This Month:
Turning ordinary people into extraordinary producers
Hope you didn't sit out a perfectly good crisis!
Lessons learned from the Great Recession
New regulatory environment will bring changes for insurance M&As
There's big business in educating consumers on all things financial...or is there?
Sec 151A update: Battle for EIAs intensifies
U.S. consumers changing from big spender to big saver
Behavioral Finance: The Logic of Emotions
Friends, family trump advisors, media and web for financial advice
Jobs: Is Congress overlooking a crucial key to recovery?
Working Capital Model provides pre-emptive portfolio protection strategy
New York approves bill to protect seniors, deter STOLI
Health Care Reform or Welfare Program - Who pays the Bill?
ARM opens new office in Pennsylvania
U.S. life companies rebounding in Q2 and posting strong net income results
Fraud Merchants: Modern day swindlers upgrading their cons
In the Code: Enhanced charitable contribution deductions

LifeSecure Introduces New Post-Hospitalization Insurance Product

“Hospital Recovery Insurance” Pays Cash Benefit After Hospital Stay

BRIGHTON, Mich. September 7, 2010–– LifeSecure Insurance Company today announced the release of its new product offering, Hospital Recovery Insurance (HRI.) The new product is available starting September 7th in many states and pending approvals in other states. Covered individuals will receive a cash benefit payment based on the number of days they are hospitalized up to a preset limit.

“As the average length of a hospital stay decreases and insurance deductibles increase, the time needed for a patient’s recovery after hospitalization can be longer and incur expenses that may not be covered by traditional insurance. We designed HRI to address this need and to offer the marketplace an additional solution in an era of rising costs, a challenging economy and the uncertainty of future healthcare reforms,” said Lisa Wendt, president and CEO of LifeSecure.

According to the Agency for Healthcare Research and Quality, from 1993 to 2008, the average hospital length of stay decreased by about 20 percent from 5.7 day to 4.6 days.

Like the company’s innovative long term care insurance, HRI coverage is based on a straightforward product design. Depending on the premium amount selected, individuals can receive a benefit amount of between $100 to $999 for each day of hospitalization with a limit of up to 15 eligible days in a single calendar year. Benefits automatically renew at the beginning of a new calendar year. Upon receipt of a submitted claim form with proof of hospitalization, payment is made directly to the covered individual.

In keeping with the company’s product development strategy; the online sales support process has been simplified to include point-of-sale underwriting and online Budget –Point Pricing sm. This technology enables LifeSecure to lead the industry in its rapid payment of agent commissions. To find out more about the new HRI product or to become an appointed agent with LifeSecure call 810-220-8770.

About LifeSecure Insurance Company
LifeSecure Insurance Company is based in Brighton, MI and offers long term care and post-hospital recovery insurance. The company’s long term care insurance provides custodial care solutions, informal care giving coverage and payment for complimentary support services for care givers and families. LifeSecure’s Hospital Recovery Insurance provides cash benefits upon discharge from a hospital. The company’s insurance products are sold through a network of independent marketing organizations, and agents and licensed in 44 states. Additional information is available at www.YourLifeSecure.com.

9 Questions for Leslie Bibb

Actress Leslie Bibb, the 2010 spokesperson for Life Insurance Awareness month (LIAM), opens up about how life insurance helped her family, and how she is helping others.

Actress Leslie Bibb, whose recent credits include roles in films such as Iron Man 2, Confessions of a Shopaholic, and Talladega Nights: The Ballad of Ricky Bobby, spoke about her latest role as the 2010 spokesperson for Life Insurance Awareness Month (LIAM). Leslie was just three when her dad died in a work-related accident at age 39. After the accident, Leslie’s mother was faced with having to raise four girls on her own. Her mother continued to work to provide for her daughters, but her financial situation was greatly eased by the proceeds from her husband’s life insurance.

1.You certainly have a good story about how life insurance worked for your family, but what made you decide to go above and beyond by taking on the role as spokesperson for Life Insurance Awareness Month?

Bibb: Honestly, I’m a very private person and wasn’t sure I felt comfortable sharing something so personal. I asked my friends for their opinion and was kind of shocked when one of them—one who I thought for sure would say, “Don’t give that part of yourself away”—thought it was an important message to get out there. She said, “They make you have car insurance, and we’re told we should have health insurance, but no one talks about the necessity for life insurance.” What she said really resonated with me.

2. When did you become aware of how your father’s life insurance made such a difference for your family?

Bibb: I didn’t even know that my father had life insurance until I called my mom to talk about this opportunity with LIAM. And when she said, “We would have been sunk if it weren’t for your father’s life insurance,” I was shocked. I had no idea. We had a very candid talk about her experience and she was so supportive of me becoming the spokesperson. I really feel like this is her story. After the conversation we had, I knew that I wanted to talk about the positive side of having life insurance and that I wanted to celebrate my parents. They really did do their very best—both in life and death. I find that inspiring.

3.What are some of the ways you will encourage Americans to plan for the “what ifs” in life?

Bibb: I’ve shared a piece of my family and our heart, and I hope that will be enough.

4. If you were talking to a young couple with children who didn’t have life insurance, what would you say to them?

Bibb: Expect the unexpected. The love we show while we are alive is why we live, but the love we show after we are gone allows others to continue living. Buying life insurance really is a selfless act to make sure that our families are provided for once we are gone.

5. How does it feel to know that tens of thousands of people may buy life insurance because your message motivated them to take action?

Bibb: It was funny—a few weeks ago I got an email from a makeup artist that I have worked with on some films, and she was congratulating me on being the spokesperson for the LIFE Foundation. She said she thought it was an important message to get out there. Again, I didn’t expect that person to have that response, but it confirmed that I had made the right decision to share my story. If these public service announcements in any way help other people, then that is icing on the cake. I doubt people will buy life insurance just because I said so, but maybe it will remind them to follow through on something that has been on their to-do list for awhile. I just want the best for everyone.

6. What other types of causes are you involved with?

Bibb: I volunteer with an orphanage in Tijuana, Mexico, called Friends of El Faro. They provide a safe, loving environment for children who’ve never had that. All the kids from the orphanage attend school and some are now going to college, which is incredible. It’s an awesome, grassroots nonprofit that I love bringing attention to. Just recently, I volunteered with the Alzheimer’s Association. My great grandmother had Alzheimer’s, and I watched how difficult it was on my mother and thought it was important to help in any way I could. I also volunteer with Habitat for Humanity and Project Angel Food in Los Angeles. I love how hands on, literally, I can be with both of these organizations. Here is my whole concept with volunteering. It’s not about making you feel better about yourself—although that always seems to happen—but rather this: If we all took these “baby steps,” did these small, random acts of kindness and generosity, what would the collective footprint look like? It would be huge, and we would all end up being the change we want to see in the world.

7. What kind of work do you think you would be doing if you were not an actress?

Bibb: I can’t think of anything I’d rather be doing. I love acting. I’m a geek about it. However, I also want to produce more movies. I’ll get back to you about directing ... producing, for sure, but always acting!

8. Do you have any upcoming movie or television projects you can tell us about?

Bibb: There’s a movie coming out next summer (July 2011) called Zookeeper that I did with Kevin James. I think it’s going to be great. I’m also trying to get a movie sold that I helped produce and star in called Miss Nobody that I am insanely proud of. Please keep your fingers crossed. It would break my heart if this movie didn’t make it to the big screen!

9. What is your dream role?

Bibb: Everything! I truly love stepping into someone else’s shoes and giving them breath. There isn’t just one role … I want to do everything.

for more information about LIAM and the LIFE Foundation, visit: www.lifehappens.org

Turning ordinary people
into extraordinary producers

by Trisha Gallagher Boisvert

Trisha Gallagher Boisvert, a special contributor to LIFE&Health Advisor, is a principal with The Gallagher Group, a Boston-based consulting firm to the financial services industry. She can be reached at trisha@thegallaghergroup.net.

It's no wonder Robert Fine & Associates has some of the most successful producers in the financial services industry, as well as one of the highest retention rates at Guardian Life Insurance Company of America. Experienced financial producers are drawn to the culture due to its emphasis on personal achievement.

Marc DiFiore, a senior producer who's been with the organization for 12 years and was appointed by other top producers of Guardian to be the President of their Executive Committee, believed that he was doing pretty well with his former company. He was making decent money and enjoyed his profession but he knew he still had a long way to go to reach his potential.

"I still had a lot to learn," says DiFiore. "Now, a little over a decade later, I'm making eight times what I was making, I'm working almost exclusively with business owners and I have created my own company, thanks to Bob's guidance." Specifically, he goes onto say that Robert "Bob" Fine, Founder, GA and CEO, has taught him how to create solid two-way relationships with accountants, attorneys and other advisors to better help each others' clients. "Bob truly is the best that I have seen at helping experienced producers market themselves more effectively to successful people."

DiFiore is only one of a number of MDRT level producers who have migrated to the Framingham, Mass., based agency to take their careers to the next level. In fact, most of the producers in the firm's sales force have been producing at the MDRT level for multiple years, many achieving the company honors of Court of the Table and Top of the Table.

Jim Javaras joined the firm 25 years ago and has grown to be not only one of the most successful salespeople at the firm but also among the entire Guardian sales force. Javaras made the move when he decided he needed more than just a good education about the industry to have a successful career. "I realized I also needed a winning team. I looked around and Bob Fine had the players that had the big numbers. Working with them all these years has propelled me to higher levels than I could have imagined and I haven't looked back."

Bob Fine's son, Randy, who is President of the family-run business, credits their ability to turn ordinary producers into extraordinary producers to the continuous service and support they give to their sales team. "We believe that people will rise in their success when they surround themselves with other good people. We understand that a lot of good producers are stuck in a rut" said Fine. "That's why we partner with our producers to see what's on the other side of the glass ceiling. We show them how high they can go and then we help them get there."

Mark Smiley, who's been with the firm 16 years, says he's stayed because Bob and the team have helped him to achieve his full potential. "Bob doesn't let you get away with doing less than your best. For producers that are motivated to reach their full potential and want that kind of push, his type of management style is a very good thing."

The merits of personal achievement definitely drives the focus for the managers, staff and sales people but it's not all about looking out for one's own interests to gain personal success. The firm's focus on outstanding client service and community giving has also been a draw for many producers.

"Giving back to the community is not only personally rewarding, it leads to greater personal achievement for everyone so it's all tied together," says Bob. He should know. As the recipient of numerous awards and accolades, including the honor of throwing out the first pitch at a Red Sox game last August at Fenway Park, and a Celtic's Heroes Among Us award this past December, a huge aspect of the agency culture involves the question, "How can we do more?" And they put their money where their mouth is. Working as a committed team within the Framingham office, and across 10 satellite offices, the firm has raised over a million dollars for the Jimmy Fund by hosting the annual Bill Costello Memorial Golf Tournament, as well as through other events.

Understanding their local marketplace is another element of the firm's successful culture. Director of Sales and Marketing, Matthew Fine, notes that they've traditionally done very well serving markets such as doctors, dentists and professionals with estate planning needs. "We're continuing to enhance our support in these markets for the long term," he said.

CEO & Founder Bob Fine wraps up his firm's culture this way: "There's no magic formula for our success. We've partnered with the right parent company for our products and we truly care about people. That applies to our clients, our producers, our staff and our community. We're in the business of selling dependable life insurance and good disability income solutions but our number one product is really how well we serve others."

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Hope you didn't sit out
a perfectly good crisis!

by Herbert K. Dar off, J.D., CFP

Herb Daroff is associated with Baystate Financial Services in Boston. He is a contributing editor for LIFE&Health Advisor. Daroff can be reached at hdaroff@baystatefinancialplanning.com.

Clients have very short memories, especially about crises. Consider a few from just the last 25 years (which is not that long ago). How about 1987? One October day the DJIA dropped 25 percent. Could you imagine today if the DJIA dropped 2,500 points? Now, that's a crisis. But, by the end of 1987, the DJIA had fully recovered. Then, in 2001, 9/11 occurred. And today, our short-term memories see only today's crisis, when the S&P 500 dropped to the devilish number 666 in March 2009. Lehman Brothers is gone. Government takeovers became the norm.

We are finance people. We are supposed to think in ratios and percentages, not just in specific numbers. Yet, these are crises of confidence. Confidence in us, as planners, comes into mind for clients. They question their own confidence in the decisions they had made. Do I really have the risk tolerance that I thought I had? Have I made the right decisions based on my risk tolerance regarding my long-term financial objectives?

The key, of course, is "short-term" crisis measured against "long-term" financial objectives.

Before THIS crisis

Once again, we exited the booming 1990s (after 1987), slammed into September 11th. That shook our confidence in our total security, not just our financial security. But we recovered again. Not all the way, but certainly on our way. Today's crisis of confidence runs to our government and our financial system. This crisis is deep. Still, the DJIA has rebounded over 60 percent.

During THIS crisis

Hopefully, you were proactive and not reactive. We reached out to clients. We increased staff to answer client questions. We re-evaluated our defensive strategies. Very few clients went to cash just in time to miss a 60 percent gain in the DJIA.

You should be familiar with the famous, "Greed-Fear" curve. This S-shape. As the stock market increase (as we get to the top of the S), the average investor says, "All the publications are talking about is how much money everyone is making. I better get in now." So, he buys high, just in time for the market to cycle once again. As we now move down the reverse S, the average investor says, "The sky is falling. I better get out." So, he sells, just before the next recovery (new S forms).

Giving rise to the typical client strategy of "buy high and sell low". Just the opposite of what he should do.

I don't know if this is true, but I believe the T. Rowe Price Asia Fund (a few years ago) has the record for the highest single year increase, at about 90 percent. The average investor lost money in the fund. Why? Because they waited until October to get in. That's when all of the financial publications were reporting the great performance. The fund value went down a bit in the fourth quarter.

After THIS crisis

Clients are once again focused on being forced to reduce their retirement expectations. They think that they will have to:

Put away more for retirement, reduce current standard of living
Invest in more conservative investments, trading off "loss of principal" risk for "loss of future purchasing power" risk
Work longer, delay retirement a few years
Reduce their standard of living in retirement, taking four percent or less in order to increase
Hope they die before they run out of money

That is not a very rosy picture for retirement income planning, or for current living.

Let's examine each point, separately.

First, setting aside a reasonable budget for retirement is always a good idea. Trading off some current luxuries for future financial security is not a bad idea. However, the amount contributed goes hand-in-hand with the accumulation strategy.

Second, shifting your accumulation strategy more to fixed income typically works against your ability to afford a comfortable lifestyle in retirement. Every investor wants aggressive growth with conservative income, and no loss of principal. That is precisely what hedging strategies do in an investment portfolio. Most investors are not familiar with collars, puts, calls, etc. Many more have become much more familiar with a more popular hedging strategy, variable annuities with guaranteed income benefits and/or guaranteed withdrawal benefits. These allow investors to safely steal second base with one foot firmly planted on first base. What investors really need to do is maintain the appropriate debt-to-equity mix in their portfolio commensurate with their "real" risk tolerance and risk capacity. For that, they need your professional guidance. Your greatest strength is helping clients do what is necessary and stopping them from doing what invariably losing future purchasing power.

Third, most children could delay going to college, but socially, they want to stay with their friends. Most adults can delay retirement. However, is that something you really want to do? Adding to retirement accounts a few years longer, and therefore taking distributions from these accounts a few years less, drastically improves the chances of not allowing your investment portfolio to go to zero before your blood pressure goes to zero. With proper contribution and accumulation planning, retirement targets can more easily be met.

Fourth, taking a more realistic view of retirement income is also a good idea. How many cruises do you really need to take, every year? When you cruise, do you have to take every shore excursion, and buy something every time you hit land? Do you have to have the best cabin on the ship?

If you can afford it, absolutely take advantage of enjoying retirement. I still love the bumper sticker that says, "if you don't fly first class, be assured that your heirs will." If you can't afford it, reflect on your options and your priorities. Many years ago, when my grandparents came to this country, it was quite usual for households to have three generation living together. It appears that this trend is returning. If your goal is to leave funds for your children and grandchildren, then maybe they should help you during retirement. You could also buy life insurance to provide their inheritance leaving you to spend every dime you saved for a rainy day, once it starts raining (retirement).

Also remember, life insurance can pay the income taxes on retirement accounts and annuities so that your heirs can spend 100 percent o the accumulated value, instead of only the after-tax portion. A "Stretch-Roth" is far better than a "Stretch-IRA".

Fifth, that brings us to coordinating your retirement plan with your estate plan. But, before I go there, let's reflect on health care (Medicare) and custodial care (Medicaid), which must be part of the retirement plan. Otherwise, the healthier surviving spouse may very well run out of money before he or she runs out of breath. Review long term care insurance options. Review asset protection and income protection strategies to more fully secure retirement savings.

Proper estate planning can minimize the risk that your children and/or grandchildren will squander their inheritance. Third party trusts (created by you for the benefit of your heirs) are excellent shields from creditors (predators), including, but limited to, divorces, business reversals, and yes, estate taxes. You have the right to create ground rules (ball hits in fair territory and then goes into the stands is a double) for your assets. Yes, that's ruling from the grave. What's wrong with that? Your heirs can do what they want with the income and assets that they create.

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Lessons learned from the Great Recession

Advisors can tap into the "New Conservatism"

by Michael J. Vietri

Michael J. Vietri is Executive Vice President at MetLife, New York, N.Y. He can be reached at mvietri@metlife.com.

As the economy slowly emerges from the Great Recession and market meltdown, what "lessons" have Americans learned from this harrowing experience, and how has this impacted the way financial advisors can work effectively with clients moving forward?

According to a recent MetLife study, completed in late 2009, that asked over 1,000 consumers about the lessons they took from the financial crisis, many Americans are adopting a "new conservatism," including putting more emphasis on protecting assets rather than seeking market gains. Of course, consumer response to the financial downturn varies significantly across generations. Both older and younger Baby Boomers felt the impact of market losses more than younger generations, and therefore are generally adopting a more risk-averse stance.

The study found that most Americans with retirement savings feel that the market turmoil and sliding economy in 2008-09 have had at least some influence on the way they plan for retirement (64 percent), with 29 percent saying the influence has been strong to very strong. The majority (55 percent) believe the events of the past 18 months or so will have an impact of 10 years or more, and a quarter believe that influence will be permanent. Older generations affected by the financial crisis are more likely to think that their personal recovery will take much longer than younger generations do; 38 percent of younger Baby Boomers (born 1959-1964) believe that personal recovery will take at least 10 years or more. On the other hand, nearly three in 10 (29 percent) in Generation Y (born 1977-1994) believe that economic recovery will happen in two years or less.

Significant Opportunity

The U.S. economy and financial markets have rebounded from the depths of the recession, but we still have a considerable distance to go to cut into high unemployment and fully restore consumer and investor confidence. Financial advisors have a significant opportunity to work with their clients to help them emerge fiscally stronger. How might financial advisors help clients meet some of their new objectives while at the same time building a relationship of trust? Here is what consumers who were taking steps to protect themselves from another financial crisis said they were planning to do:

Reduce spending on non-essential purchases (65 percent)
Build a cash cushion (57 percent)
Allocate a portion of investments to guaranteed income or very low-risk products (17 percent)
Diversify their portfolio (15 percent)
Consult a financial advisor (15 percent)

Making sure they are living within their means is something two-thirds of respondents felt was top-of-mind. It may not be glamorous, but a dose of old-fashioned household budgeting guidance can be a good way to get new clients off on the right foot for financial and retirement planning. The second finding above, enthusiasm for building a cash cushion, dovetails with overall conservatism exhibited in the Lessons Learned survey. Even the young Gen Y group (born between 1975 and 1991), which tended to be more optimistic about their financial future than the Baby Boomers (who after all lost more savings in the market meltdown and have less time before retirement to recover) overwhelmingly (68 percent) said their biggest regret from the financial crisis was not building up a cash cushion to tide them over through hard times.

Of course, having a balanced investment approach is important, and that is where proper portfolio diversification comes in - 15 percent of survey respondents taking action said diversification was an objective. The new conservatism of many individuals is also reflected in the significant percentage of those taking action who plan to allocate a portion of investments to guaranteed or very low risk products. For advisors, having a robust knowledge of the financial products and asset classes available is a strength that will serve a practice well.

There are enormous opportunities in the current environment for advisors to help clients. Many people are interested in making constructive changes to portfolios and even lifestyles. At the same time, numerous respondents (44 percent) in the survey had not taken any action. For some, that may be the appropriate stance, but others probably lack the direction and motivation that a committed advisor can help supply. A surprising one in four among Generation X (born 1965-1976) are not saving for retirement at all. Economic hardship explains some of this phenomenon, but absence of saving is also a sign that some Americans still need to begin to address the retirement challenge.

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New regulatory environment
will bring changes for insurance M&As

by Earl Zimmerman

Earl Zimmerman is a Partner at Sutherland Asbill & Brennan LLP; and a member of its Corporate Practice Group. He is based in the New York Office and can be reached at earl.zimmerman@sutherland.com.

In 2010 we expect an uptick in insurance M&A activity. That timing corresponds with anticipated passage of legislation and regulatory activity affecting the insurance industry. This article considers the impact that selected legislative and regulatory changes will have on acquisitions within the insurance industry.

Risk Assessment and Management

There has been a growing focus on risk assessment and management by company boards. State law concepts concerning directors' fiduciary duties under Caremark, Ritter v. Stone and Citigroup, when viewed in the light of the events of the past 18 months, point towards boards becoming informed of and monitoring the risk management process across the entire enterprise. The Securities and Exchange Commission has proposed new proxy rules that would require reporting companies to disclose certain aspects of their risk management processes, including managing risks arising from compensation structures. Changes to internal financial controls may be required for insurers that are not public reporting companies by the Model Audit Rule of the National Association of Insurance Commissioners (NAIC). The NYSE requires audit committees to meet and discuss the company's "major financial risk exposures" and the guidelines and policies governing assessing, managing, monitoring and controlling these exposures. The Public Company Accounting Oversight Board requires auditors to test, inter alia, "policies that address significant business control and risk management practices." Rating agencies consider enterprise risk management as part of their rating process.

As a result, I expect boards of acquisitive insurance companies to require more information about the risk assessment and management processes established and implemented by senior management and whether these processes will function properly for the combined businesses after an acquisition. Among other things, this increased scrutiny will mean determining whether the structure and application of incentive compensation and overall compensation policies of the target fit with those of the buyer, including how incentive compensation structures after closing can inadvertently cause risk exposure to increase without a corresponding recognition of the increased risks. A new business line may require internal controls to be updated. The analysis of the cultural and strategic fit of an acquisition should include whether post-acquisition risk management processes will conform with the board's corporate strategy.

Valuation of Assets and Unknown Risks

One of the many lessons learned from financial institutions M&A in the past two years is that risks in the target business can be complex and obscured. One well known example is the residential mortgage-backed securities ("RMBS") risk held by Merrill Lynch when acquired. In a move that may influence insurance M&A, the NAIC retained PIMCO to evaluate the riskiness of RMBS held by insurers. This PIMCO evaluation may provide increased confidence to acquirers that there are fewer hidden risks in targets, at least with respect to RMBS. The PIMCO RMBS evaluation, however, may also need to be reconciled with NAIC initiatives to conform fair valuation approaches used by statutory insurance accounting with GAAP.

Systemic Risk and Resolution Authority

Federal legislation has been proposed to regulate, including breaking up, financial institutions that are or threaten to become too systemically risky to the U.S. economy. As a result, very large acquisitions of insurers may become less appealing since they may result in the combined business becoming systemically important, leading to a higher level of regulatory risk and potentially diminished control over the future of the company.

Principles-Based Reserving

Additional actuarial related responsibilities of insurance company boards will be brought about by the introduction of principles based reserving by the NAIC. acquirers will need to consider how reserves will be affected by the addition of the target business, looking to actuarial principles and not just reserving rules. The underlying assumptions and valuations may be more difficult or numerous, or harder to confirm, for the target business.

Changes in Transactional Documents

With new legislation and regulation comes uncertainty and risk. Expect sellers to want to pass to buyers most of the risk of unexpected effects of the new regulatory environment for insurers. This will play out by sellers seeking to exclude regulatory changes from the definition of material adverse change (MAC) in order to increase the certainty that deals will close. Buyers, of course, will want the opposite. Due diligence efforts and standards for acquisitions will be more rigorous in order to identify any hidden and unquantified risks.

Changes in Capital

The NAIC has proposed that insurers be granted the benefit of an increased value for deferred tax assets (i.e., the benefit to the insurer of a tax deduction against an insurer's future taxable income), which will increase capital. Also, to the extent that PIMCO finds certain RMBS to be less risky than currently thought, insurers holding such securities would benefit from higher capital as the RMBS are written up. Insurers with higher resulting capital may have increased confidence to acquire a target.

Consumer Financial Protection Agency

A new regulatory body, the Consumer Financial Protection Agency (CFPA), will have jurisdiction over consumer financial products, except for insurance products. There is some ambiguity with respect to variable annuities and variable life insurance. Since these products have been jointly regulated at the federal and state level for decades, I do not expect that the impact of any CFPA regulation will deter acquirers from seeking to buy books of variable business.

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There's big business in educating consumers
on all things financial...or is there?

by Robert Kerzner, CLU, ChFC

Robert Kerzner, CLU, ChFC, is president and CEO of LIMRA, LOMA and LL Global. He can be reached at rkerzner@limra.com.

It seems like every day I read articles or hear someone espousing the importance of educating consumers on financial topics that impact their daily lives: how much money is needed to retire, how much it will cost to send my children to college, how much life insurance is necessary, and so on.

Educate them and they will come, right? Come right to our door and buy our products. If only it were that easy. Yet education truly is an important part of helping clients come to the right decisions, whether it's about buying our products or planning for their financial futures.

You would think if clients plan on retiring, and they determine how much they will need, they will start saving toward their goal. So why does LIMRA research find that most Baby Boomers are woefully unprepared for retirement?

The financial services industry has spent billions of dollars on materials and advertising campaigns to increase consumer awareness on the importance of financial preparedness. With all of this emphasis on educating consumers, why are more not acting?

Consider that 48 million U.S. households believe they need more life insurance than they currently have. This is potentially an additional $9.5 trillion in sales, $17 billion in premium for our industry. If we reached just a quarter of this underserved market, it would bring in more than $9 billion in revenue. So how does the industry break through and motivate this underinsured group to act? LIMRA conducted a series of focus groups to find out.

Our researchers talked to consumers, who said they knew they needed more life insurance, but had not taken steps to buy. When asked, these consumers offered every excuse in the book. Was lack of education the problem? In fact, it appeared as if the consumers often had too much information, or at least not the right information. More than 80 percent of consumers said they couldn't decide what to buy or how much; and three quarters said they were worried about making the wrong decision.

Our research has shown that when consumers don't know what the right decision is, they will put off critical financial decisions. In an attempt to increase consumer awareness the barrage of information has caused confusion among consumers, and for many, "paralysis by analysis".

Our efforts to show people why they should pay off their credit cards, save for a home, or buy protection products have fallen short. Even with the availability of these educational resources, few American households have achieved their self-stated goals of protection and accumulation.

Education, while crucial, is not enough. We must help consumers begin to take steps to improve their financial affairs. Advisors need to give their clients the right information, in the right manner, to help them move forward and take action.

I went into this business because the idea of helping people attain financial security appealed to me. I believe we can make a difference. Today's increasingly complex financial marketplace requires consumers to be more financially savvy and financial advisors must do more than sell, we must educate and motivate.

To motivate people, roadblocks must come down. Often the roadblocks for people with unmet financial needs are emotional, and I believe behavioral economics can help us understand why consumers make, or more often don't make, important financial decisions.

What is behavioral economics and what does it tell us about how people make financial decisions?

Behavioral economics is part economics and part psychology and it tells us that people aren't always rational when it comes to important financial decisions.

Behavioral economics helps us understand the seemingly irrational decisions of consumers about investments, saving, and life insurance. LIMRA research reveals that by working the principles of behavioral economics into a sales presentation, we can improve its effectiveness.

There a number of factors that will influence a consumer's financial decisions, including things like procrastination, vulnerability, risk aversion, regret and love. For example, we know people don't like to think about death and usually don't identify with the idea that they might die early or unexpectedly, many Americans don't even have a simple will. But our research found that scare tactics don't motivate consumers to buy life insurance. Just the opposite. It makes them defensive and angry. A better approach is to talk about the idea of protecting their family as an act of love and the regret they might feel if their family were to lose their breadwinner.

Are we talking enough with consumers about saving systematically? Are we showing them the power of monthly savings and how it can provide for them at retirement? Many of the largest companies in our industry started with sales people going door to door and collecting 50 cents each week. Christmas Clubs have been around for over 100 years because they have enabled people to save systematically. Additionally, we need to talk with clients about their monthly income in retirement, not just about how much they need to accumulate in order to retire.

Money has been proven to be an abstract concept to buyers. They tend to think more in terms of monthly expenditures. If the advisor expressed to a client how much death benefit they can buy for $41.66 per month, versus $500 per year they would be more likely to make the right financial decision, and purchase the protection.

Getting consumers to buy requires giving them a feeling of empowerment. People like choices. To be a trusted advisor you have to help people come to the right choice, rather than tell them what the right answer is. One becomes a trusted advisor once the consumer believes their best interests come first.

How can we, as an industry, support the consumers who have saved too little, are underinsured, or are at risk of outliving their assets? Education is critically important, but I believe it's insufficient. We make many of our decisions in non-economic ways and as an industry, we need to learn to help the consumer decide what is right for them and motivate them to take action, educate and motivate. The advisors and companies that learn to better educate clients, while integrating behavioral economics, will win the race to reach these consumers.

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Sec 151A update: Battle for EIAs intensifies

by Mike Janky

Mike Janky is a principal with Forward Strategies, a Tucson annuity marketing company. He can be reached at mikejanky@fsib2000.com.

On Dec. 8, 2009, the SEC took another step towards trying to push through SEC Rule 151A and filed its supplemental brief to the industry brief regarding what the appropriate remedy should be over SEC Rule 151A. In their supplemental brief, the SEC agreed to a two year delay on the effective date for Rule 151A. The delay would run from the date of publication of the reissued or retained Rule 151A in the Federal Register. Originally, this was going to go into effect January of 2011.

The SEC also states in its supplemental brief that it has taken initial steps toward completing a Section 2 (b) analysis. That analysis considers the rules impact on efficiency, competition and capital formation. The SEC staff has conducted a comprehensive survey of state insurance regulation of indexed annuities. Based on that state-law baseline, the staff is currently analyzing the impact Rule 151A would have on efficiency, competition, and capital formation. The staff plans on completing this process and bringing a recommendation before the Commission in the spring of 2010. Should the staff recommend retaining Rule 151A, it is also expected that they would recommend the Commission have a public notice and comment period on the efficiency, competition and capital formation analysis.

Bi-partisan legislation introduced in the Senate would nullify the Commission's adoption of Rule 151A before it has a chance to take effect. The Fixed Indexed Annuities and Insurance Products Classification Act, S. 1389, provides that Rule 151A will have no force or effect. There is a companion bill in the House, HR 2733. The draft legislation expresses a congressional sense that the SEC's adoption of Rule 151A interferes with state insurance regulation, harms the insurance industry, reduces competition, and creates unnecessary and excessive regulatory burdens. The measure also embodies a congressional finding that indexed insurance and annuity products offered by insurance companies are subject to a wide array of state laws and regulations, including non-forfeiture requirements that provide for minimum guaranteed values, thereby protecting consumers against market swings.

So why all the interest in who regulates these indexed annuities? This is a very big business. In 2009, there was an estimated $25 billion dollars of new premium placed in these products. Premium in these indexed annuities have steadily increases every year since they were introduced back in the summer of 1995. Back then, you had two insurance companies that were responsible for the majority of premium. Now there are over 40 companies.

The insurance industry has found a product that can be an excellent fit for someone who is looking first and foremost to protect their principal but would also like an opportunity to earn higher interested than what is currently being offered in comparable products. For the client that is either retired or getting close, these last few years have been challenging to say the least. They have watched their 401(k)s and other securities investments take a big hit. Many have either had to postpone their retirement date, reduce their standard of living or even head back into the workforce due to these decreases. With unemployment reaching double digits, this is not the best time to be a senior looking for a job.

The SEC, in gaining control of the regulation on indexed annuities, would be able to capitalize on these billions of dollars of premium. However, there would be challenges that go with this new regulation. The first one would be who would now be advising clients on this. The registered representative of the Broker/Dealer would now be responsible for placing funds into these contracts. At the end of the day, many reps would not use these products for a number of reasons. Indexed annuities typically are not an extremely exciting product. They are a steady as-she-goes type. For a representative to place money into these contracts, they will not be showing past performances of 20 percent returns or placing money into managed accounts and charging a yearly management fee. Also the representative would need to be educated on these products and in a time when most Broker/Dealers are trying to cut costs, they are probably not going to have the necessary resources available. Many insurance agents will not want to go through the expense of becoming securities licensed and will either offer traditional products, which may not be the best fit for the client, or they will get out of the industry all together. Now you will have fewer agents helping clients protect their assets. In a time when we have the Baby Boomer generation looking for more help than ever, this could have huge consequences for years to come.

Also, many insurance companies will discontinue offering these annuities if they have to go through Broker/Dealers. This reduction will hurt competition and ultimately result in less options and inferior products offered for the policyholder.

The need for regulation in today's marketplace has never been stronger. Many people have lost money over the last few years either due to the big decreases in the market or possibly being lured into a Ponzi scheme. Some of these people were putting money in inappropriate investments not fully understanding the risks they were undertaking. Many people today are looking for guarantees of their principal and this is why there is such an attraction for the indexed annuities. Whether the SEC agrees with this or not, the facts are that at the time of this article, there has never been a penny of principal lost in a fixed or indexed annuity.

Now some may argue that these products have long surrender charges, which is some cases is true. Please keep in mind that the length of these surrenders can vary from in some cases up to as high as 17 years and down to as few as four. The money placed in these contracts should be money that is for long term goals and is not needed for short term situations. Many of these products allow 10 percent free withdrawals each year and most of them have surrender charge waivers for long term care needs. They can often annuitize these contracts after a few years and create an income stream that cannot be outlived. In these products, 100 percent of the premium goes to work for the owner from day one. They do not see their values decreased due to fees or loads that are taken out of their values like they would experience in a mutual fund or brokerage account. Keep in mind these management fees are deducted whether the accounts actually increase or not.

Now indexed and fixed annuities are certainly not the right choice for every retired person out there. But when all the benefits are weighed, many will find that it offers what they are looking for which is an opportunity for a fair interest rate, tax deferral, income options and at the end of the day, peace of mind knowing that their principal is guaranteed, safe and secure.

As far as the SEC and 151A goes, we will have to wait and see how the committee responds this spring. If The Fixed Indexed Annuities and Insurance Products Classification Act is passed, then it will ultimately trump 151A and indexed annuities can continue to offer policyholders an opportunity to protect their assets and still have a chance for growth. Stay tuned.

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U.S. consumers changing from big spender to big saver

The U.S. savings rate could rise as high as six percent in the wake of the crisis, according to a recent study by Allianz Group Economic Research. The study examines how the recent dramatic reduction in household wealth is affecting consumption and savings behavior.

Some of the key findings were:

Sharp decline in U.S. households' net worth could trigger a lasting increase in the saving rate up to six and a half percent, potentially significantly expanding the need for guaranteed and safe savings solutions.
An estimated $700 billion per year could be saved in U.S. in the next 10 years.
Saving patterns are set to change. U.S. consumers are particularly shy of risky assets.

Wealth destruction

U.S. households have experienced an unprecedented decline in net wealth from mid-2007 to early 2009. The fall in share prices and collapse in home values had destroyed nearly $17.5 trillion of household wealth while at its worst in the first quarter of 2009. With the stock market rally that began last March and the stabilization of house prices, some of these losses were made up by year-end 2009. Nevertheless, estimated losses still amount to $11 to $12 trillion and the ratio of wealth to income has fallen back to mid-1990s levels.

Given this loss of wealth, economists at Allianz SE expect the overall level of household savings in the U.S. to rise by approximately $500 billion annually. With disposable income currently equal to roughly $11 trillion, this suggests that the saving rate is set to reach six to six and a half percent.

"We have witnessed a surge in the saving rate since early 2008, up to an average of 4.6 percent in the 2009," said Allianz SE Chief Economist Michael Heise. "We anticipate that products, such as mutual funds, annuities and equities, will benefit from this change."

Implications for the net acquisition of financial assets

After 2009 when household purchases of financial assets were relatively restrained, U.S. households' annual acquisition of financial assets is set to pick up again and amount to a range of $700-800 billion. Despite this improvement, it is well below the average of almost $900 billion that was invested annually in the five boom years of 2003 to 2007. Overall, accumulation of financial assets as a ratio of disposable income is, on average, two percentage points lower than in the period 1997-2008.

"One lesson from the financial crisis is that it's not just about asset allocation, but asset location. There is a definite need for financial products that offer guaranteed lifetime income, which we view as the emerging fifth asset class," Allianz Life Insurance Company of North America President and CEO Gary C. Bhojwani. "It goes beyond saving for retirement; it's about planning how we want to live once we do retire."

Structure of financial assets of private households

The study sees the composition of assets held by private households changing quite significantly during the coming years.

In 2008, financial assets of private households declined by 17.8 percent over the previous year reflecting mainly the fall in equity markets. Besides the devaluation of existing assets, flows of most segments suffered strongly as a result of the weak economy suppressing the acquisition of financial assets.

In 2009, with the rebound of equity and bond markets more and more households started to move out of cash and buying assets with higher returns again. The beneficiaries were mutual funds and equities which reported strong inflows, especially for corporate bond funds and emerging market equity. And with less volatile equity markets, demand for pension funds also revived slowly.

However, cash holdings by U.S. households are still high compared to pre-crisis levels. Checkable deposits stood at $332 billion at the end of the third quarter 2009 compared to only $104 billion in the first quarter of 2008.

"This "wait and see" strategy reflects the new cautiousness of U.S. consumers in financial matters. The days of free spending are gone for good," said Heise. "We commissioned a survey in four countries (USA, Germany, France and Italy) that confirmed this new pattern. Contrary to the image of former times, U.S. consumers turned out to be the most thrifty and cautious."

The survey also confirms that transparency and downshifting are the most relevant trends emerging from the crisis. Ahead of European counterparts, the U.S. consumer is the most price sensitive when it comes to the purchase of financial assets.

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Behavioral Finance: The Logic of Emotions

by Joseph W. Jordan

Joseph W. Jordan is Senior Vice President at MetLife. He can be reached at jwjordan@metlife.com.

One of the ill effects of the modern age of technology is the de-emphasis on the emotional or behavioral part of the human thought process. Many articles have been written during this financial crisis about how individuals have to take emotions out of investment decisions. However, this idea negates the fact that humans make decisions with "two minds" and therefore, cannot deny the role of emotions.

The realistic way of approaching this issue can be taken from a quote by Nick Murray, a well-known financial industry financial professional. He says, "one's belief system, rather than any intellectual understanding of the economic situation, will dictate the appropriate behavior." And the belief system has very little to do with left brain logic. People used to believe we are thinking creatures who feel, but we're really feeling creatures who think.

The role of behavior in finance

Most financial and economic models assume that the individual will make rational decisions, but individuals don't always act rationally. When markets go up, most people think it will continue to go up. When it goes down, most think it will continue to go down. Price is in the inverse of value and individuals should always buy weakness and sell strength.

Therefore, the models employed in the financial services industry to predict and maintain investment outcomes are based on the misunderstanding of the role of emotion with money. Many in the field of behavioral economics believe that disconnect is at the root of many problems, one of them being how financial professionals and their clients connect.

The late Sir John Templeton, the pioneer global investor who devoted his fortune to answering questions of science, religion and human purpose, said that bull markets are:

Born of pessimism;
Grow on skepticism;
Mature on optimism; and
Die on euphoria.

What Templeton and other behaviorists are trying to convey is that individuals make decisions using the right side of the brain; the emotional side.

You can't manage performance

People tend to focus on short term performance, but performance is not a goal. What financial professionals can manage is behavior and the client relationship. In other words, they must find a way to get clients to participate in their solution because clients take action for reasons they come to on their own. Quite frankly, clients don't really want to know how the products work; they want to be heard. Financial professionals always have to help people avoid concentrating on what they just experienced, and more on their long term financial goals.

According to a recent MetLife Omnibus poll, more than half of respondents stated that when looking for an financial professional, they would look for someone who is proactive in keeping them informed of their situation and who can provide products that protect them against market risk. Understand that the financial instruments people buy are tools to help them achieve their goals, they are not a means onto their own.

Therefore, it is important that listen to what the clients need, not what you think they should have. Ask clients about family and their lifestyle today and tomorrow; ask them about their biggest fears and their dreams; etc. This is all a part of building a relationship. Think about the time and effort individuals put into personal relationships with family, friends, children, love interests, business partners, etc. It rarely happens overnight.

Once a client is comfortable with a financial professional, it's time to remind them of the value this industry offers them such as:

Providing protection when a family loses its primary wage earner
Delivering independence when clients are disabled
Offering dignity when clients can no longer take care of themselves
Ensuring a legacy

It's at this point that a financial professional can and should make the appropriate product recommendations, but not before understanding how your clients feel.

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Friends, family trump advisors, media and web for financial advice

The U.S. division of Sun Life Financial Inc. released new research from the Sun Life Financial Unretirement Index which reveals that more working Americans seek financial advice from family members and friends over financial advisors, the media and online outlets. The most recent full findings of the biannual index gauges how economic, financial, and societal forces affect working Americans, and forecasts their future retirement decisions that will impact individuals, the government, employers and the larger economy.

Sun Life's research shows the top outlets people turn to for financial advice are family, cited by 43 percent of Americans, and friends (39 percent). Financial advisors ranked third with 36 percent of Americans naming them as a resource, and older Americans were more likely to look to financial advisors than younger ones, only 45 percent of workers in their 60s, those closest to retirement, sought financial advice from financial professionals.

While personal relationships seem to be the primary places Americans get their financial advice, media outlets fared less well. Only one-third of Americans cited online or television news as a place to get this information, and newspapers ranked lower at 28 percent. Rounding out the last places people turn to for financial advice are advertisements (11 percent), blogs and online forums (10 percent) and TV personalities (10 percent). The answers for these categories were consistent across all age groups.

Question: Do you get financial advice from any of the following sources?

"We understand why people would turn to family and friends for advice on important financial decisions, but financial advisors should be alarmed at these findings," said Wes Thompson, President of Sun Life Financial U.S. "Between the current economy and the flood of Boomers approaching retirement, this is an unprecedented opportunity for advisors to showcase their skills in ensuring younger Americans are correctly planning and investing for their future, and to make sure those about to retire have a proper retirement income plan in place to sustain them during their later years. Simultaneously, they will need to start transitioning their expertise from accumulation-centric strategies to retirement income strategies."

The Unretirement Index also found dramatic differences between where younger workers and those closer to traditional retirement age turn for advice. Sixty four percent of workers between the ages of 18 and 29 looked to family members for advice while less than 20 percent sought the help of a financial advisor. Conversely, workers in their sixties were more likely to seek guidance from a financial adviser (45 percent) than a family member (33 percent).

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Jobs: Is Congress overlooking a crucial key to recovery?

by Steve Selengut

Steve Selengut has been with Professional Portfolio Management since 1979. He is the author of "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want You to Read", and "A Millionaire's Secret Investment Strategy". He can be reached at 800-245-0494 or at sanserve@aol.com.

I recently conducted a survey that produced a variety of ideas, and most of them had these common elements: replace the Internal Revenue Code with a simpler model, encourage businesses to increase employment, and insist upon tort reform everywhere.

It also brought two disturbing realities into focus: We are painfully apathetic (less than on percent of the people I contacted took the time to respond) and, although we have great problem-solving ideas, few to none of them are included in any of the reforms being considered by Congress.

For those who participated, thank you again. I hope that you will appreciate how I've synthesized your thoughts and suggestions into the commentary. I also hope that you will find the time to address some of these issues more aggressively with blogs, networks, and elected officials.

Major changes are being proposed in six inter-related areas. All the dots cannot be connected in one article. Government revenue is cut in this article and the next without a hint about a replacement plan. I'll get to that later, and painlessly for all of us.

So how do we create more jobs?

Perhaps the first step in creating more jobs is to take a giant step backwards and define what a job is. In the simplest of terms, your job is the principal moneymaking activity in your life. The more qualifications and skills you have (physical, technical, intellectual, etc.) the more valuable you are to employers, customers, and clients. Thus, more practical, job specific, education becomes a vital part of the jobs picture.

For the self-employed, the amount of effort expended, marketing skills, and the product or service itself is as important as the qualifications. But the objective of the job, the career, and the company, is to make money.

Government jobs are of a service, regulatory, and social problem solving nature, unquestionably necessary, but the primary motive is not to create personal wealth or economic gain, hence the thousand-dollar toilet seat scenario. These jobs are paid for by taxes collected from all employed people, except our friends in the "underground economy", who pay virtually no taxes at all.

The more government jobs, the more taxation; the more government regulation, the more need for cost analysis of the regulations spewed forth. Consumers ultimately pay all of the costs of compliance, everywhere.

Most self-employed people start off working for others; large or small really doesn't matter. What matters is that employers hire these people to make the enterprise more productive, safer, more efficient, and more profitable.

In theory, employees must contribute to profitability, and each is compensated based on his or her contribution, as determined by the owners of the enterprise. In larger organizations self-serving executives are able to pillage the profits of the enterprise, to the detriment of both owners and employees.

Employee benefit programs (health and dental insurance, pension and savings programs, investment education plans) were originally implemented to attract and retain the best employees. Today, employers are reluctant to create jobs because the mandated non-productive "overhead" associated with each worker adds significantly to the cost of running the business: worker's compensation, unemployment insurance, OSHA compliance, liability insurance, Social Security contributions, minimum wage/union pay scales, etc.

No job deserves to exist economically if it doesn't add to the profitability of the business. The more costs per employee, the fewer jobs get created. So how do we create more jobs in this environment?

Corporate income and nuisance taxes

Politicians have succeeded in demonizing the large corporation by exploiting the greed of obscenely overpaid executives and employees, while ignoring their own complicity in the conflicts of interest and lobbyist graft that steer the legislation they produce.

What Congress, a long line of Presidents, and much of the population have lost sight of is the fact that even the dirtier businesses are job providers. They must be pampered, not pummeled; supervised and reined in but not tethered and broken.

Business income taxes are 100 percent inflationary; costs associated with employees (yes, even the minimum wage, which some suggest is the cause of our illegal alien problems) result in fewer employees hired. Period. Capitalism is not broken, its success formula has been compromised.

Repealing the corporate income tax, and prohibiting any and all levies, fees, charges, and taxes on any form of business could instantly produce millions of job openings, lower prices, and create new business opportunities throughout the economy.

Repealing business income taxes would instantly make export products more competitive in world markets, as businesses reduce prices while maintaining profit margins. Greater profits should translate into growth in economic activity.

Finally, the elimination of these taxes would make all businesses run more effectively because there would be no need to spend money (or create losing transactions) just to cut the tax bill.

Government programs

Tax dollars can create jobs when they are used to: protect consumers and businesses from fraudulent and disruptive forces, fund infrastructure repairs and improvements, protect shareholders from greedy officers and directors, provide free education to the most talented students in all fields, and provide seed capital for new public interest development projects.

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Working Capital Model provides pre-emptive portfolio protection strategy

by Steve Selengut

A participant in one of my Working Capital Model (WCM) investment workshop observed: I've noticed that my account balances are returning to their (June 2007) levels. People are talking down the economy and the dollar. Is there any preemptive action I need to take?

Another workshop attendee spoke of a similar predicament, but cautioned that (with new high market value levels approaching) a repeat of the June 2007 through early March 2009 correction must be avoided, a portfolio protection plan is essential!

What are they missing?

These investors are taking pretty much for granted the fact that their investment portfolios had more than merely survived the most severe correction in financial market history. They had recouped all of their market value, and maintained their cash flow to boot. The market averages remain 40 percent below their 2007 highs.

Their preemptive portfolio protection plan was already in place, and it worked amazingly well, as it certainly should for anyone who follows the general principles and disciplined strategies of the WCM.

But instead of patting themselves on the back for their proper preparation and positioning, here they were, lamenting the possibility of the next dip in securities' prices. Corrections, big and small, are a simple fact of investment life whose origination point, unfortunately, can only be identified using rear view mirrors.

Investors constantly focus on the event instead of the opportunity that the event represents. Being retrospective instead of hindsightful helps us learn from our experiences. The length, depth, and scope of the financial crisis correction were unknowns in mid-2007. The parameters of the current advance are just as much of a mystery today.

The WCM forces us to prepare for cyclical oscillations by requiring: (a) that we take reasonable profits quickly whenever they are available, (b) that we maintain our "cost-based" asset allocation formula using long-term (like retirement, Bunky) goals, and that we slowly move into new opportunities only after downturns that the "conventional wisdom" identifies as correction level, i. e., 20 percent.

So, a better question, concern, or observation during a rally (Yes, Virginia, seven consecutive months to the upside is a rally), given the extraordinary performance scenario that these investors acknowledge, would be: What can I do to take advantage of the market cycle even more effectively the next time?

The answer is as practically simple as it is emotionally difficult. You need to add to portfolios during precipitous or long term market downturns to take advantage of lower prices, just as you would do in every other aspect of your life. You need first to establish new positions, and then to add to old ones that continue to live up to WCM quality standards.

You need to maintain your asset allocation by adding to income positions properly, and monitor cost based diversification levels closely. You need to apply cyclical patience and understanding to your thinking and hang on to the safety bar until the climb back up the hill makes you smile. Repeat the process. Repeat the process. Repeat the process.

The retrospective?

The WCM was nearly 15 years old when the robust 1987 rally became the dreaded "Black Monday", (computer loop?) correction on October 19th. Sudden and sharp, that 50 percent or so correction proved the applicability of a methodology that had fared well in earlier minor downturns.

According to WCM guidelines, portfolio "smart cash" was building through August; new buying overtook profit taking early in September, and continued well into 1988.

Five and 10 years later, there were less disastrous corrections, followed by clear sailing until 9/11. There was one major difference: the government didn't kill any companies or undo market safeguards that had been in place since the Great Depression.

Dot-Com Bubble! What dot-com bubble?

Working Capital Model buying rules prohibit the type of rampant speculation that became Wall Street vogue during that era. The WCM credo after the bursting was: "no NASDAQ, no Mutual Funds, no IPOs, no problem." Investment Grade Value Stocks (IGVSI stocks) regained their luster as the no-value-no-profits securities slip-slided away into the Hudson.

Embarrassed Wall Street investment firms used their influence to ban the "Brainwashing" book and sent the authorities in to stifle the free speech of WCM users, just a rumor, really.

Here we are once again. For the sixth time in the 35 years since its development, Working Capital Model operating systems are proving themselves to be an outstanding market cycle management methodology.

And what was it that the workshop participants didn't realize they had, a preemptive portfolio protection strategy for the entire market cycle. One that even a caveman can learn to use effectively.

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NY approves bill to protect seniors, deter STOLI

Senior citizens in New York will have important new protections against a financial fraud called stranger-originated life insurance (STOLI) thanks to legislation approved by the state legislature, said the American Council of Life Insurers (ACLI), the National Association of Insurance and Financial Advisors (NAIFA) and Life Insurance Council of New York (LICONY).

'This legislation (S. 66009/A.66009) places New York among a growing number of states battling against STOLI and those who would abuse senior citizens. The legislation specifically outlaws STOLI and it gives the New York Insurance Department new tools to identify and deter fraudulent transactions. It also gives seniors considering a life insurance settlement new rights to assure they get a fair deal,' said Frank Keating, president and CEO of ACLI.

In STOLI transactions, financial speculators or their representatives induce senior citizens to purchase life insurance, policies the seniors otherwise would not buy, solely to transfer the death benefits to the speculators. The speculators pay the premiums and then hope to profit by receiving the death benefits when the seniors die.

This contrasts with a life insurance settlement, where a policy that was purchased in good faith but is no longer needed or wanted by the policy owner is sold to a third party.

Seniors who participate in STOLI transactions may be asked by the speculators to commit fraud by lying on policy applications. Moreover, seniors may have to pay unexpected taxes on any money received from the speculators for participating in the scheme. STOLI schemes violate New York's insurable interest statute, which bars the purchase of life insurance as a means to wager on human life.

The New York legislation also requires life settlement providers to become licensed and registered with the insurance department. In addition, life settlement providers must disclose to policy owners considering a settlement all information necessary to allow them to determine whether the transaction is in their best interest.

New York is the 27th state to enact legislation deterring STOLI.

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Health Care Reform or Welfare Program - Who pays the Bill?

by Steve Selengut

The White House has released another of its health care reform clarification emails, there will be more. It seems strange to me that the focus is on insurance coverage rather than on the spiraling costs of health care itself.

Frankly, the drafters of the insurance reforms have little, if any, understanding of insurance, risk assessment, or underwriting, and nary a clue about running a business. But why should they care? This is Robin Hood politics, not business. Why do we continue to re-elect them is a far better question.

Incidentally, I am not a health insurance salesman or healthcare professional, just a payer of far too much in small-group insurance premiums in spite of a crazy-high deductible.

Insurance is neither a cost of obtaining healthcare services nor an expense associated with those services. Insurance is an agreement in which a private company agrees to pay part of someone else's medical expenses in exchange for premiums it collects in advance from all of its insureds.

If President Obama owned the New World Order Health Insurance Company, he would not be willing to insure an applicant with brain cancer nor would he be willing to pay an unlimited lifetime benefit to all insureds, not without a premium that reflects the risks to his personal bank account.

Theoretically, insurance companies collect enough in premiums to operate profitably while paying all the claims they have agreed to pay under contracts with the individuals and groups that they insure. If we add more risk, the insurance company has no choice but to increase premiums.

The persons who own the insurance companies (you and me, pal) expect them to operate profitably. The companies employ thousands of actuaries, healthcare industry expense analysts, claims adjusters, fraud inspectors, service personnel, underwriters, risk assessors, etc. to assure that this happens.

Insurance companies protect us by standing ready to pay "covered" expenses over and above whatever deductions, exclusions, and limitations are agreed upon in advance. There is a viable legal contract between the parties, financial disasters are avoided if we get really sick.

Within the terms of their agreements, insurance companies determine who is insurable, and at what premium. Their job is to pay covered medical expenses, and they have a vested interest in keeping medical expenses as low as possible. But do they really?

Just as the financial crisis was partially caused by business conflicts of interest so too are there conflicting interests in the insurance-healthcare-drug-medical supply industries. These conflicts reduce the natural desire to control the costs of all healthcare services.

We can control the industry to eliminate the conflicts of interest. We can (and should) police the boardrooms of insurance companies to eliminate "abuse of shareholders" through excessive salary packages.

Perhaps we should require health care insurers to be "mutual" companies, or maybe "network" doctors should not be allowed to bill patients for amounts above what the insurance actually pays. Maybe the annual deductible could be dealt with differently without increasing premiums.

We can tax for-profit hospitals higher to encourage more non-profit care facilities; we can keep doctors, insurance and drug companies from owning hospitals; we can cap jury awards for medical malpractice or error, and we can give tax relief to medical practitioners who provide free health services to the indigent and uninsurable.

But the government's efforts to redefine insurance are counter-productive. As cold as it may sound, if we make insurance companies cover pre-existing brain tumors, the expense is coming out of your pocket in the form of higher insurance premiums or higher taxes, and it's likely that the healthiest among us will be the ones paying the increased taxes.

The White House list of reforms, every one of them, would increase insurance company costs and our premiums while doing nothing to reduce the price of the medical services we receive. They only sound good to those who do not understand insurance.

Insurance is designed to pay the bills, reforms need to make the bills smaller for everyone. Does this plan cut any costs, or just increase insurance premiums for those who will still be able to pay them?

Group health (and even dental) insurance is a benefit used by many employers to attract and retain employees. I've heard rumors that the reform plan will tax employers who don't provide insurance and tax those employees who receive the benefits. True or not, neither approach helps the economy or reduces health care expenses, both raise taxes for everyone.

Insurance can only be made more affordable by reducing the costs of the healthcare that is provided. Let's focus on streamlined record keeping, controlling ambulance chasers, jury awards, drug company advertising, an army of lobbyists, and industry conflicts of interest.

We should also make all government employees, from the top down, dance to the same tune as the rest of us, that'll do away with the tax on benefits. Then, next chance you get, do away with an incumbent.

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ARM opens new office in Pennsylvania

Advanced Resources Marketing [ARM], a distributor of long term care insurance located in Allston, Mass., is opening a satellite office in Merion Station, PA, a suburb of Philadelphia. The office will be led by Harris A. Kivitz, CLTC who brings more than 20 years experience in the areas of individual brokerage and multi-life/group solutions to small and medium-sized corporations.

Prior to joining ARM, Kivitz has held positions as Home Office Brokerage Manager for several LTCi companies including CNA and was the PA State Manager for AIG LTCi. For the past six years, Kivitz has successfully marketed LTCi through his own brokerage general agency.

In discussing the expansion of ARM, Joseph G. Pulitano, CLTC, President said, "For several years now, we have been achieving steady growth in PA, MD, and NJ. With Harris's success in the multi-life LTCi market and his experience in brokerage, we just felt that this was an excellent opportunity for us, for Harris, and most importantly for the agent community.

"In early 2010, we will be launching two very large associations in the region," Pulitano added. "We will be looking for agents who can sell LTCi and we felt a local presence would go a long way in further assisting these agents accelerating their sales."

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U.S. life companies rebounding in Q2 and posting strong net income results

Strength in second-quarter income statements more than compensated for first-quarter weakness as the U.S. life and health insurance industry saw its capital and surplus levels rebound just short of year-end 2008 levels.

According to new data released by SNL Financial, unexpectedly strong life sector profitability helped the industry's policyholders' surplus jump to $252.2 billion in the aggregate as of June 30, up from $240.6 billion as of March 31 and not far from the year-end 2008 level of $252.5 billion. The increase in surplus stands in contrast to the quarter-over-quarter declines the life sector experienced in five of the six previous reporting periods.

SNL data indicate that 16 of the top 25 U.S. life groups saw their statutory net income improve sequentially in the second quarter, despite declining revenues and investment losses. Lower expenses helped the life industry produce net income of $8.9 billion in the second quarter, up from a loss of $804 million in the first quarter and a $556.7 million loss in the year-earlier period.

Total underwriting deductions of $162.6 billion marked a sharp decline from $193.1 billion in the first quarter and $201.1 billion in the year-earlier period. Death benefits fell only slightly on a linked-quarter basis to $14.5 billion from just under $15 billion. Surrender benefits and withdrawals for life contracts amounted to $54.9 billion in the second quarter, compared with $63.7 billion in the first quarter and $67.9 billion in the year-earlier period.

However, the most notable factor identified by SNL in the lower underwriting deductions and, in turn, sharply higher net income, came in the line item labeled "increase in aggregate reserves for life and accident and health contracts" on the statutory income statement. That increase totaled just $9.8 billion in the second quarter, down from $31.5 billion in the first quarter and $26.4 billion in the year-earlier period.

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Fraud Merchants: Modern day swindlers upgrading their cons

by Steve Selengut

This is a real world situation that could impact each of you as professionals, investors, and friends of persons who could fall for such schemes. So please get angry about it!

An envelope arrived recently from a worried investor (not a client of mine) in Appleton, Wis. He had been contacted with an "investment partner" opportunity touting a "guaranteed investment program" that would absolutely "double and triple his money every 60 days" with no worries, work, or risk involved.

So why was this total stranger contacting me?

Inside the envelope were four separate documents:

a call for 25 new investors who would become partners in this special, private, guaranteed investment program
an endorsement of the program from Helen Taylor, the founder of ResponseLink Pros, Inc.
an acceptance letter from Chris Jenkins, Advertising Manager of Moyer Direct, Inc., the investment management company
a special offer coupon that allowed the new partners to make additional deposits of fewer dollars while promising an even greater rate of return

So why was this total stranger sending this information to me?

Two of the documents were fraudulently attributed to me and had been signed by someone using my name. Does that get your attention?

In the others, a fictitious Helen Taylor claimed to be my good friend and mentoring student while a non-existent Advertising Manager (Chris Jenkins) was distributing "one-time-only" discount offers that I was making in my capacity as president of Moyer Direct, Inc., a company I had never heard of until yesterday.

Obviously, this scam artist (the now indicted Wayne C. Scott a/k/a Chris Harper) was able to paint a believable picture by trading on the good names, reputations, and

achievements of well-known people in the financial industry. I would guess that I'm not the only one who has been unknowingly abused by such con artists. And that is probably why I wasn't contacted by anyone until now. Was your name used on documents sent to other victims? Did you sign up for a Warren Buffet or Ben Graham program?

Court documents (US District Court, Northern District of Illinois) indicate that Wayne Scott has bilked hundreds of small investors to the tune of nearly one million dollars. Other prominent investors, advisors, experts, and financial writers have probably had their reputations compromised as well.

Please forward this warning to your friends, colleagues, clients, relatives, and employees. We need to prevent such scams from spreading any further.

So why haven't we (and the investing public) been warned about this outrage by someone official? Hmmm.

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Enhanced charitable contribution deductions

by Keith Shaffer, CPA

Keith Shaffer, CPA, is a principal with Braver PC, a financial services firm with offices in Massachusetts and Rhode Island. He can be reached at 617-559-4456 or kshaffer@thebravergroup.com.

Those computer relics, barrels of food or boxes of books stacking up in your storage rooms or warehouse could actually be costing you money, not just in storage costs but also in lost tax savings. Fortunately, Uncle Sam has extended the enhanced charitable contribution deduction through Dec. 31, 2009.

Under previous law, the deduction was limited to cost (if the charity didn't resell the item). Understandably, this was a challenge for donors wishing to contribute items where fair market value exceeded cost. The enhanced deduction allows businesses contributing food, computer equipment and books to qualifying organizations to receive a deduction of up to twice the cost or basis of an item, if the value is higher than cost. (Businesses donating books must certify in writing that they are suitable for, and will be used in, the recipient organization's educational programs.)

Contributions of "apparently wholesome" foods by farmers and ranchers will be treated as qualified conservation contributions (under Internal Revenue Code Section 170) through the end of 2009. For purposes of this law, the IRS defines apparently wholesome foods as those which are intended for human consumption (meeting all legal requirements for quality and labeling), but which aren't readily marketable because of age, freshness, surplus or other reasons.

The enhanced deduction for qualifying foods is equal to the lesser of your basis in the food plus half of its appreciation, or twice the food's basis. In contrast to the 50 percent contribution limitation for most charitable deductions, qualified conservation contributions made by farmers are deductible up to 100 percent of taxable income. Additionally, unused deductions may be carried forward for up to 15 years.

S corporation shareholders also may benefit from special tax treatment when making charitable contributions of qualifying property. The expanded provisions include a special rule allowing shareholders to take into account their pro-rata share of charitable deductions, even if those deductions exceed the shareholder's adjusted basis, through Dec. 31, 2009.

If your business owns books, food or computers that may qualify for the enhanced charitable contribution deduction, you may have a great opportunity in 2009 to reduce your tax burden with one sweep through your warehouse.

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