FPA Nixes Conference After Terrorists Attacks; Advisors Worry About Clients

The terrorist attacks on the World Trade Center and Pentagon forced the cancellation of the Financial Planning Association's six-day annual convention in San Diego. But that may be the least of FPA members' worries.

During a conference call, FPA members expressed concern over how their clients will react to the turmoil caused by the attack.

"I think their thresholds for pain have already been stretched, based on what's happened the past year and a half," an FPA member said during the call, which was held so advisors could share their views on the tragic events of Sept. 11.

The cancellation of the FPA convention didn't come as a surprise, considering that much of daily life-including domestic air travel-was brought to a standstill by the catastrophic attack.

"The enormity of today's tragedy, combined with the uncertainty of travel and concern for individual safety for those who may have attended the conference, far outweigh the need to conduct this event as we enter a period of national mourning," FPA President Guy M. Cumbie said the day of the attacks.

The convention was scheduled to run from Sept. 12 to Sept. 16 in San Diego, with more than 3,600 people expected to attend. Many of those who arrived early, including members, vendors and speakers, were unable to fly home because of the federally mandated ban on domestic flights. But some stranded attendees were able to get rides home on buses chartered by Barry Boyte of W.S. Griffith Securities. A conference sponsored by that firm ended shortly after the attacks, and Boyte arranged for the buses to get some of its attendees home.

Most FPA attendees seemed to have gotten word of the FPA's decision before traveling to San Diego, says FPA spokeswoman Heather Almand. "I think Tuesday [September 11] was going to be the travel day for everybody, including a large part of the FPA staff," she says.

Almand added that the FPA is considering ways to salvage some planned programs.

Despite the inconveniences caused by the cancellation, participants were understanding, FPA board member Karen Schaeffer says. "It was a gut-wrenching decision to make after a year's work," Schaeffer says. "But the understanding and compassion, and the comments of 'What can we do to help?' we've received have been resounding."

One concern weighing on FPA members was how to deal with clients shaken by the day's events. Several advisors say they expect a panicked reaction on Wall Street, and that it could become contagious.

One advisor says he feels that clients will "confuse their sense of an eroded personal security with their financial security," and that advisors will need to be reassuring.

FPA member Melvyn Wicks of Toledo, Ohio, called clients the day of the terrorist attacks to tell them he predicted a "precipitous drop in the market" once the suspension of trading was lifted. But he advised clients that selling in panic was "exactly the wrong thing to do."

Advisor Anne Gibson of Surry, Maine, sent out letters to clients telling them to "hold the course."

"I'm trying to be optimistic and trying to make contact with them because I think they need it now," Gibson says.

Advisor Dottie Koontz of Longview, Wash., says she's trying to stress with her clients that panicked selling is typical after a heart-wrenching disaster. "We're suggesting to them that we stay the course and that usually panic selling occurs and then recovers."

At the same time, advisors say they don't want to be too optimistic because there are legitimate concerns raised by the events-including possible international turmoil.

Cumbie, meanwhile, urged the FPA's 29,000 members to provide their communities with support and assistance on a pro bono basis as events unfold.

"Our thoughts and prayers are first with those who have been directly affected by this tragedy," Cumbie says. "But we must recognize that millions of other Americans also have been mentally and emotionally shaken by what happened. The goal of our organization is to help people achieve their goals and dreams, but we must also be willing to help them overcome their fears and concerns at a time of national crisis."

Advisor Trust Company Set To Open For Business

A trust company that is being started by a group of advisors-specifically for advisors-hopes to open its doors this month.

National Advisors Holdings Inc., of Overland Park, Kan., has received conditional approval from the Office of Thrift Supervision and was aiming for an October 1 startup. It is working on getting its computer systems, organization and staffing in place to get the trust chartered, company spokeswoman Rosemary Hueser says. The company's initial offering, which ended in July, raised $6.7 million-$4 million of which will be used as the initial capital account.

Eighty-two advisory firms that are company shareholders own National Advisors Trust Co. FSB, which has been in the works for three years. The trust's customers will consist solely of clients of the shareholder firms, which are scattered across 32 states. Each of the advisory practices has an average of $200 million to $250 million in assets under management.

Ten financial advisors will sit on the board of directors, and a staff of 16, headed by CEO David Roberts, formerly head of personal trusts at United Missouri Bank, will operate the company.

Additional shareholder firms would have to be added through a secondary offering, but there are no plans for such an offering, Hueser says.

Founders of the trust say a primary goal is to give advisors responsive service. "The biggest difference for advisors is that instead of trying to deal with an 800 number or a trust officer who does not know them from Adam, they will be dealing with another advisor," says Joe Kopczynski, a director and a trust company founder. "They'll be dealing with someone they've known and trusted for an extended period," says Kopczynski, of Universal Advisory Services Inc. in Albuquerque, N.M.

The endeavor started with the idea of creating a lower-cost alternative for advisors, as well as a trust, custodial and back-office services company that doesn't compete with advisors for clients.

One key feature of National Advisors Trust, Hueser says, is that shareholder firms will maintain control over the investment management of their clients' assets.

"The main reason why these firms wanted to be part of this and create this is they work hard to generate their clients," she says. "Too many custodians and trust companies and banks are marketing toward their clients and competing for their clients."

Kurt Brouwer, president of Brouwer & Janachowski, an investment advisory firm in Tiburon, Calif., signed his firm on as a shareholder to give his clients options. He says he hasn't decided how much of his firm's assets he wants to see moved into National Advisors Trust, but he is enthusiastic about having a say in its direction.

The company also will allow him to package more services under one roof-negating the need to send clients to an outside trustee when the need arises, he says. "It's a streamlined service that allows us to have more flexibility," he says.

Goldman Boots Retail Customers With Less Than $10M

In a move that stunned its retail brokerage force and angered many of its clients, Goldman Sachs & Co. told brokers to tell clients with less than $10 million that they should either transfer their accounts or trade through the firm's online trading system. Brokers and clients alike were angered at the apparent arrogance of the move, even though they acknowledged that imposing account-size minimums was a common practice in the brokerage business, and few in the financial services business take great offense at, say, a $10,000 account minimum.

One year ago, Goldman, a giant institutional investment bank with a relatively small retail unit, told brokers that it was raising the standard retail-account minimum to $5 million. But enforcement of the rule was very lax. Still, in recent years, one prominent financial advisor has picked up two clients with $40 million each in accounts at Goldman. They were asked to leave because they failed to generate sufficient trading activity.

And several Goldman brokers were embarrassed calling clients whose accounts exceeded $10 million in early July but had subsequently fallen below that threshold.

Stiff Opposition From Lawyers Stalls Multidisciplinary Practices

More than a year after an American Bar Association (ABA) commission posed the idea of allowing attorneys to partner and share fees with financial advisors and other professionals, the idea still faces stiff opposition within the legal community.

The issue remains so controversial that it's uncertain whether the idea will ever gain widespread acceptance, an ABA official says.

"It's not clear that there's any trend yet," says Arthur Garwin, the ABA's professionalism counsel. "There are a dozen states that seem to be leaning toward doing something to change the rules. But there's a bunch not doing anything at this point."

But even among the states that are poised to change the rules, some of the effort is meant to restrict, rather than expand, opportunities for multidisciplinary practices for lawyers.

The New York State Bar Association, for example, became the nation's first state bar to adopt multidisciplinary practice (MDP) rules this past summer. The rules, which go into effect November 1, allow attorneys to have ancillary operating agreements or strategic alliances with other certified professionals and to have financial interests in firms in which they may refer clients.

But the rules also require attorneys to maintain their financial and professional independence, which essentially nullifies the possibility of partnering or sharing fees with accountants, financial advisors and so on.

In fact, it's likely the rules are even more restrictive when it comes to relationships between advisors and attorneys because financial advisors probably won't fit the definition of "certified professional," observers say.

"What they adopted has nothing to do with multidisciplinary practices," says Garwin. "They don't permit sharing of fees and don't permit partnering. There was actually an anti-MDP rule. All they are saying is you can refer stuff back and forth, but you could do that before."

This didn't come as a surprise to the legal community because the New York bar was among the leaders in defeating a proposal by the ABA's Commission on Multidisciplinary Practice last year that would have given attorneys more freedom to partner.

Thomas O. Rice, who served as chairman of the New York bar in 1999-2000, says the bar's stance was based on the belief that the independence of the legal profession is crucial. The ABA commission's proposal, he says, conflicted with this goal because it would have sanctioned situations in which lawyers would be subject to the supervision and control of nonlawyers.

"We came up with a very basic and fundamental conclusion-that the legal profession, by its nature, must be totally independent in substance, not just in form," says Rice, of Albanese & Albanese LLP in Garden City, N.Y.

Yet some proponents of less restrictive multidisciplinary practice rules say they are not totally discouraged by the New York bar's action. "The biggest news out of all this is that it's raised an awareness on the part of all the professions that the lines have blurred, and it's time to work in collaboration," says Tom Wilson, principal of the Academy of Multidisciplinary Practice Inc., a firm that provides multidisciplinary education and credentialization programs.

He noted that the "Big Five" accounting firms, which have been among the leading drivers of multidisciplinary practices, are among the leading employers of law school graduates. That's why some say multidisciplinary practices have already taken hold through the hiring of lawyers by professional services and consulting firms, who maintain their attorneys are actually providing "nonlegal consulting services."

Financial advisors also are finding that their ability to work with attorneys and accountants, for example, enhances their ability to serve clients.

"The time has come for planning professionals to work in collaboration (with other professionals) in order to provide more effective and efficient service for clients," Wilson says.

Whether the nation's bar associations feel the same way remains to be seen.

When the ABA's House of Delegates rejected the ABA commission's recommendation a year ago, New York was joined by Illinois, New Jersey, Florida and Ohio in its effort against the proposal, Garwin says. The states that seem to be going forward with rules allowing fee sharing and partnering are Utah, Colorado and Arizona, he says. "Those three states are getting to the point where they may put their draft proposals in front of their supreme courts," he says.

In all other states, action on the issue seems to be dormant, Garwin says, adding that differences seem to boil down to one key question. "It falls under the issue of whether a lawyer can maintain his or her independence or judgment when they're financially involved with nonlawyers," he says.