Archive for July, 2012

Adviser SRO bill dead for now

Thursday, July 26th, 2012

Investment News reported today that the SRO bill is, at least temporarily, dead.  Hours after Maxine Waters (D-CA) proposed introduced legislation that would maintain the Securities and Exchange Commission’s purview over investment advisers through implementing user fees, House Financial Services Committee Chairman Spencer Bachus, R-Ala., put his own oversight measure on indefinite hold.

Mr. Bachus has argued that his bill, which would create at least one self-regulatory organization to oversee advisers, would strengthen investor protection by increasing the number of examinations that are performed currently by the SEC.

Adviser groups have stridently opposed Mr. Bachus’ bill, saying that it would significantly increase their compliance costs. On Wednesday morning, Rep. Maxine Waters, D-Calif., introduced a bill that would allow the SEC to charge user fees for exams, an approach advisers back.

By Wednesday afternoon, Mr. Bachus said his bill is not going anywhere for the moment.

“Everyone agrees there is a serious problem,” Mr. Bachus said in a statement to InvestmentNews. “Unfortunately, there is no consensus on how to fix it. No bill, including the bipartisan bill I offered, will move forward in the committee unless and until there is a consensus.”

It is not clear how long it will take to reach that consensus, but with the number of legislative days in 2012 quickly dwindling, it may not occur this year.

New bill counters SRO bill

Thursday, July 26th, 2012

As reported by IAWatch, on July 25th, Rep. Maxine Waters (D-Calif) introduced the Investment Adviser Examination Improvement Act of 2012.  The bill would require SEC registered investment advisers to pay annual fees in order to increase the “number and frequency of examinations of investments advisers.”  The cost per advisory firm would be based on a formula, developed by the SEC, that would consider the anticipated costs and frequency of exams, a firm’s AUM (excluding assets from mutual funds managed by the adviser), as well as the firm’s number and type of clients and risk characteristics.  Notably, the revenue from the fees are not public funds and as such would be excluded from annual congressional budgeting debates.  It is likely that the earliest the bill will be considered is in the next Congress that takes office in January 2013.

SRO Vote Still Absent as House Financial Services Committee Releases New Calendar

Thursday, July 19th, 2012

On Tuesday, July 17th, Financial Services Committee Chairman Spencer Bachus announced the Committee’s schedule of upcoming hearings.  As you may recall, a hearing on the SRO bill (H.R. 4624), sponsored by Chairman Bachus, was held on June 6th before the House Financial Services Committee.  While the Committee’s recently released schedule remains tentative and depends upon a number of factors that may require changes, there is no specific mention of any mark-up or vote on the SRO bill, which are actions to be taken subsequent to a committee hearing, but prior to any possibility of the bill landing before the full House floor.

While anything is possible, it is becoming increasingly likely that the SRO bill will not get out of the House this year.  As noted in a recent InvestmentNews article about the SRO bill’s next steps, “any prospects for action on the House floor, assuming committee approval, are quickly diminishing given the congressional calendar.”

Still no updates on SRO bill’s next steps

Thursday, July 19th, 2012

On Tuesday, July 17th, Financial Services Committee Chairman Spencer Bachus announced the Committee’s schedule of upcoming hearings.  As you may recall, a hearing on the SRO bill (H.R. 4624), sponsored by Chairman Bachus, was held on June 6th before the House Financial Services Committee.  While the Committee’s recently released schedule remains tentative and depends upon a number of factors that may require changes, there is no specific mention of any mark-up or vote on the SRO bill, which are actions to be taken subsequent to a committee hearing, but prior to any possibility of the bill landing before the full House floor.

While anything is possible, it is becoming increasingly likely that the SRO bill will not get out of the House this year.  As noted in a recent InvestmentNews article about the SRO bill’s next steps, “any prospects for action on the House floor, assuming committee approval, are quickly diminishing given the congressional calendar.”

The Financial Upside of Succession Planning

Tuesday, July 17th, 2012

M&A professionals suggest beginning succession planning at least 10 years ahead of transitioning a practice but only 6% of advisors are doing so according to a recent study commissioned by by NFP Advisor Services Group and produced by AITE Group.  Moreover, 42% of advisors who are within 2 years of transitioning their practice lack a transition plan.

In addition to the practice owner, succession planning benefits the advisors who take over the practices and clients who can feel torn by the transition to new advisors; and the earlier succession planning is done, the better it is for all parties.  Owners who view succession planning as a long-term process can minimize the pain and maximize the gain they achieve when they finally leave their business.

Advisors have unrealistic expectations about how long it takes to implement a succession plan.  Nearly 70% of respondents said it takes five years or less.  M&A experts say it takes 10 years to plan a successful transition as things can go wrong or take longer than expected.

Reliable earnings and client retention are key factors in practice valuation and not AUM as most advisors think.  Advisors can increase the value of their firm by paying attention to time, client retention and earnings before interest, taxes and appreciation (EBITA).  The more time there is before your transition, the more influence you can have over your firm’s valuation.  If your client retention rate is not high, buyers will cut your price.  Firms can improve their bottom line by increasing revenue and reducing expenses.  One good way to do this is by improving the firm’s technology efficiency.  Another method is putting contracts in place to help to retain key employees.

SEC Funding Boost ‘Not Going to Happen’: SRO Bill Co-Sponsor

Friday, July 13th, 2012

According to an article in Investment Advisor magazine, industry trade groups and others opposed to House Financial Services Committee Chairman Spencer Bachus’ bill calling for an SRO to oversee advisors had their hopes quashed that the SEC would receive a boost in funding in order to thwart an SRO. During the June 6th hearing to discuss Bachus’ bill, H.R. 4624, the co-sponsor of the bill, Rep. Carolyn McCarthy, stated frankly: “Would I like to get more money for the SEC? Yes, I would. But we are not going to get the money for the SEC; it’s not going to happen.”  However, Rep. Maxine Waters stated at the hearing that she is drafting legislation that would allow the SEC to collect user fees to help fund advisor exams.

Time’s Up: The Deadline to Comply with the DOL’s 408(b)(2) Disclosure Rule is Finally Here. Are you Ready?

Friday, July 13th, 2012

The July 1 compliance date for the Department of Labor (DOL) has finally arrived, and although the final rule was a long time coming, covered service providers have been ramping  up their compliance efforts for several months.  The final rule on fee disclosures requires covered service providers to furnish information that will enable pension plan fiduciaries to determine both the reasonableness of compensation paid to service providers and any conflicts of interest that may affect a service provider’s  performance under a service contract or arrangement.

While covered service providers not in compliance as of July 1 will be in violation of ERISA’s prohibited transaction rule and subject to penalties under the Internal Revenue Code, the DOL in its May Field Assistance Bulletin, stated that for enforcement purposes, if service providers and plan administrators have acted in good faith based on a reasonable interpretation of the new regulations, the DOL will not pursue enforcement actions so long as future efforts are undertaken to comply with the DOL’s guidance.

The Heat Rises on FINRA as Advisor SRO

Friday, July 13th, 2012

According to an article in Investment Advisor magazine, just as Congress held its hearing on House Financial Services Chairman Spencer Bachus’ SRO bill, FINRA naysayers came out swinging.   Specifically, in late May, the Government Accountability Office told the SEC that it needs to start performing “retrospective reviews” of FINRA’s rules­ to ensure that FINRA’s rules are achieving their intended purpose and so that it can do away with ineffective rules.  A day before the GAO report came out, another watchdog, the Project on Government Oversight (POGO), voiced its own concerns about FINRA, in particular that its regulatory effectiveness could be undermined by “its inherent conflicts of interest, its lack of transparency and accountability, its lobbying expenditures, and its executive compensations packages.”  POGO, a nonpartisan independent watchdog that investigates corruption, misconduct and conflicts of interest, noted these criticisms of FINRA in a letter to Spencer Bachus, and the ranking Democrat on the committee, Barney Frank.   In its letter, POGO cites the following examples as evidence that FINRA has a conflicted mission with “cozy ties with the industry”:

  • Several members of Bernard Madoff’s family held leadership roles at FINRA and  its predecessor, NASD;
  • Bernard Young, a former director of NASD’s Dallas office, became a compliance officer at a bank run by convicted Ponzi schemer Allen Stanford; at least two other Stanford executives also had previous positions at FINRA;
  • Jon Corzine, former CEO and chairman of MF Global, used to be a member of NASD’s board.  Recent articles suggested that FINRA might have waived some of Corzine’s registration requirements when he joined MF Global; and
  • Susan Merrill, FINRA’s former head of enforcement, left the organization and went on to represent JP Morgan in its widely criticized settlement with the SEC for allegedly structuring and marketing a complex mortgage securities deal just as he housing market was starting to plummet, without informing investors that the hedge fund Magnetar had essentially created the deal to bet against it.

Significantly, rather than delegating regulatory authority to advisers, POGO told the lawmakers that Congress should reduce the SEC’s current reliance on FINRA and other SROs, work to improve FINRA’s transparency and accountability policies, and “provide sufficient funding to the SEC to ensure that it is able to carry out its important regulatory duties on its own.”

5 ways financial advisors can serve the growing market of unwed couples

Friday, July 13th, 2012

RIA Biz has an article written by guest columnist J.T. Hatfield Charles.  The article highlights the 5 ways that RIAs can better serve unwed couples, which he believes is an untapped market.  The scope of the article focuses on advisers providing financial planning services to these couples.

  1. Be sensitive to the unique circumstances or challenges faced by clients.  This includes learning about family dynamics, gender identification, health status, financial roles and responsibilities in the household.  For LGBT couples, he also suggests inquiring as to whether the partners are “out” in their community or with their family.  Additionally, be careful on the use of language, avoiding terms such as “roommate” or “special friend”.
  2. Be the client’s quarterback.  This includes knowing all the details about a client’s financial life, and joining the client for meetings with tax professionals or estate attorneys.
  3. Get involved with organizations that focus on issues or challenges for the unwed.
  4. Expand the scope of the firm’s planning. This may involve teaming up with third-parties who have more of a specialty in a given area.
  5. Develop a study group.  This offers attendees the chance to learn from the other, and could include a group of professionals such as estate attorneys, tax experts, insurance agents, and others who provide services to the unwed community.

Schwab moves to expand cloud platform and iDevice access

Friday, July 13th, 2012

According to an article in RIA Biz, Schwab Advisor Services will be rolling out a web based version of PortfolioCenter.   Currently, 3,500 advisers are using the desktop version of PortfolioCenter. Rather than risk losing these advisers to other service providers that offer cloud computing, Schwab Performance Technologies is developing a web-based platform so that the use of the software will remain the same, but it will be hosted in the cloud.  The new platform will be PortfolioCenter Hosted.

Although there is currently a hosted version of PortfolioCenter, up until now advisers had to give up some customization abilities in order to use it and the article estimates it only has 300 users.  This new platform is designed to be more integrated and customizable to compete with other cloud based solutions.

In addition, RIA Biz is reporting that Schwab has released an app available through the iTune’s Store.  The app, which is free and available to anyone with access to Schwab Advisor Center, allows firms to view their clients’ account balances, positions, and transactions.  A similar app for the iPad is being developed and is expected to be released before year-end.  As of now, the app does not permit trading.  This release comes about a year and a half after Fidelity, Pershing, and TD Ameritrade launched similar apps.  According to Fidelity, 40% of WealthCentral users have used the mobile apps.