Financial E-News - September 15, 2018 Edition

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Industry News

CONSUMER-DIRECT INSURANCE – For the first time in its 143-year history, Prudential Financial is launching a service to sell its insurance and investment products directly to consumers. The direct-to-consumer service marks a sea change for the largest U.S. life insurance company, which has traditionally sold its products through a large network of insurance agents, as well as employer-sponsored insurance and retirement plans. LINK by Prudential offers personalized financial planning, as well as recommendations for insurance, annuities and investments. Products can be purchased through the website, through remote advisers or through one-on-one meetings with local advisers.

DEALS ON TRACK – Two major deals with the potential to reshape the insurance and pharmacy industries are reportedly on track to receive antitrust approval. In one deal, if approved, health insurer Cigna would acquire pharmacy-benefit manager Express Scripts. Assuming approval of the second deal, CVS would acquire Aetna, combining CVS’s drugstores and pharmacy-benefits management unit with the third-largest U.S. health insurer.

EXITING– Ohio National, one of the top 20 sellers of variable annuities, has announced that it is quitting the annuity business. An interesting move considering that annuities represent the bulk of Ohio National’s business. The company is also exiting the retirement-plan business. Reasons given are a continuously changing regulatory landscape, sustained low interest rates, the increasing cost of doing business and other growth opportunities. Ohio National is planning to shift its focus to life and disability income insurance products.

NEW COMPETENCY EXAM – FINRA’s new competency exam program is being restructured effective October 1.  The regulator is creating a Securities Industry Essentials (SIE or Essentials) exam and revising rep-level exams. Click here for more information from ThinkAdvisor and click here to access FINRA’s FAQs on the subject.

JULY TRADE GAP – With all the talk of tariffs, both real and threatened, the U.S. international trade gap widened to $50.1 billion in July, the largest monthly increase since March 2015. Of interest, the trade gaps with China and the EU both hit record high levels in July, the gap with Canada also widened, while the gap with Mexico narrowed. These results may lead to more tariff talk.

AUGUST BUDGET DEFICIT – The Treasury Department reported that the U.S. federal budget deficit nearly doubled in August from a year earlier, as government spending swelled by 30% and revenues declined. Last month’s deficit was $214 billion compared to a gap of $107.7 billion in August 2017.

MEDICARE BILLS – The House recently passed four Medicare-related bills by voice votes. One would make it possible for for-profit companies to offer PACE plans, which use federal Medicare money and, in many cases, state Medicaid money to provide comprehensive services to older people who need nursing home care but can live safely in the community. A second bill calls for Medicare to test a Medicare smart card program to see if smart cards could reduce fraud, waste and abuse. Another would help Medicare enrollees enrolled in Medicare cost plan programs, which are being discontinued. The final bill looks to standardize the medical services Medicare provides across the country. Whether the Senate will take up any of these bills is in doubt.

PUMP AND DUMP – According to Investopedia, “Pump and dump is a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. The perpetrators of this scheme, who already have an established position in the company's stock, sell their positions after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.” That’s exactly what happened to Dr. Phillip Frost, the non-executive chairman and largest shareholder of Ladenburg Thalmann Financial Services. Frost and nine other individuals were charged in a lawsuit by the SEC with perpetrating long-running pump-and-dump schemes that “generated over $27 million from unlawful stock sales and caused significant harm to retail investors, who were left holding virtually worthless stock.”  More here.

CIVICA RX – That’s the name of a new drug making not-for-profit venture backed by major U.S. hospitals which may prove another threat to generic pharmaceutical manufacturers.  In a statement, the group said “Civica Rx will first seek to stabilize the supply of essential generic medications administered in hospitals. The initiative will also result in lower costs and more predictable supplies of essential generic medicines.” Go to BenefitsPro for more information.

Marketing/Tax Updates

FREE CREDIT FREEZE – Here’s a reminder that, thanks to a federal law passed earlier this year, starting on September 21, you will be able to freeze your credit reports and sign up for year-long fraud alerts for free. You will need to freeze your credit at all three of the main credit bureaus: Equifax, Experian and TransUnion. The benefit of freezing your credit is that identity thieves won’t be able to open accounts in your name. Fraud alerts, which currently last for 90 days, will be extended to one year, and require businesses that run your credit to check with you before opening a new account. Finally, remember that a freeze won’t stop thieves from using any open lines of credit you have, like your current credit cards, so continue to stay on top of your statements and fraud alerts.

TAX BILLS – Three tax bills have been introduced by the House Ways and Means Committee. The first would make permanent many of the changes from last year’s tax legislation, the second would make it easier for businesses to offer retirement plans, as well as remove regulatory barriers that now restrict the types of small employers who are permitted to band together to offer a retirement plan through a multiple employer plan (MEP).  It would also end required minimum distributions for those with balances under $50,000. It does not, however, contain the safe harbor for plan sponsors to select a retirement plan annuity that industry groups had been hoping to see. More information on the retirement plan provisions can be found here. The third bill would create a more favorable tax environment for startups. The future of the legislation is uncertain. Even if one or more of the bills passes the House, the Senate doesn’t appear to have the appetite to take up new tax legislation before the November mid-term elections.

POP QUIZ – How well do you know Social Security?  Take this quiz and find out!

BEST INTEREST RULE FOR ANNUITIES – The NAIC’s Annuity Suitability Working Group is hoping to finalize a best-interest standard for annuity sales by the NAIC Fall Meeting in San Francisco in mid-November. The group is trying to walk a thin line to “craft a best-interest sales model that falls somewhere between the suitability and fiduciary standards.” Predictably, that’s pleasing no one with “critics on both sides making it a tough task.”

RETIREES ACT NOW! – So says the IRS in a warning that retirees may be facing higher tax bills next spring. This Forbes article provides more information, together with some tips on how retirees can best use the IRS withholding calculator to determine their potential 2018 tax liability, as well as guidance on how to make up for any withholding shortfall.

LAST CHANCE – As this article from Investment News explains, the last chance to undo a Roth IRA conversion is quickly approaching. Last year’s tax law ended Roth recharacterizations, effective for conversions done in 2018 and beyond. There, however, is still time to recharacterize a 2017 Roth conversion...but only until October 15.

FINANCIALLY UNPREPARED – According to a Merrill Lynch/Age Wave study, few widows are financially prepared for the loss of their spouses. The study found that 76% of married retirees would not be financially prepared for retirement if their spouse died. The top financial challenges faced by widows are becoming the sole financial decision maker and adjusting to a loss in income...the study reports that half of widows experience a household income decline of 50% or more.

ESTATE PLANNING MISTAKES – According to InvestmentNews, based on 2018 federal tax law, these are the 11 biggest estate planning mistakes.

THE GREAT CRYPTO CRASH – What Bloomberg is terming ‘The Great Crypto Crash of 2018’ – the bursting of the speculative bubble in cryptocurrency – has now exceeded the peak-to-trough decline following the dot-com bubble burst of 2000.  More here.

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