Posts Tagged ‘Financial services’
Posted by William Byrnes on July 19, 2011
Individuals in the fastest growing class of investors—the mass affluent—need your advice. According to a recent report, there is a void in representation by financial professionals this group. As a corollary, they lack confidence in their ability to meet their financial goals, making them desirable candidates for professional services.
The mass affluent are investors occupying the upper tier of the mass market—the biggest group of consumers. But “mass affluent” isn’t just a synonym for “upper middle-class”; it is a subset of the upper middle-class with $50,000 to $250,000 in “investable assets.”
Depending on your career trajectory, the mass affluent can be resourceful in establishing the foundation for a successful practice. A majority (55 percent) of the mass affluent believe they will be wealthy one day. Although only a small number of the mass affluent will move into high-net-worth territory, you can get in on the ground floor of the upward career trajectory of those who will. Read this complete analysis of the impact at AdvisorFX(sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Wealth Management | Tagged: Business, Financial services, Investing, Mass affluent, Social media, United States, Upper middle class, Wealth | Leave a Comment »
Posted by William Byrnes on July 18, 2011
Which prevails when it is time to make a claim, a last in time divorce decree or a beneficiary designation made at the time of the application years ago? A wife had her estranged husband, sign a separation and property-settlement agreement to release him from any claims to her estate or property. When the wife passed away, her former husband sought the life insurance proceeds, as did her mother and son. The answer is provided in a cautionary tale of beneficiary designations told in a recent 4th circuit case.
Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)
For previous coverage of beneficiary designations in Advisor’s Journal, see The Effect of Divorce on Life Insurance Beneficiary Designations (CC 10-39) & Don’t Overlook Beneficiary Designations and Settlement Options (CC 09-28).
For in-depth analysis of beneficiaries and settlement options, see Advisor’s Main Library: D – Problems In Beneficiary Designations.
Posted in Wealth Management | Tagged: Beneficiary, Business, Death, Financial services, insurance, Insurance policy, Life, life insurance | Leave a Comment »
Posted by William Byrnes on July 18, 2011
A recent IRS Revenue Ruling provides an important reminder for us of the rules for deducting interest that’s paid or accrued on a business life insurance policy loans. Knowing how and when policy loan interest is properly deductible can mean the difference between closing the sale in the first instance and an IRS audit down line if these rules are ignored.
In general, interest paid on a life insurance policy loan is not deductible for income tax purposes; but there are some exceptions for life insurance purchased for business purposes. The deductibility of policy loan interest has changed significantly over the past 20 years, so an intimate knowledge of the specifics is imperative when selling or transacting on a policy that’s issued to a business. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous Advisor’s Journal coverage of the exception to the pro rata limitation on interest deduction, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC-11-41).
For in-depth analysis of corporate-owned life insurance, see Advisor’s Main Library: D—Deductibility Of Business Insurance Premiums, E—Premiums As Taxable Income To The Insured & F—Taxability Of Corporate Owned Life Insurance Proceeds At Death.
Posted in Taxation, Wealth Management | Tagged: Agents and Marketers, Business, Financial services, insurance, Insurance policy, Internal Revenue Service, life insurance, Taxable income | Leave a Comment »
Posted by William Byrnes on July 17, 2011
Last month, Advanced Market expert Barry Flagg talked about the relevance of policy cash values to the overall suitability of a permanent life insurance policy. This month, he expanded on the cash value topic by addressing how cash value is generally a product of the number of cash value investment options, the historical performance of such cash value investment options, and the cost-effectiveness of the various cash value allocation options.
Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of valuation in Advisor’s Journal, see Life Insurance Valuation (CC 10-09).
Posted in Wealth Management | Tagged: Agents and Marketers, Business, Financial services, insurance, Insurance policy, Life, life insurance, United States | Leave a Comment »
Posted by William Byrnes on July 12, 2011
Advisors understand that referrals from existing clients are their best source for new business, but what else is working, and how effective are other methods being used by advisors to generate new business? A recently released survey provides us with a laundry list of approaches used by advisors to solicit new clients and gauges the productiveness of their marketing efforts. The survey, which polled 262 financial advisors in November and December of 2010, found that client referrals are still the top way advisors generated new business. Behind client referrals, professional referrals were the second biggest producer. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Wealth Management | Tagged: Business, Business and Economy, Canada, Certified Financial Planner, Financial adviser, financial planning, Financial services, Investment | Leave a Comment »
Posted by William Byrnes on May 5, 2011
Summit Business Media today announced that it has assembled a “dream team” of wealth management, financial planning and advanced sales professional reference experts to expand the content and scope of Advanced Markets AdvisorFX, the primary online source of practice-building and client-management tools for financial advisors and insurance professionals.
Advisors can try Advanced Markets AdvisorFX FREE for 15 days by going to http://www.advisorfxinfo.com and clicking on the “Free Trial” button to get started.
Rick Kravitz, Vice President & Managing Director of Summit Business Media’s Reference Division, noted thatAdvanced Markets AdvisorFX’s editorial advisory panel is comprised of experts from the international wealth management team at Thomas Jefferson Law School in San Diego led by Prof. William H. Byrnes, Associate Dean. He added, “Prof. Byrnes and his team bring enormous technical expertise as well as broad insights into the larger trends driving client decisions on tax, investment and wealth management strategies.”
Prof. Byrnes is a former Coopers & Lybrand expert in international law who has consulted for foreign governments as well as Fortune 1000 insurance and institutional investment companies. Other members of his team include:
• Robert Bloink, former Senior Attorney in the IRS Office of Chief Counsel and an expert in sophisticated wealth transfer techniques;
• George Mentz, a licensed attorney, MBA, and financial planner who was formerly a Senior Financial Planner and Wealth Manager for an international Wall Street firm;
• Don Goode, an insurance professional and former partner of Potomac West, where he lent active support to the first agent in the history of the insurance industry ever to receive more than $100 million in a single calendar year;
• Mike Rodman, three-time winner of “Top of the Table,” the Million Dollar Round Table’s highest honor, and founder of Advanced Planning Services, a premier advanced sales and advanced underwriting organization; and
• Robert Stuchiner, former Senior Vice President in charge of marketing and strategy for the AIG Affluent Markets Group.
Advanced Markets AdvisorFX’s unique content is designed to give users resources to attract new clients, grow their business and serve more markets. The content menu includes:
• The Advanced Underwriter Service (formerly from Dearborn Financial);
• The Advanced Sales and Reference Service (National Underwriter);
• Concepts and Client Illustrations from Don Cady’s classic estate planning, employee benefits and business planning Field Guides;
• Tax Facts on Insurance and Employee Benefits as well as Tax Facts on Investments, the largest circulation works of their kind in the insurance industry;
• Advisor FYI – daily headlines from media coverage of financial and estate planning issues;
• Advisor’s Journal – lengthy analysis and roadmap guidance on critical taxation and estate planning issues; and
• White papers on major legislation such as the Tax Relief Act of 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Pension Act of 2010 and others.
About Summit Business Media
Summit Business Media is the leading B2B media and information company serving the insurance, investment advisory, professional services and mining investment markets through a variety of channels, including print, online and live events. Summit provides breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data to the markets it serves. Through its Media and Reference Divisions, Summit publishes 16 magazines, 20 websites and 150 reference titles. Summit’s Event Division hosts a dozen conferences across the spectrum of markets the company services. Summit’s Data Division is the leading data provider of financial, marketing and benefits information on corporations, insurance companies and life, benefits and property-casualty agents.
Summit employs nearly 400 employees in ten offices across the United States.
Posted in Wealth Management | Tagged: American International Group, Don Goode, Financial planner, Financial services, Million Dollar Round Table, Summit Business Media, United State, Vice president | Leave a Comment »
Posted by William Byrnes on May 3, 2011
The SEC recently considered a proposal that would prohibit incentive-based compensation practices that may encourage inappropriate risk.
The proposal arises from Section 956 of the Dodd-Frank Act, which requires the SEC along with six other financial regulators to jointly adopt regulations or guidelines governing the incentive-based compensation arrangements of certain financial institutions. These institutions include broker-dealers and investment advisers with $1 billion or more of assets.
In particular, the Dodd-Frank Act calls upon the regulators to do two things: Read the analysis at AdvisorFYI
Posted in Compliance, Wealth Management | Tagged: Broker-dealer, Business, Dodd–Frank Wall Street Reform and Consumer Protection Act, Financial institution, Financial regulation, Financial services, Incentive, United States | Leave a Comment »
Posted by William Byrnes on April 27, 2011
A growing number of consumers are opting for pre-packaged, low-cost portfolio managers. Portfolio-to-go companies can, at least nominally, provide many of the same services as full-service brokerage firms, since the companies are registered as either investment advisors or broker-dealers. And minimal overhead and services allow them to offer those services without the “high” price tag at brick-and-mortar institutions.
Portfolios-to-go have exploded in popularity recently, bringing in over $3 billion in assets over the past three years. Read this two-page article by linking to AdvisorOne – a National Underwriters Summit Business open-access original content wealth management news portal.
Posted in Wealth Management | Tagged: Brokerage firm, Brokerages, Business, Financial services, Investing, Investment Services, TD Ameritrade, U.S. Securities and Exchange Commission | Leave a Comment »
Posted by William Byrnes on April 12, 2011
Now more than ever, clients and potential clients are concerned about how they’re going to continue to enjoy the lifestyle they’ve grown accustomed to pre-retirement. Most clients are still looking for the same basic retirement advice from their advisors—advice on how to define and meet their retirement goals.
Following the recent financial crisis, your affluent clients are more likely to gravitate to conservative investment strategies that will preserve their hard-earned principle. But many of them are not clear on the risks of that strategy—they aren’t aware of the opportunities they’re missing.
You can help them reach the retirement they want and find the level of risk appropriate to their long-term goals. Here’s a breakdown of their values and priorities and how you can appeal to them. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of high net worth investors in Advisor’s Journal, see High Net Worth Clients: How to Find Them, How to Service Them (CC 10-07).
For in-depth analysis of investment planning for affluent clients, see Advisor’s Main Library: Investment Planning.
Posted in Wealth Management | Tagged: Business, Certified Financial Planner, Financial adviser, Financial services, Investing, Investment Advisor, Retirement, United States | Leave a Comment »
Posted by William Byrnes on April 11, 2011
The Obama administration’s 2012 budget includes an attack on corporate owned life insurance that could further erode its tax advantages and put a ding in carriers’ balance sheets. Washington’s repeated assaults on corporate-owned life insurance seem to be motivated by its view of corporate owned life insurance as simply a tax arbitrage opportunity for big corporations, ignoring its importance for smaller businesses that rely on a few key people to keep them afloat. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of corporate-owned life insurance, see Advisor’s Main Library: D—Deductibility Of Business Insurance Premiums, E—Premiums As Taxable Income To The Insured & F—Taxability Of Corporate Owned Life Insurance Proceeds At Death.
Posted in Insurance, Tax Policy | Tagged: Agents and Marketers, Business, Corporate-owned life insurance, Financial services, insurance, life insurance, United States, Washington | 1 Comment »
Posted by William Byrnes on April 4, 2011
Last month, we discussed the obvious relevance of pricing competitiveness to overall life insurance product suitability. This month, we discuss the stability of pricing representations which is also a factor of suitability. After all, pricing that appears competitive at the time of sale/purchase but which cannot be maintained can be worse than a less-competitive product with more stable pricing representations.
For instance, while premiums are often considered the price/cost of a life insurance policy, the premium is not the price/cost of a life insurance policy (unless contractually guaranteed like in term life insurance or guaranteed universal life insurance) any more than the $2,000 contributed to an Individual Retirement Account (IRA) is the cost of the IRA. In both cases, the cost is the sum of what is deducted from the premium/contribution. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of suitability in Advisor’s Journal, see Life Insurance Product Suitability (CC 10-90), Financial Strength and Claims-Paying Ability (CC 10-115) & Cost Competitiveness of Life Insurance (CC 11-11).
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Pricing, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on April 3, 2011
Why is this Topic Important to Wealth Managers? This topic discusses the new regulatory agency that will have an effect on most life insurance companies doing business in New York. Because the new regulatory agency will oversee insurance and banking, it is likely that changes in the insurance compliance law are just around the corner. After the financial crisis of 2008, it appears New York is taking action to prevent future disruptions in the market. Wealth managers should be aware of the new agency as changes to insurance regulation and compliance are sure to result from the creation of this organization.
New York State is in the process of creating a new Department of Financial Regulation (DFR) which is designed to harnesses the regulatory powers and expertise of the Banking and Insurance Departments, as well as the Consumer Protection Board, by combining the functions of each, to make the State’s oversight of financial services responsive to the 21st century needs of the industry and its consumers.
This new State agency, created pursuant to legislation submitted as part of the 2011-2012 State Executive Budget, consolidates the functions, operations and staff of the Banking and Insurance Departments, along with related segments of the Consumer Protection Board, into a single State agency.
Consolidation of these agencies and activities within a single agency platform is intended to afford the State the ability to unify the State’s regulation of financial services and to more rapidly and capably respond to changing market practices and consumer preferences, thereby ensuring the industry’s continued integrity while shielding consumers from abuses.
In addition to enhancing and refining the State’s regulatory oversight of the industry, the consolidation will provide the State with the opportunity to reduce overall spending with the use of shared services.
The Superintendent of the Department of Financial Regulation will be appointed by the Governor, with the consent of the Senate. The Department’s main offices will be located in Albany and New York City.
The Department’s main responsibilities will be carried out through two major programs: regulation and consumer protection. Read the analysis at AdvisorFYI
Posted in Compliance, Insurance | Tagged: Consumer protection, Financial services, Government agency, insurance, New York, New York State, Regulation, United States | Leave a Comment »
Posted by William Byrnes on March 7, 2011
Although supervising the cost of insurance embedded in life insurance premiums has historically been the domain of state insurance commissioners, the U.S. District Court for the Central District of California has intervened in one recent case, ruling on January 19 that Conseco Life Insurance Co. cannot increase the premiums it charges 50,000 of its existing policyholders.
The premium increase was part of a plan by Conseco to reduce its long-term losses. Rather than post reserves, Conseco looked for a way to reduce its future liabilities by $173 million. They targeted two blocks of universal life policies that had lower than expected lapse rates, using a pricing formula that would explode the cost of insurance charged in the policies’ 21st year after issuance. Customers who’d held the affected policies longest would have seen their premiums increase in 2010 or 2011. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of another carrier lawsuit in Advisor’s Journal, see Carriers Targeted by Suit Over Losses on Madoff Investments (CC 11-06).
For in-depth analysis of the income taxation of life insurance, see Advisor’s Main Library: A—Definition of “Life Insurance” For Income Tax Purposes.
Posted in Insurance | Tagged: Business, Conseco, Financial services, income tax, insurance, life insurance, United States, Universal life insurance | Leave a Comment »
Posted by William Byrnes on February 28, 2011
Federal interference in the regulation of the insurance industry could be around the corner, but the states are not going to cede their authority without a fight.
State legislators fear that “important funds and jobs could be lost if Congress authorizes a federal insurance charter and creates a new bureaucracy to regulate insurance.” According to a letter sent by NCOIL (The National Conference of Insurance Legislators) to every member of the 112th Congress, a federal insurance charter could cost states as much as $16 billion in revenue annually—representing lost fees and taxes generated for the states by insurance business. ….
Although the FIO itself is not given regulatory authority by the Wall Street Reform Act, the studies mandated by the Act may signal that the Feds are interested in expanding their reach into the insurance industry. And, it would be naïve to think that the FIO studies will find that federal regulation of insurance companies is absolutely unnecessary—given the role of insurance companies like AIG in the financial crisis. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the Federal Insurance Office in Advisor’s Journal, see The Federal Insurance Office (CC 10-55).
Posted in Insurance | Tagged: Financial services, insurance, Insurance policy, Regulation, Regulators | Leave a Comment »
Posted by William Byrnes on February 17, 2011
A recent Delaware Court of Chancery decision illustrates the severe consequences that can befall an insurance agent trustee who violates his or her duties to the trust’s beneficiaries. The agent in the case agreed to serve as trustee of a client’s life insurance trust.
The client, a Father, had a falling out with his son over the Father’s marriage to a woman 17 years his junior. Nevertheless, the Father and his second wife formed a trust for the benefit of the son. The couple asked their family insurance agent to serve as trustee of the trust. The trust purchased a second-to-die life insurance policy on their lives. Although the trust was irrevocable, the Father ad young wife asked the trustee to revoke the trust only three years after it was formed. The trustee intelligently refused to revoke the trust, but did agree to loan the policy’s cash value to the couple.
Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Trusts | Tagged: Business, Delaware Court of Chancery, Financial services, Fred Wilpon, insurance, Lawsuit, Trustee, United States | Leave a Comment »
Posted by William Byrnes on February 14, 2011
Cost competitiveness of life insurance policies is an obvious determinant of suitability. Keeping costs low is critical because every dollar spent on expenses is one less dollar available to purchase more death benefit. In fact, a recent study by Morningstar revealed that “Low fees are likely to be the best predictor of a mutual fund’s future success,” and the same certainly holds true for life insurance products.
While different insurers refer to different policy expenses in different ways, all policy expenses in all life insurance policies fall into the following four categories: 1) cost of insurance charges (COIs), 2) fixed administration expenses (FAEs), 3) cash-value-based “wrap fees” (e.g., M&Es), and 4) premium loads. Each type of policy expense and its role and relevance in pricing and suitability is discussed in the complete analysis at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of life insurance product suitability in Advisor’s Journal, see Life Insurance Product Suitability (CC 10-90) and Financial Strength and Claims-Paying Ability (CC 10-115).
We invite your questions and comments by posting them or by calling the Panel of Experts.
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Morningstar, Policy, United States | Leave a Comment »
Posted by William Byrnes on February 1, 2011
Robert Fier was employed as a gaming machine operator in Las Vegas, Nevada. He worked his way up through the company to be promoted to a managerial position. During this time, Fier enrolled in an insurance program offered by the company to managers. The enrollment entitled Fier to two insurance policies, a Long Term Disability Policy and a Group Life and Accidental Death and Dismemberment Insurance Policy.
The long term disability plan stated, in essence, Fier was entitled to payments upon the occurrence of disability if he earned less than 80% of what he had before the accident. Also, the policy payments terminated if he starting making over 80% of what he had before the accident. The group life and accidental death and dismemberment policy will be discussed in more detail below.
After five years with the company, Mr. Fier was shot in the throat during a hunting accident. The individual who shot Fier on that hunting trip (in the great state of Utah) was evidently intoxicated. The accident left Fier a quadriplegic for life.
Mr. Fier was then offered a position at the same company that was designed specifically to fit his new disability. The company continued to pay Fier the same amount as it had before the accident. However, after four more years, the company assigned Fier to a new position and lowered his salary by $20,000 annually. Mr. Fier then filed a claim under his long term disability policy. To read this article excerpted above, please access AdvisorFYI
Posted in Uncategorized | Tagged: Accidental death and dismemberment insurance, Disability, Disability insurance, Financial services, insurance, Insurance policy | Leave a Comment »
Posted by William Byrnes on January 25, 2011
Although overshadowed by the fight over the Obama tax agreement, mutual fund legislation passed the House on December 15. The Registered investment Company Modernization Act of 2010 (RICM Act), H.R. 4337, was originally passed by the House on September 28, but the Senate amended the bill, forcing a second vote in the House. The President signed it into law December 22 – Public Law 111-325.
Tax Code provisions governing mutual funds have not had a substantial update since 1986, with some components of the Code relating to mutual funds sitting untouched for sixty or more years. The tax and regulatory landscape has changed significantly in the intervening years, which has left the tax rules for mutual funds sorely in need of updating.
The RICM Act brings the Tax Code’s treatment of mutual funds and other registered investment companies (RICs) up to date by introducing the following provisions to the Tax Code, among others: Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of mutual fund investment in Adviso’rs Journal, see Can Term Life Coupled with a Mutual Fund Investment Replace a Variable Universal Life Policy? (CC 10-77).
Posted in Tax Policy | Tagged: Business, Business and Economy, Financial services, Funds, Investing, Investment, Mutual fund, tax | Leave a Comment »
Posted by William Byrnes on January 20, 2011
Beginning last week life insurance brokers in the Big Apple started disclosing commissions to consumers. New York is one of the first states that are mandating life insurance commission details to be disclosed to clients.
Under New York Insurance law, [1] an insurance producer selling or renewing an insurance contract must disclose the following information to the purchaser orally or in writing not later than application for the insurance contract or the renewal:
(1) whether the insurance producer represents the purchaser or the insurer for purposes of the sale;
(2) that the insurance producer will receive compensation from the selling insurer based on the insurance contract the producer sells;
(3) that the compensation insurers pay to insurance producers may vary depending on a number of factors, including the insurance contract and the insurer that the purchaser selects, the volume of business the producer provides to the insurer or the profitability of the insurance contracts that the producer provides to the insurer; and
(4) that the purchaser may obtain information about the compensation expected to be received by the producer for the sale and for any alternative quotes obtained by the producer by requesting such information from the producer.
To read this article excerpted above, please access http://www.advisorfyi.com/2010/12/new-york-life-insurance-commission-disclosures/
Posted in Insurance | Tagged: Agents and Marketers, Big Apple, Business, Financial services, healthinsurance, insurance, Insurance policy, United States | Leave a Comment »
Posted by William Byrnes on January 7, 2011
Can life insurance agents and their carriers be held responsible for adverse tax consequences resulting from their advice to customers about transactions involving the policies agents recommend and sell? A customer who relied on agents for tax advice concerning an annuity transaction believed the agents should be held to account for recommending a transaction that turned out to carry an unexpected tax bill. She sued the Insurance Company in federal district court, claiming its agents committed fraud against her by failing to inform her of the tax consequences of an annuity rollover.
The plaintiff owned two annuities—valued at about $80,000 and $12,000—that she received in a divorce settlement. She contacted the insurance company to find out her options for rolling the annuities over into one policy. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
We invite your questions and comments by posting them or by calling the Panel of Experts.
Posted in Insurance | Tagged: Agent Resources, Business, Customer, Financial services, healthinsurance, insurance, Law of agency, Patient Protection and Affordable Care Act | Leave a Comment »
Posted by William Byrnes on January 6, 2011
Life insurance is often touted as an iron-clad asset protection vehicle since many states exempt life insurance policies from attachment by an insured’s creditors. Life insurance can even provide limited asset protection in bankruptcy.
But life insurance is not a foolproof method of protecting family assets from all creditors, as illustrated by a recent U.S. District Court case. In that case, an insured sued his insurance company and the IRS after the insurance company paid over the cash value of a life insurance policy to the IRS to satisfy a tax levy. The insured’s wife and daughter were the beneficiaries of the life insurance policy, which would have shielded the policy from creditors in many states, including his. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of asset protection in Advisor’s Journal, see Domestic Asset Protection Trusts: New Chart Ranks the States (CC 10-30).
For in-depth analysis of asset protection, see Advisor’s Main Library: G—Domestic Asset Protection Trusts.
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Insurance | Tagged: Asset, Business, Financial services, insurance, Insurance policy, Life, life insurance, United States | Leave a Comment »
Posted by William Byrnes on December 17, 2010
Much has been written about financial reform in the popular press. But where can insurance professionals find specific guidance on how the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (“the D-F Bill”) affects them?
For the insurance industry, the focus of the 2,000-page D-F Bill is Title V, which creates a Federal Insurance Office (FIO) within the U.S. Treasury. Under Title V, the Secretary of the Treasury is given rulemaking authority to implement and delegate the new duties of the FIO. The D-F Bill also establishes that surplus and reinsurance insurers will be subject to the regulation of their “domicile” instead of having to comply with multiple state requirements.
The FREE white paper we have prepared covers all of this—and more—in clear and concise detail. Please CLICK HERE to access and download your copy from AdvisorFX—absoluetely FREE
Posted in Insurance | Tagged: Business, Dodd–Frank Wall Street Reform and Consumer Protection Act, Financial services, Government, insurance, Regulators, U.S. Treasury, United States Department of the Treasury | Leave a Comment »
Posted by William Byrnes on December 16, 2010
Can life insurance agents and their carriers be held responsible for adverse tax consequences resulting from their advice to customers about transactions involving the policies agents recommend and sell? A customer who relied on agents for tax advice concerning an annuity transaction believed the agents should be held to account for recommending a transaction that turned out to carry an unexpected tax bill. She sued the Insurance Company in federal district court, claiming its agents committed fraud against her by failing to inform her of the tax consequences of an annuity rollover.
The plaintiff owned two annuities—valued at about $80,000 and $12,000—that she received in a divorce settlement. She contacted the insurance company to find out her options for rolling the annuities over into one policy. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
We invite your questions and comments by posting them or by calling the Panel of Experts.
Posted in Insurance | Tagged: Agent Resources, Agents and Marketers, Business, Customer, Financial services, insurance, Law of agency, Life | Leave a Comment »
Posted by William Byrnes on December 15, 2010
In a contentious move, the National Conference of Insurance Legislators (NCOIL) executive committee voted unanimously to adopt the Life Insurance Consumer Disclosure Model Act, (Model Act), which requires life insurance carriers to notify policy owners of settlement options when the policy owner is considering surrendering the policy or when the policy is set to lapse.
The life settlement industry is giddy over the Model Act—which should boost their business. But the insurance industry outlook on the Act is not so rosy—settlement essentially ensures that policies will not lapse before death benefits are paid and that many policy owners will choose settlement over carrier options like accelerated death benefits and policy surrender. Not all policy owners have a right to disclosure about settlements under the Model Act. The disclosure requirement applies only where the insured is sixty years old or older or “is known by the insurer to be terminally ill or chronically ill” and … read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of life insurance settlement options in Advisor’s Journal, see Don’t Overlook Beneficiary Designations and Settlement Options (CC 09-28)
We invite your questions and comments by posting them or by calling the Panel of Experts.
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Life settlement, Terminal illness, United States | Leave a Comment »
Posted by William Byrnes on December 14, 2010
Insurance companies have been getting a lot of press the last few years. But this time, it’s not a story about a health insurance carrier denying a father-of-five cancer patient’s potentially life-saving treatment. It’s a Los Angeles Times story pillorying life insurance company American General and several other carriers for rescinding life insurance policies after the insured’s death.
According to the Los Angeles Times article, $372 million in life insurance benefits were denied beneficiaries in 2009, doubling over the past decade even as life insurance policy sales have decreased.
The article breaks down the denied death benefits by insurance company, finding that some carriers deny death benefits more than others. The prime target …… read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of a life insurance company’s right to rescind a policy after issuance, see Advisor’s Main Library: Section 20 C—Payment Of Proceeds.
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Los Angeles Times, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on December 13, 2010
Why is this Topic Important to Wealth Managers? Many US expats who do not work for a US headquartered company are failing to report pensions they are accruing from the companies they are working for overseas. These clients may incur large reporting penalties.
Submission by Thomas Carden, IRS Enrolled Agent
Many expats that do not work for a US based company are failing to report pensions they are accruing from the overseas companies they are working for. They often disregard the pension because they incorrectly assume that it is not taxable in the US.
However, the vast majority of foreign pension plans are not considered to be qualified by the IRS. Consequently, these foreign pension plans do not enjoy any tax mitigation – the plans are taxable.
The IRS has very rigorous regulations for plan reporting and for the criteria to be a qualified plan, and thus foreign employers rarely seek such plan qualification. Compounding the problem is that most financial professionals are rarely asking their clients with foreign employers “Do you have a foreign pension that contributions are being made to?”
Because of this mistaken belief that such foreign pension plans are to be treated like those in the US, many expats are incorrectly reporting their income net of any pension contributions.
Before FATCA (the Foreign Account Tax Compliance Act of 2010) the pension contributions were generally not being reported to the IRS, thus they were incorrectly escaping taxation on US returns. The goal of FATCA is to substantially capture information on the number of these accounts and many other foreign account types turning that information over to the IRS. The act puts onerous penalties on financial institutions that do not report accounts that are in the names of US citizens and other US taxable persons.
Any foreign institution that does not agree will be subject to a thirty percent withholding rate on payments made to it. Because of the penalties and the general move toward cross border reporting in financial transactions, the IRS will be receiving a large amount of information on these previously unreported accounts. The act also requires individuals to disclose any foreign accounts with a balance that exceeds $50,000. Failure to do so may result in an initial fine of $10,000 plus additional penalties.
The good news is that the acts reporting requirements are set to begin on January 2nd of 2012. Thus, expats have time to address the issue of unreported foreign pensions. The problem for expats with these unreported accounts is that the contributions are counted as taxable income in the US for the year they were made to the pension. If the IRS receives information about such an account, it is highly probable that it will send a “deficiency letter” stating that tax is due on the unreported amount. At worst, finding an unreported account may trigger an arduous audit.
The solution for the problem is for expats with any unreported pension accounts to amend the returns and restate the income received, for any years that contributions were made to the accounts. Such disclosures for past non-reporting should probably be handled by a expert in this area to avoid any unnecessary penalties.
Submission by Thomas Carden, a IRS Enrolled Agent and Expatriate Tax Specialist with 15 years of Tax and Financial Services Experience. He is currently enrolled in the Diamond Program at Thomas Jefferson School of Law while also studying to sit for the ATT tax designation in the UK. You may contact him via his email – tmcarden@yahoo.com.
Posted in Taxation | Tagged: Financial services, Individual Retirement Account, Internal Revenue Service, Pension, tax, Tax avoidance and tax evasion | Leave a Comment »
Posted by William Byrnes on December 3, 2010
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Wealth Managers Employment Opportunities
In 2008, Cap Gemini reported that wealth management firms will sharply increase hiring because of the impending retirement, from 2010-2020, of “baby-boomer” wealth managers. Over the coming decade, wealth management firms will have substantially more client opportunities because the pool of high-net-worth individuals (HNWI) globally, and their assets, continue to grow steadily, and because half of HNWIs do not have a wealth manager.
Half of HNWIs Do Not Have a Wealth Manager
According to Oliver Wyman, only 50% of HNWI assets are professionally managed. An unprecedented amount of retiring boomers who had not previously used a wealth manager now require one to transition their asset portfolios to income ones, plan succession, and balance potential medical care needs. Wealth management firms therefore have a pool of approximately five million (and expanding) new client opportunities.
Increasing Wealth Manager Salaries and Bonuses
The San Diego Business Journal reported in 2009 that wealth management salaries held steady in the midst of the great recession, ranging from USD150,000 to USD400,000. Even more exciting, Cap Gemini reported that “bidding wars among firms for top advisors are not uncommon” and packages will include “bonuses equaling two or three times the payouts from just a few years ago”. Reuters reports that brokerage firms offer sometimes triple an adviser’s fees and commission over the previous year, whereas private bankers receive one to two times their previous year’s salary and bonus to move. (See Private banks battling for advisers to super-rich)
Significant Wealth Manager Hiring to Begin Working January 2011
Reuters reports that “Wells, he said, is looking outside the private banking world in its bid to add 150 new recruits. Citi has looked to Goldman Sachs Private Wealth Management as well as Barclays Wealth, a Barclays unit built from a business acquired from Lehman Brothers. Citi has said it aims to double its private banker ranks to about 260 within three years.”
Posted in Wealth Management | Tagged: Barclays Wealth, Capgemini, Financial services, High net worth individual, Lehman Brothers, Oliver Wyman, Private wealth management, San Diego Business Journal, Wealth Management | Leave a Comment »
Posted by William Byrnes on December 2, 2010
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According to a recent report by Javelin Strategy and Research (California); “[a]lthough the recent ‘Great Recession’ has caused millions of Americans to tighten their belts financially, nearly one out of five consumers are financial sleepwalkers”—those who do not manage their personal finances. [1] That’s right; at least 20% of Americans are not currently using wealth managers to manage their personal finances. The report states that the rate is more than double that of 2009. [2] This presents a vast opportunity for wealth managers to expand their market share.
The United States Department of Labor project that personal financial advisors are estimated to grow by 30 percent over the 2008–18 period. “Growing numbers of advisors will be needed to assist the millions of workers expected to retire in the next 10 years.” [3] Further, “[a]s more members of the large baby boom generation reach their peak years of retirement savings, personal investments are expected to increase and more people will seek the help of experts.” [4]
Moreover, there is a trend in corporate America to replace “traditional pension plans with retirement savings programs, so more individuals are managing their own retirements than in the past,” creating additional opportunity for wealth managers. [5] In addition, as medical technology continues to advance and people on average, live longer, the need for additional financial planning arises.
The average compensation for wealth managers is around $89,920 to $110,130 for those marketing insurance products and services as well as other financial investments. [6] New York has the most wealth managers in terms of total numbers. [7] In addition, New York wealth managers made on average $146,460, the most from any state. [8] Read the entire article at AdvisorFYI.
For previous blogticles covering the wealth management industry, see the series beginning The Future of Wealth Management
Posted in Wealth Management | Tagged: California, Finance, Financial services, New York, Pension, United States, United States Department of Labor, Wealth, wealth management financial planning | Leave a Comment »
Posted by William Byrnes on November 30, 2010
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As we have discussed in previous blogticles, captive insurance can be a viable method to more efficiently protect against certain risks under various circumstances. For discussion on these topics please see our blogticles on AdvisorFYI from the week of August 30th, Monday through Wednesday, Alternative Risk Transfer Basics, Risk and Self-Insurance, andCaptive Insurance Company Introduction.
In addition, we have discussed in previous blogticles the ability to deduct prepaid expenses for certain items, both from an accrual basis and cash receipts and disbursements method taxpayer approach. One such class of deductions that is generally allowable is, “insurance premiums against fire, storm, theft, accident, or other similar losses in the case of a business, and rental for the use of business property.”
See generally our blogticles from November entitled, Year End Tax Planning: Pre-Paid Insurance Expense For Accrual Accounting Taxpayers, and Year End Tax Planning: Pre-Paid Expenses For Cash Accounting Taxpayers.
Read this entire set of articles starting at AdvisorFYI.
Posted in Insurance, Taxation | Tagged: Alternative Risk Transfer, Business, Captives, Financial services, Health insurance, insurance, risk management, Self-Insurance | 1 Comment »
Posted by William Byrnes on November 29, 2010
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Why is this Topic Important to Wealth Managers? Provides an update for wealth managers into the status of employer owned life insurance. Discusses two notable exceptions to the general rule including income from the death benefits of an insurance policy when paid to a trade or business.
In 2006, Congress added Section 101(j) to the Internal Revenue Code which addresses the taxation of employer owned life insurance (EOLI) under Section 863 of the Pension Protection Act. The law departed from the traditional status of life insurance proceeds payable by death of the insured as excluded from gross income. [1]
Section 101(j) essentially taxes life insurance proceeds payable at death, in the amount over contributions or basis, when the policy is owned by a trade or business, where the employer is the beneficiary, and the employee is the insured. [2] There are a certain number of exceptions where the benefit payable to the beneficiary will remain excludable. [3] In all of the exceptional situations notice and consent requirements must be met. [4] For a discussion on the notice requirements specifically, or Section 101(j) generally, please see AdvisorFX: Death Benefits Under Employer Owned Life Insurance Contracts. [5]
Since the enactment of law, the Service has issued guidance in regards to what transactions may be allowed under section 101(j). That guidance came in part, last year when the Service published Notice 2009-48.
How do some of the exceptions work in consideration of the guidance published in Notice 2009-48? Read our entire analysis and citations at AdvisorFYI.
Posted in Insurance, Taxation | Tagged: Business, employer owned life insurance, Financial services, insurance, Insurance policy, Internal Revenue Code, life insurance, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on November 26, 2010
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This week’s blogticles discussed compliance reporting generally regarding foreign transactions and activities. Today, we will continue to explore some of the common reporting requirements that are filed based on domestic and international activity.
Congress has enacted legislation to the affect that the Secretary of the Treasury requires financial institutions to report any suspicious transaction relevant to “a possible violation of law or regulation.” [1] The Financial Crimes Enforcement Network (FinCEN) maintains theses “reports in a central database and makes the information available electronically to state and federal law enforcement and regulatory agencies to assist in combating financial crime.” [2]
Currency Transaction Reports
Under Federal Statute the Department of the Treasury requires “banks, securities broker-dealers, money services businesses, casinos, and other financial institutions”, to file a “report for each transaction involving the payment, receipt, or transfer of U.S. coins or currency (or other monetary instruments as Treasury may prescribe)” in excess of $10,000. [3]
Report of International Transportation of Currency or Monetary Instruments
Read the entire article at AdvisorFYI.
Posted in Compliance, Reporting | Tagged: Financial Crimes Enforcement Network, Financial institution, Financial services, Money Laundering, Suspicious activity report, United States, United States Department of the Treasury, United States Secretary of the Treasury | Leave a Comment »
Posted by William Byrnes on November 19, 2010
Why is this Topic Important to Wealth Managers? Section 1035 exchanges are known for deferral of a taxable gain through a step-up in basis into a new contract. The tax benefits granted by Congress are certainly advantageous, however, in an uncertain economy Section1035 exchanges also offer wealth managers the opportunity for new business. Because of the potential little to no out-of-pocket expense associated with these transactions, many wealth mangers are currently implementing this advantageous exchange during sluggish times.
It is often the case that policy owners’ expectations change during the life of a contract. It makes sense to re-evaluate objectives to ensure they’re still aligned with client goals. Section 1035 exchanges are one area where this practice is commonplace.
Generally, Congress allows owners of life insurance and annuity contracts to exchange that contract for another, similar or related insurance or annuity contract without recognizing any unrealized gain which may have accrued within the policy, so long as the insured stays the same.
Read the entire article at AdvisorFYI.
Posted in Insurance | Tagged: Business, Congress, Financial services, insurance, Life annuity, life insurance, United States, United States Congress | Leave a Comment »
Posted by William Byrnes on November 18, 2010
Why is this Topic Important to Wealth Managers? Provides information on one additional planning tool that many wealth managers find useful for affluent clients who own a small business. Gives an overview of the nonqualified plans as well as proving a common use of life insurance to fund plan obligations well into the future.
Simply a nonqualified pension plan is a retirement plan that does not meet the requirements under the tax code and federal employment law to be considered qualified, and therefore the nonqualified plan is treated differently for tax purposes. [1]
What are some of the advantages of using a nonqualified plan over a qualified retirement plan? [2]
- Flexibility and selectivity—because the plan is not subject to requirements under the qualified plan rules, employers have much more control in terms of who may be included and the varying terms of each individual participant.
- Vesting and contingencies—nonqualified plans allow for the employer to exclude all amounts not met by vesting conditions or contingencies that the employee must achieve to obtain the benefit. Say for example, that the retirement funds become available to the employee after 10 years of faithful service to the company. If the employee does not work for 10 years, no benefits have thus accrued and the employee has no benefit under the plan.
- Cost savings through minimal reporting requirements—since nonqualified plans do not usually fall within major regulatory scope of qualified plans, the cost to administer these plans is generally less than some alternatives.
How are nonqualified plans treated for tax purposes? Read the entire blogticle at AdvisorFYI.
Posted in Insurance, Pensions | Tagged: Business, Employment, Financial services, Human Resources, life insurance, Pension, tax, United States | Leave a Comment »
Posted by William Byrnes on November 16, 2010
Why is this Topic Important to Wealth Managers? Discusses a basic deferred compensation plan available to many small businesses seeking to retain key personnel. Provides discussion on common transactions as well as expected tax consequences.
Key employee insurance generally means “a life insurance policy owned by and payable to a business that insures the lives…of employees whose deaths would cause a significant economic loss to the business, upon whose skills talents, experience or business or personal contacts the business is dependent, and who would be difficult to replace.” [1]
Generally, life insurance premiums payable by a business are not deductible. [2] Which means the income received (whether in a single sum or otherwise) by the business, under the life insurance contract by reason of the death of the insured, is not included in gross income. [3]
If a key employee policy is transferred for valuable consideration, just as with other life insurance policies, the income tax benefit normally afforded to life contract proceeds payable at death may be extinguished. [4]
As was discussed a few weeks back in our blogticle: AdvisorFYI- Treatment Life Insurance Contracts—Part II: Secondary Market Participants, “[i[n the case of a transfer for valuable consideration…the amount excluded from gross income shall not exceed an amount equal to the sum of the actual value of the consideration paid and the premiums and other amounts subsequently paid by the transferee.” [5] In other words, the transferee must include the death benefits as gross income over the amount of consideration and any additional premiums paid.
Read the entire blogticle at AdvisorFYI.
Posted in Insurance | Tagged: Agents and Marketers, Business, Financial services, insurance, Insurance policy, life insurance, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on October 28, 2010
Life insurance is often the cornerstone of an estate plan when a family business is involved. As a follow-up to the article on supporting a surviving second spouse without liquidating the family business, this article describes a technique that introduces a charitable giving component into family business succession planning.
Consider the following scenario:
Your client Jonathan has two primary legacy planning objectives. Foremost is his desire to ensure a smooth transfer of the family business to his daughter, Eva. Jonathan also wants to make a sizeable lifetime gift to his favorite charity and provide a retirement nest egg for his wife.
For prior Advisor’s Journal coverage of family business succession planning using life insurance, see Supporting a Surviving Second Spouse without Liquidating the Family Business (CC 10-53).
See the AUS Main Libraries, Section 9 C2—The Law Of Wills, for a discussion of a spouse’s right to elect against the will.
We invite your questions and comments by posting them at AdvisorFYI or by calling the Panel of Experts.
Posted in Estate Tax | Tagged: Agents and Marketers, Business, Family business, Financial services, insurance, Life, life insurance, Succession planning | Leave a Comment »
Posted by William Byrnes on October 21, 2010
Why is this Topic Important to Wealth Managers? Discusses the general market conditions of life settlements. Also provides reasons why some policy holders may consider selling their interests.
As discussed earlier this week, a traditional life-settlement transaction consists of an third party purchasing an unknown individual’s life insurance policy for consideration. The purchaser continues to pay the premiums until a death benefit is collected, the contract is sold to another individual or business, or is surrendered.
The Wall Street Journal attributes the creation of the industry “back to the 1980s, when [terminally ill] patients sold their policies to raise cash for medical treatments.” The Journal also notes, the “market boomed earlier this decade, as hedge funds eager for offbeat alternative investments piled in.”
Since the decline in overall macroeconomic market conditions, “the total face value of policies purchased in the secondary market fell to $7 billion in 2009 from $13 billion in 2008”. “Prices for policies, meanwhile, fell to an average of 13% of the death benefit in 2009 from 21% in 2006.” Nevertheless, industry experts are expecting a rise again in total market figures by the end of 2010. It is not surprising given the SEC’s new enforcement efforts discussed below.
For the remainder of the article see AdvisorFYI.
Posted in Insurance | Tagged: Alternative investment, Business, Financial services, Hedge fund, insurance, Insurance policy, Life settlement, Secondary market | Leave a Comment »
Posted by William Byrnes on October 20, 2010
Why is this Topic Important to Wealth Managers? Provides general taxation of life insurance contracts owned by a third party transferee, including the payment of death benefits as well as sale or exchange gain treatment.
Today’s blogticle will discuss taxation of life insurance contracts from the purchaser’s prospective.
As discussed yesterday, an insurance contract that carries a built-up cash value can be loaned against, collected by the beneficiary, surrendered or sold to a third party. This blogticle deals in particular with payment of the face value to the third party caused by the death of the insured as well as another sale or exchange of the contract by the third party.
What are the tax implications if the third party collects the death benefits? What are the tax implications if the policy is sold to a third party?
As a starting point, gross income includes all income from whatever source derived including (but not limited to) income from life insurance contracts (unless otherwise excluded by law). Gross income specifically excludes amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured. For the complete article see AdvisorFYI….
Posted in Insurance, Taxation, Uncategorized | Tagged: Agents and Marketers, Business, Cash value, Contract, Financial services, insurance, Insurance policy, tax | Leave a Comment »
Posted by William Byrnes on October 19, 2010
Why is this Topic Important to Wealth Managers? Provides general taxation of life insurance contracts that are surrendered, sold or exchanged. Gives examples that are easy to follow and provides an educational foundation for real-world gain determinations.
This is a two-part series in relation to the taxation of life insurance contracts once it is surrendered, sold or exchanged to a third party. The first blogticle will examine the issue from the seller or insured’s perspective, and tomorrow’s blogticle will discuss the matter from the purchaser’s prospective.
An insurance contract that carries a built-up cash value can be loaned against, collected by the beneficiary, surrendered, or sold to a third party. This blogticle deals in particular with the sale or exchange of the contract, i.e., surrendered or sold.
What are the tax implications if the life policy is surrendered?
As a starting point, gross income includes all income from whatever source derived including (but not limited to) income from life insurance contracts (unless the income is otherwise excluded by law). [1]
In general, a life insurance contract that is not collected as an annuity is included in gross income in the amount received over the total premiums or consideration paid. [2] “The surrender of a life insurance contract does not, however, produce a capital gain.” [3] The amount collected over basis is therefore ordinary income.
To read the remainder of this article please see AdvisorFYI.
Posted in Insurance, Taxation | Tagged: Business, Cash value, Contract, Financial services, insurance, Insurance policy, tax, United States | Leave a Comment »
Posted by William Byrnes on October 16, 2010
Why is this Topic Important to Wealth Managers? Provides critical information in regards to who will be the subjects of new reports going to the IRS beginning in January. Chances are, a significant portion of clients accept credit and debit cards in transactional exchanges. The new law applies, and has ramifications, directly related to these merchants and services providers.
The same legislation that brought us the first time homebuyer’s credit, the “Housing Assistance Tax Act of 2008”, is back again, this time in the form of additional reporting for those who accept credit or debit cards in consideration for goods or services. [1] The act requires return reporting to the Internal Revenue Service, “relating to payments made in settlement of payment card and third party network transactions.” [2]
The requirements establish that “banks or other organizations that have contractual obligation to make payment to participating payees in settlement of payment card transactions” [3], are required to return to the Service, “(1) the name, address, and [Taxpayer Identification Number] of each participating payee to whom one or more payments in settlement of reportable payment transactions are made, and (2) the gross amount of the reportable payment transactions with respect to each such participating payee.” [4]
Read all about the new requirements that become effective for information returns for reportable payment transactions for calendar years beginning after December 31, 2010 at Special Alert
Posted in Taxation | Tagged: Business, Business and Economy, Credit, Debit card, Financial services, Internal Revenue Service, Merchant Services, Payment | Leave a Comment »
Posted by William Byrnes on October 12, 2010
Why is this Topic Important to Wealth Managers? Provides specific information in regards to costs relating to the formation of an insurance company. Discusses multiple domicile options and how they relate to each other.
Wealth managers may be interested to know generally what costs are involved to form and manage a captive insurance company in different jurisdictions. Take for example Vermont. It is known as the “Captive Capital” here in the States, and for good reason, Vermont has licensed over 900 captives at last count.[1]
The licensing fees in Vermont total $4,800 (in the first year and only $300 a year thereafter.) [2] However, there are a couple of downsides to the preliminarily greener pastures. First, Vermont requires initial capitalization of a “pure”, which includes a traditional single parent, captive of $250,000. [3] Secondly, Vermont requires the captive to pay minimum premium tax of $7,500 which has an underwriting level of approximately around $2 million dollars at a rate of 0.38%. [4]
As a general rule, the formation and annual expenses, including premium taxes, of captive insurance companies will be lower in most offshore jurisdictions rather than domestic domiciles.
Read on about A Dollar Saved…Captive Insurance Company Costs
Posted in Insurance | Tagged: Business, Captive insurance, Captives, Financial services, insurance, risk management, United States, Vermont | Leave a Comment »
Posted by William Byrnes on October 11, 2010
Why is this Topic Important to Wealth Managers? Provides insight into relevant taxation issues regarding the ownership of a foreign insurance company, premium payments made to a foreign insurance company, and foreign insurance company income taxation. Discusses information wealth managers may find relevant in regards to advanced family and business estate plans.
What are the U.S. tax implications, generally, for a United States Corporation that owns a foreign insurance company?
To begin, a well known rule is that premiums paid to a foreign insurance company are subject to a federal income premium tax. The tax is due even though the U.S. parent may own the foreign insurance company, either in part or in full. The tax is remitted by the premium payor who “must file Form 720 to pay the tax at the time of the premium payment.”[1]
For casualty insurance policies the tax is 4% of the total premium payment to a foreign insurer and for life insurance and annuity contracts the tax is 1% of the premium paid.[2] The tax only applies to premium payments to a foreign insurer.
If a foreign company carrying on an insurance business within the United States qualifies as a life or casualty insurer under the Code, “if it were [otherwise] a domestic corporation,” then the company is “taxable under such part on its income effectively connected with its conduct of any trade or business within the United States.” [3]
To determine what income then is effectively connected with a trade or business within the United States, one must know what a trade or business within the United States means. “Neither the Code nor the regulations fully define the term ‘trade or business within the United States.’ ” [4] Most “cases hold that profit oriented activities in the United States, whether carried on by the taxpayer directly or through agents, are a trade or business if they are regular, substantial, and continuous.” [5] Additionally, an insurance company “makes contracts over a period of years”, which leads one to believe the issuance of insurance contracts on persons or activities in the United States is continuous. [6]
Read on about Foreign Insurance Company Taxation
Posted in Insurance, Tax Policy, Taxation | Tagged: Agent Resources, Business, Business and Economy, Carriers, Financial services, insurance, Property and Casualty, United States | Leave a Comment »
Posted by William Byrnes on October 9, 2010
Why is this Topic Important to Wealth Managers? Presents an introduction into the taxation of U.S. life insurance companies. Provides insight for wealth managers considering advanced planning techniques involving the use of life insurance companies.
Congress has determined, generally, that insurance companies by issuing insurance contracts are serving the public good. Moreover, Congress has determined that the tax accounting applicable to corporations does not adequately align to the operations of the insurance industry. Thus, to distinguish insurance companies, Congress created a special chapter of the Internal Revenue Code (subchapter “L”) applicable only for them. Subchapter L is divided into Section 801 to 848 of which 801 to 818 address the taxation of lile insurance companies.
By example, because of the nature of the life insurance business, in that liabilities carry long into the future, Congress has afforded special deductions to this class. To avoid potential reserve deficiencies by recognizing income (and therefore incurring a present tax liability) when premiums are collected, Congress essentially allows underwriting gains to occur once the insurance liability obligations have expired.
Let’s take a look at the Code specifically to see how these mechanics actually work. First and foremost, pursuant to IRC Sec. 801 a life insurance company is taxed at the same rates as other corporations. These rates can be found in IRC § 11.
A life insurance company means under IRC § 816(a), “ an insurance company which is engaged in the business of issuing life insurance and annuity contracts”, generally, as well as accident or health contracts, so long as, the company’s “life insurance reserves, plus unearned premiums” on “noncancellable” policies, “comprise more than 50 percent of its total reserves.”
Read on about Subchapter L: Life Insurance Companies
Posted in Tax Policy | Tagged: Agents and Marketers, Business, Business and Economy, Financial services, insurance, Internal Revenue Code, Life, life insurance | Leave a Comment »
Posted by William Byrnes on October 3, 2010
An insurer recently won a major victory when the U.S. District Court for Delaware voided a life insurance policy that was purchased as part of a STOLI transaction. The case—Principal Life Insurance Co. v. Lawrence Rucker 2007 Insurance Trust—is significant because the court voided the policy for lack of an insurable interest based on the finding of insured’s intent to sell, even though the insured had not identified a particular purchaser for the policy at the time it was issued.
For the complete analysis of this development by our Experts Robert Bloink and William Byrnes, please read the article via your AdvisorFX subscription atRecent STOLI Case Is a Big Win for Insurers
For in-depth analysis of STOLIs, see Advisor’s Main Library Section 19.6 Life Settlements B—The Life Settlement Industry: Stranger-Originated Life Insurance (STOLI).
For in-depth analysis of the topic of insurable interest, see Advisor’s Main Library Section 20 Beneficiaries And Settlement Options B—Insurable Interest: New York Insurance Department Invalidates STOLI Scheme For Lack of Insurable Interest
After reading the analysis, we invite your questions and comments by posting them below, or by calling the Panel of Experts.
Posted in Uncategorized | Tagged: Business, Financial services, insurance, Insurance policy, Life, life insurance, Life settlement, Stranger-originated life insurance | Leave a Comment »
Posted by William Byrnes on October 2, 2010
Author: Benjamin S. Terner
Why is this Topic Important to Wealth Managers? Provides an overview of one useful tool for affluent clients. Presents offshore private placement life insurance considerations wealth managers may consider when discussing this topic with clients.
As a brief review, private placement variable universal life insurance may allow individuals “the ability to select asset management beyond the limited asset-management choices offered in retail variable life insurance products.”
Generally speaking, one benefit derived from the use of private placement policies “in the high-net-worth market” is that the policy is essentially an “investment vehicle, optimally used for the most tax-inefficient asset classes in an investor’s portfolio.” Therefore, some common goals for wealth managers structuring transactions as private placement life contracts: “are to take advantage of the income tax and possible estate tax savings, to maximize investment choices, and to incur as little cost as possible in doing so.”
Please see the AdvisorFYI blog for the entire blogticle.
Posted in Insurance | Tagged: Asset, Business, Financial services, insurance, Investment, life insurance, Private placement, Private placement life insurance | Leave a Comment »
Posted by William Byrnes on September 29, 2010
Expanding employment opportunities
In 2008, Cap Gemini reported that wealth management firms will sharply increase hiring because of the impending retirement, from 2010-2020, of “baby-boomer” wealth managers. New employment opportunities will also be created by expanding opportunities within the wealth management market. Over the coming decade, wealth management firms will have substantially more client opportunities because the pool of high-net-worth individuals (HNWI) globally, and their assets, continue to grow steadily, and because half of HNWIs do not have a wealth manager.
Half of HNWIs not receiving advice
According to Oliver Wyman, only 50% of HNWI assets are professionally managed. An unprecedented amount of retiring boomers who had not previously used a wealth manager now require one to transition their asset portfolios to income ones, plan succession, and balance potential medical care needs. Wealth management firms therefore have a pool of approximately five million (and expanding) new client opportunities.
Oliver Wyman reports that the new generation of HNWIs is predominantly (70%) self-generated wealth; through entrepreneurship or executive compensation. These HNWIs consider it normal business practice to seek outside expertise and are more likely to leverage wealth managers.
Senior staff salaries and jobs
The San Diego Business Journal reported in 2009 that wealth management salaries held steady in the midst of the crisis, ranging from USD150,000 to USD400,000. Even more exciting, Cap Gemini reported that “bidding wars among firms for top advisors are not uncommon” and packages will include “bonuses equaling two or three times the payouts from just a few years ago”. Reuters reports that brokerage firms offer sometimes triple an adviser’s fees and commission over the previous year, whereas private bankers receive one to two times their previous year’s salary and bonus to move. (See Private banks battling for advisers to super-rich) Reuters reports that “Wells, he said, is looking outside the private banking world in its bid to add 150 new recruits. Citi has looked to Goldman Sachs Private Wealth Management as well as Barclays Wealth, a Barclays unit built from a business acquired from Lehman Brothers. Citi has said it aims to double its private banker ranks to about 260 within three years.”
For my complete analysis in my September article of Offshore Investment magazine – read it online – Wealth Management Employment in the Coming Decade
Posted in Wealth Management | Tagged: Baby boomer, Business, Capgemini, Financial services, High net worth individual, Investing, Lehman Brothers, Oliver Wyman, San Diego Business Journal, Wealth Management | Leave a Comment »
Posted by William Byrnes on September 29, 2010
The Automatic IRA Act of 2010 (S. 3760) would require smaller employers to open automatically funded IRAs for their employees, a business opportunity for some advisors and a competitor for advisors to other retirement plans. In addition to its effect on advisors, the automatic IRA program may also benefit the insurance industry by allowing investment in insurance and annuity products, a blessing for insurers when life insurance coverage is at a fifty-year low.
For the complete analysis by our Experts Robert Bloink and William Byrnes, please read the article via your AdvisorFX subscription at The Automatic IRA Act of 2010: Boon for Advisors?
Posted in Retirement Planning | Tagged: Annuity (US financial products), Business, Employment, Financial services, Individual Retirement Account, insurance, Investment, Pension | Leave a Comment »
Posted by William Byrnes on September 28, 2010
Although regulation of insurance generally has been left to the states, the Wall Street Reform Act may foreshadow future federal oversight of the industry. The Act creates the Federal Insurance Office (FIO) within the Treasury, which will monitor all components of the insurance industry—excluding the health, crop, and long-term care sectors.
Today’s analysis by our Experts William Byrnes and Robert Bloink is located at AdvisorFX Journal The Federal Insurance Office
Posted in Insurance | Tagged: Business, Federal Insurance Office, Financial services, Health, insurance, Long-term care, Regulation, Wall Street | Leave a Comment »
Posted by William Byrnes on September 27, 2010
Life insurance ownership has hit a fifty-year low, according to the August-released Trends in Life Insurance Ownership, a LIMRA study administered once every six years. But do the economic clouds have a silver—or better yet, gold—lining?
Today’s analysis by our Experts Robert Bloink and William Byrnes is located at AdvisorFX Journal Life Insurance Ownership Hits Fifty-Year Low
Posted in Insurance | Tagged: Agents and Marketers, Business, Business and Economy, Financial services, insurance, Life, life insurance, United States | Leave a Comment »
Posted by William Byrnes on September 23, 2010
The traditional private annuity is a transaction used by some wealth managers for clients whose circumstances permit. Generally a private annuity transaction occurs where the grantor transfers assets to a third party who pays the grantor an annuity, usually for the life of the grantor.
When a trust is involved with a traditional private annuity, the common transaction may look like this: “The owner of highly appreciated commercial real estate transfers the property to an irrevocable trust in exchange for the trust’s promise to pay an annuity for life. The present value of the annuity equals the fair market value (‘FMV‘) of the property. The trust then sells the property to a third party for a sale price equal to its FMV.” For additional introductory discussion on private annuity contracts see AUS Main Private Annuity.
Planning Concept: Some wealth managers have recently begun to structure private annuities for their clients slightly differently than the traditional methods. For a discussion and analysis, please see AdvisorFYI
Posted in Estate Tax, Insurance, Trusts | Tagged: annuities, Business, Contract, Financial services, insurance, Life annuity, Pension, Real estate | Leave a Comment »
Posted by William Byrnes on September 19, 2010
Life insurance ownership has hit a fifty-year low, according to the August-released Trends in Life Insurance Ownership, a LIMRA study administered once every six years. But do the economic clouds have a silver—or better yet, gold—lining?
Today’s analysis by our Experts Robert Bloink and William Byrnes is located at AdvisorFX Journal Life Insurance Ownership Hits Fifty-Year Low
After reading the analysis, we invite your questions and comments about policies maturing after age 100 by posting them below, or by calling the Panel of Experts.
Posted in Insurance | Tagged: Agents and Marketers, financial planning, Financial services, insurance, Life, life insurance, producers, Wealth Management | Leave a Comment »
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