Archive for May, 2009:

Fighting Inflation — Tips for Retirees

Written on May 15th, 2009 by Jason M. Kueserno shouts

Robert Powell of Marketwatch.com recently posted an article entitled “Inflation hits hard when you can least afford it: Four ways older Americans can deal with higher inflation rates.”

The article offers four tips for retirees and those approaching retirement. Most importantly, the article states that retirees should (1) live within their means, and (2) calculate retirement expenses. This is good advice because retirees are as guilty as many Americans for failing to properly budget and plan. In addition, many retirees are told that the only way they can support their retirement is to invest more aggressively. This is not true and, in fact, can be devastating when the stock market experiences broad declines, as has happened over the last 18 months (the S&P 500 has declined from approximately 1,540 to a low of 666.79).

If you are retired, or are approaching retirement, and your financial advisor tells you that the only way you can “afford” to retire is by investing more of your money in stocks or stock-based mutual funds, get a second opinion. Although stocks have provided the greatest historical returns over the long-term, retirees and those approaching retirement need to focus on the short-term. As reported on mybudget360.com, the Dow Jones Industrial Average has suffered one-year losses of 18.94% or more in 11 years (see chart).

These one year declines can prove disastrous for retirees. This is why it is important to manage portfolio risk and why the “solution” to affording retirement is not to invest more money in stocks, but rather, to manage retirement expenses. Mr. Powell has also written an article discussing 10 major retirement risks. In this article, he offers tips on how to manage these risks, including stock market risk.

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Madoff Victims To Start Receiving Relief

Written on May 15th, 2009 by Jason M. Kueserno shouts

The Securities Investor Protection Corporation (SIPC) has announced that it has committed more than $61 million to victims of Bernard L. Madoff Investment Securities LLC. The SIPC has mailed letters to 125 claimants in the SIPA liquidation proceedings. In total, there have been 8,848 customer claims filed.

The SIPC has also announced that it anticipates it will have more than $100 million by Memorial Day. The news release also stated the following recent developments:

  • Identification and recovery to date of a total of $1 billion in Madoff-related assets. Related proceeds will be available as “customer property” to make payments to eligible BLMIS customers.
  • The filing of lawsuits to recover $10.1 billion in fictitious profits paid out by BLMIS. These funds also would be made available as customer property in order to satisfy valid BLMIS customer claims. That total includes lawsuits filed this week naming various trust funds and partnerships run by investor Jeffry M. Picower and the Harley International hedge fund.
  • Expansion of the SIPC Fund. SIPC is committed to advancing funds immediately upon the trustee’s request. Harbeck assured claimants that SIPC will have sufficient funds to carry out this mission. The SIPC Board of Directors has authorized the reinstitution of revenue-based assessments on members of the Securities Investor Protection Corporation; and
  • The creation of a “hardship case” process. Instituted in recent days by the Trustee, this process is intended to expedite the handling of claims from individuals in financial or other distress.
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Social (In)Security

Written on May 14th, 2009 by Jason M. Kueserno shouts

According to the Wall Street Journal, the U.S. government has determined that the Social Security system will run out of money sooner than expected.

The government’s estimate is that the Medicare fund will be exhausted in 2017 and the Social Security trust fund will be insolvent in 2037. The article quotes recently appointed HHS Secretary Kathleen Sebelius as stating “It’s a wake-up call for anyone concerned about Medicare and the health of our economy.” Politics aside, this news is even more concerning given that one year ago, the government estimated that Medicare and the Social Security trust would be exhausted two and four years later, respectively (in 2019 and 2041).

This reinforces the need for Americans to prepare for retirement, and, in particular, the need for responsible financial planning.

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SmartMoney.com — 10 Things Your Bank Won’t Tell You

Written on May 14th, 2009 by Jason M. Kueserno shouts

Jim Rendon of SmartMoney Magazine recently authored an article entitled “10 Things Your Bank Won’t Tell You.”

With all of the turmoil in the banking industry, this article provides insight that consumers should consider. For example, the article reveals that “the average ATM service charge doubled between 1998 and 2007,” and that the federal government found that a significant number of banks failed to disclose information required by law.

To find out what other businesses and professionals aren’t telling you, you can find more of Jim Rendon’s articles here.

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FINRA Agrees that a Fiduciary Standard Makes Sense for Broker-Dealers

Written on May 14th, 2009 by Jason M. Kueserno shouts

For the first time, FINRA has publicly stated that it “makes sense” that broker-dealers who provide investment advice should be held to the same fiduciary standard that applies to Registered Investment Advisers.

This is a significant development because broker-dealers and their representatives have relied upon an exemption in the Investment Advisers Act of 1940 to escape these duties. The Investment Advisers Act exempts “any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor” from its coverage.

Broker-dealers consistently take the position that their compensation is “solely incidental” to their broker-dealer business. However, virtually every broker-dealer has shifted their business model from that of the traditional “stock broker” to that of an investment adviser. These firms now call their representatives “investment advisers,” “financial advisers,” “wealth managers,” and other titles that reflect that their representatives provide broad advisory and/or management services.

While FINRA does not feel that it is necessary to change its suitability rules, extending fiduciary duties to broker-dealers is a significant step to increasing the rights and protection afforded to investors.

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