CFA Institute, In A Step Toward Becoming The Key Professional-Licensing Body In Financial Advice Industry, Proposes Requiring Public Disclosure Of GIPS Compliance
Tuesday, June 03, 2014 11:03

Tags: Advisor businesses | business ethics | competitors | family offices | marketing | model portfolios

Global Investment Performance Standards (GIPS) are becoming more trustworthy to UHNWI investors and, thus, more important to RIAs and, in the long run, will make CFA Institute the most important professional designation body in the financial advice industry.

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CFA Institute has posted for public comment an April 7 exposure draft that will require investment advisors to publicly assert their compliance with GIPS. So whenever an RIA tells an investor it is GIPS-compliant, an investor can verify the claim at, a public website sponsored by CFA Institute.

If a financial advisor were to falsely advertise compliance with GIPS, it could be charged with fraud. With civil or criminal charges deterring fraudulent claims, CFA Institute is making GIPS compliance totally trustworthy. It’s also gaining influence among advisors to the mass affluent and UHNWIs.
While the CFP Board is promoting financial planning in a long-running TV campaign that doubled the annual fee its licensees pay for the past two years, CFA Institute is taking substantive steps toward cornering the market on trust by promoting rules governing public disclosure of investment performance, the paramount metric of a financial advisor’s worth.
I’m not saying this to knock CFP Board or be controversial. However, A4A members are mostly CFPs, CPAs, CIMAs and ChFCs and you need to know that, in the years ahead, the designation body and network you work within are likely to be influenced by what CFA Institute is doing.
GIPS is a way of calculating investment performance that was developed by the CFA Institute. In using the standards, RIAs and other money managers create a composite of investments they manage. For RIAs that comply with GIPS, it is much easier to market based on an investment track record. If an investment advisor is GIPS compliant, it makes it much easier to comply with onerous SEC disclosure rules involved in using performance data in your marketing materials. While distributing your firm’s track record with your marketing materials still requires a lot of work by an RIA maintaining GIPS compliance, inserting your firm’s performance record becomes routine without when you’re GIPS compliant.
The standards have been relied on by institutional investors for many years. However, with more CFA charterholders moving into managing money for the mass affluent and UHNWI’s, and with transparency growing in importance because of the Madoff scandal and rash of high-profile frauds, GIPS is starting to spread beyond the institutional market. Over the next few years, you’ll see a growing number of UHNWIs insist on investing only with RIAs who have a GIPS compliant track record.
The GIPS Executive Committee, which was created by CFA Institute as the governing body for the standards, has proposed that all firms who claim to be GIPS compliant re-assert that claim publicly annually in a listing that will be published on January 1, 2015. 
“The firm-specific information gathered through the notification process will be kept confidential,” according to the proposal. “However, summary information or statistics from the database may be released publically. A list of the names and website addresses (if provided) of all firms that claim compliance with the GIPS standards will be posted on the GIPS standards website, unless a firm requests not to be listed.”
Jonathan Boersma, CFA Institute’s Executive Director for Global Investment Performance Standards, says, if the proposal is adopted, it is expected several thousand firms worldwide will assert their claim to GIPS compliance publicly. Boersma says the listing will link back to the firm’s investment advisor’s website, where it might voluntarily publish its track record.
The CFAI Institute’s public listing could the profile of firms on the GIPS-compliant list. Internet search engine algorithms are likely to weight GIPS-listed firms higher than those that are not. The same way that your social network profiles on Linked In or Facebook show up at the top of the results when you search your name, firms listed as GIPS compliant are likely to get favorable treatment from Google and other search engines. Since the CFA Institute website is credible and the listing is an important litmus test of an investment advisor’s trustworthiness, you can bet the search engines will accord firms listed on higher rankings.
The Web forces transparency in everything. You can find answers to anything in an instant. People will expect the truth about an investment advisor’s performance to be available in a few clicks. In three or five years, RIAs who have demonstrated a commitment to transparency by adhering to GIPS will begin to see the marketing benefits, and it will quickly become the new standard advisors must live by.
To help equip you for the fun times ahead, A4A is covering GIPS compliance carefully.
Stephen Horan, managing director and co-lead of education at CFA Institute, who holds a PhD, CFA, CIPM but somehow retains able to talk to us mere mortals, spoke at an A4A webinar in March 2014 about the Certified Investment Performance Measurement designation program at CFA Institute and I blogged about why RIAs with a CFP background might want to consider grooming a staffer to become a CIPM and start connecting with CFA Institute.
Amy Jones, CIPM, and Arin Stancil, CFA, CIPM, recently spoke at an A4A webinar about how to make your RIA GIPS compliant. Jones and Stancil are principals at Guardian Performance Solutions, which helps investment advisors establish a GIPS compliance investment program.


Sure, Your Clients Can Pay for College, But Can Their HS Junior Even Get In?
Wednesday, February 26, 2014 11:00

Tags: client education

Juniors Are Rising


It’s the end of February, which means your clients’ high school juniors are gearing up for their college search and section process.


As your client families begin to consider where they will spend the college fund dollars you helped them to save, we thought we’d pass along to you some tips about college application preparedness to share with them.


Class Selection


If a student has not completed the proper private or public high school curriculum for entrance to a desired degree program and/or university by the time they graduate from high school, they may as well not even consider applying to top colleges.


For instance, if your clients’ student wants to enter one of the top engineering programs in the U.S. – such as Georgia Tech, Purdue, MIT, etc. -- math through trigonometry and pre-calculus should be apparent somewhere on their transcript.


Admissions counselors base admissions decisions on coursework completed through junior year. In addition, they want to see a listing of courses that the student will be taking in senior year. 


Your client’s should be very careful to understand the minimum high school coursework that is required for their child to apply. It doesn’t matter how good the student is academically or if he or she has the right board scores. If they don’t have the classes, they are out.  So encourage your clients to check their child’s potential college and degree-program requirements and then adjust their schedule to be on track.




Students who are interested in Meteorology often don’t understand that to complete a Meteorology degree, they must be able to ace Calculus V in college.


This means that the student must show a strong aptitude for mathematics and make sure to include in their schedule the highest level math courses available at the high school, such as AP Calculus.


You are lucky if you’ve never stood in a college hallway with a weak math student who is sobbing because they had a lifelong dream of being a meteorologist and no one ever told them they were going to have to excel in math to be a weather expert.  It’s heartbreaking. But it’s avoidable if the student is advised expertly (and there are lots of meteorology-related pathways that do not require higher levels of math).


Test Preparation


Whether your client’s child is taking the SAT, the ACT, or both, the student should have been preparing for some time. If they have not had strong test prep in their high school or academy, they need to get it now.


In fact, many high school juniors are already lined up to take their first SAT come March, May and June 2014. The best thing they can do at this time is to get ready. Getting ready can take many forms, from picking up a guide that walks them though the exam and gives them test-taking strategies, to taking the College Board online SAT example tests, to completing a formal SAT/ACT preparation course.


Minimally, the published guides are a great resource to help students become familiar and comfortable with the test format and tips on how to do their very best.


If you get the feeling your client’s child will need more intensive help to ace the test (many students who are talented are not great test takers), then coursework and tutors and learning anxiety-coping strategies can also prove to be effective for some students.


Summer Experience


For a good number of students, the summer between junior year and senior year is their last opportunity to gain real-life experience that is relevant to their career interests.


It also provides excellent material for college essays and personal statements where students are asked to explain “Why XXXXXXX major?” and “Why XXXXXXX college?” Students can gain this experience through a job, an internship (paid or unpaid), or minimally they can interview people in their chosen field.




We worked with a student this year who is seeking admission to an accelerated medical school program. He was going to need something special on his application to make him stand out from all the other outstanding applicants with perfect grades and test scores. So we guided him toward participating in medical research. 


He contacted a professor at his state university and asked to work with him in his lab during the summer before senior year.  The professor allowed him to do so, and then wrote a stellar letter of recommendation for the student’s college applications. 


In addition, the professor included the student as an author on the research paper.  As a result of this extra effort and experience, our client has received full rides at several elite universities.


Vacation with a Purpose


Are your clients talking about taking a vacation this summer, perhaps even overseas? Encourage them to visit colleges while they are traveling.


What should you advise them about visiting?

  •  Tell them to make sure to pick up copies of the student newspaper to find out what’s really going on at the school.
  • They should ask questions of the locals to learn what the climate will be like when it’s not summer.  
  • Encourage them to seek out the professors in their child’s area of interest, as faculty schedules in the summer are often less frantic than during the academic year. 
  • This is also a great time to make a positive, lasting connection with an admissions counselor, as summer is a slower time for admissions staff and they have more time to spend with families.
  • While visits are important, many students fall in love with the campus of a college at which they have no hope of being accepted because the right advising has not taken place throughout the high school years. So it’s important that you encourage your clients to help their student maintain perspective. 


An absolutely wonderful student we only started working with at the end of the summer just before his senior year visited Vanderbilt and fell in love with it. He wore the sweatshirts. He told everyone he was applying there. It was his number one choice.


But he wasn’t accepted, because they had come to us too late to let us really affect his admissions outcomes. Frankly, to an admissions insider who understood his real and meaningful goals, it wasn’t the right fit for him anyway. By anyone’s standards, this is an amazing young man who is going to do great things. However, it’s hard to tell that to a kid who set his heart on a goal that he never would have set for himself if he had not visited. Oh well, Vanderbilt’s loss will be someone else’s gain. 


So while it’s important for your clients and their children to visit colleges, it’s also important to make sure that the stage is set appropriately so that inappropriate -- and perhaps crushed -- expectations are not created.


Get Ahead of the Game


Students should begin to familiarize themselves with the degree program curricula for their major and the application requirements for each of the colleges to which they intend to apply.

The two most intensive parts of a college application are the college essay(s) and the letters of recommendation.


Regarding the latter, many students will be asking teachers and others to write their letters. The request for letters of recommendation should be made as soon after the start of school in the fall as possible. This ensures that the student’s request will not be turned away by those teachers who are “favorites” in the school. We will talk about strategies later on to ensure the best letter is written on behalf of the student.


Regarding the essay, many teachers and families still do not understand that there is not a one-size-fits-all essay.  Many colleges now require essays of various lengths and topics in addition to the essay prompts on the Common Application (Common App). 


The development of the college essay should start slowly and build up to the finished product. Too many students leave the essays until the end and those never end well.


Please note that the Common App essay questions for 2014-2015 are the same as those from last year’s cycle, so they are available to start thinking about now (although changes to the individual college supplemental essays and personal statements may not be available until late summer or early fall).  We always suggest that students create a list of bullet points for each question by simply listing thoughts that can be expanded as they develop their essay over the summer and into the fall.


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Rowling’s Appeal To NAPFA Reflects A Deeper Problem In The Movement To Make Financial Advising A Real Profession
Saturday, February 08, 2014 20:24

Sheryl Rowling’s appeal to NAPFA to restore accepting CPA/PFSs as members even if they do not hold a CFP designation reflects a deeper problem in the movement to make financial advising a real profession.

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Each segment of the financial services world thinks it is the answer, the designation, the real professional.
This myopia obscures commonalities and gets in the way of creating a single profession comprised of practitioners from all the different disciplines of financial advising.  
I’m not proposing that CFA Institute merge with CFP Board and the AICPA’s Personal Financial Planning Practice Section. I’m just saying that the different corners of the profession all have to find common ground instead of erecting new barriers the way NAPFA members did to CPA/PFSs.
All of these groups need to stop thinking of what’s best for their professional status and start thinking about what’s best for consumers. Finding common ground on ways to help consumers would be a lot more productive than bickering.
CFPs, CIMAs, CPA/PFSs, ChFCs, CFAs and lawyers all have the same goal: serving clients well and making a living. Each segment of the profession has something of value to consumers and each other.

NAPFA Must Do The Right Thing With CPA/PFSs If It Wants To Retain Its Special Role As An Advocate For Consumers
Saturday, February 08, 2014 19:15


It's been over a year since the National Association of Personal Financial Advisors (NAPFA) decided to accept as new members only those holding the Certified Financial PlannerTM (CFP®) designation. I was not happy, to say the least, about this decision and need to get this off my chest.
As a CPA/PFS (Personal Financial Specialist), I thought I would adjust to the new rules, especially since my membership in NAPFA was grandfathered, thus, allowing me to retain my NAPFA membership.  After attending the AICPA's Advanced Personal Financial Planning Conference a couple of weeks ago, however, my unhappiness with NAPFA’s decision came to the surface once again.

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Why is NAPFA — a group I respect and care about so much — saying that only a single designation, the CFP, is acceptable for membership? According to the original press release, the NAPFA National Board made this decision to minimize public "confusion" and build "consumer confidence." Why CFP®? According to NAPFA Chair Lauren Locker (who is, coincidentally, a CFP®), "the CFP® designation hits the mark as a strong, baseline standard.” 
Really? A baseline standard? What does that mean? I think it means that NAPFA is against recognizing a higher standard because of its alliance with the CFP Board and the fact that there are greater numbers of CFP® holders than PFS designees.
Notably, NAPFA’s brief press release cited the relationship between NAPFA and the CFP Board several times. "NAPFA and the CFP Board have a long history of collaboration ..." "NAPFA has been a strong strategic partner with the CFP Board." Did the AICPA not adequately ingratiate itself to the NAPFA Board?
The sheer number of CFP® members of NAPFA made this decision easy to push through. During a merely two-week comment period, "responses were overwhelmingly in favor of supporting the CFP® designation as the baseline educational standard for NAPFA-Registered Financial Advisor membership."  (Again, the word baseline!)
But NAPFA members should have known better. These practitioners, who have long been considered the conscience of the financial advice business and who have become quite good as marketing themselves on that basis, should have asked themselves whether they are doing the right thing by breaking with NAPFA’s longstanding policy of treating CPA/PFS designees the same as CFPs.
For NAPFA, a group that has set itself apart from the rest of the financial advisor industry by supporting consumers, the decision to no longer accord CPA/PFSs the professional respect theys deserve, is more than just a slight, a display of badd manners. It is a betrayal of the public trust. It diminishes NAPFA. After all, why would NAPFA members want distance themselves from a financial planning designation with more stringent requirements than imposed on CFPs®?
Requirements Of NAPFA Members Versus CPA/PFSs
Must hold CFP® designation
Must be a CPA prior to becoming PFS
Must have a bachelor's degree
Must have a bachelor's degree + 1 year
Courses in PFP or equivalent knowledge
Courses in NINE PFP areas; minimum of 75 hours
Pass CFP® exam
Pass CPA & PFS or CFP® or ChFC exams
Three years if experience (or two as apprentice)
One year as CPA plus two years in 9 PFP areas
Ethics requirements & pass ethics exam
Ethics requirements & pass ethics exam
Renewal education 30 hours over two years
PFS renewal education 60 hours over three years plus CPA renewal education requirement of 80 hours over two years
According to NAPFA's website, "NAPFA's requirements exceed those of any other financial industry association." But as you can see from the chart above, it’s just plain untrue!
NAPFA is such a great organization in so many ways, and I respect its members so very much. That’s why I waited a year to say anything. I wanted to give it time to see if I would come to understand the decision. Then, attending the recent AICPA PFP conference stirred me to go public with my views because I care about NAPFA and would like to see my colleagues there reverse this policy. 
If NAPFA wants to continue to have the public’s trust, which it has earned for doing the right thing for so many years, it must always do what’s right for consumers.
CPA/PFSs hold themselves to the highest ethical and professional standards. It is wrong to discriminate against us just because some of us choose not to give the CFP Board money only to add more letters to our titles.


Advisor Clients Often Think Their Kids Are A Shoo-In For Entrance To Elite Colleges, But Good Grades And A Legacy No Longer Are Enough
Tuesday, December 24, 2013 12:52

Say your client’s child has great grades, tons of “Advanced Placement” credits, high SATs and SAT IIs, went to all the right summer camps, and has legacy 10-ancestors deep at an Ivy League school.  This child also has a list of extracurricular activities that runs two-pages, single spaced, and includes music, theater, and Habitat for Humanity. And the kid spent last summer volunteering in a refugee community in Africa. In short, your client’s child seemed to have it all, but now the whole family is devastated because somehow all of that was not enough to get into a dream school. How could that be? Here’s what’s going on. 


Elite colleges are swamped with applications. Last year Harvard received 35,000 applications. And it’s getting harder and harder to get in:  In 2003, Harvard accepted 9.8% of applicants; for Fall 2012, they accepted only 5.8% of them. Why is it so competitive?  Every student applying to the top schools has the same academic profile and access to the same activities. Many of them come from families that can afford to pay money to provide their student with a volunteer experience where they simply have to show up.  So your student needs something that is going to set her apart from the crowd and beat the competition. 


These colleges are seeking someone special. They are seeking great thinkers, great doers, and great leaders.  They want to see initiative and spark. They want to see that the applicant understands the mission of the college to which she is applying. (It’s on their website, and you better read it.) You must understand the college and how your child relates to it, i.e. does it emphasize sustainability (Vassar), or ethics and social concerns (Swarthmore). 


These colleges want to know that the applicant has read the degree program information in the catalog, including course descriptions and faculty research areas of focus, and that she is able to relate her own experience and interests directly to that information. 


A client of ours who ended up attending Harvard this year – and was admitted to many of the most elite colleges in the country – had a high school record that was stellar but very similar to many other students who are high achievers. As amazing as he is, this student was unable to express his complex interests in a coherent way that related to the college’s individual offerings.  It took getting his parents to stop interfering (however lovingly) in his thought processes. It took months of introspection and research into each college to be able to prep successfully for his essays and his interviews, the latter of which cannot be faked and usually reveals to the interviewer how much the student is not a good fit for the school. 


This underscores the importance of starting early on college preparation. College prep is not simply paying oodles of money for the best SAT tutor.  College prep is about your client encouraging her child from as early as 8th grade to work towards recognizing areas of strong interest and skill. Students need to develop those areas of interest and strength early through substantive experiences that will offer leadership opportunities by the sophomore and junior years of high school. For example, a student we are working with has all the raw material to get into an elite college:  He has a strong political and social understanding and strong leadership in state politics at the student level. This leadership opportunity and steady personal and intellectual growth has given him real experience to use in his college and scholarship essays and personal statements (of which there are dozens).  This student does not have perfect grades or SATs, but he is a great student who presents himself extraordinarily well. He is going to get into an elite college -- the right elite college -- and go on to be a great leader.


As former admissions directors, we know what it’s like to dig through piles and piles and piles of applications and numbers, all of them virtually interchangeable. It’s exhausting and dismaying.  “OMG, another kid who played violin and thinks he's special.”  No.  Music is fundamental to a solid education, but not special. Organizing a group of New York City high school students to travel to Washington, DC, to meet the Supreme Court Justices, as did one young woman we know?  Now that’s special.


Most of your clients probably send their children to private prep academies, where they promise outstanding college advising. However, most prep schools offer between 2 and 4 college advisors for hundreds of students, and often only one 12th grade advisor.  And usually that individual – however well meaning – has no experience in higher education admissions.  We visit prep schools all the time, and it’s sad how many times we hear counselors talking about how they don’t have the time for their students, or they have to pull students in from the hallway once a year to have a conversation, or the parents are overriding the student’s needs and desires in pursuit of a success that has more to do with the parents’ own self-image.


So how do people like your clients find genuine, effective college prep and search help for their children? 


Educational consultants are everywhere, and like everyone in any industry, they vary in quality and intention. In some markets, education consultants with no college-insider experience charge upwards of $20-40,000 per child, “guaranteeing” that a student will get into an Ivy League college. But as anyone with a college admission background knows, there is no guarantee of getting in to any top college. Often, consultants without inside admissions experience simply don’t know what it’s going to take to make a student admissible to an outstanding institution.


Second, the student may not be suited to the kind of teaching that is done at an elite college, which can create emotional, social, and academic crises, so the effort to get that student into a rigorous academic environment can be a disaster for your client’s child. We see it all the time. 


Third, many times these consultants are focusing on the wrong effort. The effort must be to match the spirit and aspirations of the student with the offerings of the right college or university, because not all elite college academic departments are created equal.


For example, if your client has one child who is interested in weather forecasting and one who is interested in journalism, they need to know this: Two of the top 10 Journalism and Meteorology programs in the country with 100% placement in those respective industries are at a small college in rural Vermont. Within those vast and complex industries, they are not looking for Yale grads. They are looking for Lyndon State College grads.  If your client’s daughter is interested in engineering, engineering is not “one size fits all”. There are extremely important distinctions in engineering degree programs at all of the elites, and those distinctions must be sorted through with your client’s child, working with experts in order to have the best long term outcomes. 


As a financial advisor, you are often intimately familiar with your client’s personal and family challenges. Teenagers can present a wide variety of confusion to themselves and their parents, from behavioral symptoms that impact their performance in the classroom to social issues that prevent them from succeeding outside the classroom, or worse, they display no symptoms of adolescence at all, which can be trouble hiding in plain sight. Your clients that are faced with these challenges are fortunate to be able to pay for rehab and tutoring, among other means of assistance. However, when a student gets to college and on their own, it is often these students we see who struggle with social and academic stress and learning how to make their own healthy choices.


It is because of this that we believe every kid needs a great team from the get-go. We are in a unique position to be part of the team that helps your families at the beginning of their college prep years. Just as you provide a kind of preventative medicine to help your clients assure healthy financial outcomes, we provide a similar kind of preventative medicine to help assure their children’s success and the continued success of the family through generations. And we don’t charge $20,000 with a guarantee of an Ivy acceptance. We charge $7000 (on average) with a track record that assures the best possible unique outcome for your client’s unique child. This fee provides your clients with highly effective, individualized baseline prep, college search, and college application assistance. It also provides these very busy people with stress relief.


Some families require lots of hand holding. Others simply want to know someone is there to answer their questions when they arise. Either way, you rest easy knowing that your client’s family is being taken care of through one of the most stressful times in their lives.

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