AICPA Joins FPA In Opposing Exemption For Brokers
The American Institute of Certified Public Accountants (AICPA) has come out in opposition to the SEC's decision to exempt the fee-based accounts of certain broker-dealers from the 1940 Investment Advisers Act, saying the re-proposed rule "could have unintended, negative consequences for investors."
In doing so, the AICPA moved away from its historic position, which contended that accountants who gave "solely incidental advice" should not be forced to register as RIAs. Like attorneys, accountants were granted that exemption under the Advisers Act, while brokerages were granted a different, more restrictive exemption because they sell securities.
The AICPA now joins a growing list of groups in opposing the exemption that Wall Street's wirehouses have lobbied for ferociously. Other opponents include the American Association Of Retired Persons, the Consumer Federation Of America, the CFP Board Of Standards, the Investment Counsel Association Of America and the Financial Planning Association, which has sued the SEC over the proposed rule. Some at the FPA say privately the reproposed rule is worse.
In public comments submitted to the SEC, Joel H. Framson, chair of the AICPA's Personal Financial Planning Executive Committee, says the rule, as proposed, will confuse investors.
Framson, for example, cites the SEC's decision to exempt brokers whose advisory services are "solely incidental" to their brokerage services. What is and is not incidental, he says, is becoming hard to define as clients place a greater value on investment advice.
"As fee-based accounts emerged over the past decade, the direct relationship between compensation and brokerage transactions was lost," he writes. "When a fee is charged rather than a commission, it is no longer clear when investment advice is no longer solely incidental to the brokerage service. Rather, by charging a fee, the investor is likely to view the investment advice as the primary service."
The AICPA says the following activities should no longer be considered incidental to brokerage services:
Holding out to the public as an investment advisor, financial planner, financial consultant or other similar terms.
Providing financial planning services.
Sponsoring wrap fee programs.
"We believe all fee-based accounts should be managed as advisory accounts," Framson writes. "This approach truly creates a bright-line test and eliminates the need to establish subjective guidelines on what constitutes incidental advice."
The SEC announced in December, after being sued by the FPA, that it intends to continue to allow broker-dealers to provide fee-based services pending the adoption of permanent rules, which are expected on April 15.

Heads Roll At CFP Board As Up To 25% Of Staff Gets Axed
Since becoming CEO of the CFP Board of Standards on November 1, Sarah Ball Teslik has wasted little time in reorganizing and restructuring the Denver-based professional regulatory organization (PRO). Late last year, Teslik terminated a large group of the PRO's paid staff, with some estimating that cuts went as deep as 25% or 30% of total personnel.
Glenn Pape, chair of the CFP Board of Governors, declined to comment as did the CFP Board's public relations staff. All deferred to Teslik, whose office said she was traveling. Other sources say the cuts included Gary Diffendaffer, who had served as acting CEO following the resignation of Lou Garday, Teslik's predecessor. The cuts reportedly were deepest in the information technology department, much of which was outsourced, and the public relations department, which many thought was bloated.
Plantation, Fla.-based advisor Ben Tobias, who served as chair of the Board of Professional Review in 2003 and spent six years involved in various volunteer roles at the PRO, says he called old colleagues in the professional group in Denver and was pleased to learn that it was untouched. "I thought it was important that the Board of Professional review remain intact and it did," Tobias says.
But the same did not hold for the rest of the nonprofit organization, in Tobias' view. "There was absolutely more potential to be more efficient," he explains. "A few people on staff that I talked to don't seem upset."
Apparently, it didn't take Teslik more than a week or two to figure out what Tobias observed over several years. The big question remaining is what she plans to do with the additional resources. Down the road in Denver, the Financial Planning Association is saying the advisory profession needs a self-regulatory organization, a role that the CFP Board has long sought for itself.

American Express Spinning Off Advisors Unit
American Express Co.'s plans to spin off its American Express Financial Advisors unit has been met with approval by analysts.
Analysts at Forrester Research, for example, view the split as a way for American Express Financial Advisors to "invest aggressively in the big opportunity it faces: financial planning-especially retirement planning-for the mass affluent."
Forrester and other analysts also view an independent American Express Financial Advisors as one that will be more competitive.
"The deal structure will leave AEFA with a strong credit rating and good access to capital," Forrester Research analysts say in a recent report. "An independent AEFA won't have to compete with other divisions of American Express for corporate investment dollars."
The deal is expected to be tax-free to shareholders and to close in the third quarter.
AEFA business generated $7 billion in revenue and net income of $700 million last year, and lagged other American Express units in terms of profitability.
Currently, according to American Express, AEFA has:
A nationwide network of more than 12,000 advisors, serving more than 2.5 million clients;
More than $410 billion in assets owned, managed and administered;
More than $145 billion of life insurance in force;
An international presence with the recent acquisition of U.K.- based Threadneedle Asset Management.
An experienced management team that will continue to be led by James Cracchiolo as chairman and chief executive.
The two companies will be independent, have separate public ownership, boards of directors and management, but they will enter into exclusive marketing affiliations that will allow AEFA to continue to use the American Express name for a transition period following completion of the spin-off, according to American Express.

Board Of Standards Disciplines 23
The Certified Financial Planner Board of Standards announced disciplinary actions involving 23 advisors, including nine who had their certification revoked and three suspensions.
Those who had their certifications permanently revoked were Mark D. Romano of Lakewood, Calif.; John M. Kittle of Wichita, Ka.; Thomas S. Greeves of Rockville, Md.; Anthony J. Bille of Hopkinton, Mass.; James Currier of Bloomfield Hills, Mich.; Marshall E. Melton of Greensboro, N.C.; Howard S. Coff of Holland, Pa.; Travis D. Wakeley of Hurst, Texas; and Kevin D. Kunz of Bountiful, Utah.
Certifications were suspended in the cases of David J. Scranton of Westbrook, Conn.; Catherine M. Nolen of Nashville, Tenn., and Marianne Springer Miller of San Antonio.
The revocations were based on the following cases:
Romano allegedly made inappropriate investment recommendations to his client and failed to inform his broker-dealer of outside business and investment recommendations.
Kittle allegedly recommended unsuitable mutual funds to public customers.
Among the accusations against Greeves were that he engaged in dishonest and unethical practices, and in a fraudulent course of business which operated as a fraud on his investment advisory clients.
Billie was accused of stealing assets from a client who was possibly suffering from memory loss and Alzheimer's Disease, while acting as the client's trustee, lawyer and estate planner.
Currier and his firm allegedly failed to maintain mandatory records and failed to report in timely fashion 25 client complaints to the NASD.
Melton allegedly misused funds invested in his companies.
Coff's certification was revoked after it was learned that he pleaded guilty to felony charges of mail fraud and conspiracy to commit money laundering.
Wakeley allegedly recommended investments in a company for which he was chief financial officer, possibly as part of a Ponzi scheme.
Among the allegations against Kunz were that he offered and sold unregistered securities.
The remaining 11 planners cited received letters of admonition. They included Gwendolyn Biggs of Sacramento and Aubrey Morrow of San Diego. Among other charges, Biggs was accused of cashing a client out of annuities he inherited from his wife without explaining the tax implications and then selling him more annuities and convincing this client to loan her $300,000 to buy a Hawaiian condominium.
Morrow was accused of accepting commissions on accounts that his retainer agreement claimed would be managed on a fee-only basis. Morrow's retainer agreement also stated that all disputes must first be submitted to a process established by the CFP Board of Standards, although no such process exists.

Gergen: Chances Of Social Security Privatization Slim
President George Bush's plan to privatize Social Security has less than a 50% chance of getting enacted, U.S. News & World Report Editor-At-Large David Gergen told attendees at TD Waterhouse's Partnership Coference recently.
Acknowledging that Bush was as bold and ambitious as any president in modern times, Gergen predicted that Bush has a chance "to become a great president." But the advisor to many presidents questioned whether Bush could obtain the 60 Senate votes necessary to make Social Security personal accounts a reality.
Among Democrats, only Sen. Ben Nelson of Nebraska has indicated a willingness to work with the president on overhauling Social Security, while 43 Democratic senators have said they will not vote for Bush's plan. Additionally, Gergen-who has advised presidents including Ronald Reagan and Bill Clinton-said that some Republicans, such as Olympia Snowe of Maine, have voiced deep doubts about Bush's program.
Gergen said the complexity of the program reminded him of the ill-fated Clinton proposal in 1993 and 1994 to overhaul the nation's health insurance system. He said when a program "requires 1,900 new regulations" it's frequently dead on arrival.
Ironically, Gergen thinks that if President Bush's Social Security plan fails it will make it easier to make the cuts in income and estate taxes enacted in his first term permanent.