| Francis Named CFP Board Chair-Elect |
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A PricewaterhouseCoopers advisor with more than 20 years‚ experience in the financial planning field has been named 2005 chair-elect of the Certified Financial Planner Board of Standards. Barton Francis, 44, of Vienna, Va., will take the position January 1, when current chair-elect Glenn Pape will assume the role of CFP board of governors chairman. Francis currently is director of the Personal Financial Services Practice of PricewaterhouseCoopers in McLean, Va. During his career, Francis has managed to spend time in the worlds of both independent financial planning firms and the Big Few accounting firms. Before joining Pricewaterhouse Coopers, he was president of Evensky, Brown & Katz in Coral Gables, Fla., and a partner with Ernst & Young. Given the breadth of his background, Francis may be able to build bridges with allied professionals, particularly accountants. Speaking of the issues facing the organization in 2005, Francis says he expects activity in the areas of public education, revision of the CFP Board ethics code and a review of the organization‚s strategic goals. The appointment of a permanent CEO also is likely to be on the board‚s agenda. The board has been searching for a new chief executive since the abrupt resignation of Louis Garday in the spring. Several observers, Francis among them, expect a CEO to be named by year-end. "I think at this point the board has been very deliberate and careful and wants to make sure we have a long-term" replacement, says Francis, who is not a member of the search committee. "However, I think there will be good news by the end of the year." Francis adds that the organization has not been slowed in the interim, as acting chief executive Gary Diffendaffer has been moving the organization forward. "Gary has been doing a tremendous job, and I think the standard has been higher than business as usual," he says. "There are a number of long-term, important projects that should be coming to intermediate fruition within the next several months, and a lot of that has to do with Gary‚s stewardship." Among the projects, he says, is an expansion of the organization‚s public education services. That education effort would apparently be aimed at clarifying the meaning of a CFP certification for consumers, who often are confronted with an alphabet soup of certificant marks among financial advisors. "I do believe the public doesn‚t understand what the significance is of various certifications, and even the distinction between industry terms such as investment advisor and broker," says Francis, whose certificates include CFP, CPA and CIMA. "Another thrust is to take a look at helping underserved members of the public." Another important issue next year, he says, will be the board‚s consideration of code of ethics revisions. "The revision to the code is important because of some of the issues we faced in the late 90s and early 2000," he says. "We have to make sure CFP certificants represent the highest standards in ethical behavior."
Prices For Advisory Firms Climb If you‚re thinking of selling your advisory business, the right time may be right now, according to a new survey. The 2004 RIA Transitions Report released by Business Transitions LLC of Portland, Ore., states that it‚s a sellers market when it comes to the buying and selling of advisory businesses. The company, which acts as a matchmaker and consultant on such deals, says the listings at its Web site run at about 35 buyers for each seller. Consequently, the average asking price for advisory practices is about $680,000 (the median is $450,000), with average down payments amounting to about a third of the total, according to the report. "Competition is strong from a field of highly qualified buyers," the report‚s authors write. The report also found that the value of practices rises with the percentage of revenues derived from fees. On average, the report‚s authors state, a firm‚s recurring fee revenues are worth 2.1 times that amount in the firm‚s valuation, while nonrecurring commission fees have a multiple of 1.1. "Our research shows that fee-only firms command larger down payments and receive more inquiries per listing than either commission firms or fee-based firms," say the authors. FPA Attacks Victimization Of GIs Recent allegations of improper life insurance sales tactics suggest that financial advisors should be devoting some time recruiting clients who are in the military. A House panel has recently started hearings to investigate published reports that military personnel and their families–already under duress due to the wars in Iraq and Afghanistan–are increasingly falling victim to predatory life insurance sales tactics. In testimony before the panel, Elizabeth Jetton, president of the Financial Planning Association, said one good counter to improper life insurance sales is a trained financial planner. "The unscrupulous insurance salesman who has only life insurance to offer will try to solve every financial issue with an insurance product," Jetton says. "A financial planner, who must put the interests of the client ahead of his or her own, considers what investment tools are most appropriate given the financial constraints and priorities of the client." The financial plight of military personnel has become a growing focus in the financial services industry, as more people in military service see their tours of duty extended. Among those most acutely impacted are reservists who have been away from their families and jobs for periods longer than they anticipated. Illustrating the need is a recent agreement between the Military Officers Association of America and the Garrett Planning Network, which is devoted to serving middle-income clients. Among the provisions of the agreement, Garrett network advisors are giving 20% discounts off their fees for military personnel. With or without a planner, Jetton says military personnel need to exercise caution. "With respect to any kind of life insurance product, there are some basic questions that a consumer needs to ask about the product, particularly since life insurance agents are not subject to a suitability standard in the sale of such products," she says. Survey Finds Advisors More Pessimistic About Economy In apparent agreement with the general outlook of consumers, financial advisors these days are growing more pessimistic about the economy, according to a new index report. The Advisor Confidence Index (ACI), a recently started survey that specifically measures the outlook of financial advisors, has slipped for the second month in a row. "Advisor confidence may remain morose due to the uncertainty of potentially rising interest rates, rising oil prices, the Iraqi War, turmoil in the Middle East and the November elections," says Marya Ivanova, a research analyst with AdvisorBenchmarking.com, a Rydex Investments affiliate that started the index. That index survey found that advisor confidence levels in August decreased nearly 6% from a month earlier, dropping from 115.36 to 122.96. The index had been at 129.07 in June. Advisors‚ view of the economy over the next six months fell the most, falling 7.94% since July. Advisors outlook on the current state of the economy dropped 7.32%. The 12-month outlook dropped 3.22% and the stock market outlook fell 6.18%. Some of the advisors participating in the index survey cited different reasons for their worries, according to AdvisorBenchmarking. "The most recent drop in the market merely underscored the tenuous nature of market movements until the elections are over," Deena Katz, of Evensky, Brown & Katz in Coral Gables, Fla., told the survey. "We expect continued volatility as individuals worry about terrorists and the election," says Patricia Raskob of Raskob Kambourian Financial Advisors in Tucson, Ariz. "The media continues to stir the pot with as much fear as they can generate, and keep the population more unsettled." Fiserv Consolidating Trust Companies Hoping a unified trust organization will lead to efficiency and better recognition, Fiserv Inc. announced it is merging its four trust companies into one unit. The move will combine First Trust Corporation, Lincoln Trust Company, Resources Trust Company and Retirement Accounts Inc. into one company, which will be named Fiserv Investment Support Services (Fiserv ISS) and be based in Denver, the company announced. The companies have combined assets in custody of $32.8 billion, the largest portion being the $20.8 billion administered by First Trust and its registered trade name, Retirement Accounts. The company says the consolidation is the first stage of a three-stage plan to streamline product offerings and consolidate operations that is scheduled to be completed next year. The operations of DATAlynx and TRUSTlynx, two other Fiserv subsidiaries, will not be impacted, the company says. The merger will make Fiserv ISS one of the nation‚s largest trustees of self-directed retirement plans, with nearly 323,000 retirement and custodial accounts, according to the company. "These trust companies have been part of the Fiserv family for a number of years but have operated individually," says Skip Schweiss, executive vice president of Fiserv ISS. "By consolidating the trust entities, we can strengthen our position and our identity in the marketplace. (Among) the four companies, there are 100 years of experience in providing quality trust, custodial and back-office services to the financial services industry." NASD Fears Suitability Abuses On 529 Plans The burgeoning 529 plan industry is coming under increased scrutiny by regulators. While no one has yet stated that there are widespread problems with the college savings plans, investigators say there are "red flags" that raise questions about the suitability of some sales. In the most recent development, the NASD issued its first "Investor Alert" regarding 529 sales. Such alerts are periodically issued by the regulatory organization in cases where there may be some confusion about an investment product. One recent alert, for example, focused on the sale of variable annuities. The NASD also announced that it has expanded an examination sweep it began in the spring, increasing the number of brokerage firms being studied from six to 20. (The SEC, meanwhile, is also conducting an examination of the 529 industry.) The NASD sweep thus far has found that about 90% of the 529 sales studied by the NASD have involved investors buying out-of-state plans, according to NASD spokesman Herb Perone. While that statistic is not a violation of any regulations, it does raise questions about the sales because in many cases out-of-state plans are tax disadvantaged, he says. "For us, it‚s a red flag," Perone says. "It raises questions about disclosure and suitability." He stresses that the examination has not made any conclusions thus far. He notes that many states do not offer discounts for in-state 529 purchases, and that for some investors an out-of-state plan could be beneficial because of differences in fees, performance or both, Perone says. Most Companies Expect Employee Theft A majority of private companies say they expect to experience some type of employee theft this year, according to a new survey. The survey by Chubb Group of Insurance Companies found that, among 300 private company executives surveyed, 60% anticipate the theft of either money or equipment this year. The survey also found that 34% of companies anticipate at least one instance of an employee stealing from a client. "Employee crime is one of the biggest and costliest problems facing private businesses today," says Lisa McGee, a vice president of Chubb & Son, a division of Federal Insurance Company, a subsidiary of Chubb Group. The expectations seemed to exceed actual experience with employee crime. The survey found that 39% of respondents had an employee steal funds, equipment, inventory or merchandise sometime over the past few years. Only 9% said they had a case of an employee stealing from a client. Nearly a third of the company executives surveyed said employee theft has the potential to inflict financial damage to their companies. The survey authors noted that a 2002 report by the Association of Certified Fraud Examiners found that the average organization loses 6% of its total annual revenues to fraud and abuse committed by its employees. "If private company executives are looking for ways to reduce crime, employee background checks are a good place to start," says McGee. "But background checks should be coupled with an exhaustive program of internal controls to help reduce employee theft and fraud." Misconceptions Surround Retiree Spending Think retirees pinch pennies and clip coupons? Think again. Contrary to what some people think, retirees don‚t spend that much less on personal expenditures than they did while they were working. In fact, retirees as a whole have been spending more in their Golden Years than they did in the past–in some cases exceeding what they spent when they were earning a salary–according to a recent study sponsored by Aon Consulting, an arm of Aon Corp. It is an important trend to consider for anyone who is planning or saving for retirement. Indeed, at least two-thirds of workers expect to maintain or exceed their current standard of living when they retire, according to the 2004 Retirement Confidence survey provided by Washington-based researcher Employee Benefits Research Institute. About 45% of people surveyed by EBRI said they expect to maintain their standard of living when they retire, while 19% said they plan to lead a more comfortable life in retirement than they did when they were earning a salary. Unfortunately, not everyone understands what it might take to get there. In the same EBRI study, roughly 10% of people said they need less than 50% of their preretirement income to survive their post-working years, while another 28% think they will need between 50% and 70%. Workers who plan to maintain their lifestyles in retirement should plan on spending no less than 75% of their current salary a year, according to the Aon study, which was conducted by Bruce Palmer, a finance professor at Georgia State University‚s Robinson College of Business. The study, which looks at what it calls "retirement replacement ratios," analyzed thousands of retirees‚ and workers‚ spending habits from 1999 to 2001, using data from the Bureau of Labor Statistics‚ Consumer Expenditure Survey, the database that is used to construct the Consumer Price Index. To derive its retirement replacement ratios, the study compared what people of different income levels might spend preretirement (minus taxes and savings) with what people of the same income brackets might need to spend in retirement on personal expenses and taxes. Over the years, the ratios have been steadily climbing. A look back at the prior Aon Consulting studies on replacement ratios (Aon has been conducting the same study periodically since 1988) shows that, because people are spending more and saving less, the amount people need to maintain the same lifestyle in retirement has been steadily rising over the years. Raises Expected To Remain Modest Workers who aren‚t star performers shouldn‚t count on a hefty raise in pay anytime soon. Even as the economy recovers, employers remain cautious and are increasing overall wages this year by only 3.4%–consistent with the record low of 2003–for salaried workers who aren‚t required to receive overtime pay, according to a study of 1,185 companies by Hewitt Associates, a global outsourcing firm in Lincolnshire, Ill. Hourly workers who don‚t belong to unions and salaried employees eligible for overtime compensation are both seeing about a 3.3% raise this year, while executives are benefiting from a slightly higher boost of 3.7%. About 3% of companies currently have a salary freeze in place. "The economy is recovering at a lower rate than some organizations had hoped, but that‚s probably not the key focus of what‚s happening here," says Ken Abosch, a business leader at Hewitt. "Companies still feel tremendous pressure from global competition, and they need to keep costs as low as possible." To be sure, companies‚ compensation budgets generally aren‚t shrinking. Rather, employers are just shifting where they allocate dollars–increasingly rewarding high-performing workers instead of giving blanket pay raises to a broader base of employees. About 78% of the companies studied by Hewitt have at least one broad-based variable-pay program–tying individual, department or company performance to stock or cash awards–a significant increase from the 59% of companies that had this in 1995. These perks typically have to be re-earned each year and don‚t permanently boost employees‚ base salary. Overall, employee pay raises will be slightly more favorable in 2005. Salaried workers who aren‚t subject to overtime can expect a 3.6% pay raise, while non-union hourly workers and those who do get overtime should get a 3.5% increase. Executive pay raises are projected to be 3.8% next year, according to Hewitt. Workers in Washington D.C., Los Angeles, Boston and Dallas will reap a greater level of financial rewards because of high-paying industries and competition for employees in these regions. Yet, in New York, Atlanta and Chicago, expect wage increases in 2005 that are lower than the national average. The surfeit of potential employees in the Big Apple, for instance, "brings the cost of labor down, so organizations have to pay less," says Abosch. |