CFP Board Reviews Challenge Status

The CFP Board of Standards is considering phasing out a rule that makes it easier for lawyers, accountants and other financial professionals to sit for the CFP certification exam.

Under review is the "challenge status," a provision that allows the waiver of CFP education requirements for test takers who have fulfilled the spirit of the requirements in other types of programs.

The rule allows attorneys, accountants and certain other degree and certificate holders to sit for a CFP exam without having to take a lengthy list of CFP-registered education courses.

If the challenge status is eliminated, as the CFP Board is considering, all CFP candidates will have to pass certain CFP-registered courses regardless of their prior education. "The intent down the road is to get rid of the challenge status," says CFP Board spokesman Lance Ritchlin. "It‚s just a natural evolution for the profession and the certification."

While existing CFP licensees might applaud the move, such a decision might discourage other professionals from obtaining the CFP mark. That could run counter to the CFP Board‚s goal of trying to make the mark as broadly accepted as possible.

The review is part of an overall effort by the CFP Board and its CEO, Lou Garday, to elevate the financial planner to "professional" status. The board took a step toward that goal last year by announcing it will require all CFP candidates to have a bachelor‚s degree as of 2007.

In addition to the review of the challenge status, Garday outlined additional initiatives in the field of education:

• Development of more Ph.D. programs in financial planning. Texas Tech University is the only institution with such a program that is registered by the CFP.

• Promotion of financial planning as a career to students at the high school and college levels.

• Addition of more bachelor‚s and master‚s degree programs in financial planning. There are currently 234 CFP-registered programs at 151 institutions, says Ritchlin. That‚s up from 119 programs at 93 institutions in February 1999.

While the challenge status still exists, the CFP Board is also considering including some master‚s degree programs, including the master‚s of business administration degree, on the list of those eligible for challenge status. "We want to get rid of it, but while it‚s here, it needs to be as fair as possible," Ritchlin says.

Bank of New York Buys Lockwood

The nation‚s oldest bank has become the latest player in the separate account industry. The Bank of New York has announced it has signed an agreement to buy LPG Inc., the privately-held parent company of the Lockwood Financial family of companies.

Terms of the deal were not disclosed.

The purchase, which is pending regulatory approval, would merge two companies that are major players in their respective industries. The Bank of New York, founded by Alexander Hamilton in 1784, is the world‚s largest custody bank and had more than $80 billion in assets as of the end of June.

Lockwood, founded in 1995 and based in Malvern, Pa., is one of the largest providers of individually managed account services to independent financial advisors. The company‚s recommended money managers manage about $7.6 billion for affluent investors and institutions through Lockwood‚s managed account platform. Lockwood enjoyed rapid growth in the late ‘90s but also went through a lot of capital, even for a startup.

"The synergies we will generate by combining their expertise and ours will enable us to offer this growing marketplace a richer and expanded array of services," says Gerald L. Hassell, president of The Bank of New York.

Lockwood officials say the company will continue to focus on providing clients with objective advice, customized portfolio designs and tax management, with the support of its nationwide network of independent advisors. If Bank of New York decides to invest heavily in the firm, it could turn up the competitive heat on rivals. "We were looking for a way to take Lockwood to the next level and believe we have found it with The Bank of New York," says Leonard A. Reinhart, Lockwood‚s founder and chairman.

FPA Offers Free LTC Training

Advisors still sitting on the fence about the benefits of long-term care insurance now have two incentives to increase their savvy: The launch of free, accredited online training from the Financial Planning Association and pending above-the-line tax breaks, which have cleared the House of Representatives.

How beneficial will online training be? "The value of this site is to strategically give advisors and others one place where they can go and navigate the comprehensive world of long-term care information, tools and resources," FPA President Robert Barry told reporters at the Washington, D.C., press conference to unveil the training package and resource center (www.fpanet.org). The program‚s co-sponsors include the American Council of Life Insurers, New York Life and The Northwestern Mutual Life Insurance Co.

Barry, who started his career as a life insurance agent with The Guardian before founding his own advisory firm, admitted that too many advisors still believe their clients can self-insure against the costs of long-term care. But a host of changing market factors could alter that mindset. "With the Dow around 7500, it may add a new impetus to valuing the costs of insurance versus self-insuring," Barry told Financial Advisor magazine.

In fact, 70 million Americans are set to retire in the next 20 years as the average annual cost for institutional care hits the $200,000 mark. Even a very wealthy client may prefer to buy long-term care insurance if a lifetime of premiums cost $40,000 to $50,000, rather than risk self-insuring at a cost of $200,000 for one year of care.

That‚s a central financial planning question, says Gail Hunt, executive director of the National Alliance for Caregivers, which provides education and assistance to family caregivers and is another co-sponsor of the LTC training program. "This cost can be the single largest drain on anyone‚s financial security and the federal government will not be able to handle the burden," Hunt predicts. That means that the care options for those planning to tap Medicaid will become slimmer and probably less desirable.

Lawmakers, too, see the writing on the wall. To encourage the purchase of LTC insurance, the House of Representatives passed a bill (HR 4946) July 25 that would provide above-the-line federal tax deductions to Americans who buy LTC insurance. Currently pending in the Senate, the bill would be phased in over 10 years and currently applies to individuals with adjusted gross incomes of $20,000 to $40,000 and couples, with AGI of $40,000 to $80,000.

ACLI lobbyist and senior counsel Angela Arnett says the group is working overtime to broaden the legislation so that all taxpayers get the LTC premium tax break.

Schwab, Advent Bury Hatchets

Charles Schwab & Co. and Advent Software have settled a lawsuit that threatened to make life difficult for Schwab client advisors who use Advent‚s portfolio management software. Schwab last year filed the lawsuit accusing Advent of coercing Schwab Institutional customers into switching to Advent‚s Custodial Data (ACD) system.

ACD acts as a bridge between advisors and custodians by downloading portfolio data from multiple custodians for advisors who use the system. In its lawsuit, Schwab contended that the ACD marketing push was in violation of a longstanding agreement it has with Advent. Under that agreement, Schwab says, Schwab advisors who use Advent‚s Axys portfolio management software download their data directly from Schwab through a "point-to-point" interface that was developed by both companies.

Under the agreement, the companies agreed that Advent will be allowed to phase out its point-to-point support, and phase in ACD this year and next.

The settlement includes the following provisions:

• Advent will extend full support for its Schwab Institutional point-to-point interface for licensed users through December 30, 2004.

• Advent and Schwab will both fully support and continue to offer Advent‚s ACD service to those mutual customers who choose it, concurrent with the point-to-point support. Schwab and Advent will both work together to enhance the Schwab ACD interface.

• Advent and Schwab will cooperate to create an orderly transition to ACD by the end of 2004.

Schwab also agreed to scrap plans to develop its own alternative point-to-point interface for Axys users. Advent, meanwhile, has promised not to discriminate between Schwab and other custodians in its ACD pricing.

"It was a very amicable process," Advent Executive Vice President Collin Cohen says of the settlement. "The real problem was the two companies did not really communicate as often as we should have."

AIMR Advocates Tougher Standards

The Association for Investment Management and Research (AIMR) has issued a draft of ethical business practices that it says promotes ethical research and analyst independence. By advocating even tougher ethics standards for equity research analysts than those already adopted by the Securities and Exchange Commission, AIMR is putting more pressure on an agency under fire for its coziness with the securities business.

The action is part of the backlash to the wave of scandals that have hit Wall Street since late last year–and to the concern that analyst recommendations have too often been influenced by the commercial investment banking interests of the firms. Among AIMR‚s proposed standards, for example, is that public companies and investment firms be prohibited from retaliating against analysts for unfavorable ratings.

The draft also parallels rules adopted by the SEC by urging that analysts be shielded from the influence of their employers‚ investment banking and corporate finance departments.

But AIMR is pushing additional proposals:

• Brokerage firms should explain why they are discontinuing coverage of a company in a final research report, rather than stopping coverage quietly to avoid a negative rating on a stock.

• Firms should prohibit research analysts from participating in marketing activities, including "roadshows" for corporate clients issuing new shares of stock.

• Sell-side firms should adopt a rating system that describes risk and time horizon in addition to a "buy-hold-sell" rating.

AIMR, a non-profit group that represents 58,000 analysts, fund managers and other financial professionals, says it hopes companies adopt the rules voluntarily. "Our hope and belief is that current concerns about investor confidence will exert market pressure on firms to embrace AIMR‚s standards and recommended practices voluntarily," says AIMR President and CEO Thomas A. Bowman.

Justice Department Lets Advent Buy Techfi

An antitrust investigation into Advent Software‚s deal to buy Techfi for $23 million has been terminated, freeing the companies to go ahead with the acquisition, company officials say.

The deal was originally announced June 10, but it was held up a week later when the U.S. Department of Justice‚s antitrust division said it was investigating the deal to weigh its impact on the portfolio management software marketplace.

Many observers view the acquisition as an attempt by Advent to capture the market, given the fact that its closest competitor, Charles Schwab & Co., recently converted its Centerpiece software into a proprietary product available only to Schwab advisor clients or prospects.

Yet even with those concerns, the antitrust probe came as a surprise to many, given the relatively small size of the deal. In announcing the close of the investigation, Advent did not say when it expects the deal to be completed. The terms include Advent paying $23 million in cash for its former competitor. Advent officials have said they intend to keep Techfi‚s product line and pricing intact.

Advent expects to take a one-time $2 million write-off for in-process research and development as a result of the acquisition. "We believed from the start that the combination of Advent and Techfi would be extremely beneficial to our combined customers and our companies," says Advent CEO and President Peter Caswell. "We look forward to moving ahead with our plans to integrate our companies and expand our offerings."

African-Americans Remain A Growth Market

Financial-services providers seeking to boost market share should take a second look at African-American investors.

That‚s because five years after companies first began paying attention to this group–following census data and industry research showing that this population was growing quickly–African-American investors remain under-served and under-invested.

This opens an opportunity for companies to get an edge on the competition by making an attempt to understand, educate and tailor services to this population.

"Despite the progress we‚ve made, Wall Street has to continue to step up and educate African-American investors so that they see the benefits of stock market investing–especially when there‚s such uncertainty and distrust in the market," says Mellody Hobson, president of Ariel Capital Management in Chicago.

Consider the facts.

Over the past five years, the percentage of African-Americans with household income of $50,000 or more who invest in the market has risen 30%, meaning that nearly 75% of this group now own stock, according to a study released this year by Ariel Mutual Funds and Charles Schwab & Co. Yet, even with this gain, the number of African-Americans who invest in the market still lags about 10% behind whites with the same income.

At the same time, according to census data, the African-American population has grown more quickly than the U.S. population as a whole, increasing by about 15.6% between 1990 and 2000 compared with a 13.2% rise overall.

While more African-Americans are putting money in the stock market, their investments don‚t have nearly as high a dollar value as those of their white counterparts.

"Even though they‚re catching up in investing, it‚ll take a long time to catch up in wealth-building because they haven‚t had the benefits of compounding," says Hobson.

Additionally, African-Americans are more rattled than others by the uncertain market and the proliferation of corporate malfeasance–a sign that they may need more incentive to stay in the market.

About 43% of African-Americans say their long-term confidence in the market was shaken by recent volatility, compared with 25% of whites, according to the study by Ariel and Charles Schwab. Partly, this comes from unfamiliarity and distrust of the market because of these investors‚ late start in the investing world, according to Hobson.

The first step to serving this population is understanding it. This knowledge will help financial providers gain clients‚ trust and avoid pitching inappropriate products.

Interest Growing In Foreign Investments

Investors who want greater equity returns might want to look outside the United States.

"The U.S. market was (performing) so much better than the rest of the world in the 1990s, and investors‚ domestic portfolios got too big," says William Rocco, a senior analyst specializing in international funds at Morningstar, the Chicago fund tracker. "But now that the U.S. has underperformed and the dollar is weakening, everyone‚s thinking, ‘I have to buy foreign."‚

The dollar recently plunged to its lowest level in 21/2 years against the euro and in 17 months against the Japanese yen. Since then, the dollar has gained somewhat, but it‚s still down 11% this year against the euro and 10% against the yen. This means that overseas investments are worth more on a relative basis.

One risk of putting money overseas is that if the dollar keeps rising, the value of foreign investments will fall. Also, investors should understand the risks posed by political and economic instability, weak financial disclosure rules and the delay in getting company information because of time differences. In recent years, there‚s been another issue: U.S. and foreign economies have moved in lockstep due to globalization, undercutting the argument for diversification overseas.

But for those who have the time and are willing to take the chance, it may still be a good time to consider international investments. The correlation between the United States and world economies isn‚t likely to always hold true, according to Lawrence Goodman, an economist and the managing director of Globalecon, a New York advisory firm. While the United States was the main driver in global growth during the 1990s, the uncertain American economy means that countries will have to "look inward" or to other countries for growth, he says.

In June, investors poured $2 billion into international equity funds while taking $20.5 billion out of U.S. equity funds, according to TrimTabs.com Investment Research in Santa Rosa, Calif.