States Reevaluating Who Should Be Licensed
It's one of the financial industry's vexing questions: Who and what exactly is an investment advisor? It's an area of confusion for many consumers, given the alphabet soup of designations and the number of
people who hold themselves out as dispensers of financial advice.
Now some states are trying to clear up the obfuscation and give the public a greater sense of confidence in finding people they can trust. Last month, Washington state began the process to reevaluate who needs to be licensed in that state. Under the existing statute, people calling themselves financial planners, financial consultants, investment managers, investment advisors and the like need to be licensed as such. The state recently issued a preproposal (a brief notice saying that it's contemplating rule making in this area) that could amend existing rules to include additional designations that need to be subject to properly accredited registration.
"Through our exam process we're seeing a lot of different designations out there," says Bill Beatty, program manager for registration and licensing with the Washington Department of Financial Institutions, Securities Division. "We're trying to clarify
Washington is following the lead of Massachusetts and Nebraska as leaders in addressing this issue among states. In late July, the Nebraska Department of Banking and Finance issued an interpretive opinion that expresses concern that "some purported certifications and designations appear to be part of a larger, systemic trend of aggressively marketing investments to potential investors with preretirement concerns" or those seeking "to reduce taxes or supplement a fixed income."
In response, the opinion makes it a violation to use financial designations on business cards, stationery and in advertising materials other than those approved in the opinion. Approved designations include certified financial planner, chartered financial consultant, personal financial specialist, chartered financial analyst, chartered investment counselor, chartered life underwriter and nine other designations.
The state will review the list on a quarterly basis for possible additions or deletions, according to the opinion. Violators may be subject to sanctions or administrative actions.
In June, Massachusetts finalized regulations that make it a dishonest and unethical practice for people holding themselves out as advisors to use
a designation not accredited by a nationally recognized accreditation agency that is recognized by the state. One such organization is the
National Organization for Competency Assurance (NOCA), the body that accredited the Certified Financial Planning Board of Standards.
Organizations such as NOCA "are in the business of issuing accreditation based on thorough analysis and statistical evaluation," says Bryan Lantagne, director of the Massachusetts Securities Division. "We're looking for proof that the designations being used have some merit."
The Massachusetts Securities Division doesn't maintain a list of credentials or designations that have been accredited; it's up to individuals to check with the sponsor of the credential or designation to determine whether the particular credential or designation has been accredited.
Violators of Massachusetts'
new regulations are subject to penalties ranging from fines to license revocation.
The North American Securities Administrators Association is in the process of drafting a model rule that member states could use to make their own rules regarding designations used by people involved in the sale of securities. "Hopefully, what the states are doing and what we hope to do with our model proposal," says NASAA spokesman Bob Webster, "will provide some clarity for investors and help them know who they're dealing with."
NASAA is a voluntary association whose membership consists of 67 state, provincial and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.
CFP Board Awards Grants to Eight Projects
The Certified Financial Planner Board of Standards Inc. has awarded grants totaling $456,063 to eight projects that develop innovative and sustainable methods to deliver financial planning services to communities not traditionally served by the financial planning profession.
The second annual Financial Planning Grants program received applications from more than 75 projects. The grant award recipients are:
California Institute of Finance at California Lutheran University (Thousand Oaks, Calif.)
The Curators of the University of Missouri (Columbia, Mo.)
Economic Awareness Council (Hinsdale, Ill.)
Hope Pastoral Care & Counseling (San Clemente, Calif.)
Mind's Eye Resource Management (Denver)
Sage Financial Solutions (Pinole, Calif.)
Skills for Living (Houston)
The University of Central Arkansas (Conway, Ark.)
The grants aim to help a range of constituencies, such as the $40,084 awarded California Lutheran University's California Institute of Finance to help it develop an Information Center for Women, which is an online forum to provide underserved women with the basic financial advice, information and tools they need to help themselves and dramatically improve their lives.
The $60,000 that went to Mind's Eye Resource Management will help fund a project designed to provide financial planning education to the food and hospitality industry, a community that is the second-largest working segment in the U.S. but which is not a population traditionally targeted by the financial planning community.
The grant awards were made through CFP Board's Financial Planning Grants program, which has provided grants totaling $1.3 million to 28 projects across the U.S. Through the grant program, CFP Board has provided financial support to non-profit organizations, educators and CFP professionals involved in a wide variety of activities, ranging from innovative uses of technology that expand public access to financial planning to creative partnerships delivering financial planning information and assistance through libraries, high schools, colleges and community-based organizations. Additional information about CFP Board's grant program is available at www.CFP.net/grants.
FPA Recognizes Outstanding
Financial Planners Humberto Cruz, a syndicated financial columnist appearing in 120 newspapers worldwide, is one of eight financial planners or financial experts who will receive the Financial Planning Association (FPA) Heart of Financial Planning Distinguished Service Award for extraordinary contributions to the world of financial planning. The awards, being presented for the second time this year, will be given at the FPA Seattle 2007 conference in September.
Cruz has covered the financial planning profession for more than 15 years through his columns, The Savings Game and Retire Smart.
"Many journalists have shown the importance and power of financial planning, and Humberto has led that charge in his columns," says FPA Chairman Daniel B. Moisand.
Also among the honorees will be Gwen Fletcher of Gwen Fletcher & Associates in Northbridge NSW, Australia, who gained the reputation of being Australia's First Lady of Financial Planning by pioneering the development of financial planning as a true profession in her country. She was instrumental in the creation of the Financial Planning Association of Australia.
Larry W. Johnson, CFP, president of Sterling Financial Advisory Services Inc. in Itasca, Ill., will be honored for his work with the Foundation for Financial Planning and the assistance it provides to Hurricane Katrina victims, among other things.
Being honored posthumously is James Russell Parker, CFP, of Preservation Wealth Management Group in San Antonio, Texas, who died earlier this year. He will be recognized for his efforts to mentor new financial planners studying for their CFP certification and promoting the profession while giving back to the community.
Western Bank Buys Shine Investment Advisory
Western Alliance Bancorp, a fast-growing Nevada-based financial services firm, has acquired Shine Investment Advisory of Englewood, Colo. Western Alliance, which acquired Miller/Russell & Associates Inc. in Phoenix several years ago, is believed to be looking to selectively acquire other advisory firms in the western United States.
Judy Shine, who founded the firm in the Denver suburbs 23 years ago, says her agreement with Western Alliance enables her to stay on with her firm, which manages $450 million in assets, for 10 years. One reason she opted to sell the firm was that she didn't want to build the infrastructure required for a larger firm on her own and she also didn't want to retire.
While the terms of the transaction were not disclosed, Shine received a combination of cash and Western Alliance equity as part of the deal. She also retained a minority interest in her firm and her employees will be able to purchase restricted Western Alliance shares.
The acquisition gives Western Alliance just over $2 billion in advisory assets under management, since Miller/Russell manages about $1.7 billion. In total, Western Alliance has about $4.7 billion in assets, and operates seven banks, one credit-card company and one trust company. Its CEO, Robert Sarver, is the owner of the Phoenix Suns, and has built several successful real estate businesses, as well as another bank that he sold to Zions National Bank in Salt Lake City.
Shine says she talked with many different potential acquirers, and while others offered more money, Western Alliance was the best fit. "Clients had been asking about transition and continuity and I wanted someone who was committed to a fee-only, no proprietary products, consultative model," she says. "I didn't want employees assuming huge debt levels and I wanted someone with a track record. Many of these newer firms have very little history. Dennis Miller [of Miller/Russell] did this several years ago and nothing has changed. You have to decide what this looks like for clients."
She cited several other positive factors, including the fact that the deal involved no earn-out, her name remains on the door, Schwab Institutional remains her custodian and Western Alliance is looking to provide referrals and owns a trust company.
Outcry Over Sallie Mae And Private Equity
Congress isn't the only group raising a stink about private-equity firms. Student groups this summer and fall are joining forces with a large labor union and a community organization to raise awareness about the need for student loan reform in Congress, and part of their motivation was in response to Sallie Mae's proposed takeover by a consortium of private-equity firms led by J.C Flowers.
Sallie Mae, the nation's leading student loan provider, plans to be bought by a group that includes J.C. Flowers, Bank of America and JPMorgan Chase. The deal is expected to close in October. The fear among student groups and their allies is that Sallie Mae's new ownership will be more concerned with profits than in providing affordable loans to needy students.
"What we're seeing with private-equity firms is a business model that concentrates profits in the hands of very few people," says Renee Asher, a spokeswoman of the private-equity campaign at the Service Employees International Union (SEIU). "We want to see the private-equity industry benefit more people."
The SEIU, with its large contingent of lower- to middle-class workers, and the Association of Community Organizations for Reform Now (ACORN), the nation's largest community organization of low- and moderate-income families, joined with various student groups and their parents who believe that much of the potential profits would come at the expense of low- and middle-income borrowers in the form of higher rates and more aggressive debt collection.
Congress is debating legislation regarding student loan paybacks, ending deceptive loan practices and predatory lending, and providing some relief for tapped-out borrowers.
Student groups and their allies are holding town hall meetings about the crisis, and calling on Sallie Mae's potential acquirers to agree to a cap on interest rates, provide additional money for debt forgiveness, provide clear and transparent information to students and forgo aggressive debt collection practices.
Their web site, http://www.1000voicesin1000hours.org, was launched on July 12 by the SEIU.