I will be interviewed on a radio show, The Business Reality Network, this Sunday (July 13th) at 10:15 am. The show is on WDFN, 1130 AM and can also be heard via the web at www.businessrealitynetwork.com.
I will be discussing insurance along with opening and running a small business. You are invited to listen in.
Marty O’Neill, Insurance Agent
As many of my readers know, in addition to providing auto insurance, homeowner’s insurance and life insurance for the people in and around Ferndale, I also specialize in retirement planning and advocate saving for your future.
Today I have posted a column from The Detroit Free Press and columnist Susan Tompor. She writes about concerns related to CDs and potential pitfalls that might occur during investing in CDs–Marty O’Neill, Insurance Agent, Ferndale Michigan
BY SUSAN TOMPOR • FREE PRESS COLUMNIST • May 31, 2008
Putting money into an FDIC-insured certificate of deposit called a brokered CD could seem like a no-brainer. It’s insured after all, right?
But some savers found unsettling hurdles with so-called brokered CDs issued through one distressed Arkansas bank that brought in money from savers nationwide.
Federal regulators on May 9 closed ANB Financial National Association in Bentonville, Ark. It was the third closure this year of an FDIC-insured bank.
But more than two weeks later, many savers with the brokered CDs still do not have access to their money.
It is an unusual situation, but one worth talking about as savers push the limits to find more attractive interest rates and some banks run into financial troubles.
$1.6 billion left out of deal
ANB Financial, which had about $2.1 billion in assets, was the largest bank to be closed this year. Regulators blamed lax lending standards for construction and development loans.
Pulaski Bank and Trust Co. in Little Rock, Ark., assumed control of the bank’s locations. Insured deposit accounts were transferred to Pulaski Bank and were available immediately.
But ANB Financial had a high amount of brokered deposits — roughly $1.6 billion — that weren’t part of that deal.
Those deposits were held by investors all over the country, including Michigan.
The FDIC has the task of paying the brokers directly for the amount of their insured funds.
What savers must realize is that brokered CDs are not the same as an ordinary CD opened directly through a local or out-of-state bank.
Consumers can go to www.fdic.gov/deposit in order to see how insurance works and whether the Federal Deposit Insurance Corp. insures your money at a given institution.
Savings accounts, checking accounts and CDs are insured by the FDIC up to the legal limit of $100,000 and sometimes more for special kinds of accounts or ownership categories. For example, each person’s deposits in self-directed retirement accounts at the same insured bank are added together and insured up to $250,000. Naming beneficiaries to a self-directed retirement account does not increase insurance coverage.
Read disclosures carefully
Brokerage firms offer CDs, too. The deposit brokers can sometimes negotiate a higher rate of interest for a CD by promising to bring a certain amount of deposits to the institution.
These brokered CDs are then offered to customers.
If you put money into a brokered CD, read all the disclosures. You need to know which bank or thrift insures your CD.
The Securities and Exchange Commission has warned that consumers risk not being fully insured if their total deposits at the bank or thrift, including all brokered CDs at that bank, are above the insured limit.
You need to know up front if your broker plans to put your money into a bank or thrift where you already have other CDs or other deposits.
If the bank fails, typically, the healthy bank that assumes control of the troubled bank’s assets won’t agree to acquire the brokered CDs. It’s essential to understand if all your money in brokered CDs falls within the FDIC insurance limits.
David Barr, an FDIC spokesman, said most of the deposits at ANB Financial were brokered CDs, which is unusual.
As of Tuesday, the FDIC had released about $550.7 million out of $1.6 billion in brokered deposits at ANB. That’s roughly 35% of the deposits.
The situation is made more complex because about 180 brokers had funds on deposit at ANB. Paperwork is required to make sure that customers are only covered according to the limits.
The FDIC needs to cross-reference who has brokered CDs at that bank and how much they have in total through various brokers.
Adam Banker, a spokesman for Fidelity Investments, said Fidelity has provided the FDIC with information about many customers who had brokered CDs through ANB Financial. Fidelity is completing the paperwork for customers, but some customers may need to take more action.
But he said customers who have more than $100,000 in those CDs will need to submit more paperwork for the FDIC and return that paperwork to Fidelity so it can be submitted to the FDIC. Customers can get more information at www.fdic.gov.
No one could tell me how long the process could take for some consumers. It is unknown how long savers would have to wait to get the remaining money.
By Marty O’Neill - Insurance Agent
So your 1040 is filed and you are now anxiously waiting for your refund. What do you plan on doing with it? Go on that long-awaited cruise, get a new set of golf clubs or buy that wide-screen TV you’ve had your eye on? There are so many ways you could spend your refund, but there may be better alternatives to consider.
According to the Internal Revenue Service, over 75 percent of American taxpayers received a federal tax refund, with the average around $2,500. It’s what you do with your refund now that may create a better financial future for you and your family later on.
Instead of spending your refund this year, consider funding an Individual Retirement Arrangement (IRA), setting up a college savings fund for a child, or paying down credit card debt. These options will help to improve your financial situation.
First on your list of priorities should be paying down any high-interest credit card debts you have incurred. By paying only the minimum each month, you may be paying just the interest (or less) on the debt and little or nothing towards the principal. Paying down the debt can free up additional money for other important financial needs.
If debt is not a problem, your tax refund could provide you an excellent opportunity to fund an existing IRA or establish a new one. For the 2007 tax year, you can contribute up to $4,000 to an IRA. If you are 50 years or older by December 31, 2007, you can add an additional $1000 to the account. Making a tax-deductible contribution to a Traditional IRA is an option if you are not participating in an employer-sponsored retirement plan or, if you are participating, your Adjusted Gross Income falls within eligibility guidelines.
A Roth IRA may be a more appropriate choice, depending on your eligibility. Contributions to a Roth IRA are not tax deductible. However, qualified distributions are received free from federal income tax.
Your refund could also be used to fund a Coverdell Education Savings Account (ESA) or 529 Plan for your child. Contributions are not deductible, but withdrawals to pay qualified educational expenses are free from federal income tax.
One thing to remember after you’ve decided the fate of this year’s refund: the check you received is not a windfall but the return of an interest-free loan you provided the government.
Regardless of the pleasure you may get from receiving a large check each tax year, adjusting the amount withheld by Uncle Sam to reduce the amount of future refunds may be an appropriate course. You may not get a refund in April, but there may be more in each paycheck to contribute to a Coverdell ESA, 529 plan, IRA or to pay down debt throughout the year.
Take some time to consider your options before making the down payment on that cabin cruiser. The earlier you start saving for your future, the more you may have during your retirement.
If you have questions about these options and others, you owe it to yourself to contact a financial services professional that you know and trust. Your financial future may depend on it.
Insurance companies, the good ones that is, have built trusted relationships with their clients. There is a bond that occurs between the people of a community and those who help them in their hour of need.
Over the past few years these trusted insurance companies have moved toward helping their clients in other forms of finance and financial planning. Insurance companies are now big players in the banking and financial management arenas. They have taken a holistic approach to helping clients not only protect their wealth but grow it as well. Today you will find an article published by the Associated Press that addresses this very issue–Marty O’Neill, Insurance Agent
(c) 2007. The Associated Press. All Rights Reserved.
DES MOINES, Iowa (AP) - Your insurance company is likely handling more than policies these days. Investments, retirement plans, even car loans and checking accounts have been added to some service portfolios as insurance companies expand into the traditional realm of banks.
Accelerating the trend are baby boomers looking to build their wealth before retirement.
Many traditional insurance companies — with slogans like Allstate’s “You’re In Good Hands” and State Farm’s “Like A Good Neighbor” — have cultivated relationships of trust in insurance. They appear to have succeeded in transferring that trust into banking and management of their customers’ retirement assets.
A Forbes magazine ranking of the nation’s top 25 financial services companies, based on 2006 revenue, included 10 insurance companies, including State Farm, MetLife, Allstate, Prudential Financial and New York Life Insurance.
Bloomington, Ill.-based State Farm Insurance Co., the nation’s largest auto and home insurer, branched out into banking in 1999 and into other financial services areas a few years later. Through its 17,800 insurance agents in the United States, the company offers mutual funds, savings accounts, even car and bank loans.
“When you purchase a new auto, you need to perhaps borrow some money to purchase the vehicle and then you need to buy some insurance. When you’re purchasing a new home, you need a loan, obviously, and you need insurance,” said State Farm spokesman Dick Luedke.
“It’s planning for your financial future and insurance is part of that and banking is part of that and investing is a huge part of that.”
State Farm, a mutual company therefore not publicly traded, still makes most of its profit from insurance. Banking and mutual funds make up just 2.6 percent of the company’s accounts.
Yet State Farm’s bank held $13.7 billion in assets as of June 30, according to the Department of Treasury, ranking in the top 1 percent of all U.S. banks based on total asset size. Its retail mutual funds business closed 2006 with nearly $3.9 billion in assets under management, a gain of about $1 billion last year, its fifth year in business.
Bob Hartwig, an economist and president of the New York-based Insurance Information Institute, a nonprofit trade group, said many insurance companies have branched out to broaden their revenue stream.
“The traditional insurance industry is very cyclical and can have some very bad years, such as years when there are major catastrophes,” Hartwig said. “For decades, federal law prohibited insurers from getting into banking and financial services but that depression-era legislation was swept away in 1999. For the last eight to nine years, insurers have been able to get into this in a big way.”
Des Moines-based Principal Financial Group Inc., founded in 1897 as a mutual life insurance company serving bankers, took advantage of the regulatory changes to transform itself, becoming the nation’s leading 401(k) retirement plan provider.
Only a quarter of Principal’s operating profit still comes from individual life and health insurance. The rest comes from managing securities, real estate and other investments in the United States and abroad. The company provides asset management and retirement services in Argentina, Brazil, China, Chile, India and Mexico.
Principal CEO Barry Griswell said the insurance industry’s transformation is due to the attractiveness of the financial services industry.
“The fact that we have the aging of the population, we have a lot more wealth created in this country. We have more families in the higher income levels creating a lot more savings,” Griswell said in a September interview. “We have everybody positioning for the future of the baby boom generation as they really ramp up their retirement savings.”
The baby boom generation is Principal’s growing focus, he said.
“When they start retiring, those assets they’ve accumulated primarily out of 401k and others will flow largely into individual IRAs,” Griswell said. “So probably the one area we’re putting most emphasis on going forward … will be the retail mutual fund. We currently have $50 billion in assets under management. I would like to see that get to $100 billion fairly soon.”
The trend is not expected to peak for many years, he said. Baby boomers are just nearing retirement, and those born at the peak of the boom in 1957 still have a decade or more of work ahead of them.