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Client Communication Briefing -
Different Than the Rest, Part II About this time last year, I sent
a letter to all of my clients discussing the mutual fund and investment
community scandal. Now it appears, the insurance industry has become
embroiled in similar scandals. As of right now, most of the allegations
involve the commercial divisions of major insurance companies such as AIG,
AON and Marsh & McLennan. Not surprisingly, Marsh & McLennan is the
parent company of Putnam investments, one of the investment firms at the
heart of the mutual fund scandal. It appears the apple really doesn’t fall
far from the tree. Even though the current
investigations are focused on commercial insurance brokers, there are several
implications, which may impact you, as well as a few lessons to learn. First,
the stock prices of the insurance companies implicated in the scandal have
taken a nosedive. Marsh & McLennan’s stock plummeted 46% following New
York Attorney General Elliot Spitzer’s announcement of his investigation.
Other firms implicated in the scandal have taken a similar beating. The
impact has pulled the market indices down since AIG is a major component of
the Dow Jones Industrial Average. I don’t anticipate a major rebound in any
of the shares of these stocks in the near future, as this appears to be only
the tip of the iceberg as other states are most likely to begin their own
investigations. One valuable lesson to learn from
this is the importance of diversification and not maintaining heavy
concentrations in any specific companies. Another lesson is about the
inherent risk created through conflicts of interest. One of the main
allegations in this scandal is insurance agents directing business to
specific companies in order to capitalize on high commission payouts. This is
the same behavior exhibited in the mutual fund industry by stockbrokers. Not
surprisingly, the real loser in this deal is the consumer who ends up paying
higher fees than they otherwise would. Once again, it is important for
consumers, whether they are business or individuals, to fully appreciate who
they are working with and how they are compensated to determine whose side of
the table everyone is really on. At Financial Service Group, our
fee-only approach assures that we sit on the same side of the table as our
clients and act as your fiduciary. I am not recommending any specific
course of action for you at this time. We are monitoring the status of the
investigation and will contact you if there appears to be a significant
impact on your individual situation. If you have concerns and would like to
set up an appointment, please contact our office at (262) 554-4500. Sincerely, Michael P. Haubrich,
CFP Justus Morgan |