Advisor Business
CFP Says He Was Offered A Listing On Medical Economics List Of Best Advisors For Doctors For $750 And That The Magazine Also Invited His Dog To Join The List
Tuesday, October 01, 2013 17:57

Tags: advisor industry people

A listing on Medical Economics Magazine’s 2013 list of the “Best Financial Advisors For Doctors” was offered to financial planning gadly Allan Roth, CFP, if he paid the magazine’s publishing company $750--and as long as no public complaints had been filed against him, according to a report by Roth published in today's CBS MoneyWatch.com.

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Moreover, Roth reports, after he told a Medical Economics Magazine sales representative over the phone that he wanted to purchase a slot on the “best-advisor” list for a friend, Maxwell Tailwagger, Roth reports that his five-year-old dachshund, Max, was invited also to join the Medical Economics list of the best advisors for doctors. Roth says he did not send the $750 to get the dog listed. 
 
I’ve railed against these top advisor lists for a long time.  In May 2009, NAPFA members got angry at me for faulting them for playing up these best-advisor lists and or “five-star” advisor ratings in marketing their services on the Web. It’s common for advisors to prominently post being named to a best-advisor list years after they are named by the organization.
 
Media outlets have figured out that they can make money by making lists of top advisors because advisors are clamoring for any sort of third-party endorsement they can get. Posting the logo for Medical Economics, Worth magazine, or Barron’s on your website shows that these respected magazines think you’re a swell guy. This has become a respected seal of approval when, in reality, it’s little more than a cheap trick being played on consumers.
 
I predicted in May 2009 that “a reporter in the consumer press will write about the idiocy of these ‘top financial advisor’ lists, which sell magazines but stink at figuring out which advisors are really the best.”
 
It just never occurred to me that the “reporter” would be a CFP.
 
While Roth is not trained as a reporter, his stories in the Wall Street Journal occasionally blow the whistle on advisors and their most sacred institutions. In fact, this is not Max the dog's first brush with fame. Roth registered Max for an award from the Consumers' Research Council of America, and Max made that group's  2009 edition of the "Guide to America's Top Financial Planners." 
 
Roth is a gadfly and may actually be the real deal. He seems not so interested in the marketing value of his work in the media, which has to be good for his practice, but more about telling consumers and advisors terrible truths about the financial advice business. 
 
Apart from his canine capers, Roth in the past has targeted the CFP Board on more serious issues. In one scathing column blasting the CFP Board, Roth accused CFP Board of giving little more than lip service in requiring CFPs to act in their clients’ best interests.
 
While the trade press lately has focused attention on the CFP Board’s stance on who can call himself fee-only, this is the issue that will threaten the CFP brand. Currentlty, CFP Board’s stance on whether a practitioner owes a fiduciary duty to a client is a consumer nightmare

 

 

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An earlier version of this post incorrectly said Allan Roth's article was published in The Wall Street Journal. While Roth has written for WSJ occasionally, this latest article was published on CBS MoneyWatch.com. 

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Financial Planning Coalition, Taking On Wall Street And The SEC, In A David Versus Goliath Battle On The Fiduciary Standard
Monday, July 08, 2013 15:30

Tags: CFP Board | Dodd-Frank | fiduciaries | fiduciary standard | financial planning coalition | FINRA | FPA | NAPFA | sec

The Financial Planning Coalition (FPC), in a letter to the Securities and Exchange Commission released today, argues convincingly for the adoption of a fiduciary standard. FPC—a union of the CFP Board of Standards, Financial Planning Association, and the National Association of Personal Financial Advisors—assails Wall Street in the 25-page letter and criticizes the SEC. FPC argues forcefully for imposing a single fiduciary obligation on all advisors and says that standard should be no less stringent than the standard imposed by the Investment Adviser Act of 1940.

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FPC fittingly cites another David versus Goliath showdown over the fiduciary obligation: Financial Planning Association versus SEC.  That three-year battle was a major victory for FPA and independent advisors, ending with a 2007 court decision vacating the “Merrill-Lynch Rule” and forcing Wall Street’s biggest firms to adhere to a fiduciary obligation in serving clients that had been served previously as brokerage customers.  
 
FPC marshals important facts in this letter at a big moment in the fiduciary standard bettle. The FPC letter is a response to a March 1, 2013 request for information by the SEC concerning a potential uniform fiduciary standard of conduct for both broker-dealers and investment advisers when providing personalized investment advice to retail customers.  At the same time, however, the debate over the imposition of a single fiduciary standard has been going on for three years and is likely to come to a finish by early next year. This document makes a convincing moral argument that the FPC will be making as the fiduciary standard debate moves toward resolution, and it sets the stage for another David versus Goliath battle that pits the Financial Planning Coalition against Wall Street and, at times, against the SEC.
 
FPC says Wall Street firms have the data to show why a single fiduciary standard would be in the best interest of consumers, and urges the agency to ask Wall Street for the data. FPC says after the 2007 U.S. Court of Appeals decision in FPA versus SEC, Wall Street firms were forced to convert a one million client accounts with some $300 billion to RIA accounts from brokerage accounts. “Industry data indicates that the number of these accounts and the assets in the accounts, have grown dramatically since the conversion,” says FPC.
 
FPC repeatedly uses Wall Street’s own words to argue that the brokerage industry’s position on the fiduciary standard—that a stringent standard would cut off consumers from receiving financial advice—should not be relied upon.
 
FPC twice quotes Ira Hammerman, general counsel at Securities Industry and Financial Markets Association (SIFMA), who had warned in 2005 that it would be harmful to consumers to reverse the broker-dealer exemption during the debate over that rule. (SIFMA is the leading trade association for the financial industry that represents hundreds of securities firms, banks and asset managers.) Hammerman is quoted by FPC letter arguing that reversing the  Merrill-Lynch rule exempting brokers from the Investment Advisers Act rules when providing investment advice that was incidental to a transaction “would likely work to the disadvantage of customers, who, as a result, could face increased costs or who could lose their chosen forms of brokerage accounts to the extent their broker-dealer determined not to continue to provide those forms of accounts rather than effect such conversion [to advisory accounts].”
 
“During the pendency of the FPA’s suit against the fee-based brokerage rule,” FPC says, “the same broker-dealer industry representatives [Hammerman] argued that: ‘The forced closure of this brokerage pricing avenue would be a major loss of client choice and a significant diminution in both pricing and account management flexibility that clients have come to expect and enjoy.’”
FPC argues that “none of the parade of horribles presented by some members of the broker-dealer industry actually occurred.”
 
“Those firms were able to transition their fee-based brokerage accounts to advisory accounts subject to a fiduciary standard of care,” says FPC. “Since 2007, those accounts have continued to multiply and grow in size without growing in cost or decreasing in flexibility. The Commission should be similarly skeptical today of those who argue that a fiduciary standard of care would impose crushing costs or deprive customers of relevant choices.”
 
FPC also says that the SEC’s request for information is itself flawed and makes numerous incorrect assumptions about a fiduciary standard. It argues that the Dodd-Frank Act mandates creating a fiduciary standard that was at least as stringent as the current standard applied under the Investment Advisers Act. The current standard should not be adapted to the brokerage industry, says FPC. The industry should adapt to the standard under the ‘40 Act.
 
The FPC takes SEC to task for assuming in its request for information that financial planners, once they provide a financial plan to clients, are not subject to a continuing fiduciary duty.  FPC says CFP Board rules state that once planning advice is given to a client, a CFP will continue to owe that client a fiduciary duty.    
 
I highlighted important points in the letter in yellow. But the really important arguments don’t start until page 18 and can be found toward the end of the letter. Look for my red check marks noting those items. Here below is a summary of the letter stating FPC’s position along with the most important information from the document, along with key snippets from the document.
 
  • FPC believes that a uniform fiduciary standard should apply to all investment advice provided to retail customers, whether that advice is delivered by an investment adviser or a broker-dealer.
  • The standard must be “no less stringent” than the fiduciary standard that already applies to investment advisers and should incorporate and apply law and precedent developed under the Advisers Act.
  • The SEC need not, and should not, delay  a decision on the fiduciary standard until it has harmonized investment adviser and broker-dealer rules.
  • An Aité Group survey sponsored by FPC submitted and a separate study by two professors Finke and Langdon study show that a uniform fiduciary standard will not impose undue costs or burdens on customers or on financial services firms.
Key snippets:
  • The Aité Group surveyed 498 different financial advisers selected from a panel of financial advisers put together by ResearchNow. The findings of the study are explained in more detail below, but in summary, those financial advisers (both at broker-dealers and at investment advisory firms) who deliver services to their customers under a fiduciary standard found that they experience stronger asset growth, stronger revenue growth, and obtain a greater share of client assets than those that provide services primarily under a non-fiduciary model. The findings also show that the fiduciary financial advisers do not spend any more of their time on compliance or other back-office tasks. In short, transitioning to a fiduciary model is not likely to have a negative effect on broker-dealer financial advisers; quite to the contrary, it is likely to improve their relationships with their customers and the quality of advice to those customers.
  • Transitioning to a fiduciary model is not likely to have a negative effect on broker-dealer financial advisers; quite to the contrary, it is likely to improve their relationships with their customers and the quality of advice to those customers.
  • Of the financial advisers surveyed by the Aité Group, over two-thirds of the financial advisers associated with investment advisers, and more than half of the financial advisers associated with broker-dealers believe that a fiduciary standard is the appropriate standard of care for dealing with retail customers.
  • We urge the Commission to consider carefully the article by Professors Michael Finke and Thomas Langdon, The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice….The study finds that a fiduciary duty has no measurable effect at all on the availability of broker-dealer services to retail customers.

 

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Advisors Beware: “Boiler Room Legalization Act” Is Expected To Be Implemented By SEC Shortly, Ushering In A New Era Of Investment Fraud
Saturday, June 15, 2013 18:27

Tags: alternative investments | client education | compliance | fraud | integrity | Wealth Management

The Securities And Exchange Commission is expected to soon release long-overdue rules implementing the Jumpstart Our Business Startups (JOBS) Act, which was signed into law by President Obama in April 2012. JOBS is an unprecedented loosening of rules on private deals and likely to usher in an era of rampant investment fraud, the likes of which not we’ve not seen since the penny-stock boiler-rooms of the 1980s.

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The Economist last week wrote that the rules from SEC implementing JOBS are expected to remove prohibitions on general solicitations by hedge funds.
 
When I looked into the JOBS Act, my chin dropped. (I looked silly.) There's a lot more than a hedge-fund invasion that will be unleashed by JOBS.
 
To a reporter who covered investment fraud nearly full-time for over a decade, this new law looks like a license to steal. (See below a list of its major provisions highlighted.) 
 
 
 
JOBS has been roundly criticized by consumer groups, labor unions, and experts on securities law.
 
John Coffee, an expert on the history of U.S. securities regulation and Columbia University law professor, testifying before a Senate committee in December 2011, sarcastically suggested one section of the JOBS could be tilted “The Boiler Room Legalization Act of 2011.”
 
A decade after Enron, massive mutual fund frauds, an era in which Wall Street analysts and firms admitted to massive "pump and dump" schemes to defraud investors, the U.S. is stepping back from the Sarbanes Oxley Act and its effort to protect investors.
 
For financial advisors, there’s good and bad news. But it’s mostly good.
 
Hedge funds advertising will mean more competition for financial advisors, which is bad. “Executives (at hedge funds) salivate at the prospect of pitching to future pensioners investing their retirement pots,” reports The Economist.
 
On the other hand, legitimate private deals are likely to come your way as a result of JOBS. Moreover, who but a fiduciary is better able to guide investors through the onslaught of new alternatives expected to be released. This law will make good counsel and diligent research more important than ever.

 

 

 

Courtesy of Wikipedia, look at the major provisions of the JOBS Act:
"The legislation, among many other things, extends the amount of time that certain new public companies have to begin compliance with certain requirements, including certain requirements that originated with the Sarbanes–Oxley Act, from two years to five years.[19][20]
The primary provisions of the House bill as amended would:
  • increase the number of shareholders a company may have before being required to register its common stock with the SEC and become a publicly reporting company. These requirements are now generally triggered when a company′s assets reach $10 million and it has 500 shareholders of record.[21][22] The House bill would alter this so that the threshold is reached only if the company has 500 “unaccredited" shareholders, or 2,000 total shareholders, including both accredited and unaccredited shareholders.[19][20]
  • provide a new exemption from the requirement to register public offerings with the SEC, for certain types of small offerings, subject to several conditions. This exemption would allow use of the internet "funding portals" registered with the government, the use of which in private placements is extremely limited by current law. One of the conditions of this exemption is a yearly aggregate limit on the amount each person may invest in offerings of this type, tiered by the person's net worth or yearly income. The limits are $2,000 or 5% (whichever is greater) for people earning (or worth) up to $100,000, and $100,000 or 10% (whichever is less) for people earning (or worth) $100,000 or more. This exemption is intended to allow a form of crowd funding.[23] While there are already many types of exemptions, most exempt offerings, especially those conducted using the internet, are offered only to accredited investors, or limit the number of non-accredited investors who are allowed to participate, due to the legal restrictions place on private placements of securities. Additionally the Bill mandates reviews of financial statements for offerings between $100,000 and $500,000, and audits of financial statements for offerings greater than $500,000 (noting maximum offering of $1,000,000).
  • relieve certain kinds of companies, which the bill calls “emerging growth companies,” from certain regulatory and disclosure requirements in the registration statement they originally file when they go public, and for a period of five years after that. The most significant relief provided is from obligations imposed by Section 404 of the Sarbanes-Oxley Act and related rules and regulations. New public companies now have a two-year phase-in, so this bill would extend that by an additional three years. Smaller public companies are also already entitled to special relief from these requirements, and the bill does not change that.[23]
  • lift the ban on “general solicitation” and advertising in specific kinds of private placements of securities.[23]
  • raise the limit for securities offerings exempted under Regulation A from $5 million to $50 million, thereby allowing for larger fundraising efforts under this simplified regulation.[23]
  • raise the number of permitted shareholders in community banks from 500 to 2,000.[23]
  • The bill prohibits the crowdfunding of investment funds.[24]
The first six sections, or "Titles," of the JOBS Act are named after the original bills that each was based on, and the last section, Title VII, tells the SEC to conduct outreach regarding the new legislation to SMEs and businesses owned by women, veterans, and minorities. Title III of the Act, the crowdfunding provision, has been called one of the most momentous securities exemptions enacted since the original Securities Act of 1933."[25]
 

 

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A Source Tells Reuters That Former CFP Board Chair Alan Goldfarb Will Be Publicly Admonished By Board For Misleading Disclosure
Monday, June 10, 2013 13:29

Tags: advisor industry people | CFP Board

Reuters reported over the weekend that the former chairman of CFP Board, Alan Goldfarb, who resigned in November 2012 after being accused of misrepresenting how he was compensated on a website for consumers, will be publicly admonished next week by CFP Board. 

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Citing an unnamed source, Reuters reported Saturday that Goldfarb will receive a "public letter of admonition" this month from the organization for inaccurately characterizing himself as a "fee-only" financial planner.
 
Today Godlfarb confirmed to Financial Planning that he was expecting the public rebuke by CFP Board.
 
Goldfarb had filled in information on the Financial Planning Association’s “find a planner” lead-generation website that he was compensated by salary. When the matter came to the attention of CFP Board officials, an independent committee of outsiders was established to investigate the CFP Board chair.  

It’s unprecedented for the chairman of CFP Board to receive a public admonition. It’s also unprecedented for information about a disciplinary action to be leaked to the press before it is announced by CFP Board. The issue is emotionally charged because it involves disclosure about compensatoin, a divisive issue for CFP Board and the investment advice business. I’ll wait for an official announcement from CFP Board before covering the matter in any depth.
 
 

 

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Draft Of A Standard For Professional Conduct For All Advisors; Ron Rhoades Invites Comment On Proposed Rules To Ensure Consumers Can Trust Their Financial Advisors
Monday, June 10, 2013 10:42

Tags: fiduciary standard

Three weeks ago, I reported that Ron Rhoades, an expert in the legal underpinnings of the fiduciary standard in the Investment Advisers Act of 1940, had written an entry to his blog that “read like a preamble to a single fiduciary standard for financial advisors.”

 
This past weekend, Rhoades published a draft of a fiduciary standard of professional conduct for investment advisers.

This Website Is For Financial Professionals Only


 
Rhoades is trying to move forward the debate on applying a single fiduciary standard to all U.S. financial advisors, an issue widely expected to be settled in the next 12 months by Congress and the Securities and Exchange Commission.  Rhoades is publicly asking tough questions involved in establishing rules ensuring U.S. consumers can trust financial advisors.
 
Under current law, registered reps affiliated with broker-dealers have one set of rules for fulfilling their role as fiduciaries (under the Securities Exchange Act of 1934), while employees of an RIA have a different standard (under the Investment Advisers Act of 1940).  
 
Rhoades, in this weekend’s post, focuses on conflicts of interests, to explain why it’s important to create a single fiduciary standard.
 
“The lobbyists of Wall Street firms and insurance companies, and the hired law firms of large BD firms and insurance companies, are now extensively arguing that, should fiduciary duties be applied to brokers, only "disclosure" of a conflict of interest is required,” says Rhoades. “To that I would say ... nonsense. Under the application of Wall Street's wish list for a "new federal fiduciary standard," a bona fide fiduciary standard would not be applied. The fiduciary duty of loyalty is not met simply by disclosure of a conflict of interest; much more is required.”
 
Rhoades’ draft definition of a fiduciary standard of conduct for investment advisers is an ambitious project. He’s inviting comment on his draft and it’s a meritorious effort, and all sides in the debate could benefit from the discussion.
 

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