(Complete Show Notes Below)
In the 34th episode of the Financial Procast:
Private Equity Found a Shiny New Investment Strategy
Yes it appears that some players in private equity have taken quite a shine to life insurers. In the last few years Goldman Sachs, Harbinger and the Apollo Group have purchased U.S. based life insurance companies. Why the interest in these otherwise boring companies you might ask? Well, mainly because insurance companies sit atop piles o' cash…think Richie Rich or Scrooge McDuck.
Private Equity just can't resist investing the reserves of these others stodgy companies that have traditionally invested in mainly treasuries and other sorts of government back securities. As a matter of fact, it's being reported that some of the new investments made by life insurers that have been purchased by private equity include a large chunk of below investment grade mortgage securities and even a railroad in Kazahkstan?
I'm guessing the people who signed up for policies with some of the legacy companies (Aviva and Liberty Life) have no idea what their insurers are up to. Is this a dangerous new frontier for the life insurance industry? Hard to say just yet, but it does make some of the big mutuals look even more attractive. This could be a win for Mass Mutual, Guardian, Penn Mutual and Northwestern.
Fee Based Model Portfolios are the “New” Thing
According to InvestmentNews.com, fee-based revenue at the top 25 independent broker-dealers grew to 32.9% of total revenue, a slight increase from 2011. If we look at the income on a per advisor basis, 48% earned revenue from fee-based accounts. These type of accounts definitely appeal to advisors because it smooths out the rollercoaster cash flow associated with a commission based model. However, does that necessarily make it a better deal for consumers?
We don't think so. Commission based investments are not inherently bad. In fact, in many cases it's much less expensive for an investor to pay a commission than it is to pay an ongoing fee. You gotta do your homework on this and make sure the numbers add up in your favor before signing up for fee-based account.
New Orleans Judges Benefits Packages are the Envy of the Town
Well, it would seem that criminal court judges in New Orleans had a pretty good thing going for themselves. According to the story over at NOLA.com, the courts were paying for quite a few life insurance policies on the lives of 13 criminal court judges and their spouses in New Orleans. Evidently, some years ago, the judges decided it would be okay to direct fines and fees collected by the court to purchase life insurance policies on themselves.
What's the problem?
Well, state statutes outline exactly how much they can be paid and also stipulate that their benefits packages are to be chosen from a menu that is offered to all state employees. Listen to hear our take.
Everything You Thought You Knew About the Fed Was Wrong
You should definitely head to over to Minyanville to read one of the more thoughtful pieces we've seen in quite a while regarding the Federal Reserve and the role it plays in our economy. Or rather, the lack of power the Fed really has over movements within our economy.
Everyone wants to blame the Fed for all of our problems…turns out they really don't have anything to do with our problems and they don't have near as much power as you think. Good to see that someone else thinks the hype about inflation is overblown. Not saying the potential doesn't exist, but for now there are no signs of it on the horizon.