CFP Board Names Louis Garday CEO

The Certified Financial Planner Board of Standards (CFP Board) has appointed Louis J. Garday, an investment banker with nearly 30 years experience in starting and running financial services companies, to serve as its chief executive officer.

Garday, a Denver CPA who plans to get his CFP license, comes into the position without a background in financial planning. What he does bring, says CFP Board Chair Patricia P. Houlihan, is a resume that left the board‚s search committee deeply impressed.

She also cites his "enthusiasm" for helping lead the CFP Board at a time of rapid expansion. "We feel very fortunate to have him," she says, citing his experience in corporate management and service on various boards of publicly traded companies. "It certainly gives him a depth of knowledge in the financial services world."

Hiring someone with a background in financial planning was not an overriding priority, Houlihan adds. "We were looking for someone who was going to run the company," she says, in a reference to the nonprofit organization that is not accidental.

The CEO position was created in the spring as part of an organizational restructuring that came after the resignation of Robert Goss as CFP Board president last year.

Dede Pahl, who has served as the Board‚s acting CEO since May and was one of the five finalists for permanent appointment, concurrently was named the CFP Board‚s chief operating officer after Garday offered her the post.

Garday is scheduled to start August 1 and will leave his post as senior vice president and director of REIT Services for Newman & Associates, an investment bank in Denver, that is a subsidiary of GMAC Commercial Holding. He has been with the company since last year.

Previously, he was a founder and the managing director of Carolina Capital Markets LLC in Columbia, S.C., which provides capital to homebuilders and commercial real estate developers, the CFP Board says. Garday also was a founder of San Diego-based Burnham Pacific Properties Inc., a real estate investment trust company. He also served as vice chair of NAREIT, the REIT industry‚s trade association, and oversaw its government-affairs operations.

Many, including search committee member David Diesslin, wondered why someone with Garday‚s background would be interested in the position. Garday notes that while at NAREIT in the early ‚90s, he was placed at the head of a task force with representatives from the Department of Labor and the Securities and Exchange Commission, among others, relaxed regulations prohibiting institutional investors from investing in REITs. It was "immensely rewarding," he says, adding it dramatically accelerated the growth of the REIT industry.

Garday‚s primary goal is to elevate the CFP profession in the eyes of regulators and the public. "I want to build the third leg of the stool," he explains. That means helping the CFP designation achieve the same stature that the legal and accounting professions enjoy today.

On a personal level, Garday found himself wrestling many serious financial planning issues after the death of his wife several years ago. "Nothing I did or learned as a CPA [or my family attorney learned] prepared me for all of the planning and life decisions I had to make," he says.

Garday believes a growing number of financial professionals like him are going to want the CFP license. "Do I think we can double in size? Yes. Triple? Yes. Quadruple? Maybe."

The CFP license came a long way under the leadership of Bob Goss, but if Garday is going to put it on the same playing field as the CPA and bar association licenses, he has his work cut out for him. He hopes to reach out to the American Bar Association and the American Institute of Certified Public Accountants to work together in this area, although they initially may not be receptive. "Wouldn‚t it be nice [for] the big three providers of financial services got together and reached an accord?" he asks.

Garday clearly sees his role as raising the stature of the financial planning profession within the financial services business. "In terms of examination, professional review and other requirements, the CFP license is already there," he notes.

Meanwhile, he has to get his own CFP license. "I can‚t just pass it, I have to do very well. So I‚m going to take some courses while working a 60-hour week," Garday says.

While interviewing for the job, Garday studied e-mails on various Web sites and saw the contentious level of some debates. In his new job, he will have to balance the CFP Board‚s mission of protecting the public while promoting the license. "I think much of the shouting is over," he predicts.

Forget About Estate Tax Repeal, Advisors Say

The new death-tax law has estate planners scrambling to weigh the impact on their clients. But it‚s not just the intricacies of the law that are under scrutiny. It‚s also the question of whether the new law will last.

As it stands, rate reduction will be phased in until there is no death tax in 2010. But estate taxes will snap back in 2011 to 2001 levels, barring any further action by Congress.

Some feel it‚s likely things could change much earlier than that. "There‚s a lot of reasons motivated by a lot of issues that will have that law revisited long before 2010," says Herbert K. Daroff of Baystate Financial Services in Boston, who believes the reductions could be scaled back as early as next year. "I think the primary motivator will be the state legislatures when the state death-tax credits start eroding in just a year or so."

Tom McFarland, president of The Darrow Co., a fee-only financial planning firm in Concord, Mass., is telling clients to make adjustments only for the increase to the $1 million maximum exemption in 2002. Beyond that, he says, all bets are off.

McFarland, in fact, is certain Congress will reverse the law well before 2010. "I‚m convinced it‚s just going to stop," he says, noting that spending pressures combined with lagging revenue will be too much for politicians to bear. "I can see them enacting an ‘indefinite postponement.‚ That sells, right?"

That‚s why some estate planners are taking a business-as-usual approach until the future of the estate tax becomes clearer. Gideon Rothschild, a partner and co-chair of the Estate Planning and Wealth Preserva-tion Division of Moses & Singer LLP in New York, says most clients with substantial estates probably won‚t have to be concerned with any changes in the near term. He advises against plans that assume a repeal of the death tax in 2010 and beyond. "That‚s putting blindfolds on," he says. Moses & Singer has a Web site explaining the law at www.mosessinger.com/resources/estate_alert.shtml.

Some married couples, he notes, will want to equalize the assets under each of their names to ensure they use up the maximum exemption amounts allowed under the law. He cites as an example: a husband with $1 million in assets and a wife with $3 million. If the husband were to die in 2004, when the maximum exemption jumps from $1 million to $1.5 million, his estate would not be taking full advantage of the law. Equalizing the amounts is "something you would want to do each year as the exemption increases," he says.

Another concern, despite the tenuous nature of the tax repeal, is A-B Trusts, Daroff says. Commonly used by married couples to reduce the tax on their estates, the trusts typically put an amount equal to the maximum exemption out of the control of a surviving spouse. So as the exemption increases year to year, surviving spouses will lose control of larger and larger amounts of money, he says. For married couples with estates worth about $3 million, that amounts to a sizable loss of control for one of the spouses, he notes. "How much control is the surviving spouse willing to relinquish?" he asks. "I think the clients need to be called back into the office."

But as for planning for when there are no estate taxes, forget about it, Daroff says. Such an endeavor amounts to a guessing game, he and other advisors say. Asks Daroff: "Are your clients planning to cooperate and die in 2010?"

Live Advisors Beat Web Sites When It Comes To Advice

Computers may be able to play chess as well as humans, but their ability to give financial advice may be another matter.

A recent study funded by the Foundation for Financial Planning says "live" advisors beat financial Web sites when it comes to giving consistent and cohesive financial advice. Researchers say people generally offer more consistent advice than interactive Web sites and are better at handling complex financial issues. But the study notes that Web sites generally provide more consistent advice on issues relating to life insurance and Roth IRA conversions. Live advisors were most consistent in the areas of investment and estate tax questions. Web sites seemed more inconsistent as the wealth of clients and the complexity of their issues increased, the researchers say. This was despite the fact that seemingly independent financial Web sites use the same software engines to generate advice.

Deal Allows Goldman Sachs To Reach Masses

Goldman Sachs Group Inc. announced in June that it has agreed to buy investment bank Epoch Partners Inc., bringing the giant firm into partnership with Schwab Institutional and TD Waterhouse. Long known as a firm targeting only institutional clients and ultra-wealthy individuals, Goldman is making a reach for the mass retail market and needs partners to do so.

One noteworthy aspect of the deal is that it will give Goldman Sachs exclusive rights to offer IPOs, other equity products and research to customers and advisory clients of Charles Schwab & Co. and TD Waterhouse, which are among the firms that created Epoch in November 1999.

Goldman Sachs Chairman and CEO Henry M. Paulson Jr. describes the move as the "next step in our strategy to develop new distribution channels by leveraging technology." The purchase price was not disclosed.

Word of the deal came a month after the company announced the launch of Goldman Sachs PrimeAccess, which provides partner firms with Goldman research and equity products. The company initially announced agreements with a dozen brokerage firms with a combined total of 10,500 representatives. Among the partner firms are Advest Inc., Raymond James & Associates Inc. and Tucker Anthony Inc.

Schwab and TD Waterhouse, which together service 11 million accounts, say the deal will be a boon to their customers. For Schwab customers, says President and CEO David Pottruck, "This is an excellent opportunity to expand their exposure to new markets and investments and increase their market wisdom." The two rivals have cooperated in other areas in addition to creating Epoch in recent years.

Goldman Sachs research and IPOs will be available to all of Schwab‚s retail customers and advisory clients of Schwab Institutional, says spokesman Lance Berg. Details on how the products will be offered or whether there will be any extra fees still are being discussed, he says.

TD Waterhouse CEO Steve McDonald says, "This acquisition will provide TD Waterhouse customers with high-quality U.S. equity research and equity offerings from a world leading investment bank."

Discussions in mid-July were still ongoing on how Goldman Sachs will absorb Epoch, says Goldman Sachs spokesman Jon Murchinson. The deal was expected to close 30 days after its June 13 announcement. Epoch stopped updating its Web site on June 30. Berg noted that although several stakeholders were involved in Epoch, the company was run independently and ultimately decided itself to sell.

Epoch, which was founded with a focus on underwriting equity offerings for information-technology and Internet companies, was formed by Schwab, TD Waterhouse, Ameritrade and the venture-capital firms of Kleiner Perkins Caulfield & Byers, Trident Capital and Bismark Capital, all of which had an ownership stake.

TD Waterhouse customers had access to 17 IPOs underwritten by Epoch since its inception, says TD Waterhouse spokeswoman Melissa Fox.

Online brokers were mum on whether the falloff in technology and IPOs contributed to the sale. Ameritrade released a statement that says, "Monetizing our investment in Epoch enables us to deliver immediate value to our shareholders. The sale to Goldman Sachs brought Ameritrade shareholders a very good return on their investment. That profit will be reported in Ameritrade financial statements in the quarter the agreement is finalized."

Company Invests In Money Management Firm

Undiscovered Managers LLC in Dallas has taken a new partner.Orca Bay Partners LLC, a private-equity investment firm based in Seattle, has made a $7.94 million investment in the company, making it a 16% owner.

Mark P. Hurley, chief executive officer of Undiscovered Managers, noted that Orca Bay Partners‚ expertise has been in the field of money management and financial product distribution.

"For us it‚s great," he says. "They really know the space. This is what they do for a living."

The infusion of capital will be used to expand product lines and distribution channels, including the expansion of marketing staff, Hurley says.

The investment comes at a time when Undiscovered Managers is restructuring its ownership. Under the changes, finance and loan firm Amresco Inc. has reduced its ownership share from 36% to 10%. Amresco filed for bankruptcy protection on July 2 to facilitate a sale of the company‚s assets. Management ownership of Undiscovered Managers went from 54% to 60%, Hurley says.

Holes Develop In Chinese Wall Preventing Analyst Conflicts

Investors have long known they have to take sell-side analyst research with a grain of salt.

But they might consider swallowing a whole ocean when it comes to a recommendation about a company for which the analyst‚s firm has done underwriting work. According to data from Investars.com, an online investment information service, investors lost an average of 53.34% when they followed the advice of an analyst employed by a Wall Street firm that has led or co-managed a particular stock‚s initial public offering.

By contrast, investors lost just 4.24% when they took the suggestions of analysts whose firms had no underwriting relationship with the companies researched.

Neither result is stellar. What is eye-popping is the wide disparity between the performance of stocks touted by analysts whose firms have something to gain–namely, lucrative underwriting fees–and other, nonaffiliated stocks.

In many ways, the Investars data further quantifies what many investors have believed for some time: the so-called Chinese Wall that is supposed to separate a firm‚s analysis and investment-banking business has crumbled.

"We have analysts come through here all the time, and we know to be careful," said David Klaskin, a money manager and president of Oak Ridge Investments in Chicago. "The overall quality of research isn‚t good."

Investors often know that there is a subtext to many analysts‚ ratings, particularly when the firm is trying to protect an investment-banking relationship, Klaskin said.

Retirement Assets In Mutual Funds Decline

Retirement assets placed in mutual funds through individual retirement accounts (IRAs) and defined-contribution plans such as 401(k)s declined 2% in 2000 to $2.4 trillion, according to the Investment Company Institute.

The decline reflected weakness in the U.S. and foreign equity markets, the Washington, D.C.-research firm said in a report released in June.

During 2000, an estimated $115 billion in new cash flowed into mutual funds held in retirement accounts, but that amount was offset by the negative market performance, the report said. Nonetheless, mutual funds‚ share of the $11.5 trillion of assets held in U.S. retirement plans held steady at 21%, and the share of total mutual fund assets held through retirement accounts stayed near one-third for the seventh consecutive year.

ICI also found that retirement-account flows composed about one-third of total mutual fund industry flows in 2000. Long-term funds received $118 billion of inflows from retirement accounts in 2000–compared with $117 billion in inflows in 1999–while money-market funds had $2 billion of net outflows, compared with $23 billion in inflows in 1999.

Equity fund net inflows from retirement accounts in 2000 were $141 billion, while bond and hybrid funds had outflows of $23 billion.

U.S. retirement assets almost tripled during the 1990s, with IRAs enjoying the fastest growth, ICI said. The IRA share of the retirement market rose to 23% in 2000 from 16% in 1990.

More Companies Offer Direct Access Notes

A low-priced bond product tailored for individual investors is growing in popularity.

Direct Access Notes, or DANs, are original-issue bonds distributed through brokers. They‚re sold at par in increments as little as $1,000. By contrast, corporate bonds sold in the secondary market typically come in $10,000 increments, and you buy those securities at a discount or premium.

DANs have been around for five years, since GMAC in 1996 first issued for the retail market debt it called Smart Notes. But in recent months, a handful of other well-known corporations have issued their own version of these fixed-income instruments.

Today, you can also purchase DANs from Fannie Mae, Freddie Mac, UPS, the Tennessee Valley Authority and Caterpillar Finance. All carry ratings between A and AAA.

Momentum for these bonds is "very strong," says Patrick J. Kelly, managing director of the LaSalle Broker Dealer Services Division of ABN AMRO Inc., which is marketing DANs.