Trade Associations
How Small Are The Retirement Accounts LIMRA Says Its Advisors Need?
Thursday, October 20, 2011 07:30

Tags: fiduciaries

The argument against applying fiduciary rules to retirement account advisors revolved around making sure the middle class had access to professional advice. But how big are these accounts, really?

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The insurance-oriented advisory group LIMRA warns that 40% of the working population that makes under $40,000 a year does not contribute enough to its retirement to get their full 401(k) match.


Figuring a rough 3% match, these people are contributing at most $1,200 a year to their accounts.


That's a sad thing. The retirement dreams of the American people are looking dim almost across the board, and we all need all the help we can get.


But if half the people out there make under $27,000 a year, it looks like that 40% of the population is a lot more widespread than people who work primarily with affluent clients might think.


Whether the advisor charges these people through commissions or management fees, the added revenue on that $1,200 in new flows is going to be either negligible to the advisor, prohibitively expensive to the account, or both.


So LIMRA's resistance to establishing a fiduciary code for retirement accounts may not be about the lost income -- at least at the accumulation phase.


Maybe the group wants to preserve commissions for the distribution side, when retirement accounts have grown as big as they're ever going to get?


It might be obvious to you, but otherwise the math just doesn't make any sense.



Pro-SRO Broker-Dealer Group Raises Member Dues To Lobby More Aggressively
Thursday, October 20, 2011 06:47

Tags: SRO

The Financial Services Institute needs a lot more money to achieve its goals in Washington, and few of its independent broker-dealer members are coming forward with complaints.

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As of next year, the organization -- spearheaded by LPL -- will raise its lowest level of annual member fees by 50% to $1,500.


Bigger firms will pay up to five times the $20,000 a year they're paying now.


The group plans to use the money it raises to hire another four lobbyists and broaden its influence in Washington.


Its policy goals include moving RIA firms to FINRA supervision and softening efforts to impose a fiduciary model on broker reps.


They consider themselves as independent as fee-only advisors, but because they're already regulated by FINRA, they have nothing to lose if RIAs shift to a self-regulatory model.


Critics of the SRO don't really have that kind of voice in Washington. It would be nice if they did.


Otherwise, it's just not going to be a fair fight.

CPAs Once Again Prove They Are Inept At Marketing
Thursday, October 13, 2011 11:05


CPAs have once again proved they are inept at marketing, this time by producing an investor protection video employing “film noir” cinematic style and cartoon characters.

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The video was produced by the Center For Audit Quality (CAQ), a nonpartisan, nonprofit group based in Washington, D.C. affiliated with the American Institute of CPAs. The video kicks off an education campaign about the system of investor protection. But using film noir technique and cartoon characters to educate investors about an important issue like investor protection is bizarre.
Film noir was used extensively in the 1940s and 1950s, according to Wikipedia, to make Hollywood crime dramas, “particularly those that emphasize cynical attitudes and sexual motivations.” These movies often featured a Hollywood detective in the starring role, and he usually narrates the action.


“On the US stock exchanges, money is like cheap liquor at happy hour—everybody wants some,” says a narrator of the investor protection video. “Financial reporting is our racket and it’s no game.”
The main characters in the video, according to a CAQ press release, are:
  • Ledger Lines, an external auditor with a granite chin;
  • Lotta Charts, a CFO and a whiz with the books;
  • Indy Pendent, the chair of the independent audit committee and a man of integrity;
  • Ida Figures, an internal auditor who’s tough on the numbers; and
  • Johnny Law, the cop on the beat who makes sure that everyone is playing by the rules.
I worked for the AICPA from 1983 to 1986 ghostwriting a newspaper column, and I really like CPAs. But they have proven to me over and over that, as a group, they are tone deaf at marketing.
In the early 1980s, I was at a committee meeting when the AICPA decided to sponsor a float in the Rose Bowl. It cost members of AICPA tens of thousands of dollars. At the time, CPAs were under fire for missing massive frauds in audits, like Penn Square Bank and Continental Illinois National Bank and Trust Company.
I thought a Rose Bowl float was preposterous, but I was a junior member of the staff. I kept my mouth shut.
The day after the Rose Bowl, the AICPA’s float made the front page of the Wall Street Journal. It  was ridiculed.
Nearly 30 years later, not much has changed.

While it’s commendable that CPAs want to educate the public about the role of audits in our system of investor protection, it’s not a topic that you need to be cute with. It’s a serious issue. It’s not just condescending to resort to stylized cartoons to deliver a message on investor protection, it also undermines the credibility of the CPA profession.


Advisor's Press Release Exposes How The Split Between FPA And Broker/Dealers Now Plays A Pivotal Role In The Development Of The Profession
Monday, October 10, 2011 06:02

Tags: Dodd-Frank | fiduciaries | investment advisors

The headline of a press release issued Saturday by an advisor from Bellevue, Washington was innocent enough: “Local Financial Advisor Paul R. Reid Leads Grassroots Effort on Capitol Hill.”

It's standard practice for financial advisors to issue news releases after meeting with legislators. It’s good public relations; Reid indeed has every right to announce that he met with Congressional legislators as a representative of a professional association. However, the press release exposes a larger issue: the rift between the Financial Services Institute and the Financial Planning Association.


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In addition, it illustrates how the FSI has suddenly ascended to play a prominent role in the independent advisor business, to the detriment of the Financial Planning Association. It’s another signal of the decline of the FPA. It also signals the rising influence of the FSI, broker/dealers, and dually-registered advisors licensed by FINRA and as investment advisor representatives. 

The press release said that Reid, CEO of Paul R. Ried Financial Group, LLC on Wednesday, October 5 had travelled to Washington and met with "200 Congressional offices." 
“Last October, the Department of Labor (DOL) proposed changes—specifically, a redefinition of the term fiduciary—that, if passed, will take away investor choice and make financial advice too costly for most small-to-moderate investors,” Reid says in the press release. “Due in part to FSI's work, the DOL pulled back its rule in late September, but is still threatening to bring it back in 2012.”
The creation of a fiduciary standard is the major focus of FSI’s government lobbying effort. Reid is one of many advisors enfranchised, emboldened, and empowered by a group that did not even exist a decade ago and that now suddenly has an influential voice in the advisory profession.    
"You cannot place a price on the ability to speak directly to a member of Congress and let them know what hard-working Americans are going through every day,” Reid says in the press release. “This is a great opportunity for us to educate them on what Americans' (sic) need in terms of financial advice today and for retirement and how what Congress and the administration is doing affects their lives. For example, we are very concerned about proposed changes to existing rules of the Department of Labor, which would price out main street Americans from access to financial advice on their IRAs.
Added Reid, “If we don't speak up, no one will," in the press release, which says “independent financial advisor members of FSI serve more than 15 million American households.”
The ascendance of the FSI comes at the expense of the Financial Planning Coalition, an unprecedented alliance FPA, NAPFA and the CFP Board of Standards formed three years ago to lobby in one voice for its own version of a standard defining who is an investment fiduciary.
FSI differs sharply from the Financial Planning Coalition on the definition of a fiduciary, and this issue is central to the development of the financial advice profession. It will decide how financial professionals must conduct themselves in dispensing advice and how—and, indeed whether— financial services may be sold using commission products.
The fiduciary standard affects how advisors provide advice to investors in 401(k)s, sponsors of retirement plans, and private investors outside retirement plans.
FPA has the most to lose in the battle with FSI. It competes to represent many of the same advisors as FSI. But FSI and FPA are in direct opposition on this crucial professional issue.
 Sources who attended the Financial Planning Association’s annual conference last month have told me that the turnout was disappointing. (I did not attend the event and I have not seen any coverage in the trade press saying the turnout was poor. Please comment on attendance was indeed down.)
Only a few years, no one would have predicted that FSI would be a major factor in the debate arguing on behalf of advisors on the fiduciary standard. FPA was the only membership organization representing advisors. (The history of the split between FPA and FSI is documented in the April and May issues of Financial Advisor.)  Yet that’s exactly what has happened. These two groups are now waging an ideological, political and lobbying battle that will help decide the direction in the continuing development of the nascent financial advice profession.
“Last October,” says the press release from FSI’s representative Reid, “the Department of Labor (DOL) proposed changes—specifically, a redefinition of the term fiduciary—that, if passed, will take away investor choice and make financial advice too costly for most small-to-moderate investors. Due in part to FSI's work, the DOL pulled back its rule in late September, but is still threatening to bring it back in 2012.”
That’s the issue at play right now, as the definition of a fiduciary evolves in the months ahead, and it will affect the practice of thousands financial advisors profoundly over the next decade.
Join us for this week's webinar when Don Trone, a founding father of the fiduciary movement in the financial advisory profession, will address issues related to the creaton of a fiduciary standard regulating how investment advice is delivered to consumers.


FPA Launches A New Round Of Free "Financial Planning Days"
Friday, September 30, 2011 07:44

While regulators and lawmakers bicker, the Financial Planning Association is sticking to its work expanding awareness of the financial planning function.

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This year's round of Financial Planning Days -- Saturdays in October -- will give non-clients a chance to get free advice in 31 cities.


While this is a great idea, where it really shines is the way it gets participating planners to think outside the box and bring in people who wouldn't otherwise be considered ideal prospects.


Last year saw 2,000 people take advantage of the offer, which sounds great even after you divide it by four Saturdays and about 20 cities.


Roughly 20 consultations per day. That's a full day for just about any firm.


Naturally, a lot of these people will never become what the industry thinks of as a perfect client. They just don't have the assets -- and their planning needs are often pretty pressing.


But you never know. The FPA says a lot of the people who come in are surprisingly affluent.


They just never saw the point in talking to a planner. 


If you're looking for new business, maybe it's time to revisit that "free first consultation" marketing material. And see if anyone lurking in the mass market may actually be a good fit for the way you do business.




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