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LONDON – Europe is now haunted by the specter of debt. All European leaders quail before it. To exorcise the demon, they are putting their economies through the wringer.

It doesn’t seem to be helping. Their economies are still tumbling, and the debt continues to grow. The credit ratings agency Standard & Poor’s has just downgraded the sovereign-debt ratings of nine eurozone countries, including France. The United Kingdom is likely to follow.

To anyone not blinded by folly, the explanation for this mass downgrade is obvious. If you deliberately aim to shrink your GDP, your debt-to-GDP ratio is bound to grow. The only way to cut your debt (other than by default) is to get your economy to grow.

Fear of debt is rooted in human nature; so the extinction of it as a policy aim seems right to the average citizen. Everyone knows what financial debt means: money owed, often borrowed. To be in debt can produce anxiety if one is uncertain whether, when the time comes, one will be able to repay what one owes.

This anxiety is readily transferred to national debt – the debt owed by a government to its creditors. How, people ask, will governments repay all of the hundreds of billions of dollars that they owe? As British Prime Minister David Cameron put it: “Government debt is the same as credit-card debt; it’s got to be paid back.”

The next step readily follows: in order to repay, or at least reduce, the national debt, the government must eliminate its budget deficit, because the excess of spending over revenue continually adds to the national debt. Indeed, if the government fails to act, the national debt will become, in today’s jargon, “unsustainable.”

Again, an analogy with household debt readily suggests itself. My death does not extinguish my debt, reasons the sensible citizen. My creditors will have the first claim on my estate – everything that I wanted to leave to my children. Similarly, a debt left unpaid too long by a government is a burden on future generations: I may enjoy the benefits of government extravagance, but my children will have to foot the bill.

That is why deficit reduction is at the center of most governments’ fiscal policy today. A government with a “credible” plan for “fiscal consolidation” supposedly is less likely to default on its debt, or leave it for the future to pay. This will, it is thought, enable the government to borrow money more cheaply than it would otherwise be able to do, in turn lowering interest rates for private borrowers, which should boost economic activity. So fiscal consolidation is the royal road to economic recovery.

This, the official doctrine of most developed countries today, contains at least five major fallacies, which pass largely unnoticed, because the narrative is so plausible.

First, governments, unlike private individuals, do not have to “repay” their debts. A government of a country with its own central bank and its own currency can simply continue to borrow by printing the money which is lent to it. This is not true of countries in the eurozone. But their governments do not have to repay their debts, either. If their (foreign) creditors put too much pressure on them, they simply default. Default is bad. But life after default goes on much as before.

Second, deliberately cutting the deficit is not the best way for a government to balance its books. Deficit reduction in a depressed economy is the road not to recovery, but to contraction, because it means cutting the national income on which the government’s revenues depend. This will make it harder, not easier, for it to cut the deficit. The British government already must borrow £112 billion ($172 billion) more than it had planned when it announced its deficit-reduction plan in June 2010.

Third, the national debt is not a net burden on future generations. Even if it gives rise to future tax liabilities (and some of it will), these will be transfers from taxpayers to bond holders. This may have disagreeable distributional consequences. But trying to reduce it now will be a net burden on future generations: income will be lowered immediately, profits will fall, pension funds will be diminished, investment projects will be canceled or postponed, and houses, hospitals, and schools will not be built. Future generations will be worse off, having been deprived of assets that they might otherwise have had.

Fourth, there is no connection between the size of national debt and the price that a government must pay to finance it. The interest rates that Japan, the United States, the UK, and Germany pay on their national debt are equally low, despite vast differences in their debt levels and fiscal policies.

Finally, low borrowing costs for governments do not automatically reduce the cost of capital for the private sector. After all, corporate borrowers do not borrow at the “risk-free” yield of, say, US Treasury bonds, and evidence shows that monetary expansion can push down the interest rate on government debt, but have hardly any effect on new bank lending to firms or households. In fact, the causality is the reverse: the reason why government interest rates in the UK and elsewhere are so low is that interest rates for private-sector loans are so high.

As with “the specter of Communism” that haunted Europe in Karl Marx’s famous manifesto, so today “[a]ll the powers of old Europe have entered into a holy alliance to exorcise” the specter of national debt. But statesmen who aim to liquidate the debt should recall another famous specter – the specter of revolution.

Robert Skidelsky, a member of the British House of Lords, is Professor Emeritus of Political Economy at Warwick University.

© 2012 Project Syndicate. Reprinted by permission.

There’s been a shift of responsibilities among executive vice presidents at New York Life, reflecting a reorganization of the giant mutual insurer into two major business groups, Insurance and Investments, the company announced this week.

The move is designed to “[enhance] the prospects of New York Life becoming a true leader in retirement solutions beyond income annuities,” chairman and CEO Ted Mathas said in a release.

 Chris Blunt, who has run the company’s new Retirement Income Security (RIS) business since it began in 2008, will run the new $3.3 billion Insurance Group. The life insurance business had been led by Mark Pfaff, who will continue to lead New York Life’s 12,000-member career agent force. John Y. Kim, the chief investment officer, will add RIS to his responsibilities as head of the company’s Investments Group. All three executives report to Mathas.

The RIS division encompasses New York Life’s guaranteed income products, including deferred fixed and variable annuities, fixed immediate annuities, and deferred income annuities, which were introduced in 2011. New York Life is the leader in domestic sales of fixed immediate annuities, with a 27.8% market share.

New York Life leads the industry in new life insurance premium written, with a market share of 11.7% in the United States. New York Life Investments, which Kim has led since 2008, has $285 billion in assets under management. 

The new Insurance Group will include more than just the agent-sold individual life insurance business. Blunt will also be responsible for the company’s long-term care insurance business, the direct-response life insurance business in Tampa, Florida, which partners with AARP, and the group life business, which is the largest underwriter of professional association insurance programs in the U.S. New York Life’s operations in Mexico are also being incorporated into the Insurance Group.

Mathas noted in a statement that the realignment “enhances the prospects of New York Life becoming a true leader in retirement solutions beyond income annuities, where we lead today.” As he explained it, the reorganization will facilitate efforts to convert invested assets into retirement income products. 

“The alignment of former RIS businesses under Mr. Kim is designed to take further advantage of the fast-growing retirement area in which consumers first accumulate funds for retirement and later convert a portion of those funds for guaranteed lifetime income in retirement,” Mathas said in a statement.

“With his new responsibilities as head of the Investments Group, Mr. Kim will have a broad array of institutional and retail products and solutions under his leadership, including retail mutual funds and annuities, and institutional asset management and retirement plan services.  The marketing, finance, technology, distribution and service functions that support those product lines are also part of the Investments Group,” Mathas added.

Blunt graduated from the University of Michigan and holds an MBA degree from the Wharton School of the University of Pennsylvania.  He joined New York Life in 2004.  Kim also graduated from the University of Michigan and holds an MBA degree from the University of Connecticut.  He joined New York Life in 2008.  Pfaff, a graduate of Manhattan College, joined New York Life in 1985 as an agent in New Jersey and entered sales management in 1988.

© 2012 RIJ Publishing LLC. All rights reserved.

The growth of an international market for trading Chinese currency and renminbi-denominated bonds will help institutional investors that need alternatives to the U.S. dollar and the euro, according to executives at US-based Principal Global Investors, a unit of the Principal Financial Group.

“The world needs multiple reserve currencies to allow diversification,” Jim McCaughan, Principal’s CEO, told Investments & Pensions Asia. “For investors who have global aggregate portfolios or diversified global bond portfolios, having the RMB as an extra source of diversification is really important.”  

Sovereign reserve funds in particular regard the RMB, which first became available as an investment currency in July 2010, as a potential alternative reserve currency, McCaughan said.

In 2011, the Chinese government introduced a yield curve by issuing two-, three-, five-, seven- and 10-year bonds, with China Development Bank in early January selling the first 15-year offshore yuan bond. The bank, China’s biggest bond issuer after the Ministry of Finance, priced the bonds to yield 4.2%.

Asian reserve funds have been holding 20%-30% of their funds in euros to hedge the dollar. But they regard the euro as overvalued, despite the impact of the European debt crisis. Increasingly, they see the yuan is seen as source of diversification and potential growth.

When the RMB first became available to investors, it attracted a rush of money. Indeed, the high demand pushed yields downward. In 2011, the currency appreciated only 4.8%, which reduced demand and helped restore the balance between the yield curves of onshore and offshore yuan bonds. 

Meanwhile, Hong Kong announced plans to help London become an offshore trading center for the yuan. The two financial centers will collaborate on clearing and settlement systems, market liquidity and development of new RMB-denominated products.

The RMB could help satisfy a demand for specialty high-yield bond investments among Asian pension funds, said Andrea Muller, Principal’s chief executive for Asia. The region’s institutional investors want to diversify away from domestic fixed income “and into emerging market debt and equities across the region,” she said.

“There has also been growing interest in commercial real estate, in particular from government pension funds across the region,” she added. “We’ve seen an increased demand for niche products such as mortgage-backed securities, REITS and high-yield debt.” They are also buying property in Japan, Australia, Europe and the U.S., she said.

“Giddy” institutional investors, many of whom believe the Fed could announce another round of money printing as early as this month, are driving the January rally, according to TrimTabs.

Much of the year-to-date gain in U.S. stocks has occurred in overnight futures trading—a sign that demand is coming from institutions, said Trim Tabs executive vice president David Santschi. “It’s not the retail crowd that’s pumping up stock futures,” he said

Retail investors remain pessimistic, judging by fund flows. TrimTabs estimates that U.S. equity funds have received only $3.3 billion in fresh cash so far in January, which historically see strong inflows.

For all of 2011, $932 billion flowed into checking and savings accounts—almost eight times the $117 billion that TrimTabs estimates flowed into stock and bond mutual funds and exchange-traded funds during the year.

TrimTabs sees a political factor at work. “The Fed will be pulling out all the stops to ensure President Obama’s re-election,” said Santschi. “If the Fed doesn’t hint at or announce plans to print more money, equity investors could be badly disappointed.”

Other possible signs that institutions are bullish: 

• Short interest at New York Stock Exchange member firms fell 10.5% in December to the second-lowest level in the past two years.

• The put/call ratio averaged only 0.81 on the past five trading days, the lowest five-day average since July 2011.
• The VIX fell to 20.5 on January 12, its lowest level since July 2011.

• 42% of the hedge funds surveyed by TrimTabs and BarclayHedge in December bullish on the S&P 500, while 30% were bearish. It was the highest level of optimism since last July.

• 51.1% of newsletter writers are bullish, according to Investors Intelligence. That was the highest level of optimism since the market peak of April 2011.  

• Bank of America’s survey of global fund managers found that asset allocators are more bullish on U.S. stocks than at any time since April 2010.

© 2012 RIJ Publishing LLC. All rights reserved.

Just as 90% of all Frenchmen consider themselves to be above-average lovers, about twice as many advisors who call themselves “planners” offer planning services.

Registered reps who call themselves financial planners often merely recommend investments for accumulation, according to Cerulli Associates. The research firm suggested that the titles that brokerage employees use don’t necessarily reflect their skills.

“Without industry-wide consistency in the nomenclature used by advisors, lack of clarity about what services an advisor actually offers investors is likely to continue,” said Cerulli’s seventh Quantitative Update: Advisor Metrics, an annual sourcebook for data and analysis on advisors’ practices.

Although more than half (59%) of advisors perceive themselves as providing a level of service that merits the title of “financial planner,” Cerulli’s research showed, 56% are better categorized as “investment planners.” Only about 30% offer planning services.

In a survey, Cerulli asked advisors to classify their practices based on their perception of the services they offer. Cerulli then reviewed the actual services they offered (data also garnered through surveys) and the client base of each advisor to see which classification matched the advisor’s actual practice.

Many advisor practices “offer some of the basic elements of financial planning, but focus their efforts nearly exclusively on asset accumulation strategies,” Cerulli said in a release.

“Firms have encouraged their advisors to expand their advice relationships with clients, [but] advisors tend to overestimate the degree to which they are involved in the planning process.

“The movement to extend advice services is likely being accelerated by turbulent markets, as advisors who base their value to investors on investment performance have suffered more than those with broad advice relationships,” the release said. 

Yet most investors don’t need comprehensive planning, Cerulli pointed out. Clients with $500K to $2 million dollars in investable assets represent the largest pool of retail assets, but have relatively straightforward service requirements. Relatively few retail clients need estate, charitable, business planning, or private banking services.

Milliman opens office in Dusseldorf

Milliman Inc., the global consulting and actuarial firm, has opened a new office in Dusseldorf, Germany, to complement its existing office in Munich, according to a news release.

The Dusseldorf office is headed by Michael Leitschkis, who combines a consultancy background with experience as head of Modelling Life and Health at a major German insurance group. He is a member of the German Actuarial Union (DAV) and a lecturer of the German Actuarial Academy (DAA) as well as the European Actuarial Academy (EAA), lecturing on risk modelling within the CERA education framework.

The consultants in the new office will operate as part of the European Milliman team, which includes 250 consultants. Their main services will focus on risk modelling and ERM (Enterprise Risk Management), implementation of Solvency II and ALM (Asset Liability Management).

The new address is Milliman GmbH, Speditionstrasse 21, 40221 Dusseldorf. Tel. +49-211-88231-595; Fax. +49-211-88231-520.

Few GenXers on track for secure retirement: IRI

Only one-third of GenXers are at least very confident of having enough money to live comfortably during retirement, cover their medical expenses, and pay for their children’s higher education, according to “Retirement Readiness of Generation X,” a new report from the Insured Retirement Institute.

The research was conducted by means of telephone interviews with 802 adult Americans ages 30-49. The survey was conducted by Woelfel Research, Inc.

Just 41% of GenXers have tried to figure out how much money they will ultimately need to save, the survey showed. Among those who have saved, half have amassed less than $100,000.

Of those who pinpointed an anticipated retirement age, the average age was 64, indicating an average retirement period of more than 20 years.

Amid the recession, 15% of GenXers have made early withdrawals from their 401(k) plans, 23% stopped contributing to their retirement accounts, and 22% stopped contributing to college savings plans. Approximately 21% of older GenXers and younger Boomers in this group needed to dip into their retirement savings plans in the past year.

Single GenXers, women and those on the cusp of the Boomer Generation are in particular need of guidance in planning for retirement. 54% of female GenXers rated themselves as having little to no investment knowledge; this compares to 37% of male GenXers.

Only 24% of single GenXers were at least very confident that they would have enough savings to fund their lifetime retirement needs, compared to 40% of married GenXers.

On the other end of the scale, 35% of single GenXers expressed little to no confidence about having enough money for their retirement, compared to 20% of married GenXers.

Presently, 37% of GenXers have consulted a financial advisor. Among single GenXers, this figure is 20%. IRI defines Generation X as Americans born from 1965 through 1981, inclusive.

Generation X, as a group, is educated (one third have at least a Bachelor’s degree), own their own homes (at least 70% of married couples), and work in professional occupations (more than 40%).

FPA and AFCPE to leverage ‘synergistic strengths’ 

The Financial Planning Association (FPA) and the Association for Financial Counseling and Planning Education (AFCPE) will collaborate on “a number of initiatives designed to leverage the organizations’ natural synergistic strengths and resources,” the two organizations announced.

The FPA is the nation’s largest membership group for personal financial planning experts and AFCPE is dedicated to educating, training and certifying financial counselors and educators. The primary areas of collaboration will include:

• Supporting and developing the complementary disciplines and professional specialties of financial counseling and financial planning.

• Providing specially designed options to FPA members who wish to obtain Accredited Financial Counselors (AFC) and Certified Housing Counselors (CHC) certification, and to AFCPE counselors who are seeking membership within FPA and explore opportunities to work with Certified Financial Planner members of FPA

• Helping enhance personal finance research and education programming, including expanded opportunities for FPA members and AFCPE certified counselors to gain Continuing Education
• Developing communities of practice between FPA and AFCPE memberships both nationally and regionally  
• Expanding educational sessions on key personal finance topics at the organizations’ respective conferences.

Fidelity’s global investing platform adds five countries and currencies

Fidelity Investments said it will add five additional countries and currencies to its online international investing platform, enabling investors to trade international stocks and exchange foreign currencies in 17 major markets.

All of Fidelity’s retail brokerage customers can now register online to trade directly in international markets. Previously, only Fidelity’s active traders and high-net-worth investors could do so.

The new countries and currencies available to Fidelity’s retail investors are:

• Mexico; Peso (MXN)
• New Zealand; New Zealand Dollar (NZD)
• Singapore; Singapore Dollar (SGD)
• Sweden; Krona (SEK)
• Switzerland; Swiss Franc (CHF)

Fidelity’s online international investing platform was launched in 2009.  In addition to direct access to 17 foreign markets and 13 currencies, Fidelity customers also can benefit from the more than 1,400 mutual funds and 250 ETFs with international securities exposure available on Fidelity.com/InternationalTrading. From 2010 to 2011, the number of international equity executions on Fidelity.com increased 89%.

Before the expansion, 12 countries were available on Fidelity’s brokerage platform: Australia, Belgium, Canada, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Norway, Portugal and the United Kingdom, with trading in eight currencies, the Australian Dollar, British Pound, Canadian Dollar, Euro, Hong Kong Dollar, Japanese Yen, Norwegian Krone and U.S. Dollar.

Swiss Re names Group CEP

Swiss Re’s board of directors has appointed Michel M. Liès, a veteran Swiss Re executive, as the new Group Chief Executive Officer, effective February 1, 2012. He succeeds Stefan Lippe, who announced his departure last December.

Born in France, Liès is a citizen of Luxembourg. After obtaining a mathematics degree from the Swiss Federal Institute of Technology in Zurich, he became chief financial officer of a ceramics company in Brazil. He joined Swiss Re in 1978, focusing on the Latin American Life & Health markets. In 1994 he was named head of Swiss Re Iberia & Latin America Property & Casualty and starting in 1998 he served as a member of the Executive Board and head of the Latin American Division.

From 2000 through 2005, Liès led Swiss Re’s Europe Division, after which he became global head of Client Markets and a member of the Executive Committee. In 2010, he was named chairman of Global Partnerships.

The Board also announced that Moses Ojeisekhoba will join Swiss Re as CEO Reinsurance Asia. The chairman of the Swiss Re board is Walter B. Kielholz. 

Putnam names two to global consultant relations team

Charlotte Walsh and Greg Weissman have joined the Global Institutional Management Consultant Relations team at Putnam Investments. The two will be based in Chicago and Boston, respectively.

Along with current team members Keith Thomas in London, Anne Lundberg in Chicago, and two Boston-based associates, they will report to Joseph Phoenix, head of Putnam Global Institutional Management. The new team will serve the needs of institutional asset management consultants worldwide.

Walsh joins Putnam from Ranieri Partners, where she was managing director, focusing on direct sales and consultant relations. A CFA charter holder, she also worked at Allegiant Asset Management, Oppenheimer Capital, and Banc One Investment Advisors/JP Morgan Asset Management, as Stratford Advisory Group and William M. Mercer Investment Consulting.  She attended Northwestern University.

Gregory Weissman was most recently senior vice president, director of consultant relations, Old Mutual Asset Management. Prior to that, he was director, institutional sales for Cowen & Company. Weissman has also held senior roles at Pacific Crest Securities and Jefferies & Company. He is a graduate of Southern Methodist University,
Edwin Cox School for Business.

DTCC releases report on 2011 and December annuity product activity

The Depository Trust & Clearing Corporation (DTCC) Insurance & Retirement Services (I&RS) has released full-year and December information on activity in the market for annuity products from its Analytic Reporting for Annuities online information service, which leverages data from the transactions that DTCC processes for the industry. Analytic Reporting for Annuities is a service offering of National Securities Clearing Corporation, a DTCC subsidiary.

• Inflows processed by DTCC in 2011 totaled over $90 billion.
• DTCC processed nearly 45 million transactions categorized as inflows and out flows in 2011.
• Net flows in 2011 totaled almost $24 billion.
• Inflows for all annuity types processed in December increased nearly 13%, or over $860 million, to $7.8 billion from $6.9 billion in November.
• Subtracting out flows from inflows, net cash flows decreased 2.5% to $1.84 billion in December from $1.9 billion in November.
• The top 10 insurance companies accounted for over 69% of all inflows processed in December and over 68% of all inflows processed in 2011.
• Five hundred sixty one (561) annuity products saw positive net flows in December, while 2,264 annuity products saw negative net flows, where the amount redeemed exceeded the amount invested.
• For the full year, 700 annuity products had positive net flows and 2,450 experienced negative net flows.

The overall trend in inflows has been slightly down for the year, while the trend in net flows has been slightly up.

Transactions processed by DTCC show an increasing percentage of inflows being directed into IRA accounts in 2011, and a decreasing percentage of inflows directed into non-qualified accounts.

Non-qualified accounts are receiving less than 40% of cash flows. After remaining relatively flat for the past several months inflows into 401(k) plans jumped from $392 million in November to almost $749 million in December.

Looking at the net cash flow (subtracting out flows from inflows) distribution displays the greater persistence, or “stickiness,” of investments into qualified plan accounts. In 2011 regular IRA accounts took the lion’s share of positive net flows with 77%. 401(k) plans attracted 13%, and non-qualified accounts attracted only slightly less than 6% of positive net flows, far from the 39% of inflows going into these accounts.

In August 2011, DTCC joined forces with the Retirement Income Industry Association (RIIA) to analyze cash flows by RIIA-defined broker/dealer distribution channels and product categories. For the six distribution channels defined by RIIA, the following are the percentages of inflows processed by the I&RS in December:

• Independent broker/dealers – 25%
• Wirehouses – 23%
• Regional broker/dealers – 15%
• Bank broker/dealers – 12%
• Insurance broker/dealers – 9%
• Others – 16%

DTCC, through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. It is also a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks.

DTCC’s depository provides custody and asset servicing for more than 3.6 million securities issues from the United States and 121 other countries and territories, valued at US$36.5 trillion. In 2010, DTCC settled nearly US$1.66 quadrillion in securities transactions. DTCC has operating facilities and data centers in multiple locations in the United States and overseas.   

Personal financial stress affects employee performance and retirement savings, HR survey shows

A survey of employer-sponsored financial education initiatives shows that U.S. workers’ money worries are impacting their work performance and retirement savings plans.

The survey from the Society for Human Resource Management asked HR professionals key questions, including, “In the past 12 months, have employees been more likely to dip into their employer-sponsored retirement savings plans compared with previous years?” More than half—55%—of HR professionals agreed while 17% strongly agreed. A little less than a quarter, or 24%, disagreed, and three percent strongly disagreed.

When asked the impact of employees’ personal financial challenges upon work performance, roughly one in five—22%—of HR professionals cited a “large impact.” Sixty-one percent noted “some impact” while 16% responded, “slight impact.” Only two percent of HR professionals observed “no impact” upon workers.

“The source of money woes is unsurprising but the toll it’s taking on both workers and their employers, in addition to the persistence of the weak economy, are all troubling issues,” said Mark J. Schmit, Ph.D., SPHR, vice president of research at SHRM.

A closer look at the impact on work performance shows that:

• 47% of HR professionals noticed employees’ struggle with their “ability to focus on work”;
• 46% noticed issues with “overall employee stress”;
• 26% observed a negative impact on “overall employee productivity”;
• 24% said money woes are leading to “employee absenteeism and tardiness”;
• 20% are concerned about “overall employee morale”;
• 12% noticed a negative impact on “overall employee health” ; and
• 7% said “working relationships with other employees” are the least impacted.

To understand what employer-sponsored financial education programs need to cover, the survey examined the sources of personal financial stress. Nearly half—49%—of HR professionals said employees are stressed by an “overall lack of monetary funds to cover their personal expenses.”

SHRM surveyed 458 randomly selected HR professionals from its membership.

Actuaries identify four national priorities

The American Academy of Actuaries has released what it considers key policy priorities needed to restore the nation’s fiscal health and financial security, saying it “hopes the president will place these priorities high on his policy agenda this year. There are mounting risks facing important public programs and private systems critical to the nation’s retirement security and financial strength, and the actuaries urge all policymakers at the joint session of Congress to work together toward viable and sustainable solutions.

“Failure to act to address these significant financial problems makes them more difficult to successfully manage and mitigate,” said Dave Sandberg, president of the American Academy of Actuaries.

Priority: Achieve long-term sustainability of the Social Security and Medicare programs

The actuaries believe that recent efforts to curb deficits and address the nation’s fiscal challenges have been missed opportunities to restore both programs’ financial viability and provide security to future generations of retired Americans.

Specifically regarding Social Security, the actuaries renew their recommendation to policymakers to restore actuarial balance to the program by including an increase in the retirement age in any reform measure. Life expectancy improvements have increased the program’s payout of benefits and system costs. An increase in the retirement age, however, would help stem this cost growth and lead to a more financially sustainable system.

Priority: Achieve retirement security through new retirement framework

Policymakers also must address the challenges of longevity risk, inflation risk, investment risk, and their effects on retirement security. Actuaries had considerable concerns regarding adverse selection and sustainability with the Community Living Assistance Services and Supports (CLASS) program adopted as part of the Affordable Care Act, and, in 2011 the Department of Health and Human Services indicated that it would not implement the program. A renewed focus on meeting the long-term care needs of an aging population is needed. Providing consumers with greater financing options for long-term care services and supports should also be a part of any new retirement framework.

Priority: Achieve goals of health reform

The American Academy of Actuaries believes curbing health care spending growth, reducing the number of uninsured, increasing access to affordable health coverage, and improving health care quality are fundamental to providing health security to all Americans.

Priority: Successfully manage financial systemic risk 

Actuaries believe that regulatory systems will better anticipate future systemic risk by incorporating sound risk management principles. The new regulatory regimes should employ the appropriate oversight, expertise and accountability necessary to mitigate the effects of risks that could threaten the stability of the nation’s financial system.

The American Academy of Actuaries, which has 17,000 members, assists public policymakers on all levels and sets qualification, practice, and professionalism standards for actuaries in the United States.

© 2012 RIJ Publishing LLC. All rights reserved

For the fourth quarter of 2011, the John Hancock Investor Sentiment Index score is +15, an improvement from the annual low of +10 measured in the year’s third quarter.  

The fourth quarter survey was conducted in late November through early December of 2011. The John Hancock Investor Sentiment Index is a quarterly poll of approximately 1,000 investors, and reflects the percentage of those who say they believe it is a “good” or “very good” time to invest, minus those who feel the opposite.

Many of those surveyed “feel better about investing in retirement vehicles, like 401(k)s and IRAs,” according to a release. “Three out of four investors said they believe that now is a good or very good time to be investing in retirement products such as 401(k) plans and IRAs (73% each). Both of these figures represent meaningful increases over last quarter’s lows (66% for 401(k)s and 67% for IRAs in Q3).”

“Investors are dealing with market uncertainty by further diversifying their investments,” observed Bill Cheney, chief economist for John Hancock. “Half of the investors surveyed say it is a good time to invest in balanced mutual funds, and about three-quarters say they plan to invest in mutual funds in 2012.”

More than half of the investors surveyed said they expect to be in a better position financially two years from now compared with today. A little more than a third of investors think they are in a better financial position today compared with two years ago; 41% said they are in about the same position, and 25% said they are worse off.

Three-quarters of American investors (72%) believed that consumer spending this holiday season would help the U.S. economy and stock market.  Most (61%) planned to spend the same amount of money on the holidays as they did in 2010, though 25% said they planned to spend less. About a third (31%) said they planned to cut back on gifts to friends and colleagues, while 83% planned to spend the same amount or more on family.

Most (65%) believe that fewer than 10% of Americans actually make and keep New Year’s resolutions. However, those who are employed say that saving for retirement is their top financial priority for 2012. More than a quarter (27%) intend to trim household budgets and reduce debt.

Financial New Year’s resolutions appear directly related to investors’ primary concerns for the new year ahead, which include declining investment values (37 percent) and not being able to accumulate enough savings for retirement (18 percent.)

Other findings for Q4 2011 include:

• Investors continue to think long-term (95%) and are focused on savings (90%).
• A greater share of investors (62%, compared to 53% in Q3) feel that now is a bad or very bad time to hold cash in the form of CDs or money market funds.   
• The national debt (63%) and the cost of healthcare (61%) remain as issues investors are most concerned about.  Consistent with Q3 results, more than half (54%) say they are highly concerned about the unemployment rate.
• Just one in three (37%) are very concerned about oil and gas prices, compared to 62% who worried about them in the second quarter of 2011.
• Only 20% of investors feel that gold will perform the best in the coming six months, compared to 32% who felt gold would outperform other investment types in the third quarter.

John Hancock’s Investor Sentiment Survey is a quarterly poll of 1,001 investors with household incomes of at least $75,000 and assets of $100,000 or more. Mathew Greenwald & Associates conducted the survey in November and December 2011.    

Cerulli projects that in 2013 the wirehouse channel will remain the largest distribution channel despite an anticipated decline of its share of assets under management to 35% in 2013 from 43% in 2010. 

Wirehouses were hurt by the 2008 bear market and by their perceived roles in the financial crisis, Cerulli’s Bing Waldert said. While the financial advisor industry grew from to $11.2 trillion in 2010 from just under $11 trillion in 2007, wirehouse assets dropped to $4.8 trillion from $5.5 trillion during that same period. 

Nonetheless, the four wirehouses (Bank of America/Merrill Lynch, Morgan Stanley Smith Barney, UBS, and Wells Fargo Advisors) remain the best capitalized in the asset management industry, and much of their recent market share loss came from planned attrition, as they forced out lower producing, less profitable advisors.

Wirehouses may be less concerned about market share than profitability, Cerulli noted. While scale is essential to these firms, they may want to serve only the most productive advisors. Morgan Stanley Smith Barney, for one, has publicly stated that it seeks a 20% profit margin from its wealth management business. Both Morgan Stanley Smith Barney and Bank of America/Merrill Lynch have trimmed middle management layers, aggressively cutting lower producing advisors.

“The future growth of wirehouses is through their largest advisor teams,” said Waldert. “Not via organic growth, but by supplementing these teams with junior advisors in order to free the principal advisors to continue their focus on business development.”

He warned, however, “It must be understood where these advisors will come from if these firms are not successfully hiring new advisors into the industry. Second, given the number of flexible options for an advisor, any cost-cutting in the name of profits that affects these advisors’ businesses could cause them to leave the firm if they feel that they are not being adequately supported.” 

© 2012 RIJ Publishing LLC. All rights reserved.

When asked to comment on Warren Buffett’s now-famous call for the wealthy to pay more taxes and give more to charity, 49% of U.S. millionaires agreed but said they’re not in Buffett’s league, 29% said Buffett was wrong, and 22% agreed.

Those statistics were among the findings of the eighth annual Wealth and Values Survey by PNC Wealth Management, a unit of The PNC Financial Services Group, Inc.  

Despite the nation’s financial troubles, the number of millionaires who agree or strongly agree with the statement, “I have an obligation to give back to my community,” remains at 59%, the same number as in 2008.

To improve the national economy, 31% of millionaires would “reduce taxes on individuals and businesses,” while 20% support raising taxes on the wealthy, 15% would reduce the costs of Social Security, Medicare and/or Medicaid, 15% would reduce the defense budget, and 10% would provide new government stimulus by the government.  

The number of millionaires concerned about their ability to give to charities has declined to 11% from 20 percent in 2008, according to the survey of 555 Americans with assets of $1 million or more. 

The survey showed that 22% intend to cut back on charitable giving, while 46% plan no change and 21% plan to increase their giving.

In addition, 83% believe that investment in private business and industry is the best way to improve society. At the same time, 70% feel a responsibility to help the less fortunate and 64% believe they should give “substantial sums” to charities to improve society.

The number who donated between $25,000 and $999,000 to charity doubled in 2010, to 24%, from 12% in 2008. 

Other findings in the Wealth and Values Survey by PNC, which is among the nation’s top 10 bank-owned wealth management firms, also revealed insights about the following issues:

• Greta Garbo syndrome: 65% say they “want to be left alone by politicians” to enjoy their earned wealth however they choose, and 80% view reinvestment as the key to progress.
• Institutional dysfunction: 76% feel that the U.S. government has serious flaws in how it works, 85% say the U.S. political system has serious flaws, and 47% believe the U.S. financial system is flawed.
• Response to higher taxes: If taxes increase, nearly four in 10 millionaires would “change their investment strategy” and one in four would give less to charity. Thirteen percent would work less, 7% would work harder, while 41% would not change anything.
• Bearish on the future: 71% of millionaires believe they are “much better off compared to parents at this same age.” Only 10% believe their children will be able to say the same when they are older.   

Survey Methodology

The Wealth and Values Survey was commissioned by PNC to identify attitudes about wealth among high-net-worth individuals, how it affects their lives and their needs in managing wealth. Artemis Strategy Group conducted the online survey from September 15 to October 11, 2011.

Jefferson National completes management buyout  

Jefferson National Financial has completed an $83 million management buyout financed by Financial Partners Fund (a unit of Citi Capital Advisors), The Stephens Group and private investor Eric Schwartz. The buyout was led by Mitchell H. Caplan, Jefferson National’s CEO.   

The company, which sells variable annuities to Registered Investment Advisors (RIAs) and fee-based advisors primarily as tax deferral vehicles, charges a flat insurance fee of $20 a month rather than commissions or expense ratios, and has taken advantage of the trend away from commission-based sales by advisors.

In a statement, Caplan said, “Starting in 2005, Jefferson National completely re-engineered the way variable annuities are bought and sold with a singular focus on serving fee-based advisors.

“Transforming the product with a proprietary technology platform, and rebuilding the distribution from the traditional wholesaler-driven model to a unique direct-marketing model, we have been able to dramatically reduce costs, create greater consumer value and become the leading variable annuity provider to the fee-based channel.”  

  A former CEO of E*Trade Financial, Caplan joined Jefferson National in 2010, reuniting with a leadership team that worked on Telebank, the nation’s first direct bank, and E*Trade. The team includes Laurence Greenberg, president of Jefferson National and former COO of Telebank, and David Lau, chief operating officer of Jefferson National. During their tenure, Telebank’s deposits grew from $200 million in 1994 to more than $8 billion in 2000. During Caplan’s tenure as CEO of E*Trade, revenue increased from less than $1 billion in 2003 to approximately $3 billion in 2006.

Donna MacFarland named CMO at Lincoln Financial

Lincoln Financial Group has named Donna MacFarland chief marketing officer of its Retirement Plan Services business. She will lead marketing initiatives, including the development of integrated business-to-business and business-to-consumer marketing strategies, and will manage Retirement Plan Services Participant Communications and Education offering.

MacFarland joined Lincoln in May 2010 as marketing director. She reports to Chuck Cornelio, president of Retirement Plan Services for Lincoln Financial.

Prior to joining Lincoln, MacFarland was founder and president of Symphonic Marketing, LLC, a marketing strategy consultancy focused on partnering with companies to drive growth through insights generation and marketing planning. Previously, she held senior brand management and marketing positions with The Vanguard Group, Inc., Merrill Lynch, Citibank, and Smith Barney.

Thomas Mann and Laura Dagan join F-Squared board 

Thomas F. Mann and Laura P. Dagan have joined the Board of Directors of F-Squared Investments, which currently has nearly $6 billion in assets under management or model manager agreements, the company said in a release.

Mann is a managing director and senior banker at Société Générale (SocGen) in New York. Dagan retired in 2010 as chairman of Dwight Asset Management Company, a fixed income and stable value asset management firm that invests on behalf of institutional clients including retirement funds and endowments.  

Mann and Dagan are the fourth and fifth members to join F-Squared’s board, which includes the firm’s president and CEO, Howard Present; vice chairman, George McClelland; and outside director Steve Ricci, the co-founder of OneLiberty Ventures and Special Partner at Flagship Ventures.

Mann, a Chartered Financial Analyst, graduated from State University of New York in 1972 and holds an MBA from New York University and a JD from Fordham Law School. He has also completed the Advanced Management Program at Harvard Business School. 

Dagan, a Chartered Financial Analyst, graduated from Bucknell University in 1974 and attended the Women’s Director Development Program at the Kellogg School of Management. She has also completed the Advanced Management program at Harvard Business School.