happens to my son or daughter's interests in the event of a divorce? Do I sell the business to my selected operational replacement family member? If so what is a reasonable price and tax implication to buyer and seller of such a transaction? What if things don't work out after the sale and I don't get fully paid? If I bring in outside (non-family) professional management, will this be seen by my family as a lack of confidence in them? When multi marriage events occur they further complicate the business succession decision process as few heirs will likely feel they have been treated as they should have been. For all these concerns and more not mentioned, owners that generally deal with decisions daily tend to defer and shy away from this potentially thorny issue. Sometimes death or disability occur before succession issues are addressed and naturally cause the greatest risk to business continuation by virtue of the lack of direction from the owner and diverse interests of the family and key employees.
Advisors need to be creative and minimize the 'rock the boat' concerns of owners facing unchartered waters. One tool that is usually quite effective is 'Asset Protection' planning as it is unique to most clients and serves our basis desire to insulate what we already regard as being our own from involuntary redistribution to others. What percent of your major assets are vulnerable to court ordered or jury verdict award to unintended beneficiaries? This area is universally of interest to business owners of any age irrespective of business succession concerns. Asset insulation planning involves many of the same tools and thought processes utilized in estate planning; thereby creating a natural segue to business continuation choices for a major value asset in the client's holdings. The difficult succession decisions will of course still remain and need addressing by the asset holder; however there will be a strong motivation to protect all one has developed and amassed over a lifetime that will begin the planning and thought provoking process with professional advisors.
Disturbing legal concept
An asset holder may be legally responsible for damages to a claimant despite not having any direct involvement in the loss, or even being aware of the loss.
Risk areas
Employees, children, divorce at any generational level, business disputes, family disputes, underinsured or uninsurable claims, real estate properties, recreational vehicles as well as vacation property. United States annual awards for civil damages are over 200 billion dollars. The average judge has a 400 case load annually. What is the likelihood a successful business owner will never be involved in a serious legal contest?
IRI Convenes 'Boom Time' in Boston
Featured speakers include Allianz' Bhojwani; Washington Update's Andy Friedman
BOSTON, Mass. - The Insured Retirement Institute (IRI) yesterday announced the election of Lynne Ford, CEO of ING Individual Retirement as the Chairman of the IRI Board of Directors. Ms. Ford replaces James Shepherdson, Chairman Emeritus of AXA Distributors, LLC and Managing Partner of Crossroads Capital Group, who will remain on the IRI Board as past Chairman until 2013. Mr. Shepherdson is credited with the successful execution of the Association's rebranding, the expansion of IRI's membership and growing the overall financial foundation of IRI.
IRI also announced that Greg P. Cicotte, President of Jackson National Life Distributors; Joseph N. D'Agostino, Managing Director, Investment Products of Morgan Stanley Smith Barney; Will H. Fuller, President & CEO of Lincoln Financial Distributors; John Mulhall, Managing Director, Head of Insurance & Annuities, Merrill Lynch Global wealth Management, and Robert E. Sollmann, Jr., Executive Vice President, Retirement Products of MetLife have been elected to serve a three-year term on the IRI Board.
Departing the Board this year is Terry Mullen, President SunLife Financial Distributors. The changes to the Board were made official at IRI's Annual Meeting in Boston, Massachusetts.
"Jamie began his tenure as Chair while the Association was in the midst of a complete transformation - one that not only redefined the mission and goals of IRI, but also challenged us all to come together to advance the entire industry," said Cathy Weatherford, President and CEO of IRI. "Today, because of Jamie's unwavering leadership and commitment, our association has become the leading association for insured retirement strategies. On behalf of our entire Board of Directors we thank him for his steadfast dedication and look forward to benefiting from his continued role on the Board."
In reflecting on his departure, Shepherdson stated:
"It was an incredible honor to serve as the Chairman of IRI as we executed our goals to achieve a highly successful rebranding. Through the dedicated support of our Board, and membership as a whole, IRI has ascended to become the industry's leading advocate for insured retirement strategies. Over these past two years, IRI has distinguished itself as a thought leader, powerful force in Washington, D.C. and a trusted source of information for the media. I am grateful to have had the opportunity to be a part of this tremendous accomplishment, and look forward to continuing to support the vital work of IRI in my role as Past-Chairman."
"As our new Chair, Lynne brings an exciting dynamic to the leadership of the Association," continued Weatherford. "As we look to harness the collective strength of our diverse membership to meet the historic investor demand for insured retirement strategies, the focus and direction Lynne brings to IRI will undoubtedly help grow the acceptance and use of guaranteed retirement income by financial professionals and investors alike."
Upon accepting her nomination of Board Chairman, Ford commented:
"As our association celebrates 20 years of service and collaboration within the insured retirement industry, I am truly privileged to have the opportunity to serve as Chairman of IRI's Board of Directors. This is an exciting time for our industry - with historic growth in sales and unparalleled consumer demand for guaranteed retirement income strategies. Over the course of the next two years, we will look to leverage these positive opportunities by providing even greater content, information and resources in support of financial professionals throughout the industry. During my tenure as Chair, I look forward to leading an association with a dynamic membership that has shown phenomenal resilience and has proven to be leaders in retirement income planning."
In addition, three outstanding leaders will be inducted into the IRI Hall of Fame. Receiving the honors this year are Thomas M. Marra, a 30-year industry veteran and president and CEO of Symetra Financial Corporation and its insurance subsidiaries; Merry L. Mosbacher, a principal with Edward Jones responsible for the firm's Insurance Marketing department; and Mark Mackey, who served as president and CEO of NAVA from 1995 to 2008.
Read more about 'Boom Time' in Boston here.
Please visit www.IRIonline.org for more information about IRI's Board of Directors and Hall of Fame.
Financial Professionals to Ramp up Retirement Income Planning Business
First of its kind retirement plan advisor study from The Principal unveils best practices
DES MOINES, Iowa - A significant number of financial professionals plan to ramp up their retirement income planning practices over the next few years according to a new first-of-its-kind study.
"Retirement income planning is a fast-growing revenue source for many financial professionals. This study provides valuable insight into best practices for those who want to tap into this vast opportunity-whether they are just getting into income planning or want to improve their current practice"
Sponsored by the Principal Financial Group, the 2011 Best Practices in Retirement Income Planning Study, is the first survey focusing exclusively on financial professionals who serve qualified retirement plans. The report provides insight into how plan advisors are or will be tapping into the growing baby boomer market opportunity.
The survey reveals that six out of 10 plan advisors provide retirement income planning services to retirement plan participants today. The vast majority (78%) plan to spend more time and resources on income planning over the next three years. Nearly 70 percent say they are or will be investing for growth in their income planning service with 30 percent focusing on better planning tools.
"Retirement income planning is a fast-growing revenue source for many financial professionals. This study provides valuable insight into best practices for those who want to tap into this vast opportunity- whether they are just getting into income planning or want to improve their current practice," said Tim Minard, senior vice president, retirement investor services, The Principal.
Missed opportunity
The survey also found that plan advisors may be missing out on a key opportunity to build their retirement income planning business: being notified when participants leave the plan. More than a third (34 percent) are not being informed when participants leave employment or retire. Of those that are, 60 percent prefer to have all participants referred to them, which may be challenging when needing to spend the vast majority of time building their plan business.
"Advisors can gain efficiencies in this area by working with plan service providers," said Minard. "By asking to be notified when participants leave the plan, advisors can be handed ready-made leads. Because it may be impossible to serve them all, advisors can ask providers to refer only those with higher account balances and then let the provider service the others. This is exactly what our Principal Asset Retention Program offers advisors."
No silver bullet investment solution
When asked to evaluate retirement income products, plan advisors favor options that can be personalized to each retiree's situation. While a variable annuity with a Guaranteed Minimum Withdrawal Benefit (GMWB) rider is a widely accepted retail option, a vast majority of advisors (73%) do not recommend in-plan GMWBs or in-plan guarantees as an investment option inside a retirement plan.
"Clearly the vast majority of plan advisors believe as we do that there is no one-size-fits-all approach to retirement income planning," said Minard. "Financial professionals play a critical role in the complex task of helping retirees turn a nest egg into a lifetime of income. And participants know that. Fifty-percent of pre-retirees plan to work with a financial professional to convert their retirement savings into income."
A complete summary of survey results is available at Benchmarking Retirement Income Planning Best Practices.
About the 2011 Best Practices in Retirement Income Planning Study
The study was conducted with PLANADVISER in June 2011 on behalf of the Principal Financial Group. A total of 249 financial professionals serving qualified retirement plans responded to the survey, which results in a 6.2 percent margin of error.
For more news and insights from The Principal, connect with us on Twitter at: http://twitter.com/ThePrincipal.
About the Principal Financial Group
The Principal Financial Group (The Principal) is a retirement and global asset management leader. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, investment services and insurance through its diverse family of financial services companies. A member of the FORTUNE 500, the Principal Financial Group has $335.8 billion in assets under management and serves some 16.5 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
Current approaches inadequate for assessing future longevity
Robust, predictive approaches using forward-looking scenarios are needed
September 1, 2001 - The substantial increases in life expectancy witnessed in recent decades have been consistently underestimated, a new Swiss Re research report reveals. The good news that people are living longer has brought with it a massive pension shortfall, which has been exacerbated by traditional methods of forecasting longevity not taking account of certain emerging trends.
"The failure to consider future drivers of mortality in historical predictions contributed to employer pension funds under-reserving for longevity risk and other bodies, including governments, not budgeting effectively for funding an aging population," explains Daniel Ryan, head of life and health research and development at Swiss Re.
An essential element of managing longevity risk will be the development of robust, predictive approaches, states Swiss Re's latest publication, "A window into the future: Understanding and predicting longevity." Such approaches would use forward-looking scenarios based on social factors, medical treatments and preventative approaches that influence disease.
The report presents the building blocks for this type of disease-centered model and calls on experts from multi-disciplinary backgrounds, including medical experts, actuaries and demographers, to work together towards a greater understanding of potential future developments in human longevity.
The report recommends that pension plans assess their exposure to longevity risk and decide whether to pass it on to a third party that is better equipped to take on the risk. It also suggests that insurers can work in partnership with reinsurers to develop robust approaches to mitigating longevity risk.
"An improved approach to assessing future longevity is one of the essential components in creating an overall solution to the financial effects of aging societies. It is only through public and private bodies working together that the wider issue of a sustainable infrastructure for long-term retirement provision can be created. Reinsurers with appropriate capacity, who invest in longevity research and development, can play an important role in helping defined benefit pension funds and insurers manage their longevity risk," comments Alison Martin, Swiss Re's head of life and health products.
Swiss Reinsurance Company Ltd is a leading and highly diversified global reinsurer and part of the Swiss Re group of companies. The company operates through offices in more than 20 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company's traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Reinsurance Company Ltd is rated A+ by Standard & Poor's, A1 by Moody's and A by A.M. Best.
IRI Announces its 2011 Annual Meeting:
Final Program Now Available for IRI 2011
This is the Last Week to Pre-Register for the Conference.
IRI's Annual Meeting is a must-attend event for everyone in the insured retirement industry, and this year's conference features an all-star lineup including:
- CNN Host, and the "most influential foreign policy adviser of his generation," Fareed Zakaria will examine whether the the "American Dream" is still obtainable in the current economic landscape.
- Gary Bhojwani, President & CEO, Allianz Life Insurance Company of North America; Mohamed El-Erian, CEO & Co-CIO, PIMCO; Dr. David Kelly, CFA, Managing Director, Chief Marketing Strategist, J.P. Morgan Funds; and Robert Reynolds, President & CEO of Putnam Investments.
- A Broker/Dealer Panel led by John Mulhall, Managing Director, Head of Insurance and Annuities, Merrill Lynch Global Wealth Management.
- Leading financial policy expert, Andy Friedman, will provide an insider’s perspective as to what is happening on Capitol Hill and how it affects the financial sector.
The final program is now available, click here to view it.
We hope to see you at IRI 2011 at the Westin Copley Place in Boston, MA on October 2-4. You don't want to miss this opportunity to network with hundreds of executives from insurance companies, banks, investment management firms, distribution firms, and industry solution providers as we discuss the most crucial issues impacting the industry.
Still need to register? There's still time! Register before September 23 and save $50 off the full, on-site registration price.
To reserve your room at the Westin Copley Place, click here.
To view the current attendee list, click here.
Click here to learn about sponsorship opportunities at IRI 2011.
Have Questions? Please call (202) 469-3000 or email conferences@irionline.org.
IRI Applauds DOL Fiduciary Rule Re-Proposal
Clarification for the very definition of advice; separating individual from commercial application
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) yesterday applauded the announcement that the Department of Labor (DOL) will re-propose its rule on the definition of a fiduciary. While IRI is supportive of protecting consumers, the association and its more than 500 financial sector members, previously expressed deep concern regarding the unintended consequences of the DOL proposed rule in its original state. As the rule was written, middle-income individuals likely would have been denied access to services for saving through IRAs because minimum account balances and annual service fees will make those services completely impractical and unaffordable to a substantial portion of Americans.
"All along, IRI and our members have expressed concerns about the proposed rule because we believed it will lead to increased costs and complexity and less choice for retirement plans and IRAs while increasing confusion for service providers," said IRI President and CEO Cathy Weatherford. "With this move, the Department of Labor now has the opportunity to work with all stakeholders to write a rule that will protect all Americans without placing unnecessary burdens on the professionals who are working to help Americans save for a secure retirement. Today more than ever, we must continue to encourage all Americans to save for retirement, and the re-proposal will help ensure that all Americans will be able to affordable access services to help them make educated decisions as they plan for a secure retirement."
The Department of Labor announcement follows:
US Labor Departments EBSA to re-propose rule on definition of a fiduciary
Additional time ensures strongest possible protections for retirement savers, business owners
WASHINGTON - The U.S. Department of Labor's Employee Benefits Security Administration will re-propose its rule on the definition of a fiduciary. Consistent with the president’s January executive order on regulation, the re-proposal is designed to inform judgments, ensure an open exchange of views and protect consumers while avoiding unjustified costs and burdens. When finalized, this important consumer protection initiative will safeguard workers who are saving for retirement as well as the businesses that provide retirement plans to America’s working men and women. The decision to re-propose is in part a response to requests from the public, including members of Congress, that the agency allow an opportunity for more input on the rule.
"We have said all along that we will take the time to get this right to ensure that we provide the strongest possible protections to business owners and retirement savers in plans and IRAs," said EBSA Assistant Secretary Phyllis C. Borzi. "Investment advisers shouldn't be able to steer retirees, workers, small businesses and others into investments that benefit the advisers at the expense of their clients. The consumer's retirement security must come first."
Today's decision to re-propose means that this important consumer protection initiative will benefit from additional input, review and consideration. The agency agrees with stakeholders and lawmakers that more public input and greater research will strengthen the rule. This extended input will supplement more than 260 written public comments already received, as well as two days of open hearings and more than three dozen individual meetings with interested parties held by the agency.
Consistent with the president's executive order, the extended rulemaking process also will ensure that the public receives a full opportunity to review the agency's updated economic analysis and revisions of the rule. EBSA will continue to coordinate closely with the Securities and Exchange Commission and the Commodities Futures Trading Commission to ensure that this effort is harmonized with other ongoing rulemakings.
Specifically, the agency anticipates revising provisions of the rule including, but not restricted to, clarifying that fiduciary advice is limited to individualized advice directed to specific parties, responding to concerns about the application of the regulation to routine appraisals and clarifying the limits of the rule's application to arm's length commercial transactions, such as swap transactions.
Also anticipated are exemptions addressing concerns about the impact of the new regulation on the current fee practices of brokers and advisers, and clarifying the continued applicability of exemptions that have long been in existence that allow brokers to receive commissions in connection with mutual funds, stocks and insurance products. The agency will carefully craft new or amended exemptions that can best preserve beneficial fee practices, while at the same time protecting plan participants and individual retirement account owners from abusive practices and conflicted advice.
The agency is seeking to amend a 1975 regulation, which defines when a person providing investment advice becomes a fiduciary under the Employee Retirement Income Security Act, in order to adapt the rule to the current retirement marketplace. The proposal's goal is to ensure that potential conflicts of interest among advisers are not allowed to compromise the quality of investment advice that millions of American workers rely on, so they can retire with the dignity that they have worked hard to achieve.
About the Insured Retirement Institute
The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
MetLife Named a 2011 Working Mother 100 Best Company
Advancing women and helping employees balance work and family
NEW YORK - (BUSINESS WIRE) - Working Mother magazine has named MetLife, Inc. a 2011 Best Company for Working Mothers for the thirteenth consecutive year. This list recognizes companies that do an exemplary job of advancing women and helping employees balance work and family.
Our employees are the foundation of our company, and we are proud to offer them benefits and programs designed to foster a supportive and inclusive work environment...
"MetLife is delighted to be recognized as one of Working Mother's '100 Best Companies' for our ongoing commitment to providing working moms the opportunity to successfully manage both their professional and personal lives," said Frans Hijkoop, executive vice president and chief human resources officer at MetLife. "Our employees are the foundation of our company, and we are proud to offer them benefits and programs designed to foster a supportive and inclusive work environment."
MetLife is ranked highly for its benefits and company culture, as well as for its work-life programs, which include flexible work arrangements, health and wellness offerings, back-up child care, associate discounts, an employee assistance program and support for mothers and pregnant women.
"With more than 169,000 women hired last year, this year's 100 Best Companies make up an impressive group of winners who offer family-driven programs and benefits that far outpace their competitors," said Carol Evans, President, Working Mother Media. "This year's winning companies are proof that success lies in the numbers - 97 percent of companies are offering prenatal education, wellness, and stress-reduction programs to employees at every level."
MetLife was selected for the 2011Working Mother 100 Best based on an extensive application with more than 650 questions that surveys the usage, availability and tracking of programs, as well as the accountability of managers who oversee them. Seven areas were measured and scored for the 2011 initiative: workforce profile, benefits, women's issues and advancement, child care, flexible work, parental leave and company culture. For this year’s 100 Best, particular weight was given to benefits, flexibility and parental leave.
The complete list is featured in the October issue of Working Mother.
About Working Mother Media
Working Mother magazine reaches 2.2 million readers and is the only national magazine for career-committed mothers; WorkingMother.com (www.workingmother.com) gives working mothers @home and @work advice, solutions, and ideas. This year marks the 26th anniversary of Working Mother’s signature research initiative, Working Mother 100 Best Companies, and the ninth year of the Best Companies for Multicultural Women. Working Mother Media, a division of Bonnier Corporation (www.bonnier.com), includes the National Association for Female Executives (NAFE, www.nafe.com), Diversity Best Practices (www.diversitybestpractices.com), and the Working Mother Research Institute. Working Mother Media's mission is to serve as a champion of culture change.
About MetLife
MetLife, Inc. is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers in over 50 countries. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and the Middle East. For more information, visit www.metlife.com.
Opinion
Tea Party 'Right to Life' Doesn't Apply to Uninsured Americans
As They Clap for Their Death
Ads demand GOP candidates & Tea Party Express condemn extremist Tea Party cheers
WASHINGTON, DC - Following Monday night's disturbing Tea Party support of clapping and cheering for letting someone without health insurance die, Protect Your Care is releasing online ads in Florida, Iowa and New Hampshire as part of a growing drumbeat against this extreme agenda leading up to the debate next week in Florida.
After failing to get a straight answer at Monday night's Tea Party debate about how to deal with an uninsured young man without health insurance, CNN's Wolf Blitzer posed a follow-up question and asked, "Congressman, are you the saying the society should just let him die?" Members of the Tea Party audience cheered and clapped in support of the idea and shouted 'Yes!'
None of the GOP candidates on stage responded to the distressing cheers, reprimanded the offenders for their sickening display, or disavowed their hateful actions the following day during their events.
"This is not what our country stands for," said Protect Your Care Communications Director Eddie Vale. "This extreme display of applauding for an uninsured person's death would be expected for a gladiator in ancient Rome not from the audience in a Presidential debate as the Republican candidates all stand silently by."
The ad, available at www.LetHimDie.com, will rotate between different candidates and will link people to www.LetHimDie.com, which will also cycle through different candidate names and will ask people to sign a petition to get the Republican candidates to condemn the extreme reaction that showcased an un-American value of letting people die.
In addition to the graphic ads running on news sites in Florida, Iowa, New Hampshire and DC, Protect Your Care also be buying Google search term ads nationally, directing people to same page.
The development of longevity as an asset class growing according to experts
UK leads the way in developing pension de-risking strategies
NEWARK, N.J. - The development of longevity as an asset class continues to grow as longevity risk becomes increasingly recognized, and as longevity markets provide investors with the opportunity to earn attractive returns, according to the findings of a recent international conference.
The opportunity to relative trade the micro-longevity and macro-longevity markets is becoming compelling
The seventh annual Longevity Risk and Capital Markets Solutions Conference1 held at Goethe Universíty in Frankfurt last week saw leading international industry and academic minds discuss the assessment of longevity risk, as well as the type of instruments needed by pension funds and insurance companies to hedge such risk.
Dr. David Blake, Professor of Pension Economics and Director of the Pensions Institute at Cass Business School, and chair of the conference, said: "Longevity risk is an increasingly important risk to recognize, quantify and manage for both pension plan and annuity providers, as well as for governments and individuals. Getting the right trend improvements in life expectancy is the key both to managing this risk and to creating an asset class acceptable to investors to buy into."
"However, this has proven to be difficult to realize in the past; even official agencies have systematically underestimated previous mortality improvements. Pension plan and annuity providers are beginning to question whether longevity is a risk they should be assuming on an unhedged basis, and the capital markets are beginning to offer solutions for managing and unloading longevity risk."
Amy Kessler, a retirement expert at Prudential Retirement, spoke of the UK's leading role in pension plan de-risking: "Progress in the UK has been driven by regulation, accounting transparency and risk awareness among pension schemes that has led to dramatic changes in risk management and governance," she said. "Many of the same catalysts for change are arriving in the US today."
As US pension plan sponsors face these changes, there is broad recognition that their current risk position is unsustainable. While affordability remains an issue, techniques used in the UK for reducing and transferring risk have crossed the pond. Pension buy-in transactions have just arrived in the US and longevity insurance will follow but demand will likely be modest until there is greater awareness of pension longevity risk in the US.
Dr. Raimond Maurer, Professor of Investment and Pension Finance at Goethe University, and co-organizer of the conference, said: "In the twentieth century, state-organized pension programs shouldered the lion's share of financial provision for the elderly. In the twenty-first century, however, retirees are likely to depend very heavily on privately organized funded old-age protection, such as private occupational pension plans and life annuities." Yet, the financial institutions that are supposed to supply these products, such as pension funds and life insurers, face substantial difficulties in managing systematic longevity risk. One possible solution to this problem might be the transfer of a reasonable proportion of this longevity risk to the capital markets. This, however, requires investors to accept longevity-linked instruments as an appealing asset class.
Jeff Mulholland, Managing Director and Head of Insurance and Pension Solutions at Societe Generale, who spoke at a special session on longevity as an asset class at the conference said: "The opportunity to relative trade the micro-longevity and macro-longevity markets is becoming compelling."
With spreads likely to tighten in the micro-longevity market due to market forces, investors will have the opportunity for potential mark-to-market gains over time, whilst the amount of longevity risk that needs to be hedged globally suggests macro-longevity spreads may widen over time, leading to opportunities for returns for investors who trade longevity.
A full summary of the conference can be found here, or by contacting Professor David Blake: D.Blake@city.ac.uk.
Current approaches inadequate for assessing future longevity
Robust, predictive approaches using forward-looking scenarios are needed
September 1, 2001 - The substantial increases in life expectancy witnessed in recent decades have been consistently underestimated, a new Swiss Re research report reveals. The good news that people are living longer has brought with it a massive pension shortfall, which has been exacerbated by traditional methods of forecasting longevity not taking account of certain emerging trends.
"The failure to consider future drivers of mortality in historical predictions contributed to employer pension funds under-reserving for longevity risk and other bodies, including governments, not budgeting effectively for funding an aging population," explains Daniel Ryan, head of life and health research and development at Swiss Re.
An essential element of managing longevity risk will be the development of robust, predictive approaches, states Swiss Re's latest publication, "A window into the future: Understanding and predicting longevity." Such approaches would use forward-looking scenarios based on social factors, medical treatments and preventative approaches that influence disease.
The report presents the building blocks for this type of disease-centered model and calls on experts from multi-disciplinary backgrounds - including medical experts, actuaries and demographers - to work together towards a greater understanding of potential future developments in human longevity. The report recommends that pension plans assess their exposure to longevity risk and decide whether to pass it on to a third party that is better equipped to take on the risk. It also suggests that insurers can work in partnership with reinsurers to develop robust approaches to mitigating longevity risk.
"An improved approach to assessing future longevity is one of the essential components in creating an overall solution to the financial effects of aging societies. It is only through public and private bodies working together that the wider issue of a sustainable infrastructure for long-term retirement provision can be created. Reinsurers with appropriate capacity, who invest in longevity research and development, can play an important role in helping defined benefit pension funds and insurers manage their longevity risk," comments Alison Martin, Swiss Re's head of life and health products.
Swiss Re Ltd is the holding company for the Swiss Re Group. Its shares are listed on the SIX Swiss Exchange and trade under the symbol SREN.
From Methuen, Ma.; Sets goal to keep the association vibrant and strong
Park Ridge, Ill. (Sept. 1, 2011) - Jennifer A. Borislow, CLU, of Borislow Insurance Agency in Methuen, Mass., is the new president of The Million Dollar Round Table (MDRT), the Premier Association of Financial Professionals, effective September 1, 2011. She succeeds Julian H. Good Jr., CLU, ChFC, of MetLife/Creative Financial Solutions in New Orleans, La., who will complete his five-year term on the Executive Committee as immediate past president.
- Jennifer A. Borislow, CLU, of Borislow Insurance Agency in Methuen, Mass., assumes role as president of the Million Dollar Round Table (MDRT) for 2011-2012.
- Borislow will lead MDRT as it continues to offer and expand opportunities to help its members grow their businesses and best serve their clients.
- Executive Committee, made up of five top financial advisors, aims to ensure MDRT remains a thriving association providing member benefits to enhance their personal and professional lives.
- MDRT is the Premier Association of Financial Professionals with nearly 36,000 members from 78 countries.
Borislow will lead the nearly 36,000-member international association for a one-year term beginning Sept.1, 2011. She has been a member of MDRT for 23 years, achieving each of the organization's top honors of Court of the Table and Top of the Table nearly 15 times.
"MDRT has played a significant role in shaping my personal and professional life, and I have been fortunate to learn and network with the leading financial services professionals from around the world," said Borislow. "I'm proud to lead MDRT in its mission to be a valued member-driven association that supports financial advisors who serve their clients with the highest standards of ethics, knowledge, service and productivity."
Borislow is a four-year member of the MDRT Executive Committee, which governs the organization, in addition to setting priorities for the year ahead. The 2011-2012 Executive Committee consists of Borislow, Immediate Past President Julian H. Good, Jr., of New Orleans, La., a 23-year MDRT member with seven Court of the Table and four Top of the Table honors, First Vice President D. Scott Brennan of South Bend, Ind., a 28-year MDRT member with eight Court of the Table honors and one Top of the Table honor, Second Vice President Michelle L. Hoesly, CLU, ChFC, of Norfolk, Va., a 32-year MDRT member with 11 Court of the Table and eight Top of the Table honors, and Secretary Caroline Banks, CFP, of London's West End, a 22-year MDRT member with 17 Court of the Table and Top of the Table honors.
As president, Borislow plans to guide the Committee in its goal to ensure MDRT remains a thriving association providing member benefits to enhance advisors' personal and professional lives. The Committee will continue to offer and expand opportunities with products and services that allow members to broaden their expertise.
When it comes to giving back, the Executive Committee members truly lead by example. All five have participated in a variety of philanthropic events through the MDRT Foundation and continue to participate in upcoming efforts. Additionally, the Executive Committee members are active in several organizations in their local communities, inspiring colleagues, family and friends and even clients to get involved.
About MDRT:
Founded in 1927, the Million Dollar Round Table (MDRT), The Premier Association of Financial Professionals, is an international, independent association of nearly 36,000 of the world's leading life insurance and financial services professionals from more than 430 companies in 78 countries. MDRT members demonstrate exceptional professional knowledge, strict ethical conduct and outstanding client service. MDRT membership is recognized internationally as the standard of sales excellence in the life insurance and financial services business.
LIFE Recognizes Excellence in Client Service
With Its realLIFEstories Program
Stories Featured in Parents and O Magazines Underscore the Need for Americans
to Plan Ahead for Life's Uncertainties
Arlington, Va. - Aug. 23, 2011 - Every year nearly 600,000 Americans will die in the prime of their lives, and in most cases they leave behind loved ones who depend on them. For those who planned ahead and had adequate life insurance coverage, the transition for the their surviving family members will be eased by not having to worry about paying for the funeral or where the money will come from to move ahead to the next chapter of their lives. The same cannot be said for the loved ones of those who died with little or no life insurance. In those instances, their grief is often compounded by concerns about how they will survive financially.
To help raise awareness of the need for Americans to include insurance in their financial plans, the nonprofit LIFE Foundation highlights stories of everyday families who have experienced the death or disability of a loved one. This year's stories are appearing nationally in the September 2011 issues of Parents and O magazines, which are on newsstands now. The featured stories were chosen by an independent judging panel as part of LIFE's realLIFEstories Client Service Awards Program, which seeks to highlight the best examples of how insurance, along with the advice and assistance of qualified insurance professionals, helped families at times of great financial need.
The clients and agents involved in this year's featured stories will be honored at the annual conference of the National Association of Insurance and Financial Advisors (NAIFA) in Washington, D.C. They will share insights about their experiences in a one-hour, main stage presentation that will be simulcast live via the Web on Monday, Sept. 12, 2011 at 10 a.m. Eastern. The free webcast can be seen at www.livestream.com/naifa2011.
The 2011 realLIFEstories honorees are
- Robin Davey, CFP,AXA Equitable, Clifton Park, N.Y. - Small-business owner and father of six, Steven Tedesco was just 28 when he was diagnosed with an aggressive form of leukemia, and died two years later. Several months prior to the diagnosis, Steven consulted financial advisor Robin Davey, CFP because his bank required him to purchase life insurance to cover a loan for his business. After discovering that Steven didn't have any life insurance at all, Robin helped him buy policies for both the business and his family. Thanks to his timely planning, Steven's partner in his paving company was able to pay off loans they had taken out for the business. The policy purchased for the family has allowed his wife, Natira, to fulfill their dream of purchasing a house and enabled her to stay at home with their children, while setting aside money for their education and her retirement.
- Donald Blahnik, LUTCF,Mutual Trust Financial Group, Onalaska, Wis. - Paul Krzewina, a third-generation dairy farmer, wanted to be sure that his farm would remain in the family, no matter what. So he sought assistance from agent Donald Blahnik, LUTCF, who helped him purchase life insurance to cover a mortgage Paul had taken out to grow the business. When Paul was diagnosed with a brain tumor many years later, his life insurance proved invaluable. While battling his illness, Paul was able to borrow against his policy's cash values to pay his health insurance deductible. After he died, the death benefit proceeds allowed his wife, Michele, and the couple's four adult children to keep the farm in the family.
- Brenda Soto Bryan, Allstate Life Insurance Co., Long Beach, Calif. - Jim Bix was a newlywed when he was diagnosed with an incurable lung disease. While his health remained stable for two decades, his condition finally began to deteriorate, leaving him dependent on an oxygen tank and unable to work. With a wife and two daughters, Jim and his family relied on the disability insurance he had through work to help pay for their daily living expenses, as well as the added medical bills. Brenda Soto Bryan, who handled the family's homeowner's insurance needs, knew that Jim's illness would preclude him from getting life insurance any other way, so she urged him to get as much coverage as he could through his employer's plan. When Jim died, it was his employer-sponsored coverage, provided through a group program administered by CIGNA, that allowed his wife to pay off debts, keep their girls in private school and remain in the family's home.
- Brent Kimball, CFP, CLU, ChFC, A1 Freedom Financial, Pembroke, N.H. - Peter Zatir was 45 years old when he was diagnosed with an aggressive form of thyroid cancer. At the time, he was married with five children and running a busy law practice that he founded with a partner. Luckily for Peter, when he opened his practice, he and his partner met with insurance agent Brent Kimball, CFP, CLU, ChFC, who advised them to protect their business and incomes with disability insurance. When Peter was diagnosed, he was given a year to live, but through radiation and chemotherapy, experimental drug treatments and surgery, he has beaten the odds. While he can no longer work as a trial lawyer due to damage to his larynx, disability insurance purchased through the Guardian Insurance Company of America helped his partner buy out his share of the practice, and a separate policy provides a steady income to maintain his family's quality of life.
"The stories of these families are reminders of how life can change in an instant and how important it is to be prepared financially for life events that you can't anticipate," said Marvin H. Feldman, CLU, ChFC, RFC, president and CEO of the LIFE Foundation. "It is our responsibility as insurance professionals to make sure we're educating people in our communities about insurance and helping to protect them financially for what tomorrow may bring."
To be considered for the realLIFEstories Client Service Awards, insurance professionals were asked to submit an application and essay describing how insurance benefited one of their clients at a time of great financial need. After an initial screening process that determined the top finalists, an independent panel of judges chose this year's four featured stories.
About LIFE
The Life and Health Insurance Foundation for Education (LIFE) was founded in 1994 in response to the public's growing need for information and education on life, health, disability and long-term care insurance. LIFE also seeks to remind people of the important role insurance professionals perform in helping families, businesses and individuals find the insurance solutions that best fit their needs. To learn more about these topics, please visit www.lifehappens.org.
Questions- Contact Jaimee C. Niles, VP, Communications, jniles@lifehappens.org, 202-464-5000 x 4450.
New Hampshire Seniors to Romney:
What Benefits Are You Going to Take Away From Us?
Community Members Hit Romney on Health Care Reform, Medicare and Stimulus
As Mitt Romney takes his campaign to New Hampshire, seniors and other members of the community want to know what benefits he is going to take away from them —and are going to keep asking until he provides a straight answer.
New Hampshire seniors, armed with the famous Hands off my Medicare/Hands off my Medicaid signs, will be eagerly awaiting Mitt Romney's appearance at the Lebanon Senior Center and whether he is going to look New Hampshire seniors in the eye and tell them the truth about what he's going to take away from them.
Local seniors are riled up, and will be pushing Romney to explain his record of flip-flops and answer the following questions:
Mitt Romney passed health care in Massachusetts, laying the foundation for Obama's Affordable Care Act, and he used to say it was a model for other states and the nation. But now he flip-flopped and said it isn't. Why can people in Massachusetts get these health care benefits from Romney, but seniors less than 100 miles away in Lebanon, New Hampshire can't?
Mitt Romney says he wants to repeal the Affordable Care Act. Is he going to tell these seniors that repealing the Affordable Care Act means he'd take away the prescription drug help they CURRENTLY get from it that helps them avoid the donut hole?
Is Mitt Romney going to tell these seniors that repealing the Affordable Care Act also means he'd take the free preventative care benefits they CURRENTLY get from it?
Is Mitt Romney going to tell them that his support for the House Republican budget means he supports ending Medicare and turning into a privatized voucher program?
Later in the evening Romney will be at the McConnell Community Center, which is part of a building that got money from the stimulus bill. Just as Romney would take away current and future health care benefits from New Hampshire seniors, he is going to campaign in a New Hampshire building that got federal assistance that he wouldn't have provided. This is yet another example of how Romney's policies would hurt New Hampshire.
Romney Was Scheduled To Hold Town Hall Meeting At The McConnell Community Center In Dover, NH From 6 To 8 PM On August 25th, 2011. Romney will hold a town hall meeting at the McConnell Community Center in Dover, NH from 6 to 8 PM on August 25th, 2011. The Live Free or Die Alliance's website listed the event as occurring at the Dover Community Center on 61 Locust St. in Dover, NH. The McConnell Community Center is located at that address, according to the Nonprofit Centers Network's website. [Live Free or Die Alliance, accessed 8/22/11; Nonprofit Centers Network, accessed 8/22/11]
Dover Community Center Is Identified As Part Of The McConnell Building By The City Of Dover, New Hampshire. According to a Dover municipal website, “The Dover Community Senior Center is part of Dover Recreation and is located at 61 Locust Street. Park in the Dover Public Library/McConnell Center parking lot and enter Door # 1 of the McConnell Center! [City of Dover, NH, accessed 8/22/11]
The City Of Dover Received A $94,682 Recovery Act Grant For McConnell Center Improvements. The City of Dover received a $94,682 grant under the American Recovery and Reinvestment Act for “McConnell Center Improvements. [Recovery.gov, accessed 8/22/11]
The Recovery Act Grant For McConnell Center Improvements Was Issued By The Department Of Housing And Urban Development. The funding agency for the grant was the Department of Housing and Urban Development and the grant was awarded on August 7th, 2009. [Recovery.gov, accessed 8/22/11]
The Recovery Act Grant For McConnell Center Improvements Was Intended To Enable Energy Efficiency And Heating Improvements At The McConnell Community Center. The infrastructure purpose and rationale for the grant was: Energy efficiency improvements for Low/Mod limited Clientele. The Public Service agencies occupying the building pay for the building utilities. This public facility improvement will reduce their operations costs. [Recovery.gov, accessed 8/22/11]
NYL leads MDRT for 57th consecutive year
Insurance giant is making waves on distant shores as well
NEW YORK, N.Y., - New York Life Insurance Company has dominated the Million Dollar Round Table (MDRT) in the United States for the 57th consecutive year with 2,066 qualifying New York Life agents. MDRT granted membership to 10,252 agents in the United States making membership in this organization a distinguishing life insurance career milestone attained by the world’s financial services professionals who have demonstrated superior professional knowledge, experience and client service.
'It is the financial expertise and customized client service of New York Life agents who offer Americans the much-needed, trusted guidance they seek when making crucial financial decisions in what continues to be an unsteady economic environment," said Mark Pfaff, executive vice president in charge of U.S. Life Insurance and Agency. "Our continued MDRT leadership and strong sales results prove that New York Life agents are a valuable resource to Americans and by representing a company with unsurpassed financial strength, a remarkable history, and outstanding training, they provide vital insurance protection and financial guidance to those in their communities."
Of the 1,086 female MDRT members in the United States, 290 are New York Life agents, making the company the leader in female MDRT membership. In fact, New York Life has more than three times more women members than the second place company.
In addition, New York Life ranked among the leading MDRT companies globally with 504 MDRT members from New York Life's international businesses in Mexico, India and Taiwan.
Founded in 1927, the Million Dollar Round Table (MDRT), The Premier Association of Financial Professionals, is an international, independent association of nearly 36,000 of the world's leading life insurance and financial services professionals from more than 430 companies in 78 countries. MDRT members demonstrate exceptional professional knowledge, strict ethical conduct and outstanding client service. MDRT membership is recognized internationally as the standard of sales excellence in the life insurance and financial services business.
New York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest mutual life insurance company in the United States and one of the largest life insurers in the world. New York Life has the highest possible financial strength ratings awarded to any life insurer by all four of the major credit rating agencies. Headquartered in New York City, New York Life’s family of companies offers life insurance, retirement income, investments and long-term care insurance. New York Life Investments provides institutional asset management and retirement plan services. Other New York Life affiliates provide an array of securities products and services, as well as institutional and retail mutual funds. Please visit New York Life's Web site at www.newyorklife.com for more information.
Just 29 percent of Corporate Executives Confident of Weathering a Crisis
Even though 60 percent have crisis plans in place
NEW YORK - (BUSINESS WIRE) - A new survey conducted by Pillsbury Winthrop Shaw Pittmanss Crisis Management Team and Levick Strategic Communications found that though 60 percent of survey respondents said their companies have a crisis plan in place, just 29 percent felt very confident their organization would respond effectively if a crisis occurred. Another 56 percent said they felt somewhat confident.
"Even more strikingly, fully one-third of those companies which do have a crisis plan could not recall the last time they actually reviewed or revised it, which clearly indicates an out-of-sight/out-of-mind approach to crisis management that may prove a company's undoing."
"Part of that uncertainty may stem from the fact that even among those companies which have developed a crisis plan, 63% report that their company does NOT conduct annual training drills or exercises to test the effectiveness of their plan and ensure that all company employees know what to do if a crisis does occur," said Tom Campbell, a former NOAA official and head of Pillsbury's Crisis Management team, who recently advised Moex Offshore, one of BP's partners in the Deepwater Horizon accident, on its $1.1 billion settlement for any claims related to the oil spill. "Even more strikingly, fully one-third of those companies which do have a crisis plan could not recall the last time they actually reviewed or revised it, which clearly indicates an out-of-sight/out-of-mind approach to crisis management that may prove a company’s undoing."
Approximately 50 C-level executives, General Counsel and risk managers responded to the Pillsbury-Levick Crisis Preparedness survey, which is among the most comprehensive ever conducted, probing deeply into companies’ crisis planning practices and providing details about the types of crises their companies have weathered over the past few years.
Among the survey's key findings:
In the past three years, 42 percent of respondents said their company was the subject of a government inquiry or investigation, which can set up off alarm bells for shareholders, investors, customers and employees alike. Twenty-four percent of respondents claim that their company had faced a natural disaster and an equal number of respondents said their company had experienced a data loss or security breach. Twenty-one percent of all companies had experienced at least one worker accident or death, while nine percent reported being the target of protesters or a consumer boycott. Significantly, many survey participants experienced multiple crises over the past three years.
Of the potential crises that could impact a company, respondents overwhelmingly stated that a data breach or technology failure would have the most negative impact, followed by a natural disaster such as a hurricane, earthquake or tornado. Power outages or blackouts were identified as the third most likely scenario to negatively affect a company.
Fifty-two percent of respondents said that their company crisis plan does not specifically address how to effectively handle adverse postings to Twitter, Facebook or YouTube. This exposed a real vulnerability, since company reputations can be made or broken in a matter of hours via social media.
Following a crisis, 79 percent of survey responded said their companies made minor or major changes to their crisis protocol to make it more effective. Among the most popular improvements were additional training (21%) and conducting a crisis audit (18%), followed by strengthened General Counsel oversight, purchased or upgraded business interruption/liability insurance, moved crucial systems off-site, or upgraded technology security systems, all of which scored 14%. Several companies implemented more than one of these improvements.
"While there is always uncertainty associated with any crises, too many companies mistakenly labor under the assumption that since one can't predict when a crisis will occur, there is little you really can do to prepare for it," said Richard Levick, Founder and CEO of Levick Strategic Communications, one of the world's leading crisis communications agencies. "But what companies can be sure of is that sooner or later, a crisis will indeed hit, and when it does, legal risks, business operations, and reputation management all have to be dealt with simultaneously and decisions often have to be made in a matter of hours, or in some cases, where human lives are at stake, a matter of minutes. That can't happen if the decisions makers haven't rehearsed and ran though each scenario as laid out in their plans so that when the crisis strikes, they will immediately know what steps to undertake in order respond effectively."
To help companies assess if their crises plans are up to snuff and demonstrate the effectiveness of crises training for senior executives, risk managers and GCs, Pillsbury and Levick are hosting a one-day crisis management and preparedness workshop, What If? Crisis Management: Scenarios + Solutions on Tuesday, October 4th at Pillsbury's offices in Washington, DC. The workshop will include both roundtable discussion and a simulation of a crisis unfolding in real time to give workshop participants the opportunity to understand the stakes involved and the various, often conflicting, issues that come into play in developing an effective response.
Pillsbury's crisis management efforts date back to the Great San Francisco Earthquake and Fire of 1906, when it helped local businesses secure reimbursement on their insurance claims so that they could rebuild the city. Other representative work includes advising the owner/operator of Three Mile Island during and after the 1979 nuclear accident before the Nuclear Regulatory Commission, Congress, a Presidential Commission, the Commonwealth of Pennsylvania, and the Department of Justice; representing United Airlines in insurance claims filed in the aftermath of the 9/11 attacks; secured a 90 percent penalty reduction associated with a 4.5 million gallon jet fuel release at the Chevron El Segundo Refinery located near the Los Angeles International Airport; served as internal investigation counsel for a Washington state refinery after an explosion resulted in several worker deaths; and developed the legal protocol for New York City's Disaster Planning program that President Obama's National Infrastructure Advisory Council recently recommended be adopted nationwide by all state and local municipalities. For a complete report of the survey results, please click here.
About Pillsbury Winthrop Shaw Pittman LLP
Pillsbury is a full-service law firm with a focus on the energy & natural resources, financial services, real estate & construction, and technology sectors. Based in the world's major financial and technology centers, Pillsbury counsels clients on global regulatory, litigation and corporate matters. We work in multidisciplinary teams that allow us to anticipate trends and bring a 360-degree perspective to complex business and legal issues—helping clients to take greater advantage of new opportunities and better mitigate risk. This collaborative work style helps produce the results our clients seek.
About Levick Strategic Communications
Levick Strategic Communications builds brand equity and protects reputations during the highest-stakes global communications challenges of the digital age. The firm has won numerous communications awards, including Crisis Firm of the Year by the Holmes Report.
LOMA Launches Innovative Management Course
A practice-management primer for the operations side
LOMA has introduced a new management course uniquely designed to help insurance and financial services companies improve productivity from their daily operations.
Operational Excellence in Financial Services (LOMA 335) provides practical techniques that companies use to ensure maximum efficiency. Topics covered include quality management programs, decision-making and research techniques, process management, leadership, teamwork, and project management.
"As we developed Operational Excellence in Financial Services, our goal was to develop a practical management course focused on the operations in our industry; something with daily-job relevance for the majority of employees, and useful approaches and applications," said Robert H. Hartley, LOMA assistant vice president of Learning and Development, and project manager for this course. "This new course will resonate with most industry employees, helping them to understand practices that their companies use to improve quality management, technology, process management, project management and contact center management."
Operational Excellence in Financial Services is available through a Course Portal, which blends the more traditional study experience with several new online and multi-media features. English-language course materials and exams are now available.
Operational Excellence in Financial Services is a required course within LOMA’s Fellow, Life Management Institute (FLMI) professional designation. The FLMI Program is a 10-course professional development program that provides an industry-specific business education in the context of the insurance and financial services industry.
For more information about LOMA 335 and the prestigious FLMI Designation Program, go here.
Another recession ahead? Scores of advisers think so
The majority still believe another recession won't happen,
but roughly 41% of FAs polled by IN think we're heading for a double-dip
By Andrew Osterland / posted at Investment News August 4, 2011 4:12 pm ET
Is the suddenly volatile stock market signaling another recession? A majority of financial advisers don't think so, but a significant number are of the belief that a second recession could be around the corner.
With major stock market indexes dropping nearly 5% Thursday alone- and roughly 10% over the last nine days - 41% of 1,321 advisers responding to an InvestmentNews survey today indicated that another recession is indeed likely. (Weigh in and give us your thoughts.) Fifty-nine percent of advisers did not think that another recession is imminent.
With recent reports revealing that economic growth has stalled and job growth remains stunted- in addition to the increased debt pressures confronting countries in the eurozone- world markets have plunged.
The Dow Jones Industrial Average, for one, is firmly in correction territory after dropping more than 10%, erasing its year- to-date gains.
Questions about U.S. economic growth, which have persisted all year, are now front-and-center and appear to be factoring into many investors' views of the market.
"What was debatable a few months ago is unquestionable today, and that is we are in the midst of a decelerating economic growth environment," said Matthew Rubin, director of investment strategy at Neuberger Berman Group LLC, which manages nearly $200 billion in global assets. "These economic downturns are typically measured in quarters, not weeks, and investors seem to be accepting that and, at some level, are pricing in a probability of another recession.''
Financial advisers were divided on the direction of the markets, according to the InvestmentNews survey.
As to where they thought the S&P 500 would be trading at the close of 2011- it was at 1,200.07 at the close of markets today- two-thirds of respondents believed it would be trading above 1200 at year-end.
Nearly 10% of advisers polled by InvestmentNews today believed the index would end the year below 1000, while 5% expect it would be trading above 1400 at year-end.
"The mood right now is gloomy," said Mike Ryan, chief investment strategist at UBS Wealth Management Americas. His firm oversees $774 billion. "The burden of proof is for better data that show the economy is not falling into recession. Tomorrow's payroll report is crucial. If we see another disappointment, the stock market will have significant downside from here."
Bank of New York Mellon Corp., the world's largest custody bank, said it will charge clients a 13 basis point fee for "extraordinarily high" cash deposits.
"We have seen a growing level of deposits on our balance sheet from clients seeking a safe haven in light of the global interest rate and credit environment," the company said today in an e-mailed statement.
Today's slide in the S&P 500 drove the cost of using options to insure against further declines up the most in almost five months. The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 30 percent the highest intraday level since March 16.
The 9.3 percent rout since July 22 dragged the S&P 500's valuation to 13.4 times reported earnings, the cheapest level since April 2009, a month after the bull market began, according to data compiled by Bloomberg.
Excerpts from Bloomberg were included in this report
How do you save $4 TRILLION
...without cutting services or raising income taxes?
by Herbert K. Daroff, J.D., CFP
Mr. Daroff is affiliated with Baystate Financial Planning, in Boston. He can be reached at hdaroff@baystatefinancialplanning.com
First, my biggest concern with the FEDERAL government looking to save $4 trillion is that they will try to pass the expenses on to the STATE and LOCAL governments. That's not acceptable.
Second, the President needs to have and exercise the power of line item veto. Presidents should be able to accept the major premise of a Bill without accepting all of the graft and corruption that is frequently attached. The same should be available for the Congress and Senate.
Third, let me suggest a few re-organizations in our current federal bureaucracy.
What if we had three (3) branches of the military?
- Land Command
- Air Command
- Water Command
Remember the scene from Apollo 13 when the Carbon Dioxide levels were rising in the Capsule, so they tried using the filters from the Lunar Module. Problem was that the filters on one were square and the filters on the other were round. That was done inside NASA, which is a separate command. Why couldn't they require some uniformity of equipment and parts?
The Air Force has airplanes. So does the Navy. The Army and Marines have helicopters. What if one command was responsible for everything that flies. One set of spare parts. The Marines are like the Army, but working with the Navy.
It would be nice to incorporate the Coast Guard with the Navy, but that creates some problems, since the Coast Guard operates within the U.S. borders. But, we have the National Guard that works inside our borders, but they can be deployed to foreign battles.
Why do we have three (3) or more separate corps of federal law enforcement personnel?
- Federal Bureau of Investigation (FBI);
- Drug Enforcement Agency (DEA); and
- Alcohol, Tobacco, and Firearms (ATF)
Fourth, let's look at taxes, other than direct income taxes. It has been asserted that folks like Warren Buffet pay taxes at a lower rate than many rank and file employees. That is because most of his income is dividends, which are currently taxed at 15%. Even if that's the same income tax rate paid by many rank and file employees, the employees also pay Social Security taxes and unemployment taxes to which Warren's investment income is not subject.
Of course, please recognize that Warren pays a lot more in taxes (dollars, not rates)!
Social Security taxes (7.35% by employer and employee) are paid on EARNED income up to the Social Security Wage Base ( $106,800 in 2011). Why stop there? The unemployment tax (1.45% by employer and employee) is paid on all EARNED income. Why only on EARNED income? Why not add these taxes to INVESTMENT and PASSIVE income in order to pay for these programs? Congress already passed the Healthcare Tax, an additional 3.8%, effective in 2013, on not only EARNED income, but on INVESTMENT income, as well. Dividends taxed at a 15% rate would become 18.8%. The 3.8% tax would be incurred on sales of real estate, too.
Many proposals have been made for a federal sales tax. There are many arguments for and against such a tax. However, it would produce income from a great deal of consumption paid for with dollars that are currently escaping (legitimately or not so legitimately) income taxes.
Fifth, let's look at those that, under current law, don't pay taxes.Let's start with colleges and universities. Why can they invest without paying income taxes? Why are they, for the most part, not subject to paying property taxes either (but, that's on the LOCAL front).
Sixth, can't we find work that needs to be done for welfare recipients who are not physically or mentally disabled? Our society should care for those who cannot help themselves. We have created jobs before (e.g., WPA, Works Progress Administration, established in 1935, renamed Work Projects Administration in 1939).
Seventh, what is Congress thinking about now? How do you save $4T without cutting services or raising taxes? Positively done, you increase productivity. Negatively done, you increase what is taxable even if subject to a lower tax rate. Of course, which one do you think our Congress has started with?
They are looking at increasing business taxes (lowering the corporate income tax rate, for C-Corporations, but increasing what is taxable). How do you lower tax rates and increase taxes? By increasing what is taxable. Congress has explored eliminating the ability to use LIFO (last in, first out) inventory accounting. If the price of buying an item goes from $10, to $11, then $12, $13, $14, but is sold for $15; the business pays income taxes on $1 (last in $14, first out $15). Remove that, and you raise taxes. But, what happens to creating jobs, providing benefits, etc.
Before I leave that subject, Congress has talked about lowering corporate tax rates. However, if they don't couple that with a reduction in income taxes for K-1 distributions from S-Corporations, LLCs, etc., then they are only lowering corporate taxes for BIG corporations. Small corporations still hire more people.
They are even thinking about reducing the deductible contribution amounts for retirement plans. Are they kidding! Increase taxes, but put an even greater strain on retirement income and Social Security.Instead, let's create all of those jobs we have talked about. Let's create incentives for businesses to hire and train people. We have created investment tax credits, which encourages buying new equipment, but not all of that (or any of that) is created here anymore. How about giving software technology companies incentives to hire and train new people. Sorry, MIT, CalTech, Drexel (my Alma Mater), etc. For many, that will be better than starting their careers with 5 and 6 digit debt from college loans. How about giving financial planning firms incentives to hire and train the financial planners of the future. Sorry, Texas Tech, Bentley (where I am adjunct faculty, at least until this article gets published), B.U., etc.
How about giving hotels incentives to hire and train the future hotel managers. Sorry, Cornell, etc. Get trained by Marriott or Hyatt, instead.
The trades call that internship.
My recommendation is to take this entire conversation out of Washington, D.C. (known as 68 square miles surrounded by reality). We didn't develop the A-Bomb in Congress. Let's use the Manhattan Project as a model. Take the greatest NON-POLITICAL minds out into the desert and let them start with a clean slate. Create a long-term, intermediate term, and short-term economic and financial plan for the U.S. Then, create a tax structure to pay for it.
Massachusetts: Investment Advisors' Social Media Practices Fall Short
LIMRA Offers Research, Training and Educational Opportunities
to help Advisors and Companies Incorporate Social Media Best Practices
WINDSOR, Conn., July 27, 2011 -According to a new survey conducted by the Securities Division of the State Secretary of Massachusetts, of the 44 percent of investment advisors in the state using social media platforms to communicate with their clients, only 30 percent have written record retention policies for social media content and only 4 in 10 retain all online content posted by the firm. As a result, the state said it would be issuing new guidelines and best practices standards in the next year.
"Up until now, most states and other regulatory bodies have relied on FINRA's regulation (10-06), to provide guidelines to advisors and companies on proper use of social media in their marketing activities," said Stephen Selby, director of LIMRA Regulatory Services. "Now, with more financial advisors using social media to communicate with their customers, we are seeing state regulators take a closer look at how and what they are communicating. We expect a number of states to follow Massachusetts’ lead."
LIMRA has been an industry leader in identifying the impact of social media on the life insurance and financial services industry. It provides critical knowledge and solutions to help individual companies employ social media tactics to improve recruiting, communicate with their customers and educate their sales force. From in-depth research to committee meetings, conferences and industry-specific training, LIMRA has developed the knowledge and expertise on how companies and advisors can best leverage social media into their business strategies without running afoul of regulatory requirements.
"Recently, FINRA fined an advisor for using Twitter to communicate 'unbalanced' messages to clients- the tweets shared a very optimistic view of the economy or the equities markets without disclosing the potential hazards," said Selby. "Despite the guidance, there is still much confusion on what can and cannot be said using social media. Companies can help avoid this problem by ensuring advisors selling their products have a clear understanding of its policies and of the rules set forth by regulators."
Below are some of the resources LIMRA offers:
- Studies examining the use of social media both within the financial services industry and by consumers.
- LIMRA and LOMA present Social Media Conference for Financial Services on Aug. 24-27, in Boston.
- LIMRA and Socialware have developed industry-specific, job-specific training called Insights: Advisor Series, which provides crucial guidance on key social media sites and their functionality while providing a framework for appropriate and compliant social media use.
- LIMRA hosts three recruiting-related groups on LinkedIn. The Recruiting and Retention Summit, Recruiting Roundtable, and Field Development and Performance Committee together consist of more than 200 individuals and provide interactive forums for professionals to discuss issues facing the industry.
- LIMRA offers Recruiting Goes Social, a four-hour, interactive training program that shows how recruiting managers can effectively use social media networking sites to attract, select and appoint top performers.
- LIMRA publishes Regulatory Review, a free, bi-monthly e-newsletter offering the latest compliance and regulatory information, including social media topics.
For more information, please contact LIMRA Public Relations.
Debt drama: Is the 'mini panic' over?
Planners have been in damage-control mode to prevent client over-reaction
By Jeff Benjamin - posted at Investment News on July 31, 2011 6:01 am ET
The political posturing and ominous headlines heading out of Washington in recent weeks forced a lot of financial advisers into damage control in an effort to prevent clients from overreacting.
As the Dow dipped 4.5% while lawmakers wrestled over the federal budget, until Congressional leaders reached an agreement on the debt limit and federal spending late last night, some advisers gradually adjusted their clients' portfolios by adding cash and trimming some government bonds.
Many advisers, however, preached patience and were already looking past some kind of resolution, one that could potentially propel the markets in the second half of the year.
"Worst-case scenario is that the Dow will trade intraday [down 3.5%] at 11,900 in a mini-panic before a deal is struck," said Paul Schatz, president of Heritage Capital LLC, which has $110 million under advisement, in an interview last week. "But then we will head to 13,500 by the end of the year,"
"People [were] reacting based on the headlines, not on what the markets [were] doing," added Mr. Schatz, a tactical investor who has been buying equities on the market dips.
While the markets have been choppy as the debate in Washington has droned on, Mr. Schatz pointed out that the current market dip represents the fifth time in the past 12 months that the stock market has declined by between 4% and 8%.
The long-term perspective, which most advisers tend to preach, falls along the lines of sitting tight and waiting for the volatility to pass.
"I don't know that any of this has any long-term impact, although in the short term, people do get to freak out for a while," said Clinton Struthers, owner of Struthers Financial Services, a $100 million advisory firm. "I have to wonder to what extent we've already built all this into the market prices."
That thinking is echoed by Kevin Mahn, president and chief investment officer at Hennion & Walsh Asset Management Inc., which has more than $250 million under management and supervision.
"I believe that the market has essentially priced in the belief that an agreement on the current debt ceiling will happen," he said. "It is now just a question of when the agreement will be finalized, and what the length and terms of the finalized agreement will be," Mr. Mahn said. "These points may ultimately move the market over the short term."
Mr. Mahn, who has not been adjusting portfolios as a reaction to the debt debate, added: "After this current crisis is behind us, investors will return their focus to a stalling economic recovery that is facing multiple head winds."
Jeff Sullivan, managing director and partner at HighTower Advisors LLC, a $19 billion advisory firm, has learned that the best way to keep clients calm is to provide plenty of warning that rocky times are ahead.
"Our clients have been primed that we should remain as cautious as possible and I think that has led to fewer panicked calls," he said.
Like a lot of advisers, Mr. Sullivan has been tracking the broader economic indicators and adopting a more conservative approach to the markets.
His average cash position has been increased from 3% to 10%, and he also is hedging his portfolios with managed futures, precious metals and some long/short equity funds.
"We think there's a 50% chance of a [U.S. debt] downgrade, and the downside of that could be a 10% stock decline," he said. "But we're equally concerned about the bond markets and a spike in interest rates as a result of the downgrade."
The economic indicators began to look gloomy last fall to Theodore Feight, president of Creative Financial Design.
"We started to get out in September because of the charts. All of our bond money is out unless it is coming due this year or next," he said. "Clients are between 10% and 30% in cash, and I've telling them it could be any day now that we get back in."
When Mr. Feight moves back in, however, he will choose only high-dividend-paying equities.
"We think interest rates are going to go crazy," he said. "I think we'll be looking at between 5% and 7% on the 10-year Treasury."
Opinion
Across the country, Americans demand
debt-ceiling deal that protects seniors and middle class
Call on Republicans to Compromise
(Washington, DC) -Like a broken record Republicans in the House and Senate are willing to wreck our economy by refusing to compromise and insisting on their radical plan to balance the budget on the backs of seniors and the middle class by slashing Medicare, Medicaid and Social Security while giving tax breaks to millionaires, private jet owners and big corporations.
Today, at over 100 events across the country Americans continued to make their voices heard and demanded a debt deal that protects seniors and the middle class while making sure the rich and corporations pay their fair share.
AFL-CIO President Richard Trumka said, "Republican elected leaders are acting like dictators- putting their political interests before the good of the country. They're willing to throw working families and the working poor overboard just to preserve tax cuts for billionaires and hedge fund managers. With over 14 million Americans out of work we need Congress to focus on job creation. And massive cuts to Social Security, Medicare and Medicaid will only hurt any effort to rebuild our economy."
AFSCME President Gerald McEntee said, "Republican leaders need to get their priorities straight. They appear willing to throw the economy back into a tail spin and deny Social Security checks to seniors, benefits to veterans and care to sick children- all to save face with their corporate donors. Main Street has had enough."
Alliance for Retired Americans President Barbara Easterling said, "Retirees know firsthand that Medicare is one of America's greatest success stories, helping generations of seniors afford to see a doctor and fill a prescription."
HCAN Executive Director Ethan Rome said, "It's an all out assault on the middle class in order to protect the richest people and corporations when we need a balanced approach to avert a crisis that will wreck the economy. People are fed up with the Republicans, who want to slash Medicaid, Medicare and Social Security just to protect tax breaks for millionaires, billionaires and big corporations. People are taking action because they want Congress to create jobs and the Republicans to stop wasting precious time trying to score political points."
MoveOn.org Executive Director Justin Reuben said, "The Republicans in Washington are doing everything in their power to protect tax breaks for millionaires and corporations, even if it means throwing our entire economy off a cliff. It is time for Congress to pass a debt deal that does not further damage our economy, and does not ask seniors and the middle class to bear the burden of raising the debt ceiling."
NEA Executive Director John I. Wilson said, "There is a fundamental question before Congress. Will Congressional Republicans balance the budget on the backs of those least able to afford additional sacrifice? Will they cater to Wall Street and large corporate interests at the expense of America's children, seniors and the middle class? Or will they put partisan politics aside to do what's right for all Americans?"
Protect Your Care Communications Director Eddie Vale said, "If Republicans continue this reckless path and refuse to compromise they will wreck our economy, senior citizens won't get their Social Security or Medicare and military families will lose their benefits."
SEIU President Mary Kay Henry said, "Republicans in Congress are playing chicken with the full faith and credit of the United States and proposing policies that would force seniors to leave their nursing homes, children to give up their healthcare and working families to say goodbye to their jobs. While Americans are struggling, Congressional Republicans are taking this irresponsible and extremist approach so that corporations and millionaires can keep their tax giveaways. That is both unacceptable and morally wrong."
USAction Director of Strategy and Policy Alan Charney said, "A strong middle class isn't built by accident. It is built because of responsible investments we make together. Our safety net- programs like Medicaid, Medicare and Social Security- represents these types of investments and scaling back is penny-wise and pound-foolish. The money exists to pay for these investments. We just need leaders in Congress to work for all Americans, not just the richest and most powerful Wall Street speculators."
Today's events are the continuation of a massive grassroots lobbying campaign to prevent a debt ceiling deal that slashes Medicare, Medicaid and Social Security while giving tax breaks to millionaires, private jet owners and big corporations:
AFL-CIO activists sent over 190,000 e-mails to Congress and the White House and made 3,500 calls to protect Social Security, Medicare and Medicaid.
AFSCME, Americans United for Change and NEA have generated 34,709 phone calls to targeted members of the House and Senate over the past three weeks.
Alliance for Retired Americans held 30 Medicare anniversary events in July to both celebrate Medicare's many accomplishments and warn seniors of threats to its future.
HCAN has held more than 50 events the past two weeks across the country demanding members of Congress stop protecting millionaires and billionaires and preserve Medicaid, Medicare and Social Security for middle-class Americans. HCAN supporters this month also made 5,000 calls to senators and representatives' offices.
MoveOn.org Civic Action & American Dream Movement held 800 events, with over 20,000 participants, including one in every Congressional District, this past Tuesday.
NEA mobilized tens of thousands of educators in every state of the union and in addition to their phone calls sent 28,000 e-mails to Members of Congress.
Protect Your Care held 97 events in eight states in July telling Congress to keep their hands off Medicare and Medicaid.
SEIU has participated in a series of local actions at Congressional offices to support Medicaid, has generated tens of thousands of phone calls and emails into Congress, have produced multiple television, newspaper, web and radio ads shaming Republican for holding average Americans hostage to the interests of millionaires and corporate CEO's.
USAction partners and affiliates held over 100 events in July. USAction generated over 42,000 messages to Congress in the past two weeks calling on Congress to tax billionaires and cut Pentagon spending instead of slashing Medicare, Medicaid, and Social Security.
Retire Social Security Debt and Save The Economy. What If?
Modern Portfolio Theory:
A methodology the Wall Street bubble machine would prefer you didn't know
by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com
What if the US Government sold the Social Security system/employees/buildings/DEBT/etc. to Insurance/Annuity industry companies for the amount of the debt plus a few billion, all in cash plus secured debt of the hundreds of companies involved in the purchase?
The money would be turned around immediately to repay the trillions in government (Social Security Trust Fund) IOUs and it would be invested in guaranteed fixed income annuities (guaranteed immediate annuities for those already receiving benefits), absolutely a guaranteed winner for a presidential candidate.
Yeah, it also should involve the eventual conversion of all public sector retirement plans to SSRIAs (Social Security Retirement Income Annuities). There would be no publicly funded retirement plans. All employed persons (from the very top down) would contribute to their own personal, portable, SSRIAs, but at about one third of current mandated payroll deductions.
Employees could choose to contribute more than the required amount, and the funds would move electronically to the assigned private sector provider. All tax payers would be eligible to create SSRIAs and there would be no matching employer contributions. SSRIAs could be an available income investment option for all private sector retirement programs, qualified and otherwise.
That's right. In one fell swoop we can reduce employee and employer taxes, increase personal disposable income, eliminate thousands of government jobs and replace them with private sector employment. It just doesn't get any easier than this.
NOTE: SSRIAs would be assigned to providers, so expenses would be minimized and covered entirely by an investment management fee. Private auditing firm employees would be rotated randomly between providers to assure that Investment Policy Statements are complied with.
But there's also a Phase II. All SSRIA benefit payments, without exception, will become 100% tax free at all levels for yet another uptick in personal disposable spending money, spending that an intelligent (and "fair") consumption tax could use to run a more streamlined and less lobbied (corrupt) government.
Another benefit of this approach would be the requirement that the insurance company "general account" investments supporting the now "for real" SSRIA trust fund are subject to "Old Fashioned Portfolio Theory," vastly different from the MPT (Modern Portfolio Theory) approach that has failed for everyone except its Wall Street conspirator-creators.
Retirement programs of any kind (Defined Benefit or Defined Contribution) should be focused on providing certain streams of monthly income to plan participants, market values just don't pay the bills. The SSRIA investment mix will focus on safety and income production instead of the probabilities of negative correlations between varying speculations creating a rise or fall in market value that is less embarrassing to the plan sponsor.
MPT is a methodology that encourages speculation. OFPT (Old Fashioned Portfolio Theory) focuses on Quality, Diversification, and a growing stream of "base income". Base income is the actual cash received from a portfolio's investments in the form of annual dividends and interest, the stuff that retirement income is made of.
It may well have been the combination of MPT, and the equally nonsensical Trustee/Investor rules of the Uniform Prudent Investor Act (UPIA) that single-handedly led to the speculative bubbles that caused the global financial crisis masacre of hundreds of thousands of "trusteed" retirement portfolios.
MPT creates wealth for Wall Street's ETF production factory. OFPT creates wealth (and dependable income) for investors and retirees. Note that OFPT is the body and soul of the Market Cycle Investment Management methodology, the methodology the Wall Street bubble machine would rather you didn't know about.
Never again should "we the people" be held hostage by a circus filled with self-serving politicians, now adding further insult to their mis-management of our retirement funding dollars in the first place. Let's elect people who will redirect our retirement funds to fundamentally safe products that have provided uninterrupted retirement security to millions of people for centuries.
Robert Fine Celebrates 40 Years as a General Agent of The Guardian
Key to successful recruiting is an 'entrpreneurial' mindset
Framingham, Ma (7/22/2011) -In 1971, Robert Fine set out to start his own financial services company. Today, Fine is celebrating the landmark achievement of 40 years as founder and CEO of Robert Fine & Associates, an insurance and financial services firm based in Framingham, Mass., and general agent for The Guardian Life Insurance Company of America.
"We congratulate Bob Fine on this momentous achievement," said Meg Skinner, Executive Vice President and Chief Distribution Officer at The Guardian Life Insurance Company of America. "His successes exemplify the Guardian spirit of 'enriching the lives of people we touch.' He is a true partner in every way and we are thrilled to be celebrating 40 years with him."
"Forty years ago, Guardian gave me the opportunity to run my own successful business," said Fine. "What makes Guardian special is that it encourages you to take charge of your economic destiny. The Guardian team understands how small business owners think. It's a true entrepreneurial system."
Pictured: Randy S. Fine, LUTCF; Robert Fine, CEO; Matthew Fine, LUTCF
Guardian's recruiting model enables Fine to attract experienced agents looking for an organization that supports and fosters an entrepreneurial spirit. The effectiveness of this approach is proven by the success of Fine's agents. A high percentage of them qualify each year for Guardian's Leaders Club and its elite President's Council, which recognize the accomplishments of the top performers across the Guardian field force.
"When recruiting, I specifically look for people that have an entrepreneurial mindset," said Fine. "I demonstrate to them that they can become small business owners within the Guardian network- and I push them to do just that."
As a true multi-generational, family-owned business, Fine's sons Randy and Matthew are both leaders in the firm, serving as president and director of sales and marketing, respectively. As small business owners themselves, their strategic decision to focus on the small business market underscores their commitment to their clients.
"Who better to understand the personal and business needs of the small business owner, than someone who knows first-hand what it takes to succeed in that capacity?" commented Fine.
Fine also credits his success to the belief that contributing to the community is of utmost importance. After a dear friend and colleague passed away, Fine created the Bill Costello Memorial Golf Tournament, played each year at Mount Pleasant Country Club in Boylston, Mass., to benefit the Jimmy Fund, an organization that supports the fight against cancer in children and adults at Boston's Dana-Farber Cancer Institute. Fine also lent his professional expertise to the organization by creating the Life Insurance Gifting Program. After 25 years, the firm has raised more than $1 million for the Jimmy Fund.
About Robert Fine & Associates
Located in Framingham, Mass., Robert Fine & Associates was established in 1971 with the goal of assisting each of its clients in creating financial stability as a means to achieve financial independence. Today, the firm employs roughly 40 staff and has more than 5,000 clients. Robert Fine & Associates is a general agency of The Guardian Life Insurance Company of America. More information about Robert Fine & Associates may be found here.
IRI: Two-Year Anniversary Re-branding Successes
Highlighted by Expansive and Highly Engaged Membership
Association Also Honoring 20 Years of Service, Commitment and Collaboration
within the Insured Retirement Industry
WASHINGTON, D.C. – Marking the two-year anniversary since the Insured Retirement Institute (IRI) embarked on a comprehensive re-branding initiative, the association is now the only organization that represents the entire supply chain of insured retirement strategies. Today, IRI members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals from across the nation. Also, honoring 20 years of service, commitment and collaboration within the insured retirement industry, IRI is leveraging the collective strength of the association's highly engaged membership to benefit not only the entire industry, but also the consumers that rely on the financial guarantees only IRI members can provide.
"For two decades our association proudly has been dedicated to the advancement of the industry, serving as a focal point for discussions and debates on the myriad of opportunities and issues facing the retirement income community," said IRI President and CEO Cathy Weatherford. "As the needs of our industry evolved and extended, and consumers placed an increasing trust in the value of insured retirement strategies, IRI recognized the need to adapt and pioneer a new course to better serve our growing constituency. Two years ago we launched our successful rebranding effort, harnessing the united strength of our expanding membership to advocate, educate and innovate at the highest levels. Because of the leadership of our Board of Directors, and the steadfast commitment of our members, IRI is today recognized as an unparalleled leader in the retirement income industry- a role that will undoubtedly increase in the in the years to come."
During this dual-anniversary year, IRI has achieved several milestones. Of note, the association has met with more than 125 Members of Congress in support of key advocacy initiatives and is on track to produce more than 30 pieces of research- including the just-released, and fully redesigned IRI Fact Book. In addition, IRI expanded the National Retirement Planning Coalition, bringing together nearly 20 organizations representing consumers, education groups and the industry to help foster a national dialogue regarding retirement planning and preparedness. Since the rebranding last July, IRI has successfully messaged the one-of-a-kind value proposition of insured retirement strategies to a unique audience of more than 140 million people.
As IRI's membership has grown, so too have the needs of the association's online community. Launched in 2010, IRI's Members Only Website, www.myIRIonline.org, provides IRI members with the latest news, research, FINRA-reviewed documents, practice management tools, industry focused job bank, and an interactive advocacy center. Since then, the Members Only Website has received over 40,000 visitors since its launch and has become a widely used resource by financial advisors.
For more information about IRI's membership; advisor and consumer education efforts; and industry-wide priorities, please visit www.IRIonline.org.
About the Insured Retirement Institute
The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees.
MDRT: Honesty and Trustworthiness Most Important Traits for Advisors
2011 MDRT Financial Harmony Index Score: 66
Key Messages:
The MDRT Financial Harmony Study surveyed U.S. consumers and financial advisors to measure perceptions and attitudes between consumers of financial products and services and their financial advisor or professional.
The MDRT Financial Harmony Index score for 2011 is 66. This index measures how consumers rate advisors across four important attributes; how advisors rate themselves on the same measures; and the gap between the two ratings.
Park Ridge, Ill. -A new survey by The Million Dollar Round Table (MDRT) highlights a significant gap between how financial advisors rate themselves and how clients rate their advisors. The MDRT Financial Harmony Study also revealed that consumers rank 'Honesty' (39%) and 'Trustworthiness' (29%) above 'Delivers Results' (19%) and 'Knowledge' (13%) as the most important traits for advisors.
Clients gave their advisors an overall score of 7.7 out of 10 in terms of 'Honesty' while advisors gave themselves a 9.2. Advisors also rated themselves higher than clients rate their advisors in terms of 'Trustworthiness' (8.3 vs. 7.6); 'Knowledge' (8.4 vs. 7.8); and 'Delivering Results' (8.4 vs. 7.4).
The MDRT Financial Harmony Index (FHI) Score for 2011 is 66. This index measures how consumers rated their advisors across these four important attributes; how advisors rated themselves on the same measures; and the size of the gap between the two ratings. Complete harmony between clients and advisors as well as perfect client satisfaction and advisor self-rating scores would be indicated by a score of 100. MDRT will track the FHI annually and work with members and the profession to better align advisors to current consumer attitudes and perceptions.
"The MDRT Financial Harmony Study should be a wake-up call for any advisor who thinks they are in perfect harmony with their clients," said MDRT President Julian H. Good, Jr., CLU, CLTC, ChFC. "The findings reinforce the need for financial professionals to pay more attention to the relationship side of the advisor-client equation, working to better earn clients' trust by demonstrating professionalism, ethics and integrity in their approach and interactions."
According to the research, advisors and consumers also differed slightly in terms of the most important trait. While consumers ranked 'Honesty' first (39%) followed by 'Trustworthiness' (29%), advisors ranked 'Trustworthiness' first (41%) and 'Honesty' second (29%).
"While honesty and trust are similar, they are not really the same," said Matt Thornhill, founder and president of the Boomer Project, which conducted the research. "Advisors need to realize they need to create opportunities to earn trust. Trustworthiness is an outcome of a solid advisor/client relationship, good communication, ethical behavior and, ultimately, honesty demonstrated over the long term."
The survey also uncovered differences in the harmony scores between advisors and members of various generations. "Financial harmony appears to get better with age," said Good. "Older consumers and advisors are closer to a perfect FHI of 100 than are younger consumers."
Generation FHI Score
Silent Generation (ages 66-80) 74
Boomer Generation (ages 47-65) 66
Generation X (ages 29-46) 65
Millennial Generation (28 and under) 62
According to Good, MDRT will provide its members with a variety of exclusive educational tools and resources based on the Harmony Index, including an online tuner members can use to survey their clients to determine their own FHI, see how they rate vs. other advisors and identify areas for improvement.
About the MDRT Financial Harmony Study:
The MDRT Financial Harmony Study is based on online surveys of U.S. consumers and all financial advisors conducted by the Boomer Project and BIGresearch in April 2011. The consumer survey was conducted among adults 21 to 75 years old who currently use any financial advisor; 1,451 respondents were targeted with an overall margin of error of +/-2.6 percentage points. The advisor survey was conducted among 312 financial professionals. The surveys were not conducted specifically with MDRT members/their clients.
About MDRT:
MDRT is The Premier Association of Financial Professionals. Founded in 1927, MDRT is an international, independent association of more than 35,000 of the world's life insurance and financial services professionals. With membership from more than 76 nations and territories, representing 445 different companies, MDRT members demonstrate exceptional professional knowledge, strict ethical conduct and outstanding client service. MDRT membership is recognized internationally as the standard of sales excellence in the life insurance and financial services business.
What Could Cost Trillions And Is Killing The Economy?
Why Political Bureaucracies Are The Disease That Prevents Recovery
Nobel Laureate in Economics, F. A. Hayek, fought totalitarianism and communism, and from beyond the grave he is taking on a new foe- political bureaucracies.
Hayek, an economist whose theories inspired George Orwell to write his epic book 1984 and whom many credit for helping to bring down the Iron Curtain through his work as an economist, is now delivering a message from beyond the grave about the demise of the U.S. economy. In an interview that took place before Hayek’s death in 1992, he warns against how big government and the growth of the civil service have the potential to doom the American economy.
Kenneth J. Gerbino, CEO of an investment management company and founder and Chairman of the 1980 reform advocacy group the American Economic Council, uncovered the interview that is the centerpiece of the new documentary film The Hayek Prophecies (www.thehayekprophecies.com). In it, Hayek decries the growth of the civil service as the poison pill that could put the country in a stagnant or slow growth mode with inefficiencies and waste.
"Hayek believed that the swelling of the civil service would grow government to such an unwieldy size that it would become an unsustainable beast, dragging down the government and the economy because of its endless hunger," said Gerbino, also producer of the film.
There are currently 2,392 bills working their way through the House and 1,291 bills in the Senate. It goes without saying that besides the $20-30 billion in pork in these bills there will be more government agencies, bureaus and departments created to administer and regulate any new laws that are passed. They will then further complicate and slow down the real economy. Needless to say more regulations and regulators are being added to the budget every year.
The government should be dismantling agencies and downsizing and allowing the people of this country to flourish by allowing them to spend their money instead of the government.
"Tax money going toward social security should not go toward hiring more people to inhabit more government jobs," he said. "Taxes should be reduced giving elderly people money to buy food and pay rent. Because of the thousands of new regulations to various laws passed every year, the bureaucracy to administer these regulations and guidelines waste hundreds of billions per year."
The Heritage Foundation reported the Government Accountability Office (GAO) says that current reports of wasteful duplication include 342 economic development programs; 130 programs serving the disabled; 130 programs serving at-risk youth; 90 early childhood development programs; 75 programs funding international education, cultural, and training exchange activities; and 72 safe water programs. Gerbino states that most of these agencies probably could be consolidated into three or four agencies eliminating overlapping work and reducing employed civil servants by 30-40%. Washington spends $25 billion annually maintaining unused or vacant federal properties all for the civil servants.
The civil service has created its own perpetual motion and continues to expand, costing taxpayers more money but in many ways costing private enterprise untold legal and accounting costs to comply with regulations many of which are not needed. These costs are then passed on to consumers. The civil service expansion defeats the purpose of actually shrinking government, which makes the political call for smaller government nothing more than a punch line to a bad joke. "If our leaders really want to reduce the size of government, they should listen to Hayek and start with the civil service."
About Kenneth Gerbino
Kenneth Gerbino is head of Kenneth J. Gerbino & Company, an investment management firm now in its 37th year. The company manages private equity accounts and the Gerbino Gold Group, LLC, a private hedge fund that invests in precious metal mining stocks. Ken is advisor to the publicly traded Precious Capital Global Metals & Mining Fund traded on the Zurich Stock Exchange. Ken was the founder and Chairman of the American Economic Council (AEC), a nationwide economic reform group that was credited with the passage of the United States Gold Coin Act of 1984, which established the United States Gold Eagle coin. AEC seminars included participation by Alan Greenspan, Noble Laureate F. A. Hayek and Robert Bleiberg, ex-Editor-in-Chief of Barron's.
Uncle Ben Is Gold's Best Friend
Gold: $1,600 an ounce is coming soon, a new all-time high. Don't say we didn't tell you so.
Today, gold is up 1.5% and the stock market is up only 1%
by R. Scott Raynovich, Editor in Chief, Investor Uprising - posted 7/13/2011
Here's an idea: Every time you know that Ben Bernanke, Chairman of the Federal Reserve, is about to speak, buy some gold. Gold hit a new high today, popping nearly $20 almost instantaneously as Bernanke's prepared comments to the US Congress hit the tape.
Here is what he said: "The Fed has alternatives for deploying additional stimulus if conditions warrant."
Allow me to paraphrase: We're ready to print as much money as we can if the economy even hints at weakening.
Stock markets rallied. Silver rallied. Oil rallied. Gold rallied. But today gold is up 1.5% and the stock market is only up 1%. This continues a 10-year trend of gold outperforming equities. It's the face of currency devaluation- the mirage that by creating inflation we can get richer. You can, if you own some gold, and you are hedged.
It's interesting, though. What in Bernanke's cryptic statement about an additional stimulus triggered the itchy fingers of hedge-fund traders? What is really going on here? I think the secret is that the Fed has been printing money all along, and is going to continue to print even more money, despite the fact that the infamous QE2 (Quantitative Easing, not the cruise liner) program has ended.
The proof is in the chart below. It's a measure of the Fed's monetary base. It's money in the total financial system. It measures the pumping of dollars. It goes above and beyond QE2.
If this chart doesn't scare you, I don't know what will. It is the graphical depiction of wanton currency devaluation. By some measures, a mysterious $800 billion of additional liquidity has been pumped into the financial system in just the past five months! That's much more than the advertised $600 billion of QE2 bond-buying the Fed is on record as having injected into the system.
And yet, do you feel any richer? Does the economy feel any better? It certainly doesn't when you go to buy a $4 loaf of bread or pump $4-per-gallon gas.
Why, you ask, is this happening? The Fed is pumping money into the system to replace the money lost from bank credit in the banking system. The Fed is stepping into the hole that the banks have left. It is a one-for-one monetary trade of all the money that the banks lost. You and I are paying for the financial crisis with monetary inflation and $4 gas.
Where's this extra money come from? There's been no official explanation. Is it coming from Ben's secret piggy bank? A printing press?
I submit to you that it's being created out of thin air, regardless of whether our officials tell us exactly how. Remember that Ben Bernanke, in his famous "Helicopter Ben" speech, said there is no incremental cost to printing dollars and that the government could easily drop dollars from helicopters, if need be. That money is now out there. The data does not lie.
Here is what Bernanke said in that speech in 2002: "...the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost."
And you can clearly see that money pulsing through the financial system today. Ben is pushing the buttons again.
That is the government's entire strategy. Paper over our huge debt problems by devaluing the currency. A devalued currency means devalued debt. It's happened over and over again in history.
Gold goes up even more, yet Bernanke famously says he does not understand gold. It's a disingenuous statement. Of course Bernanke knows what's going on, but he doesn't want to say it. Gold going to new highs is a vote of non-confidence in him and his governance. Gold rises with mistrust of fiat currencies and the global monetary systems. That is exactly what is happening, Uncle Ben.
The TV pundits continue to be mystified by gold's meteoric rise. As we analyzed in our detailed Ultimate Gold Report released in April, it's really not that mystifying. Gold is rising because it is the best hedge against currency devaluation, because it is still an under-owned asset, because China is continuing to diversify its dollar holdings into gold, and because gold goes up when the money supply goes up.
The money supply is going up fast. It is skyrocketing, in fact. The fact that the money supply just popped another $800 billion this year adds much more support to gold. My personal target of $2,500 in the next couple of years may be modest.
(Disclosure: The author holds a significant gold position so that he will be able to buy toilet paper in 2015.)
Opinion
The Unspoken Issue in the Debt Limit Debate
American's cannot have European-style welfare state... unless they're prepared to pay for it
by Bill Wilson
Mr. Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.
Often times, someone outside the family is better able to define a problem or the real issues in a conflict than those in the middle of the dispute. So it is that Jeremy Warner of London's Daily Telegraph put his finger squarely on the real, underlying nature of the blood-fest surrounding the proposed increase in the national debt ceiling.
In an column published June 30, Warner goes through all the conventional discussion points about the nature of fight- Republicans want cuts, Democrats want taxes- as well as predictable establishment talking points on the impact of a refusal on the part of Congress to increase Uncle Sam's credit limit.
But at the end of his piece, Warner puts his finger on the fundamental issue like none in the US have. Warner writes, "Americans cannot have a European-style welfare state, a modern infrastructure and a defense budget equating to 4.5 percent of GDP unless they are prepared to pay for it." Right he is.
The time for wanting everything but paying for it with borrowed money is soon over. The end of the line will come when either the American people make basic changes to the 'what' we want to pay for or the markets finally sober up and realize U.S. debt is spiraling out of control and cannot be paid back. Either way, the days of spend 'til you drop and put it all on the credit card are done.
It is appropriate to look at Warner's formula for a way out of the swamp. First, do we really want a 'European-style welfare state'? The nation was built not on the handouts and welfare checks from gray, faceless bureaucrats. It was built on the individual effort of a free, self-reliant people. As government has bullied its way into the social sphere, private charity has declined. Are we to believe Americans will not take care of those in their communities who need help? Are we to accept that someone in Washington, D.C. knows better who truly needs help better than those living and working in the affected community? And do we really believe some 'enforcement model' devised in the group-think world of Washington will be better able to stop fraud in the system better than local people?
America doesn't have to pay for a European-style welfare state because we don't want one. It's destructive. It does far more damage to society and the people it purports to help than not. The beginning of the dismantling of it needs to begin at once and free-market, individual based programs advanced that address the issues of retirement, poverty, healthcare.
Second, Warner and some on the Left do have a valid question. Why are we devoting 4.5 percent of GDP to defense? When was there a vote in Congress that committed the United States and our sons and daughters to defending the world? Why is there a military presence in over 100 countries?
Providing for the common defense is the first and arguably the primary reason for government. The men and women of the United State military are the very best our country has to offer and their service and sacrifice should be held in the highest honor. But why do we spill their blood and risk so much in battles that raise no threat to the people of the United States?
One of the reasons so many conservatives oppose Obama's war in Libya is that he claims authority to do so from the United Nations. No UN bureaucrat has the right to 'authorize and direct' us to do anything. The UN has no rights over us and we have no binding obligation to it. Our sons and daughters are not and can never be cannon-fodder for the internationalist daydreamers.
So, yes, configure the US defense forces to defend our nation. But eliminate all the Trotskyite 'nation building,' make rich pampered Europe defend itself if they can, and end the countless earmarks stuffed into the Defense Budget by the heirs of John Murtha and other such scammers.
And finally, we should be building and improving the infrastructure of the nation. But why must it be done by a government that cannot find its butt with both hands? Government inflates the costs of such projects with backdoor handouts to unions through Davis-Bacon requirements and so-called 'Project Labor Agreements.' The EPA has become the biggest impediment to growth we face with their endless regulations and mindless rules and studies. So, it is clear government simply isn't up to the task of building a 21st Century infrastructure regardless of how much money they have.
Let the private sector do it. We see such an arrangement working on a limited basis now. Open the doors and let industry and the private sector build it. It will be done on time and at a greatly reduced cost and will not show up as debt on the public balance sheets.
This is the discussion we should be having over the debt ceiling, not childish blather about tiny tax rules on corporate jets or inane class warfare bromides. America is at a fork in the road. We cannot afford to continue as we have and must choose one path or the other; a full-blown centrally planned socialist welfare state that sells its sons and daughter as mercenaries to Utopian fools, or a return to the First Principles of individual self-reliance, faith in the collective good stemming from the sum of all private actions, and a dedication to national sovereignty in all fields — economic, defense, and self-interest based bi-lateral foreign relations.
The longer we remain in our current zombie-state — refusing to choose one path or the other and pretending someone will find the magic formula to return us to the past — the more difficult and costly the eventual certain transition will be.
-MORE-
The Next Financial Crisis
Is there a con game being played on the American Public?
by Bill Wilson
Mr. Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter @BillWilsonALG
There is a con game being played on the American public. At the same time governments around the world are proposing increasing the amount of money banks must hold in reserve to 7 percent, they are rigging the definition of what constitutes risk.
Dubbed Basel III, these new international requirements will define government debt as risk-free, according to Jim Jubak of Jubak Global Equity Fund. As a result, Jubak writes, "...a bank that holds sovereign debt won't be required to adjust its core capital ratio higher to make up for any extra risk."
Jubak predicts that banks, to keep as minimal an amount of capital on its books as possible, will simply pour more money into government debt securities. But should anyone believe that a bank holding billions of Greek or Portuguese debt is adequately capitalized? Many analysts foresee default in the eurozone as a necessary and inevitable outcome of the sovereign debt crisis there.
With the banks that lent the money to these troubled sovereigns begging for a bailout, clearly they understand the risks of default. So, why don't the regulators?
The entire financial crisis of 2008 was caused by overleveraging, where firms like Bear Stearns did not have adequate capital reserves to pay their bills when things went south. They carried risk to capital ratios as high as 30 to 1.
If you think that's bad, consider a recent forensic study by former Fannie Mae chief credit officer Edward Pinto on Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. They "only needed $900 in capital behind a $200,000 mortgage they guaranteed," writes Pinto, citing the 'The Federal Housing Enterprises Financial Safety and Soundness Act of 1992'.
That’s more than 200 to 1 of overleveraging, and paved the way for Fannie and Freddie’s inevitable failure in 2008 when the nominal value of mortgage-backed securities fell.
Since Fannie and Freddie guaranteed more than half of the U.S. market, its overleveraging set the tempo for the entire housing market during the bubble years. Pinto notes, "In order for the private sector to compete with Fannie and Freddie, it needed to find ways to increase leverage." And so they did, increasing the likelihood that when the market fell, there would be a meltdown.
Basel III, by categorizing sovereign debt as risk-free, is doing precisely the same thing. Except instead of the $10 trillion U.S. mortgage market, now we're talking about the more-than $50 trillion of sovereign debt worldwide. That does not include the untold trillions of sovereign debt credit default swaps, insurance policies bondholders buy against default.
The next financial crisis will be worse than the last one. Europe is already beginning to experience the real risks associated with governments borrowing too much. In Greece, civil order is practically breaking down, and a collapse of the government is not out of the question.
Basel III was set up to prevent banks from becoming undercapitalized in the event of a financial crisis. But by categorizing sovereign debt as risk-free, it has guaranteed they will remain so. It also guarantees that legislative bodies will continue spending like drunken sailors.
If there are to be any capital requirements at all, then taking on risky assets, whether it be sovereign debt or mortgage debt, should require higher capital to be maintained.
An alternative and perhaps superior solution would be to eliminate capital requirements all together, with the proviso that in the event of a financial crisis, there would be no bailouts and that capital reserve compositions be posted publicly. Under a tough transparency-no bailout rule, good banks would automatically protect themselves against insolvency by boosting capital.
Logic, instead of lunacy, would be the guiding star behind a bank's decision of how much capital it needed to keep on the books, or on what types of loans to make, for that matter.
Markets, and not the government, can prevent the next financial crisis. But the only way to accomplish that is to reinstate the real risk of failure into the equation.
Read more here
Life Insurers Council Selects New Board Members
and Honors Longstanding Board Member
H. Stacy Boyer honored with 2011 Distinguished Service Award
WINDSOR, Conn., July 7, 2011 - This week, the Life Insurers Council (LIC) announces three new members to its board of directors.
The new board members were elected at the 2011 LIC Annual Meeting held on May 18 in Orlando, Fla. Each will serve a three-year term, which began in May. As part of the board of directors, they will help set policy and guide the actions of the LIC, which, as part of LOMA, represents the life insurance and financial services industry in more than 80 countries worldwide.
The new members are:
- Michael C.S. Fosbury, senior vice president and chief investment officer, Columbian Mutual Life Insurance Company
- Richard J. Kypta, senior vice president, general counsel and secretary, Farm Bureau Life Insurance Company
- Douglas M. Tuttle, president and CEO, Loyal Christian Benefit Association
In addition, LIC honored H. Stacy Boyer, vice president division general counsel and secretary for Monumental Life Insurance Company, with the 2011 Distinguished Service Award (DSA).
"Stacy has been a tremendous asset to the LIC, serving as chair of the Laws and Legislation Committee since 1997 and chair of the board of directors in 2008," said Jeffrey Shaw, executive director, Life Insurers Council. "Her dedicated service to the board has been indispensible as she shared her extensive experience and insight, helping the organization transition to the next level as we merged with LOMA. I am pleased that we can recognize her significant contribution to the LIC."
Established in 1990, the DSA is given annually to a person who has greatly contributed to the LIC and its members. Nominated by LIC's advisory committee, Boyer received this award during the 2011 LIC Annual Meeting.
For more than a century, the LIC's mission has been to provide practical business solutions to companies serving the modest and middle-income market. Consequently, the LIC has had traditional ties to many home service, pre-need and final expense insurance companies as well as niche-market companies selling small face amount life products through a variety of distribution channels.
Allstate Files Million-Dollar Insurance Fraud Case in NY
HAUPPAUGE, N.Y., June 23, 2011 PRNewswire -Allstate Insurance is seeking to recover more than $1 million against 10 New York area defendants in its third insurance fraud lawsuit of 2011. The complaint, filed under the Racketeer Influenced and Corrupt Organizations Act (RICO) and New York common law, alleges that four professional service corporations, a licensed psychologist and five laypersons illegally owned and controlled the professional corporations. Since 2003, Allstate has filed 30 fraud lawsuits in New York, seeking nearly $169 million in damages.
According to the Insurance Information Institute, the state of New York is in an insurance fraud crisis and no-fault fraud is costing New Yorkers hundreds of millions of dollars year-after-year. "In essence, honest, hardworking New Yorkers are paying a fraud tax," said Krista Conte, spokesperson for Allstate's New York office. "We need lawmakers to enact meaningful insurance reform that puts the citizens of New York first."
As detailed in the lawsuit, Allstate contends that professional service corporations were actually owned and controlled by laypersons, rather than by licensed professionals. In addition, the lawsuit alleges that the defendants submitted or facilitated the submission of claims for psychological services through professional corporations that were never eligible to collect no-fault insurance benefits. The suit contends that HK Psychological, P.C., Kingshwy Psychological, P.C., Omega Psychological, P.C. and Jay Psychological, P.C. were fraudulently incorporated through a scheme using the name of licensed psychologists, and that Ben L. Adler, Alex Gormakh, Milana Gormakh, Peter Kerner and Shari Matatov, none of whom were licensed practitioners, secretly owned and controlled the professional corporations.
Allstate is joined by other insurers and many New York State leaders in its pursuit for comprehensive reform of the no-fault system. "The no-fault system is being exploited and responsible citizens are the victims," Conte said. "Without the support of lawmakers, incidents of fraud will continue to increase. We need to work together to fix the broken no-fault system."
The lawsuit was filed following an investigation by Allstate's Special Investigative Unit and seeks reimbursement for personal injury protection benefits Allstate paid on behalf of its customers during timeframes specified in the lawsuit. The lawsuit is the latest in a string of actions taken by the insurer to protect consumers from these and similar activities.
For more information on the dangers of insurance fraud, and how you can help fight it, please visit Fraud Costs NY.
The Allstate Corporation (NYSE: ALL) is the nation's largest publicly held personal lines insurer. Widely known through the "You're In Good Hands With Allstate®" slogan, Allstate is reinventing protection and retirement to help nearly 16 million households insure what they have today and better prepare for tomorrow. Consumers access Allstate insurance products (auto, home, life and retirement) and services through Allstate agencies, independent agencies, and Allstate exclusive financial representatives in the U.S. and Canada, as well as via www.allstate.com and 1-800 Allstate®.
opinion
Can Insurance Save Us from Climate Change?
The market alone cannot
by Brian Thomas
Brian Thomas left Swiss Re in 2006 and became a sustainability consultant with a focus on communications. He has developed green-themed projects for clients including Merill Lynch Global Markets and Investment Banking, Cofra Holding, Good Energies, Zurich Financial, Edelman, the City of Chicago, the City of New York, and others. He is currently a member of the New York City Panel on Climate Change, EnviroComm, and the Association of Green Technology Auditors, to name a few. Thomas started his blog, Carbon Based, in 2007, after requests from contributors to the Intergovernmental Panel on Climate Change (IPCC). He is the author of Climate Change Adaptation in 2010 and currently resides in West Cornwall, CT., where he is an activist member of the Conservation Commission. For more information, please visit www.carbon-based-ghg.com, and his blog, http://carbon-based-ghg.blogspot.com.
People judge risk badly. We worry too much about minor hazards and are nonchalant about more serious ones. We're especially inept at judging chronic long-term risks- like climate change. Insurance is a major part of how we deal with risk- can it lead us to more viable ways to address climate issues? The picture is mixed.
When we manage risk by buying insurance, we endure the slow, small pain of insurance premiums in exchange for a big compensation should something ugly happen. The insurers profit from our lack of knowledge about risk. Buying insurance goes against the grain, but paying our premiums gives us a little more security against fires, earthquakes, business interruption, and the numerous other events against which we can buy an insurance product.
Insurers review their policies annually and change their terms if they see a change in the probabilities. When no major losses occur, the industry pats itself on the back for judging their risks correctly for that year. They're happy and profitable. If the risk landscape changes, they absorb the payouts and adjust the terms accordingly.
The optimistic point of view is that insurance can play a major role in guiding businesses and individuals toward more climate-friendly decisions. In theory, insurers study the real probabilities of known hazards, figure out a viable premium that gives themselves a profit and the policyholders the agreed upon protection against the risk. When climate change raises the risks of flooding, business interruption, and other insurance hazards, the premiums go up, which can lead their policyholders to change their behavior. Financing for a new factory can be prohibitive or even impossible to get, if insurers won't cover it.
In practice, though, this theory is faulty for several reasons. Climate change poses special challenges to insurers, not merely because they are on the hook for many weather risks such as hurricanes.
First, to single out one kind of insurance, many factors combine in extreme weather events. A hurricane has many causes, and global warming might only be two percent part of the overall risk. If that part grows from two percent to five percent, it seems negligible, but in fact it's quite significant. As one insurance executive said, "Even a minor increase in a risk like that can mean billions of dollars in additional losses to insurers." If the winds are a few miles per hour stronger, and the storm takes a path through a heavily insured area, insurers can be overwhelmed.
The same is true for other climate impacts. There have always been floods, extreme weather, and times when the water cycle intensifies. But if climate change is turning up the dial, these familiar events may break out of their boundaries and become more frequent, more intense, or changed in unexpected ways.
Second, insurers are people too, and the cognitive blind spots that afflict individuals also affect the risk business. In practice, the insurance industry's grip on certain probabilities often relies on seat-of-the-pants methods that are subjective, and whose over-optimistic assumptions are sometimes rudely corrected by ugly surprises, especially when risks are constantly changing, as they are with climate change.
Like all of us, insurers want certainty, even when they know that certainty cannot be attained. At a 2007 conference about hurricane science for an insurance audience, the world's top climatologists discussed various topics in modeling and hurricanes. The head of underwriting at a major North American insurer snorted at the hedged, qualified way the scientists state their conclusions. The underwriter then complained, "Why don't the scientists give us numbers we can use! These probabilities are too nebulous for us to write business with them!" His impatience is widely shared, but the answer is no
Third, insurance functions well when the risks of various hazards are truly independent of each other, and truly random. One trouble with climate change is that climate instability tends to make floods, windstorms, and other extreme weather more interrelated.
One force binding all these factors together more tightly is land use, which in the US is often part of a highly entrenched political juggernaut promoting the worst possible policies, such as building heavily in flood plains, or on beaches very prone to hurricane damage.
Consider Florida, where the laws, business practices and general culture are geared to developing every square inch of land near water- oceans, certainly, but also lakes, streams, wetlands. Even in the absence of climate change, this is an obviously dangerous policy. It's also very popular. John Coomber, former CEO of Swiss Re, once grumbled that every American wants to live on the most vulnerable beaches they can find in Florida.
Governments occasionally try to buck the pro-development tide, but the political pressure against the anti-development forces is swift and merciless. Certainly no politician can withstand it. Rather than resisting, many property and casualty insurers have pulled away from vulnerable coastal property in Florida.
In response, Florida created its own public insurance pool. Result? Development continues, and the state fund is actuarially unsound - a major storm hitting a developed area would bankrupt the fund in short order. A few more storms would bankrupt the state of Florida, which would then call on the Federal government- as the stand-in for taxpayers in all other states - to bail them out.
These three factors mean that the insurance industry is weaker than it appears when in matters of changing social and economic policies. The only way to change these entrenched policies would be for other social forces to align with the insurance point of view. That will require energetic political leadership and vigorous regulation. The market alone cannot save us.
Has the Retirement Nest Egg Cracked?
COUNTRY Index dips as confidence in retirement hits record low
BLOOMINGTON, Ill., June 21, 2011 -PRNewswire- Americans' ongoing uneasiness about their finances is putting some cracks in how they feel about their retirement nest eggs. The COUNTRY Financial Security Index dropped one point to 63.7 in June, in part because confidence in retirement reached an all-time low.
Just 51 percent of Americans believe they will have enough money to enjoy a comfortable retirement, a one-point drop since April and the lowest percentage since the inception of the COUNTRY Index in February 2007. The drop also marks a consistent decline since October 2010.
"With the slow-to-recovery economy, rising food and gas prices and discussions over government entitlement programs, concern over retirement is understandable," said Keith Brannan, vice president of Financial Security Planning at COUNTRY Financial. "If you're feeling uncertain, reassess any long-term financial plans and identify potential cracks in your retirement nest egg."
To get started, Brannan recommends asking these key questions:
- When was the last time I examined my retirement plan? If more than one year, you need a review.
- Am I saving enough? Do I need to reevaluate my retirement goals, income or investments?
- Should I seek help in making my investment decisions?
Adding to the drop in financial security sentiments were a decline in Americans' ability to save, fiscal security in the event of a death or disability and sense of overall financial security.
Just 45 percent of Americans were able to set aside money for savings and investments, down three points from April.
There was a two-point drop in those who say their families would live comfortably if they died or became disabled.
Thirty-seven percent rate their overall level of financial security positively this month, a one-point decrease.
Despite this pessimism, there was a two-point increase to 58 percent in those confident in the ability to send their children to college.
Women more confident than men for the first time ever
Women are more confident than men in nearly all aspects of their financial security for the first time in the 4-year history of the COUNTRY Index.
Fifty-three percent of women say they are confident they will be able to enjoy a comfortable retirement. That is four points higher than men.
Seventy-eight percent of women are confident in their ability to pay debts as they come due. Just 75 percent of men say the same.
"When it comes to finances, men and women exhibit different attitudes and levels of risk tolerance. The sharper the divisions, the more important it is for couples to collaborate on their finances," adds Brannan. "Despite differences, both men and women need to put equal focus on planning for their short- and long-term financial goals to achieve financial security."
Opinion
GOP Durbin Dozen Blocks Dodd-Frank Rollback
Rule would shift debit-card costs from retailers to consumers
by John Berlau - posted at OpenMarket on June 9, 2011
Anywhere but the Senate, getting 54 votes out of 100 is a victory. And yesterday, a bipartisan group of 54 Senators responded to concerns from community banks, credit unions, entrepreneurs, and consumers and voted for a measure from Jon Tester (D-Mont.) to delay implementation of price controls on debit card interchange fees from the Durbin Amendment of Dodd-Frank.
The bill would have also required certification that the exemption for smaller financial institutions and would work, and that the price controls the banks and credit unions that issued debit cards would be allowed to recover all of their costs, which the 12-cent cap does not allow. By forcing banks and credit unions to reduce debit card 'swipe fees' by 75 percent, the Fed rule as it currently stands (which hopefully the Fed will now modify as much as it can to reflect the sentiment of the majority in Congress) would forcibly shift the cost of processing debit cards from retailers to consumers. Consumers are already losing free checking and debit card rewards in anticipation of this rule, and Fed Chairman Ben Bernanke said last month that it may cause smaller banks to fail.
But the GOP pro-price control caucus struck again, defeating a vote that could have been- like the repeal of the 1099 mandate from Obamacare- the first chink in the armor of Dodd-Frank. Last time, 17 Republicans voted with Durbin. This time it was a baker's dozen. An improvement, but still too many.
So here are the GOP Durbin Dozen:
Saxby Chambliss, R-Ga.
Johnny Isakson, R-Ga.
Richard Lugar, R-Ind.
Charles Grassley, R-Iowa
David Vitter, R-La.
Scott Brown, R-Mass.
Susan Collins, R-Maine
Olympia Snowe, R-Maine
Richard Burr, R-N.C.
Lindsay Graham, R-S.C.
John Barasso, R-Wyo.
Mike Enzi, R-Wyo.
Three GOP members who voted with Durbin the last time showed wisdom and courage in reconsidering their position or at least seeking a delay to minimize the rules' burden. They are Mike Crapo, R-Idaho, James Risch, R-Idaho, and Roger Wicker, R-Miss.
Some Democrats also showed wisdom and courage. 10 had voted against the Durbin Amendment last year. Nineteen voted for Tester's measure yesterday to delay it. (Joseph Lieberman, I-Conn., voted against Durbin the first time and missed the vote yesterday.)
Another bright spot is that most of the new or newer Senator voted to delay the price controls. These include Kay Hagan (D-N.C.) and Michael Bennet (D-Colo.), who came to the Senate in 2009. They both cosponsored Tester's Amendment even though they had voted with Durbin the first time. And Hagan was particularly notable because her GOP colleague in the Tar Heel state, Richard Burr, chose to remain a member of the GOP price control caucus.
There was a pickup against the Durbin price controls in Florida, where Marco Rubio voted yesterday to delay this Dodd-Frank measure that his GOP predecessor, George LeMieux had supported. And in what has to be one of the most amazing acts of political courage in the century, freshman Sen. John Boozman voted for the Tester delay, even though the biggest firm in his state, Wal-Mart, strongly backs the Durbin Amendment.
Another bright spot is how the Center-Right was unified as a coalition against the Durbin price controls. As I noted here at OpenMarket yesterday, '33 leaders of conservative and free-market organizations- from the Competitive Enterprise Institute and Americans For Prosperity to the Christian Coalition- signed a letter supporting measures to delay the Durbin Amendment. And Americans for Tax Reform and the 60 Plus Association are both scoring a vote in favor of today's measure from Tester as one of their key votes.'
This was a case- with some of the nation's biggest retailers supporting price controls- in which even the establishment media could not characterize to pro-market position as 'pro-business.' And conservative and free-market groups were almost unanimously on the pro-market side.
Addendum: Upon reflection, I have removed the word 'dirty' as an adjective to describe the GOP Durbin Dozen. I am still very angry at these senators' betrayal of the fundamental free-market principle against price controls. But I did not mean to suggest anything untoward on their part.
Fiduciary Standard Helps Foundations Prepare for Regulatory Activism
Understanding the evolving nature of endowment management
by Ronald E. Hagan
Mr. Hagan is CEO Roland|Criss, which is licensed by IFLC to provide training and implementation services for the Fiduciary Standard and is not an investment services provider. He can be reached at ronhagan@rolandcriss.com
The laws pertaining to the prudent investment of endowment funds have experienced unprecedented change over the past fifty years. A driving force of this change has been the evolving nature of endowment management, from an absolute preservation of principal standard to today's modern portfolio theory, which emphasizes total return. The evolution gave impetus to the development of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Following years of construction, it was introduced in 2006 as a model fiduciary law. UPMIFA has since been adopted in nearly every state and the District of Columbia.
Enforcement of UPMIFA rests with Attorneys General. As states adopted UPMIFA following its introduction, a focus group, set up by several states, developed enforcement audit protocols. Equipped with the new audit methodologies, Attorneys General are ready to more aggressively regulate the charitable trust community. The audit protocols are based on a fundamental rule for acceptable conduct by fiduciaries; observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.'
UPMIFA provides specific enforcement guidelines for Attorneys General by setting forth the following factors for managers to consider in managing and investing institutional funds:
- general economic conditions;
- the possible effect of inflation or deflation;
- the expected tax consequences, if any, of investment decisions or strategies;
- the role that each investment or course of action plays within the overall investment portfolio of the fund;
- the expected total return from income and the appreciation of investments;
- other resources of the institution related to its governance, administration, and controls;
- the needs of the institution and the fund to make distributions and to preserve capital; and;
- an asset's special relationship or special value, if any, to the charitable purposes of the institution.
The above factors, when addressed properly in a management system that satisfies UPMIFA's other less quantifiable requirements, comprise the 'prudent process' to which non-profits are accountable.
How Does a Prudent Process Look?
Under UPMIFA, directors and executives of charitable trusts are required to be prudent. The courts have ruled that the prudence standard for fiduciaries, which includes, of course, directors and executives of charitable trusts, is among the highest duties known to the law. The actual application of prudence is, however, one of UPMIFA's most misunderstood principles.
UPMIFA frames prudence in terms of how a fiduciary must act, not by the results a fiduciary achieves. Failure to grasp this key point can send charitable trust executives in the wrong direction. For example, overwhelming evidence exists that many directors and executives believe that successful job performance is exemplified by the scale of the investment returns their charitable trusts achieve. When, in fact, UPMIFA does not hold fiduciaries accountable for any level of investment outcome, but rather to adherence to a far-sighted management process.
A Solution for Endowments and Foundations in the New Regulated Age
Responding to a grass roots movement in the non-profit sector in 2009, the Investment Fiduciary Leadership Council (IFLC) led the development of Stewardship Excellence Guidelines for Endowments and Foundations (the Fiduciary Standard). It provides a solid prudence framework for persons who manage the investment decision-making process for a charitable trust (referred to in the Fiduciary Standard as an Institution). Such persons are defined by the Fiduciary Standard as Primary Fiduciaries.
The Steps contained in the Fiduciary Standard provide procedures, based on UPMIFA, for Primary Fiduciaries to use to help them maintain their Institutions' programs in perpetuity and conform to relevant fiduciary laws and best practices. The Fiduciary Standard applies to all types and sizes of charitable trusts.
The Steps chart a course for performing at a high level of competency in all four disciplines, or skill sets, required of Primary Fiduciaries, which are Governance, Investments, Administration, and Controls. The Steps help to ensure execution of a prudent investment process, maintenance of an appropriate spending policy, and activities that lead to a reduction in fiduciary risk.
Investment Performance is Irrelevant to Attorneys General if UPMIFA's Prudence is Ignored
Under UPMIFA, Primary Fiduciaries are required to manage an investment decision-making process as a 'prudent man' would do. Implicit in the so-called prudent man rule is the need for Primary Fiduciaries to possess the skills of a professional investor. Court cases involving breaches of fiduciary duty support the professional investor comparison.
Not surprisingly, few charitable trusts employ executives who possess the skills of a professional investor. Since achieving the best possible investment returns for portfolios typical for Institutions is a result of continuously executed prudent decisions, the Fiduciary Standard provides specific Steps that detail how to satisfy UPMIFA's requirements. Confidence with the decisions made regarding investment selection, monitoring, and vendor evaluations is greatly improved where pre-defined practices exist.Attorneys General are highly concerned with the methods used by foundation executives to select and monitor their investment vendors. The Fiduciary Standard defines and orders the right methods to use in order to meet UPMIFA's expectations for overall management of a charitable trust's decision-making system.
Proof of Prudence When It Counts
According to Attorneys General, the standard for enforcement of fiduciary laws has never been related to whether an endowment or foundation made money or lost money. In fact, trustees are not expected to possess 20/20 hindsight when it comes to making choices that affect the future value of donors' assets. In order to protect donors’ assets, and to penalize fiduciaries with surcharges when such assets are mismanaged, the law requires that Attorneys General be able to show that investment decisions were imprudent at the time they were made. When implemented, the Fiduciary Standard guides the decisions that get scrutinized during a regulatory audit. It provides a way to ensure these decisions were made in a diligent manner, and that the right considerations were embraced during critical decision-making junctures.
How the Fiduciary Standard Affects Investment Intermediaries
Investment industry scandals over the past few years weakened the confidence of donors to charitable trusts, upset giving plans by philanthropies, and rocked the confidence of directors and executive of all sizes of non-profits. Even as these scandals fade into history, it is increasingly clear that they ushered in an era of mistrust that still shrouds the foundation community.
In order to restore the public's trust, the regulatory community is poised to activate unprecedented enforcement of UPMIFA. Attorneys General say they intend to closely inspect fiduciary practices of charitable trusts, as well as the vendor relationships on which they rely.
Mistrust permeates the buyer side of the fiduciary supply chain, too. At the root of the mistrust is the tendency for some investment intermediaries to portray themselves as the solution for all things fiduciary. The scandals, and a growing number of decisions in breach of fiduciary duty lawsuits, prove otherwise. Advisors and money managers would do well to concentrate their energies exclusively on UPMIFA’s investment discipline for which they are most qualified. As the non-profit community implements the Fiduciary Standard, improved relationships with their investment vendors are inevitable. The more these fiduciaries can rely on experts in their respective disciplines to provide accurate and unbiased advice, the more quickly the non-profit fiduciary community can align their processes with the new Fiduciary Standard, and garner peace of mind regarding their fiduciary safety and stewardship practices.
Father knows best... or does he?
Survey Reveals Definite Lack of Financial Skills
Washington, DC - As Father's Day approaches, many dads begin reflecting on the life skills they're teaching their children. Nice manners, discipline and a good work ethic top many lists. Not to be overlooked, however, are financial skills, because regardless of whether they are taught formally or by example, parents pass along their financial habits to their children.
This concept is confirmed by the National Foundation for Credit Counseling's (NFCC) 2011 Financial Literacy Survey in which the majority of respondents, 42 percent, indicated that they learned the most about personal finance from their parents. At first glance, this appears to be a good thing, as the home should be the ideal place for children to learn skills and habits.
However, the same survey also revealed that 41 percent of adults gave themselves a grade of C, D or F regarding their knowledge of personal finance. This is a disturbing decline in financial literacy, as one short year ago 'only' 34 percent of Americans gave themselves a low grade. Further, five percent of U.S. adults, or about 11.5 million people, indicated that the failing grade of F best represented them, marking a sharp increase from previous years when less than three percent of adults self-identified at this level.
Taken together, these results suggest that many parents are ill-prepared to teach their children sound financial principles.
"The good news is that Americans recognize and are willing to admit their financial deficiencies," said Gail Cunningham, spokesperson for the NFCC. "Now it is up to them to do something about it, particularly if they have children who will invariably model their parent's financial behavior."
There are many resources available to consumers desiring to improve their level of proficiency in personal finance, including self-help books, the media, the Internet or financial professionals. Interestingly, the survey showed that while Caucasian and Hispanic adults are more likely to identify the home as the primary learning ground for personal finance, African-Americans are more than twice as likely as Caucasians to garner such information from self-help books, the media or friends.
Looking at gender, men were more than four times as likely as women to give themselves failing grades for their knowledge of personal finance, eight percent versus two percent, respectively.
"During these painful economic times, it can be argued that keen personal finance skills are more important than ever," continued Cunningham. "The NFCC calls on parents to stop the cycle of financial illiteracy by improving their own level of financial expertise, thus enhancing the likelihood that their children will some day be able to give themselves a grade of A in this important life skills category."
If you want to improve your level of personal financial skills, reach out to an NFCC Member Agency where you can meet with a counselor one-on-one, or participate in group workshops on a variety of financial topics. The services are free or low-cost and are open to the public. To be automatically connected to the NFCC Member Agency closest to you, dial (800) 388-2227, or go online to www.DebtAdvice.org. For assistance in Spanish, dial (800) 682-9832.
The National Foundation for Credit Counseling (NFCC), founded in 1951, is the nation's largest and longest serving national nonprofit credit counseling organization. The NFCC's mission is to promote the national agenda for financially responsible behavior and build capacity for its Members to deliver the highest quality financial education and counseling services. NFCC Members annually help over three million consumers through close to 800 community-based offices nationwide. For free and affordable confidential advice through a reputable NFCC Member, call (800) 388-2227, (en Espanol (800) 682-9832) or visit www.nfcc.org. Visit us on Facebook here; on Twitter here: on YouTube here; and our blog.
School's Out:
RIIA Congratulates New Grads of
Retirement Management Analyst Designation
Boston, MA (June 8, 2011) The Retirement Income Industry Association (RIIA) congratulates the financial professionals who recently received the Retirement Management Analyst designation, also known as the RMA designation. This title represents achieving proficiency in advanced education curriculum in retirement income planning and management. This class successfully completed the Retirement Management Program at Boston University's Center for Professional Education and passed the rigorous examination.
The Spring 2011 RMA certificate-holders are:
- William T. Feakes, Regional Vice President, New York Life/Mainstay Investments
- Michael Hake, Retirement Specialist, Janus Capital Group
- Devin Reid, Product Manager, First Command Financial Services
- Gwendolyn Rothrock, Financial Advisor, PNC Financial Group
According to Francois Gadenne, RIIA's Executive Director and Chairman of the Board, the collapse of the economy and financial markets in 2008 made it clear that traditional investment planning was not working and was putting millions of Americans’ retirement security at risk. The RIIA leadership group saw right away that there was a compelling need for a more comprehensive approach to retirement income management which is how the RMA certification came into being. The RMA curriculum is not only challenging, but encompasses continuing education to address ongoing additions to the Retirement Income Body of Knowledge.
"The goal of this designation is to help financial advisors and professionals gain the specialized skills and knowledge they need to achieve the highest level of success in providing retirement income solutions to their clients and in serving their companies," explains Stephen Mitchell, RIIA's Chief Operating Office and a key leader in developing the RMA program.
About the Retirement Management Analyst Designation
To earn a RMA designation, a financial advisor or other professional must complete a rigorous educational and ethics training curriculum, pass a RIIA Approved Education Program such as the Retirement Management Program at Boston University's Center for Professional Education as well as successfully pass the written exam. The specialized RMA curriculum focuses on:
1. Building the Retirement Plan to Mitigate Risks: The objective is to learn to create complete plans for retirement income that first build an income 'floor' for the client and provide appropriate exposure to upside potential, based on each client’s unique goals and circumstances.
2. Mastering the Advisory Process: Using a powerful yet easily explainable 'hub and spoke' approach, the client household is at the center of the RMA Advisory Process. The process starts with the household balance sheet including a review of human capital, social capital and financial capital. It moves to the household annual budget, assesses risks over the household life-cycle, calculates the portion of financial capital that should go to creating the retirement income 'floor', allocates the portfolio among risk management techniques, and maps the results into matching appropriate product solutions.
For more information about the RMA designation, criteria, and requirements, please visit the RIIA website, www.riia-usa.org.
About the Retirement Income Industry Association (www.riia-usa.org)
from the Mature Market Institute
Financial abuse of older Americans has increased since 2008
"The Crime of the 21st Century" Has Devastating Impact on Older Americans;
Fraud Perpetuated by Strangers Is Most Common
Westport, CT - June 1, 2011 - Older Americans are losing $2.9 billion annually to elder financial abuse, a 12% increase from the $2.6 billion estimated in 2008, according to 'The MetLife Study of Elder Financial Abuse: Crimes of Occasion, Desperation, and Predation Against America's Elders,' released this month from the MetLife Mature Market Institute.
Crimes involving strangers as the perpetrators made up more than half (51%) of reported cases of elder financial abuse, followed by crimes involving family, friends and neighbors as perpetrators (34%). Exploitation from the business sector accounted for 12% of reported cases. Medicare and Medicaid fraud accounts for 4% of reported cases. Robberies and crimes classified as 'scams perpetrated by strangers' increased from 9% to 28% from 2008 to 2010.
Other major findings from the study, which was produced in collaboration with the National Committee for the Prevention of Elder Abuse (NCPEA) and the Center for Gerontology at Virginia Tech, include:
- Women were nearly twice as likely to be victims of elder financial abuse as men.
- Most victims were between the ages of 80 and 89, lived alone and required some help with either health care or home maintenance.
- Nearly 60% of perpetrators were males, mostly between ages 30 and 59.
-Victims were particularly vulnerable during the holidays when overall dollar losses due to family and friends were higher than any other category.
The data for "The MetLife Study of Elder Financial Abuse: Crimes of Occasion, Desperation, and Predation Against America's Elders" was collected through a media database of news articles reporting on crimes against older Americans.
In the most common scenarios, strangers targeted victims who were out shopping, driving or managing financial affairs, and often looked for particular flags of vulnerability like handicap tags on cars, walking canes or the display of confusion. Crimes included cons, purse snatchings and associated physical assaults. In cases involving a person known to the victim, trusted helpers like caretakers, handymen, friends, "sweethearts," children, lawyers and others seized upon opportunities to forge checks, steal credit cards, pilfer bank accounts, transfer assets and generally decimate elders' financial safety nets.
"Our findings illustrate the dehumanization of victims that takes place in the process of financial abuse and further destruction of financial security that occurs," said Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute. "In almost all instances, financial exploitation is achieved through deceit, threats and emotional manipulation of an elder. In addition to this psychological mistreatment, physical and sexual violence frequently accompany the greed and disregard of financial abuse. The vigilance of friends and family can help protect elders from those who are predatory, which may, unfortunately, include strangers or even other loved ones."
The report, accompanied by a consumer guide, "The Essentials: Preventing Elder Abuse" and tip sheets for older adults and family caregivers, contains the stories of some of those targeted and the circumstances involving the crimes perpetrated against them.
Elder financial abuse falls into three types of crimes: occasion, desperation and predation. Occasion is the crime of opportunity that occurs because the victim is merely in the way of what the perpetrator wants. Desperation happens typically when family members or friends become so desperate for money that they will do whatever it takes to get it. Predation, or crimes of occupation, goes on when one engenders trust to commit a crime later. A relationship is built, through a romantic or other relationship, or as a trusted professional advisor, and then used to financially exploit the victim.
"Elder financial abuse invariably results in losses of human rights and dignity. Despite growing public awareness from a parade of high-profile financial abuse victims, it remains underreported, under-recognized, and under-prosecuted," said Karen A. Roberto, Ph.D., director of the Center for Gerontology, at Virginia Polytechnic Institute. "The 2010 Passage of the Elder Justice Act may bring more attention and resources to this crime leading to prevention among the expanding older population. In addition, a new Office of Financial Protection for Older Americans has been established as part of the new Financial Regulatory Reform Bill and Congress continues to focus on new legislation regarding this issue."
U.S. Communities Struggle to Keep Up With Needs of Aging Population
Economic Challenges Prevent Progress
in Creating Livable Communities for the Rapidly Aging Population;
With Budgets Strapped, Communities Are Struggling to Maintain the Status Quo
WASHINGTON--(BUSINESS WIRE)--A new report released today finds that, due to the financial consequences from the Great Recession, many U.S. communities have been unable to make significant progress in preparing to meet the needs of the country's rapidly aging population. 'The Maturing of America- Communities Moving Forward for an Aging Population,' a follow-up to an extensive survey conducted in 2005, reveals that at best, communities have managed to maintain the status quo for the past six years due to the decline in the overall economy and local government budgets. The report, which was released by the National Association of Area Agencies on Aging (n4a), also reveals that important advances have been made despite these challenges, including a dramatic increase in specialized training for emergency and public safety staff in dealing with older adults; growth of in-home supportive services; greater support for advanced education and retooling for the workforce; and expanded volunteer opportunities. Even so, with millions of Baby Boomers reaching retirement age every month, these advancements are nowhere near the level of progress that has to be made to ensure that communities are livable for people of all ages.
"These findings show that the country still has a tremendous amount of work to do in a very short amount of time to address America's rapidly rising aging population," said Sandy Markwood, CEO of n4a. "Although communities have done an admirable job to maintain the status quo considering the economic conditions we've faced, given the dramatic aging demographics, the status quo is not good enough. These findings should be a major wake-up call for local governments and should motivate them to take immediate actions that will address the challenge and opportunities at hand."
According to the report, local communities, even under economic duress, have the means to develop policies, programs and services that will increasingly make them 'good places to grow up and grow old.' Specific recommendations include the thoughtful adaptation of zoning and land-use policies, coordination of housing and transportation planning, and enhancement of programs and services that keep older adults actively engaged in the community.
"This report underscores the importance of addressing the needs of an aging population at the local level," said Dennis White, president of MetLife Foundation. "The good news is that there are many actions community leaders can take right away, that don't require additional resources, to prepare for bolder, more comprehensive services for older citizens."
'The Maturing of America- Communities Moving Forward for an Aging Population,' which assesses the progress of local governments in developing and implementing programs, policies and services that meet the needs of their older citizens, was released at a news conference byn4a, with support from MetLife Foundation. The survey of over 1,400 cities and counties across the country is a follow-up to a 2005 survey that looked at the 'aging readiness' of America's communities.
"It is going to take a collective effort from community leaders, agencies on aging, universities, businesses, non-profit organizations and other public sector entities - to act swiftly and break through the current stalemate," said Markwood. "This report highlights some of the best practices around the country and we hope that local governments will take notice and take swift action to ensure that their communities address the needs of all citizens across the lifespan in their communities."
Key findings from the study are available here, and include:
- Local Governments Are Economically Strapped: In 2010, only 42 percent of jurisdictions indicated they were experiencing some growth, a drop of 25 percentage points from the 67 percent reporting some growth in 2005; in 2010, 30 percent of local governments experienced some decline; a nearly three-fold increase from the 11 percent that reported that they experienced some decline in 2005.
- Transportation is a Top Challenge: Programs that provide transportation are reported by over 80 percent of respondents, but only 63 percent of communities report having sidewalk systems linking residences and essential services. Programs on the Pacific Coast lead the country.
- Public Safety Services Have Improved: Local governments with specialized training for public safety/emergency staff in dealing with older adults more than doubled, to 59 percent from 24 percent in 2005. But, communities with plans in place for evacuation of older adults, decreased to 71 percent from 81 percent in 2005.
- Aging/Human Services Improve: There has been significant growth in availability of in-home support services for older adults since 2005, to 77 percent from 71 percent. Local governments report a drop in availability of a single-entry-point model for services, to 37 percent from 42 percent in 2005.
More detailed information about the findings, including geographical statistics, specific recommendations for action and best practices are available here. Communities that are home to some of the Best Practices in America include Pima County, AZ; Marin County, CA; San Diego, CA; Ventura, CA; Miami, FL; West Palm Beach, FL; Waterloo, IA; Lawrence, MA; Westchester County, NY; Austin, TX; Fort Worth, TX; Charlottesville, VA and Fairfax County, VA.
Although the Maturing of America report was led by n4a, it could not have been completed without the support of its partners, who helped update and promote the survey. Partners with n4a include the International City/County Management Association (ICMA), Partners for Livable Communities (Partners), the National Association of Counties (NACo), the National League of Cities (NLC) and the American Planning Association (APA). ICMA administered the survey.
About MetLife Foundation: MetLife Foundation was established in 1976 by MetLife to carry on its longstanding tradition of corporate contributions and community involvement. The Foundation is committed to building a secure future for individuals and communities worldwide, through a focus on empowering older adults, preparing young people and building livable communities. More information is available at www.metlife.org.
About n4a: The National Association of Area Agencies on Aging is the leading voice on aging issues for Area Agencies on Aging and a champion for Title VI Native American aging programs. Through advocacy, training and technical assistance, the organization supports the national network of 629 AAAs and 246 Title VI programs.
Advisors holding their breath over possible correction
But some say latest economic data not as bad as it seems;
Market mispricing could be buying opportunity
By Jeff Benjamin - posted at Investment News June 3, 2011 2:50 pm ET
The stock market was buffeted by another round of bad news this week, underscoring the overall weakness of the U.S. economy and sending equity investors running for cover.
"As of today, I'm holding my breath and hoping the markets keep their stuff together," Clinton Struthers, owner of Struthers Financial Services, said Thursday." "I think there are a lot of people out there looking for a reason to say the economy is stalling and that the end is coming," said Mr. Struthers, whose firm has $100 million under advisement.
"A good correction in the markets would be just the thing to show that to be the case," he said. "There's nothing like a good conspiracy to get people worried."
At this point, the conspiracy looks more like a riddle involving multiple scenarios that could take more than a month to decipher.
Friday's weaker-than-expected May employment report, which showed the fewest number of jobs created in eight months, was the most recent blow to a market that already had been beaten down by negative reports on auto sales and manufacturing production. The S&P 500 index shed more than thirty points this week, falling to just a bit above 1,300.
"The stock market is reacting to repeated evidence that the U.S. economy has hit a soft patch, and done so at the same time that other parts of the world are also slowing," said Mohamed El-Erian, chief executive and co-chief investment office at Pacific Investment Management Co. LLC.
A big question, of course, is how much the economic slowdown is fallout from the March 11 earthquake in Japan, which caused major disruptions in global automobile production.
A report this week showed sales by U.S. automakers were flat from April to May, while sales at European carmakers were up more than 4% and sales by Asian automakers were down more than 20%.
Current estimates for the quarter ending June 30 is that total auto production will be down 18% from the first quarter of the year.
The closely watched monthly survey from the Institute for Supply Management, which measuring expansion in the manufacturing sector, this week reported a record drop of 6.9 percentage points in the index, to 53.5%.
Even though the ISM index's current level represents the 22nd month of expansion in the manufacturing sector, the sudden downward spike was enough to rattle the markets.
"The markets are being surprised on the downside by all the economic data, but I still don't think things are as bad as the data would indicate," said Paul Zemsky, chief investment officer at ING Investment Management.
"However, [the data] caused people to question the outlook for the economy. That leads to questions about earnings, and then you have to ask questions about the price of stocks," Mr. Zemsky said.
Because Japan's manufacturing sector is just starting to come back on line, there is hope that by the middle of July the ripple effects of increased global economic activity will lead to some improved economic data.
"Right now, the market is looking for indicators as to whether this is mostly Japan-related and the slowdown is temporary, or a permanent thing," said Ray Humphrey, senior portfolio manager at Hartford Investment Management.
"If you're bullish on the economy, you say, "This is the lagged effect of the slowdown in the Japanese economy,'" he added. "And if you're bearish, you say, 'It's a combination of Japan and a weaker global demand,' which could mean that Japan would be coming back on line into a weaker economy."
The weaker demand, according to Mr. Humphrey, is a direct result of the U.S. government's $600 billion quantitative-easing program, which made U.S. exports more attractive by devaluing the dollar.
The weaker dollar wrought havoc on some emerging economies that peg their currencies to the dollar, and has resulted in energy and food inflation.
"I think it would be very naive to think the Fed didn't know this was going to happen, but they had no other lever to pull," Mr. Humphrey said. "And now, they can't pull that [quantitative-easing] lever again because inflation is already too high. So if it turns out the economy is truly weakening anew, there is nothing that Washington or the central bankers can do to save it."
Of course, there also is the glass-half-full perspective that focuses on solid productivity and consumer spending levels, $2.5 trillion in cash on corporate balance sheets, 18% first-quarter-earnings growth by the S&P, and eight consecutive quarters of the benchmark beating Wall Street earnings estimates.
"You can't trust some of these interim reports, because they're not really indicative of how well the economy is doing," said Donald Schreiber, chief executive of WBI Investments, which has $775 million under advisement.
"We're going to continue to have challenges, and right now, there's a fear-based mentality where everybody is waiting for the next shoe to drop," he said. "I think this creates a buying opportunity where we can pick up some great companies and wait for investors to price the market accordingly."
Cultivating Successful Relationships With CPAs
Pursuing this professional niche can lead to more high-net-worth leads;
But it requires time, patience, persistence... and constant communication
by Erik Sherman
Mr. Sherman is an Investment Advisor Representative with the John Hancock Financial Network, South Florida Group, in Miami, FL. He can be reached at essherman@jhnetwork.com
Establishing and then cultivating successful relationships with CPAs and other third party advisors can help build your own practice and your credibility among business owners and high- net-worth clients. It's a strategy worth pursuing, but it's also one that takes time, patience, persistence and constant communication. Over the past seven years, I have developed a solid network of about 15 third party advisors including accountants, CPAs, attorneys and financial advisors whom I consider not only important business colleagues, but also friends.
Get Started
The best way I found to begin building a network of advisors, and here I'll focus primarily on CPAs/accountants, is to start with my own clients, typically business owners. Business owners must have a good CPA or accountant to work on taxes and quarterly filings. When calling existing clients and asking for an introduction to their CPAs and other financial professionals who help them, I explain my motivation up front: I am interested in doing the best possible job and providing them with the best possible guidance. An open relationship with clients' other advisors allows me to work closely with them to coordinate our individual efforts in the best interest of the clients' long-term goals.
If you have already established trusted relationships with your existing clients, they are generally quite willing to make the introductions for you. I can't stress enough how important it is to focus your attention, your communications and your added value on those CPAs and advisors referred to you by your clients. They are by far the best contacts you'll receive and should be treated with care and consideration.
Another approach to meeting CPAs is by educating yourself on the membership of the American Institute of Certified Public Accountants (AICPA), which is the largest association representing the accounting profession. The AICPA offers its members certain benefits including life insurance, long-term care insurance and group insurance. While these plans are good, they may not completely meet the personal and business needs of the accountant. For example, the life insurance offered may not be the most suitable for the individual's unique needs. If premiums increase each year, over time the policy may become too expensive for what the CPA wants it to achieve and he or she might not even be aware of it. I make contact with CPAs and talk about the AICPA benefits as a way to introduce myself and show that I've done my homework on their behalf.
Learn About Their Business
When I meet with CPAs, I get to know them and their business first. Many CPAs specialize in certain businesses or industries. One might work with restaurant owners because he or she has in-depth knowledge of point-of-sale transactions, minimum wage requirements and tipping. Another might have many doctors or medical professionals as clients because the CPA offers expertise in reimbursement schedules as well as Medicaid and Medicare payments. I also work with a CPA whose clientele are primarily in the service business such as dry cleaner or convenient stores.
Sometimes CPAs don't realize they have a specialty and are interested when you can give them insight into what their book of business looks like. To learn more, I ask them what kinds of clients they are seeking. If they could have any business become a client today, which business would it be? Once I get my answer, we talk about who we know in that business and what connections we have that could result in an introduction to that client. You never know what might come of that conversation.
Add Value Over Time
My goal when I ask these questions is to learn as much as I can about the CPA's business so that I can add value. I may refer business to the CPA as appropriate. For example, if I am working with a restaurant owner or doctor I may mention how one of my CPA colleagues specializes in their business arena. When I add value, I build and strengthen the relationship and over time will see referrals come from that CPA.
Another way to add value is to conduct a life insurance audit for them. I have an accounting background which helps me talk and think the way an accountant does. When I say 'audit' to CPAs, they generally view that as a good thing and want to learn more. I take them through their life insurance portfolio and we talk about ways to enhance the coverage to meet their needs while looking for ways to decrease costs. Once this audit is successfully completed, I ask CPAs if they think this kind of review would be beneficial to their clients. (I use the word 'review' with clients because the word 'audit' generally strikes fear into their hearts) CPAs immediately see the value I can bring to clients because they know their clients have purchased life insurance and other coverage that they rarely, if ever, review.
Even after doing the audit, the CPA may not make introductions right away. I still need to cultivate that relationship. I need to continue to show that I can offer value and that I am not simply going after the CPA's client base. Here's where the constant contact, persistency and patience come in. To stay on the CPA's radar screen, I host educational seminars which offer a complementary meal and continuing education (CE) credits which all CPAs have to earn during the year. I also communicate to them as I do with my clients. The CPA will receive my newsletter, a birthday card, as well as an invitation to lunch or other activity. If the CPA likes to fish and I like to fish, I'll take him fishing. If they like wine, I might invite them to a wine tasting.
Find People Who Are Like You
Do something different, but above all do things you both enjoy or have an interest in. After all, I really want to work with people who are like me and whom I like, both clients and third party advisors. If they are like me I know they'll be a good referral because I am hard working, knowledgeable in my field, honest and sincere. For example, I've built a strong business relationship and friendship with an estate attorney who sits on the same Board of a nonprofit group that I am dedicated to. We both care about the cause and we work together on the golf tournament fundraiser. We have a reason to see each other beyond business, but those interactions keep me and what I do in front of this successful advisor. When he has a client who needs my services, he thinks of me first.
Once the CPA refers clients to you, another rule of success is to keep that CPA involved in what's happening. Obviously, you must keep personal information confidential, but with permission from your mutual client, you may be able to share certain information and successful outcomes with them. CPAs always need to feel confident that you are doing the right thing for their client because their reputation is on the line just as much as yours is. Stay in touch by making that phone call or dropping by for a meeting or sharing a quick lunch. You'll keep the relationship strong and you'll stay top of that CPA's mind.
Clearly, creating a network of trusted CPAs, attorneys and advisors with whom you have strong relationships is not an easy task. It is, however, a very rewarding one. Be sure to focus on the introductions provided to you by current clients. Don't expect a quick result, but with patience, persistence, constant communication, creativity and an approach that adds value, you may gain not only a great source of the high quality client referrals, but also a number of good friends.
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