The talk of the town seems to be divided between Britney Spears and what you should be doing with your rebate check from the US Treasury. Since the talented Ms. Spears doesn’t listen to me let’s focus on the check.
By way of history, our economy has slowed down considerably over the last six months. Perhaps it is the years of high oil prices, high food prices and relatively stagnant wages catching up or maybe it is the gloom over the sub-prime mortgage mess coupled with falling house values and the schizophrenic market that is affecting the consumer. Something has and the Government has decided to take action to give a jolt back into the economy, and that jolt is the cumulative effect of taxpayers spending “free money” from the Government. The House of Representatives, the Senate and the President have all agreed that this is the policy that they want to employ. At this point in time the debate is over as to whether it is a good policy or not, it is THE policy and now the goal is to make it work.
That simple belief is one reason why I advocate spending. Now I know that my clients are all fiscally responsible but how about the person who isn’t and is facing foreclosure? The answer is obvious, use the rebate to help keep the house!
I was reading Suze Orman’s column and she advocates that you don’t spend it. Her advice is to pay down debt or invest it. In five years that check could be double! Her column reminds me of an advertisement where the annuity company points out that if you didn’t buy that expensive wrist watch now you could have an extra $323,765 in retirement, give or take. Now I truly regret buying Karen Becker a hamburger and milk shake 48 years ago. While the afternoon was enjoyable, I realize that I was depriving myself of future security. I digress.
Go out and spend the rebate money on something you need or want. Spend CASH. Do as the Government wants. Give their plan a chance of success. If you truly believe that the idea of the rebates is wrong and will not help the economy then void the check and mail it back.
I am not sure how successful the rebate plan will be however I do know that if we just put the money away and not use it for current consumption then the plan will fail.
The time for debate has passed and now let us play the game.
Tuesday, February 12, 2008
Wednesday, January 02, 2008
You Don't Own Me... with apologies to Lesley Gore
On a forum that I participate in there is a wonderful discussion developing which deals with how an investment advisory firm can prevent or make more difficult for an existing client to leave the firm with the intent of becoming a client of another firm/advisor of their choice.
Yes you have read that correctly, a discussion took place on how to place a roadblock on people that should have free choice in their selection of an advisor.
What makes this more interesting and in my opinion perplexing is that it is taking place in the forum of an organization whose leadership advocate full disclosure and fiduciary responsibility.
Allow me to ask this question of you. Would you do business with a firm if they told you up front that should the relationship not meet with your satisfaction that you may be unable to deal with the advisor of your choice in the future?
Now no one is suggesting that a representative of Don Corleone will be paying you a visit or that you may wake up to find the severed head of your favorite pet at the foot of your bed. That happens in Hollywood, what we are talking about happens right here, in Your Town, USA.
The online discussion started with a question on adding non compete clauses into contracts and also how to put a dollar figure on the client which according to some, is the property of the firm. Later upon realizing that ownership of a person is politically incorrect the term was changed to “client relationship”. Yet in reality they are one and the same.
Now we have all read about non-compete / non-solicitation clauses where important people usually cannot enter a similar business or talk to clients after they have left their employer however it is usually associated with expensive manufactured goods; goods that have required extensive research and development dollars to be spent. Industrial companies expect that their employees and the employees of the competition be covered by non-compete clauses. However I know of no instance where Boeing has allowed a salesman to join Airbus for a fee. After all how do you really value the future business of an airline?
It is not being said that non compete clauses are illegal, there has been enough case law to show that they can be enforced. However, when people are advocating full disclosure to potential clients I would hope that on at least an ethical if not moral standard that it would be disclosed to a potential client that they may be waiving some rights in the future.
Some fee only advisors are very critical of investment products that have back end surrender charges. They feel that it is simply wrong to penalize or place obstacles in the way of an investor who wishes to cash out. I cannot think of anything more penalizing than preventing a person the freedom of choice just because they are an ex-client of the firm.
The lesson to be learned is to ask your current advisor if they will place any impediments in your selection of a replacement advisor, and have them put it in writing!
Yes you have read that correctly, a discussion took place on how to place a roadblock on people that should have free choice in their selection of an advisor.
What makes this more interesting and in my opinion perplexing is that it is taking place in the forum of an organization whose leadership advocate full disclosure and fiduciary responsibility.
Allow me to ask this question of you. Would you do business with a firm if they told you up front that should the relationship not meet with your satisfaction that you may be unable to deal with the advisor of your choice in the future?
Now no one is suggesting that a representative of Don Corleone will be paying you a visit or that you may wake up to find the severed head of your favorite pet at the foot of your bed. That happens in Hollywood, what we are talking about happens right here, in Your Town, USA.
The online discussion started with a question on adding non compete clauses into contracts and also how to put a dollar figure on the client which according to some, is the property of the firm. Later upon realizing that ownership of a person is politically incorrect the term was changed to “client relationship”. Yet in reality they are one and the same.
Now we have all read about non-compete / non-solicitation clauses where important people usually cannot enter a similar business or talk to clients after they have left their employer however it is usually associated with expensive manufactured goods; goods that have required extensive research and development dollars to be spent. Industrial companies expect that their employees and the employees of the competition be covered by non-compete clauses. However I know of no instance where Boeing has allowed a salesman to join Airbus for a fee. After all how do you really value the future business of an airline?
It is not being said that non compete clauses are illegal, there has been enough case law to show that they can be enforced. However, when people are advocating full disclosure to potential clients I would hope that on at least an ethical if not moral standard that it would be disclosed to a potential client that they may be waiving some rights in the future.
Some fee only advisors are very critical of investment products that have back end surrender charges. They feel that it is simply wrong to penalize or place obstacles in the way of an investor who wishes to cash out. I cannot think of anything more penalizing than preventing a person the freedom of choice just because they are an ex-client of the firm.
The lesson to be learned is to ask your current advisor if they will place any impediments in your selection of a replacement advisor, and have them put it in writing!
Wednesday, December 12, 2007
When Is It Time to Give Up a Designation?
People who have read my blog and other articles are aware that at times I have argued against all the designations and acronyms that are available to planners. Many of them are fluff. The definition of fluff may be difficult to express in words because one man’s fluff is another man’s raison d’être, or corporate entity designed to collect membership dues and seminar fees. However, the holder knows when a designation is no longer valid in their practice and maybe it’s time to be put to bed.
Sometimes unrelated events will give one pause and have them review all the acronyms that they have. Such was my fate! I had to order some new business cards because I am moving my office and was looking at the credentials on my card and decided that it was time to do a housekeeping chore.
The CFP ® designation is one that I will keep, at least for a while. It is a basic designation to demonstrate that I have a core competency in planning, passed a grueling 10 hour exam and have at least three years experience. I hope that they do not damage the designation by making the public think that CFP designees have a legal obligation to act as fiduciaries when the obligation is enforceable in a non legal setting by the CFP Board of Standards and cannot result in restitution.
The ChFC is an almost CFP designation issued by the American College. I earned it by taking the courses that would satisfy the educational requirement necessary to earn my CFP designation and then two more courses. I don’t mind having it because there is no renewal fee and the CE requirements are met when I meet the CE requirements of my CFP designation. It is innocuous and shows the world that I studied at The American College.
The CDFA is the Certified Divorce Financial Analyst which used to be the Certified Divorce Planner designation. In 2001 I studied for a few days and passed four modules which had an emphasis on divorce issues. One was devoted to cautioning us not to breach the line and practice law, one was devoted to taxation, and if I recall one was marketing. About two years after I had the designation the joint partners of the organization had some disagreements and split apart. The new organization seems to have membership comprised of people affiliated with broker dealers, charges an annual fee and seems to put on the same seminar every year with few modifications. When I obtained the designation it showed that I was interested in divorce work however I knew that the education was on the light side and that experience and knowledge would come though networking, reading materials dealing with divorce and actually doing the work.
This is the designation that I am going to drop when I order my new cards and simply donate the renewal fee to the Children’s Law Center which is a charity that helps provide legal support in family matters for indigent children.
The AIF which is the Accredited Investment Fiduciary demonstrates that I have been trained in the fiduciary process and if I am smart, utilize the process in my work. I enjoy having it and all the organization does is promote the idea of what a fiduciary is and advocates that a fiduciary standard be in place. It does not put forth to the public that any of its designees necessarily are fiduciaries in the legal sense. For now it is a keeper.
The last designation, my Enrolled Agent (EA) is granted by the Internal Revenue Service and allows me to represent clients before the IRS. How can I possibly think of giving up anything issued by the kind and gentler IRS? Besides, they know where I live!
Sometimes unrelated events will give one pause and have them review all the acronyms that they have. Such was my fate! I had to order some new business cards because I am moving my office and was looking at the credentials on my card and decided that it was time to do a housekeeping chore.
The CFP ® designation is one that I will keep, at least for a while. It is a basic designation to demonstrate that I have a core competency in planning, passed a grueling 10 hour exam and have at least three years experience. I hope that they do not damage the designation by making the public think that CFP designees have a legal obligation to act as fiduciaries when the obligation is enforceable in a non legal setting by the CFP Board of Standards and cannot result in restitution.
The ChFC is an almost CFP designation issued by the American College. I earned it by taking the courses that would satisfy the educational requirement necessary to earn my CFP designation and then two more courses. I don’t mind having it because there is no renewal fee and the CE requirements are met when I meet the CE requirements of my CFP designation. It is innocuous and shows the world that I studied at The American College.
The CDFA is the Certified Divorce Financial Analyst which used to be the Certified Divorce Planner designation. In 2001 I studied for a few days and passed four modules which had an emphasis on divorce issues. One was devoted to cautioning us not to breach the line and practice law, one was devoted to taxation, and if I recall one was marketing. About two years after I had the designation the joint partners of the organization had some disagreements and split apart. The new organization seems to have membership comprised of people affiliated with broker dealers, charges an annual fee and seems to put on the same seminar every year with few modifications. When I obtained the designation it showed that I was interested in divorce work however I knew that the education was on the light side and that experience and knowledge would come though networking, reading materials dealing with divorce and actually doing the work.
This is the designation that I am going to drop when I order my new cards and simply donate the renewal fee to the Children’s Law Center which is a charity that helps provide legal support in family matters for indigent children.
The AIF which is the Accredited Investment Fiduciary demonstrates that I have been trained in the fiduciary process and if I am smart, utilize the process in my work. I enjoy having it and all the organization does is promote the idea of what a fiduciary is and advocates that a fiduciary standard be in place. It does not put forth to the public that any of its designees necessarily are fiduciaries in the legal sense. For now it is a keeper.
The last designation, my Enrolled Agent (EA) is granted by the Internal Revenue Service and allows me to represent clients before the IRS. How can I possibly think of giving up anything issued by the kind and gentler IRS? Besides, they know where I live!
Monday, November 05, 2007
In the Client's Best Interest
Help me!!! I need comments on this one.
I was speaking with a real journalist (instead of a wannabe) who used the phrase in the "client's best interest" quite a bit in an article. I commented that I thought his use of the phrase was almost becoming cliched because the circumstances he cited seemed to me to warrant the phrase " In the adviser's best interest." A friendly discussion ensued and I asked the question exactly what is meant by " In the Client's Best Interest" and he said everyone knows that answer. Well that was good except what everyone knows and what the regulators know may be two different definitions.
I asked some advisers for their definition and I was somewhat surprised by the diversity. Now I would like to ask the question of you. Please tell me what you think that noble phrase means.
In the "clients best interest" means...........................
I was speaking with a real journalist (instead of a wannabe) who used the phrase in the "client's best interest" quite a bit in an article. I commented that I thought his use of the phrase was almost becoming cliched because the circumstances he cited seemed to me to warrant the phrase " In the adviser's best interest." A friendly discussion ensued and I asked the question exactly what is meant by " In the Client's Best Interest" and he said everyone knows that answer. Well that was good except what everyone knows and what the regulators know may be two different definitions.
I asked some advisers for their definition and I was somewhat surprised by the diversity. Now I would like to ask the question of you. Please tell me what you think that noble phrase means.
In the "clients best interest" means...........................
The Credit Crunch?
There was a popular game show many years ago where contestants could choose whats behind door 1, door 2,or door 3. Of course the doors weren't open and people could only hope that the prize was worthwhile and better than the trinkets that they were often giving up in exchange.
To a large degree the credit crunch is like that, banks and investors may be holding securities that resemble the prizes behind closed doors and are having great difficulty placing a value on the bonds which contain the mortgages. They cannot readily see what the makeup of the securities is. This is important because unlike on the game show the banks and investors are giving up a dollar in anticipation of getting that dollar back, plus interest,
If the underlying securities cannot be priced accurately then what do you do? They don't want to pay one dollar for something that is worth only 80 cents. Right now, banks are using pricing models that contained factors such as credit ratings and they have proved highly inaccurate and unreliable.
To be honest I am not sure that the billions of dollars being written off now will not be recaptured later on as capital gains as pricing transparency and accuracy become known.
That is just my two cents which might be marked down to just a penny in the near future!
To a large degree the credit crunch is like that, banks and investors may be holding securities that resemble the prizes behind closed doors and are having great difficulty placing a value on the bonds which contain the mortgages. They cannot readily see what the makeup of the securities is. This is important because unlike on the game show the banks and investors are giving up a dollar in anticipation of getting that dollar back, plus interest,
If the underlying securities cannot be priced accurately then what do you do? They don't want to pay one dollar for something that is worth only 80 cents. Right now, banks are using pricing models that contained factors such as credit ratings and they have proved highly inaccurate and unreliable.
To be honest I am not sure that the billions of dollars being written off now will not be recaptured later on as capital gains as pricing transparency and accuracy become known.
That is just my two cents which might be marked down to just a penny in the near future!
Tuesday, March 06, 2007
Becoming Trustworthy
Many years ago, an attorney proposed what is perhaps the most succinct understanding of the term fiduciary that I have ever encountered. He said, simply, that being a fiduciary gives someone the legal right to trust you. Those are powerful words.
When all is said and done, I cannot think of any valid reason why an investor seeking advice would go to anyone other than someone who grants them this “legal right.” To me, it’s a no-brainer. It’s as if a car salesman asked you whether—for the same price—you would rather have the same car with a warranty or without one.
I was delighted when I first learned of NAPFA’s campaign to educate the consumer about what a fiduciary standard is and the reasons why they should use someone who is a fiduciary for all their planning and investment needs. The association’s Focus on the Fiduciary held promise.
NAPFA noted that “A financial advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how the financial advisor is to be compensated and any corresponding conflicts of interest.”
But I was startled when they went on to say that CPAs, attorneys and doctors are fiduciaries—a statement that is blatantly incorrect. Of the three, only attorneys are fiduciaries by statute. Doctors have a high standard of care with their own professional hurdles to meet. A simple call to the AICPA asking if CPAs are fiduciaries yielded an immediate “no.”
When it comes to such an important issue, one would expect facts to be checked and double-checked. After all, NAPFA is asking the public to trust them to be their educator. How many “facts” can you get wrong before your credibility is seriously diminished?
Granted, the issue of who is and who isn’t a fiduciary is complicated. The Investment Advisers Act of 1940 requires that registered investment advisors be held to a fiduciary standard—but does not define fiduciary. The Act calls for registration by anyone holding themselves out as an investment advisor and offering advice on securities for a fee. If Congress had stopped right there, life would be easier. Instead, they decided to grant exemptions to certain occupations—among them any lawyer, accountant, engineer, or teacher whose performance of such services is solely incidental to the practice of his profession; any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who therefore receives no special compensation; the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation.
But the word “incidental” has not been defined, either, and that seems to lead to even more confusion. (We can tolerate the need for free speech and will ignore the exemption to publishers.)
Back in 1940, the distinction may not have mattered much because few people had stock brokers and Registered Investment Advisors were firms managing portfolios comprised mainly of individual securities. That is quite different from today’s environment where a large portion of the population have relationships with a broker/dealer, and many RIAs are allocating assets among registered products. The forest and the trees have melded into one picture.
The issue today, then, seems to be whether the campaign to promote the benefits of dealing with a fiduciary is a wakeup call to the public on planning issues or just a revisitation of the old fees-versus-commission argument used for asset gathering.
This is important because to my knowledge, no one has suggested that the exemption for attorneys or accountants be rescinded. Yet why should the public, at a time of need, be subjected to possible poor advice from people who are not registered? We’ve all heard horror stories where an accountant focusing only on tax issues turns a good portfolio into trash, or an attorney looking at the face value of assets makes a judgment without proper analysis that leaves the client with a sub-par asset. If protecting the public is the primary concern, shouldn’t these professionals also be prohibited from providing [financial] advice unless it is incidental in the sense of being very closely aligned to the engagement. For example, the accountant could provide alternative outcomes based on tax strategies, but not recommend the purchase or sale of securities; and the attorney allowed to give advice on the characteristics of securities, but again, not their division, purchase or sale.
Instead, the focus is on the asset gathering and not financial planning, and it comes down to that tired routine of painting the RIA as holier-than-thou. References I find particularly contemptible and old-hat appeared in recent issues of the NAPFA Advisor. Referring to an article on fiduciary behavior , a NAPFA member stated that all a wholesaler needs to do is provide dinner and a lap dance, and the broker will turn around the next day and put clients’ money in that product And this remark comes at a time when NAPFA is relying more on sponsors and exhibitors to provide meals at conferences through the Dine Around concept where some 10 to 15 people are taken to dinner by a sponsor—lap dance optional! In this day and age, remarks like that are inappropriate and belittle the professionalism of brokers.
Perhaps that was just one advisor’s opinion, and perhaps, just a bad choice of words. Yet a NAPFA member who presents at confernces advocated that if you can’t say something bad about a particular broker, then bad- mouth the industry and aim for guilt by association. In my opinion, remarks like this should not be allowed at a conference and certainly not validated with CE credits.
If we are really interested in educating and protecting the public, I think it is time to stop the name calling and misleading characterizations and make the attempt to resolve the issue. First of all, everyone needs to agree on what is meant by a fiduciary standard and recognize that it is a term that affords legal protection—not a definition of a good guy or bad guy. The fiduciary standard is not a guarantee of superior investment results or financial planning. What it may provide is a legal remedy for a client who can show that his advisor did not act in his best interest or failed to disclose material facts.
The organizations leading the way in this effort are the Financial Planning Association—through the legal process—and NAPFA through its educational process.
TD Ameritrade has lent support to the effort by sponsoring polls that show Americans are hopelessly confused about the role of financial advisors and, given a choice (which they now have), would prefer to deal with a fiduciary (which, for the most part, they don’t do now).
In a poll of its own, FPA found that a vast majority of its members would like to be held to a fiduciary standard. They said the results were similar whether the respondent was independent or affiliated with a broker/dealer. (Note that this question was framed in the context of the CFP Board of Standards Code of Ethics.)
The question then, is how we the public and those advisors can be satisfied; and the answer of course is to change the law. Congress barely hears the voices of the two planning organizations, but it might react differently if those 30,000 voices were multiplied by 100.
And this could be accomplished through that good old grass roots tool, the petition. If every advisor who wants to be a fiduciary gathered the signatures of their clients, such a petition could be presented to the Senate Banking Committee, the House Banking Committee and the SEC. Perhaps even a broker/dealer supportive of a change in the law could devote resources, even part of their Web site, to an electronic petition.
Of course the best result would be achieved by amending the Investment Advisers Act of 1940 to align itself more closely with the realities of today; to define financial planning and recognize it as a separate profession; and to continue to educate the public.
When all is said and done, I cannot think of any valid reason why an investor seeking advice would go to anyone other than someone who grants them this “legal right.” To me, it’s a no-brainer. It’s as if a car salesman asked you whether—for the same price—you would rather have the same car with a warranty or without one.
I was delighted when I first learned of NAPFA’s campaign to educate the consumer about what a fiduciary standard is and the reasons why they should use someone who is a fiduciary for all their planning and investment needs. The association’s Focus on the Fiduciary held promise.
NAPFA noted that “A financial advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how the financial advisor is to be compensated and any corresponding conflicts of interest.”
But I was startled when they went on to say that CPAs, attorneys and doctors are fiduciaries—a statement that is blatantly incorrect. Of the three, only attorneys are fiduciaries by statute. Doctors have a high standard of care with their own professional hurdles to meet. A simple call to the AICPA asking if CPAs are fiduciaries yielded an immediate “no.”
When it comes to such an important issue, one would expect facts to be checked and double-checked. After all, NAPFA is asking the public to trust them to be their educator. How many “facts” can you get wrong before your credibility is seriously diminished?
Granted, the issue of who is and who isn’t a fiduciary is complicated. The Investment Advisers Act of 1940 requires that registered investment advisors be held to a fiduciary standard—but does not define fiduciary. The Act calls for registration by anyone holding themselves out as an investment advisor and offering advice on securities for a fee. If Congress had stopped right there, life would be easier. Instead, they decided to grant exemptions to certain occupations—among them any lawyer, accountant, engineer, or teacher whose performance of such services is solely incidental to the practice of his profession; any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who therefore receives no special compensation; the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation.
But the word “incidental” has not been defined, either, and that seems to lead to even more confusion. (We can tolerate the need for free speech and will ignore the exemption to publishers.)
Back in 1940, the distinction may not have mattered much because few people had stock brokers and Registered Investment Advisors were firms managing portfolios comprised mainly of individual securities. That is quite different from today’s environment where a large portion of the population have relationships with a broker/dealer, and many RIAs are allocating assets among registered products. The forest and the trees have melded into one picture.
The issue today, then, seems to be whether the campaign to promote the benefits of dealing with a fiduciary is a wakeup call to the public on planning issues or just a revisitation of the old fees-versus-commission argument used for asset gathering.
This is important because to my knowledge, no one has suggested that the exemption for attorneys or accountants be rescinded. Yet why should the public, at a time of need, be subjected to possible poor advice from people who are not registered? We’ve all heard horror stories where an accountant focusing only on tax issues turns a good portfolio into trash, or an attorney looking at the face value of assets makes a judgment without proper analysis that leaves the client with a sub-par asset. If protecting the public is the primary concern, shouldn’t these professionals also be prohibited from providing [financial] advice unless it is incidental in the sense of being very closely aligned to the engagement. For example, the accountant could provide alternative outcomes based on tax strategies, but not recommend the purchase or sale of securities; and the attorney allowed to give advice on the characteristics of securities, but again, not their division, purchase or sale.
Instead, the focus is on the asset gathering and not financial planning, and it comes down to that tired routine of painting the RIA as holier-than-thou. References I find particularly contemptible and old-hat appeared in recent issues of the NAPFA Advisor. Referring to an article on fiduciary behavior , a NAPFA member stated that all a wholesaler needs to do is provide dinner and a lap dance, and the broker will turn around the next day and put clients’ money in that product And this remark comes at a time when NAPFA is relying more on sponsors and exhibitors to provide meals at conferences through the Dine Around concept where some 10 to 15 people are taken to dinner by a sponsor—lap dance optional! In this day and age, remarks like that are inappropriate and belittle the professionalism of brokers.
Perhaps that was just one advisor’s opinion, and perhaps, just a bad choice of words. Yet a NAPFA member who presents at confernces advocated that if you can’t say something bad about a particular broker, then bad- mouth the industry and aim for guilt by association. In my opinion, remarks like this should not be allowed at a conference and certainly not validated with CE credits.
If we are really interested in educating and protecting the public, I think it is time to stop the name calling and misleading characterizations and make the attempt to resolve the issue. First of all, everyone needs to agree on what is meant by a fiduciary standard and recognize that it is a term that affords legal protection—not a definition of a good guy or bad guy. The fiduciary standard is not a guarantee of superior investment results or financial planning. What it may provide is a legal remedy for a client who can show that his advisor did not act in his best interest or failed to disclose material facts.
The organizations leading the way in this effort are the Financial Planning Association—through the legal process—and NAPFA through its educational process.
TD Ameritrade has lent support to the effort by sponsoring polls that show Americans are hopelessly confused about the role of financial advisors and, given a choice (which they now have), would prefer to deal with a fiduciary (which, for the most part, they don’t do now).
In a poll of its own, FPA found that a vast majority of its members would like to be held to a fiduciary standard. They said the results were similar whether the respondent was independent or affiliated with a broker/dealer. (Note that this question was framed in the context of the CFP Board of Standards Code of Ethics.)
The question then, is how we the public and those advisors can be satisfied; and the answer of course is to change the law. Congress barely hears the voices of the two planning organizations, but it might react differently if those 30,000 voices were multiplied by 100.
And this could be accomplished through that good old grass roots tool, the petition. If every advisor who wants to be a fiduciary gathered the signatures of their clients, such a petition could be presented to the Senate Banking Committee, the House Banking Committee and the SEC. Perhaps even a broker/dealer supportive of a change in the law could devote resources, even part of their Web site, to an electronic petition.
Of course the best result would be achieved by amending the Investment Advisers Act of 1940 to align itself more closely with the realities of today; to define financial planning and recognize it as a separate profession; and to continue to educate the public.
Wednesday, February 07, 2007
Ooops, I Did IT Again!
The lovely Britney Spears isn’t the only person who should sing that song; our good friends at AXA Financial Services should as well.
Case in point: Single woman age 65, who is retired, receives a small pension and social security. She lives within her means and has some assets in an IRA and Annuity. She has no savings account per se, however she DID have about 43,000 in a non qualified portfolio which was divided 40% short term treasury fund and 60% in a moderate allocation fund. These funds could have been used in an emergency with limited impact on her taxes.
I went to see this person on some other issues and she started to show me a report that she had been given, a free financial plan. The person who made the plan used quite a few improper assumptions not the least was that the woman’s pension had a cola provision.
Anyway, she started to tell me how she had this visit from a firm that she had done business with for a number of years and her usual salesman didn’t show up, a new man did. She told him things were ok but that she may need to draw a small amount of money out of the accounts and that he said well your money has to work harder! He recommended that she liquidate the mutual funds (incur a 2% sales charge on some and who cares about the tax consequences) and put the money into an annuity. Of course the annuity is basically allocated 60/40. Oh yes, the annuity has a 7 year surrender period.
This is a tale that will be continued……….
Case in point: Single woman age 65, who is retired, receives a small pension and social security. She lives within her means and has some assets in an IRA and Annuity. She has no savings account per se, however she DID have about 43,000 in a non qualified portfolio which was divided 40% short term treasury fund and 60% in a moderate allocation fund. These funds could have been used in an emergency with limited impact on her taxes.
I went to see this person on some other issues and she started to show me a report that she had been given, a free financial plan. The person who made the plan used quite a few improper assumptions not the least was that the woman’s pension had a cola provision.
Anyway, she started to tell me how she had this visit from a firm that she had done business with for a number of years and her usual salesman didn’t show up, a new man did. She told him things were ok but that she may need to draw a small amount of money out of the accounts and that he said well your money has to work harder! He recommended that she liquidate the mutual funds (incur a 2% sales charge on some and who cares about the tax consequences) and put the money into an annuity. Of course the annuity is basically allocated 60/40. Oh yes, the annuity has a 7 year surrender period.
This is a tale that will be continued……….
Monday, January 22, 2007
The Value of Continuing Education
Learning is an ongoing process and hopefully we continue to learn till the day that our brain lets us down. There are some who say my day was yesterday, none the less I do not want the public confused with continuing to learn and those people who tout a particular designation because they require so many hours of continuing education a year or bi annually in order to maintain the registration.
CE as it is affectionately called is pretty much a joke. I have come to this conclusion as I think about the all day course I was required to take and Tom, the person who was authorized to teach it felt that he was entitled to a day off. Instead he had a subordinate teach it and report it as being taught by Tom. The person who did teach it also taught Ethics at a local college and the disconnect remains to this day.
Then there was a session on divorce planning which I attended. The only sad part about it was that there were severely fewer handouts than attendees and the attorney leading the discussion spent way too much time discussing her practice so that by the end of the time we had covered maybe ½ a page of a 6 page summary. Obviously the educational experience promised and paid for was not delivered yet the sponsoring organization reported that everything was fine.
The last instance covers a one day seminar that ran from 9 to 4 with 3 hours off for lunch and breaks. That means that there were four 60 minute periods and yet somehow the organization got 7 ½ CE granted for that day. Now one CE hour is 50 minutes and there is quite a shortfall.
I know that when it came time for me to report my own CE activity I did not include the first two and the last one was included but after I questioned how that many hours could have been granted.
The point is that much of the CE world is unregulated and filled with misrepresentations. I am not sure what a solution is, but I know that rather than having CE requirements, periodic testing on a knowledge base, done at a commercial location, may be more appropriate.
Next time an advisor is telling you how much CE they take or need, simply yawn and nod.
CE as it is affectionately called is pretty much a joke. I have come to this conclusion as I think about the all day course I was required to take and Tom, the person who was authorized to teach it felt that he was entitled to a day off. Instead he had a subordinate teach it and report it as being taught by Tom. The person who did teach it also taught Ethics at a local college and the disconnect remains to this day.
Then there was a session on divorce planning which I attended. The only sad part about it was that there were severely fewer handouts than attendees and the attorney leading the discussion spent way too much time discussing her practice so that by the end of the time we had covered maybe ½ a page of a 6 page summary. Obviously the educational experience promised and paid for was not delivered yet the sponsoring organization reported that everything was fine.
The last instance covers a one day seminar that ran from 9 to 4 with 3 hours off for lunch and breaks. That means that there were four 60 minute periods and yet somehow the organization got 7 ½ CE granted for that day. Now one CE hour is 50 minutes and there is quite a shortfall.
I know that when it came time for me to report my own CE activity I did not include the first two and the last one was included but after I questioned how that many hours could have been granted.
The point is that much of the CE world is unregulated and filled with misrepresentations. I am not sure what a solution is, but I know that rather than having CE requirements, periodic testing on a knowledge base, done at a commercial location, may be more appropriate.
Next time an advisor is telling you how much CE they take or need, simply yawn and nod.
Friday, November 24, 2006
Leave Home Without Them
There are times when I see things done by other professionals that cause my blood pressure to rise to the top of the blood pressure contraption and words like incompetence and dangerous fill my mind.
The folks at Ameriprise, previously known as American Express Financial Advisors, the spin off from American Express are the latest to have caused me to experience this agita.
Last year one of my clients called to tell me that a family friend had inherited some money and wished to leave it to my client's children since the family friend had no heirs. That was a very nice gesture and I met the individual and my client at an attorney's office so that the family friend could create an appropriate will. It was a simple enough matter, leave the assets to the children and if they were under a certain age then the money would be left in a trust for the children and the parent would be the Trustee. A very simple thing to execute under a will, completing the wishes of both the giftor and the inheritee.
The person who had inherited the money was a man of simple means and wished to use the same financial advisor that the other family member, who had left him the money, was using. It was not my place to interfere nor was it my client's to suggest that any other changes be made. I wish I had interfered now.
Most of the time when a Will is created you never expect that person to die soon thereafter. Well, within 15 months of the Will being executed the person died of a massive heart attack.
The Executor of the estate contacted me and asked me to look at some of the documents found at the home of the deceased. Among them was a copy of an application signed and undated creating what is called a Transfer on Death or Payable on Death Account. That document named the parent of the children as beneficiary, directly, not in trust for the children or anything.
The deceased had three accounts at Ameriprise; a regular brokerage account, an inherited IRA and an inherited annuity. It seemed as if the regular brokerage account was being converted to a Transfer on Death account.
When I examined the account holdings I was shocked. The client was in a very low tax bracket and his holdings consisted of a state tax free bond fund. To compound matters, the same tax free bond fund was the IRAÂ’s only holding. God Bless Ameriprise, they turned tax free income into taxable!!!!
To be honest I thought that it was impossible to place a tax free bond into an IRA. I thought that there were safeguards in place obviously I am mistaken. However, I can think of no reason to place an instrument that produces tax free income into an IRA and I would welcome AmeripriseÂ’s explanation.
The use of a municipal bond fund in the IRA while incredibly stupid was the lesser of two evils. The implementation of a Transfer on Death Account without properly understanding the implications was the real act of negligence because while some of it may be undone by the Courts, the situation can never be made right again.
I have seen too many cases where people prepare Wills only to have their wishes undone when they are in the grave and unable to speak again.
The folks at Ameriprise, previously known as American Express Financial Advisors, the spin off from American Express are the latest to have caused me to experience this agita.
Last year one of my clients called to tell me that a family friend had inherited some money and wished to leave it to my client's children since the family friend had no heirs. That was a very nice gesture and I met the individual and my client at an attorney's office so that the family friend could create an appropriate will. It was a simple enough matter, leave the assets to the children and if they were under a certain age then the money would be left in a trust for the children and the parent would be the Trustee. A very simple thing to execute under a will, completing the wishes of both the giftor and the inheritee.
The person who had inherited the money was a man of simple means and wished to use the same financial advisor that the other family member, who had left him the money, was using. It was not my place to interfere nor was it my client's to suggest that any other changes be made. I wish I had interfered now.
Most of the time when a Will is created you never expect that person to die soon thereafter. Well, within 15 months of the Will being executed the person died of a massive heart attack.
The Executor of the estate contacted me and asked me to look at some of the documents found at the home of the deceased. Among them was a copy of an application signed and undated creating what is called a Transfer on Death or Payable on Death Account. That document named the parent of the children as beneficiary, directly, not in trust for the children or anything.
The deceased had three accounts at Ameriprise; a regular brokerage account, an inherited IRA and an inherited annuity. It seemed as if the regular brokerage account was being converted to a Transfer on Death account.
When I examined the account holdings I was shocked. The client was in a very low tax bracket and his holdings consisted of a state tax free bond fund. To compound matters, the same tax free bond fund was the IRAÂ’s only holding. God Bless Ameriprise, they turned tax free income into taxable!!!!
To be honest I thought that it was impossible to place a tax free bond into an IRA. I thought that there were safeguards in place obviously I am mistaken. However, I can think of no reason to place an instrument that produces tax free income into an IRA and I would welcome AmeripriseÂ’s explanation.
The use of a municipal bond fund in the IRA while incredibly stupid was the lesser of two evils. The implementation of a Transfer on Death Account without properly understanding the implications was the real act of negligence because while some of it may be undone by the Courts, the situation can never be made right again.
I have seen too many cases where people prepare Wills only to have their wishes undone when they are in the grave and unable to speak again.
Tuesday, October 24, 2006
How to Choose a Planner
A few weeks ago there was a discussion on how to choose a financial planner and while that question may be a simple one, I think it is anything but. Allow me to share a few random thoughts......
How to choose a financial planner is a difficult task compounded by the fact that many consumers don’t even know why they want a planner or what they are looking to achieve.
If you buy the argument that financial planning is all about defining your goals and then defining strategies that will help you achieve them and protect you from certain catastrophes then you may be on the right track. Financial planning is not about stock picking or selecting the best mutual fund, although many people think that is exactly what a financial planner does. I think the reason for the confusion is that in order to achieve goals you usually have to save and invest; and many people and organizations want your money, so although they may be investment advisors or salespeople, they refer to themselves as financial planners.
It is important that a consumer realize that they are bombarded with marketing material self promoting one group or the other. Any material that is presented by a membership organization will most likely be biased. This would include the Financial Planning Association, National Association of Personal Financial Advisors, American Institute of Certified Public Accountants and The Society of Financial Professionals. Each of those groups will be promoting the services of their own members and once you can realize that I think you may better off.
Financial designations abound but for financial planning I think that the best known credential is still the Certified Financial Planner designation. The CFP Board is not a membership organization, by design. In order to obtain the right to use the CFP mark you must now complete an educational track, have three years experience and pass a comprehensive 10 hour exam.
Bear in mind that not all CFPs have completed these tasks. Many have been exempted from taking the exam so caveat emptor!
I think that a consumer should be aware of how a planner is compensated, are you paying them or their firm directly or are they being compensated by other companies upon the sale of a product. I am not saying that one method is superior to another but the consumer must understand that it is quite possible that objectivity is being compromised when a third party is providing payment.
The consumer should be aware of the role that the planner has. If the planner is a registered investment advisor and not affiliated with a brokerage or insurance firm then he is most likely considered to be a fiduciary under the law. This affords the consumer some additional protection in the event that something goes afoul. A fiduciary must prove in court that they followed acceptable standards and always acted in the client’s best interest. A registered representative only has to show that the product sold was “ok for the client”
In my way of thinking, this is like going into a car showroom and being told that today and today only, for the same price you could either have a brand new car with a great warranty or one the was used and battered and has the skimpiest of warranties. I think that most of us would opt for the new car.
If a consumer is interested in retaining a fiduciary then it should be because of the legal protection afforded, not because they sign some membership oath. As a consumer you will be protected by the law, not some organization.
A planner should make you feel comfortable during meetings. You will be sharing a lot of intimate details and obviously chemistry is important. You must believe that the planner is listening to you and hearing you.
A planner should be familiar with your special circumstances. This means that if you are a foreign national working here and are seeking advice on tax or estate issues that the planner should have some experience or tell you that you are his first client in that area.
A planner should return calls and emails both before you become a client and afterwards. Communication is important.
A planner doesn’t have to be dressed in the latest fashions or work in a fancy office in order to be good. In fact the nature of the job does allow for some informality.
A planner should be prepared to always put everything in writing. You may not want to rely on your memory alone when it comes to strategies.
You have to realize that a planner may have to refer you to other professionals, such as a CPA or lawyer. You should ask if the planner is getting a referral fee. Hopefully the answer is no because you want to be referred to someone who is competent, not someone who is paying the highest price in order to obtain your name!
How to choose a financial planner is a difficult task compounded by the fact that many consumers don’t even know why they want a planner or what they are looking to achieve.
If you buy the argument that financial planning is all about defining your goals and then defining strategies that will help you achieve them and protect you from certain catastrophes then you may be on the right track. Financial planning is not about stock picking or selecting the best mutual fund, although many people think that is exactly what a financial planner does. I think the reason for the confusion is that in order to achieve goals you usually have to save and invest; and many people and organizations want your money, so although they may be investment advisors or salespeople, they refer to themselves as financial planners.
It is important that a consumer realize that they are bombarded with marketing material self promoting one group or the other. Any material that is presented by a membership organization will most likely be biased. This would include the Financial Planning Association, National Association of Personal Financial Advisors, American Institute of Certified Public Accountants and The Society of Financial Professionals. Each of those groups will be promoting the services of their own members and once you can realize that I think you may better off.
Financial designations abound but for financial planning I think that the best known credential is still the Certified Financial Planner designation. The CFP Board is not a membership organization, by design. In order to obtain the right to use the CFP mark you must now complete an educational track, have three years experience and pass a comprehensive 10 hour exam.
Bear in mind that not all CFPs have completed these tasks. Many have been exempted from taking the exam so caveat emptor!
I think that a consumer should be aware of how a planner is compensated, are you paying them or their firm directly or are they being compensated by other companies upon the sale of a product. I am not saying that one method is superior to another but the consumer must understand that it is quite possible that objectivity is being compromised when a third party is providing payment.
The consumer should be aware of the role that the planner has. If the planner is a registered investment advisor and not affiliated with a brokerage or insurance firm then he is most likely considered to be a fiduciary under the law. This affords the consumer some additional protection in the event that something goes afoul. A fiduciary must prove in court that they followed acceptable standards and always acted in the client’s best interest. A registered representative only has to show that the product sold was “ok for the client”
In my way of thinking, this is like going into a car showroom and being told that today and today only, for the same price you could either have a brand new car with a great warranty or one the was used and battered and has the skimpiest of warranties. I think that most of us would opt for the new car.
If a consumer is interested in retaining a fiduciary then it should be because of the legal protection afforded, not because they sign some membership oath. As a consumer you will be protected by the law, not some organization.
A planner should make you feel comfortable during meetings. You will be sharing a lot of intimate details and obviously chemistry is important. You must believe that the planner is listening to you and hearing you.
A planner should be familiar with your special circumstances. This means that if you are a foreign national working here and are seeking advice on tax or estate issues that the planner should have some experience or tell you that you are his first client in that area.
A planner should return calls and emails both before you become a client and afterwards. Communication is important.
A planner doesn’t have to be dressed in the latest fashions or work in a fancy office in order to be good. In fact the nature of the job does allow for some informality.
A planner should be prepared to always put everything in writing. You may not want to rely on your memory alone when it comes to strategies.
You have to realize that a planner may have to refer you to other professionals, such as a CPA or lawyer. You should ask if the planner is getting a referral fee. Hopefully the answer is no because you want to be referred to someone who is competent, not someone who is paying the highest price in order to obtain your name!
Tuesday, October 17, 2006
How Dark the Con of Man
I just started to read the DaVinci Code and have to admit it is a great book. I can barely put it down; I have read about 200 pages. “How Dark the Con of Man” seems to be the key phrase so far and I cannot help but wonder if there isn't a parallel between that and the argument for fee only planning. The phrase refers to creating a false picture of reality or history, perhaps hiding the truth and spreading a completely different version.
Don't get me wrong; I am a proponent of fee only planning and I do think that in many cases the consumer is much better served using a fee only planner versus a commissioned planner. I think that having the legal remedy of the Fiduciary Standard of Care is important but at the same time ask "Is it always necessary?"
I was speaking with another fee only planner who likes to toss the term fiduciary around. He was complaining because a broker in town had gotten a small account from a relatively young person. My fiduciary friend was saying.... "He is just a salesman... not a planner". I know the broker and he likes to use "A" shares of a very highly regarded fund family. I use their Advisor class myself. In my mind a 20 something year old comes in and says, "Listen I have 25K to invest long term and I don't really need that money”, then picking a quality growth fund doesn't seem to be doing anyone any harm. The harm may come about later if the consumer thinks that he is having the account managed when he's not, but certainly not in the original purchase.
Not every event in life requires comprehensive planning.
Don't get me wrong; I am a proponent of fee only planning and I do think that in many cases the consumer is much better served using a fee only planner versus a commissioned planner. I think that having the legal remedy of the Fiduciary Standard of Care is important but at the same time ask "Is it always necessary?"
I was speaking with another fee only planner who likes to toss the term fiduciary around. He was complaining because a broker in town had gotten a small account from a relatively young person. My fiduciary friend was saying.... "He is just a salesman... not a planner". I know the broker and he likes to use "A" shares of a very highly regarded fund family. I use their Advisor class myself. In my mind a 20 something year old comes in and says, "Listen I have 25K to invest long term and I don't really need that money”, then picking a quality growth fund doesn't seem to be doing anyone any harm. The harm may come about later if the consumer thinks that he is having the account managed when he's not, but certainly not in the original purchase.
Not every event in life requires comprehensive planning.
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