Come Together
Detroit's Big Three had a tough time dealing with Congress in late 2008. But the financial planning industry's Big Three hope to fare better in 2009 and beyond.

In what's been described as an unprecedented meeting of the minds, the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors announced in December that they have joined forces to present a unified response to expected legislation in the next Congress that could reshape the financial services industry.

"It's pretty simple in my mind," says Duane Thompson, managing director of the FPA's Washington, D.C., office. "You can sit on the sideline and let Congress do something that will affect you, or you can participate in the process. Chances are, if you don't make your voice heard they'll come up with something you don't like."

Over a lunch of deli sandwiches and soup, leaders from the three groups met in early December at the CFP Board's Washington headquarters to lay the groundwork for their lobbying efforts.

"Our concern is that regulatory issues will come too quickly and consumers will be hurt because the standards won't be as high as we'd like them to be," says NAPFA chairperson Diahann Lassus, president of Lassus Wherley, an advisory firm in New Providence, N.J.

The U.S. Treasury Department introduced several measures during last year's financial meltdown, and among them was a blueprint for the sweeping reform of the financial industry's regulatory structure. As Thompson sees it, Congress will likely first address the big, systemic picture dealing with market stability, the credit markets and the like. Its next step could be to consolidate various regulators to make the system more effective. Finally, Congress could drill down to the retail level-i.e., the financial planning client.

"We've heard statements from Barney Frank [the Massachusetts Democrat and chairman of the House Financial Services Committee] that this will be the biggest financial regulatory process since the New Deal," Thompson says. "That's why there are threats and opportunities for financial planners. In some ways, I don't know how you can create a more dysfunctional system than we have now in how we offer comprehensive advice."

Many advisors, Thompson notes, have three licenses-one for brokerage, one for insurance and one for advising-to help clients implement their necessary strategies. "Most people would agree the current system needs to be streamlined and improved. It would be wonderful if there was some way to eliminate duplicative regulations."

Thompson sees several possible scenarios that could hurt the advisory industry, from adopting the "suitability standard" of client service favored in the past by Wall Street firms to making the Financial Industry Regulatory Authority (FINRA) regulator over all advisors and not just brokerage firms.

"You can start to play out all of these scenarios and it can look like a Monte Carlo simulation to an extent," Thompson says. "What our organizations want to do is establish a baseline for what we'd like to see for standards in personal financial advice."

The newfound common ground-if not comity-is a change of pace for three groups that haven't always been on the same page. "I think all three of us recognize there will always be some differences between us," Lassus says. "But the bottom line is: Our shared beliefs are such that we believe we can have a much broader impact and be more powerful working together."

The three groups realize their unified efforts will evolve. "It's really a work in progress," says Kevin Keller, CEO of the CFP Board. "It's not like there's some big secret plan to unravel and reveal over time. Coalitions take time to work together and make sure groups are aligned. We want to do it right and in a way that preserves the strength of the existing coalition but potentially brings in other people under the tent who want to be aligned with us."

A Wounded Giving Tree
Most people's charitable activities probably declined in 2008, with altruism projected to take a hit along with stock prices. Not only were equity markets down about 40% through November, but big corporate donors such as Lehman Brothers and Bear Stearns no longer exist. December is typically philanthropy's peak season, but anecdotal evidence suggests that people were on track in 2008 to give less to charity.

In November, the Center on Philanthropy at Indiana University hinted at a big expected contribution decline because all the inflation-adjusted indicators linked to charitable giving trends (GDP, personal income, corporate income and the S&P 500) were down as of the end of October. It said charities saw declines in giving, but also noted that many donors continued to give. Furthermore, foundations maintained their distributions, as mandated by law.

Kim Wright-Violich, president of Schwab Charitable, offers a good news/bad news picture. On the plus side, she says, the sector is recession resistant.

"Giving year over year has increased every year but one in the last 30 to 40 years," she says. "In 1974, giving decreased 5.4% when the S&P 500 was off 42%." On the negative side, she says giving could drop 5% to 6% in 2008, but a couple of factors amplified the pain and might cause giving to decline 10% below the roughly $300 billion amount from 2007.

First, the 1974 market decline took 11 months to play out while last year's was a quick, sharp, eight-week plunge. "That's so jarring it may change behavior," Wright-Violich says. The second is a timing issue: The market crashed right before the fourth quarter, when 60% to 70% of the contributions usually roll in.

She adds that donor-advised funds like the ones offered by Schwab could be off even more because these vehicles are often infused with donors' appreciated assets, which last year probably didn't appreciate much, if at all, in most cases.

The financial bailout Congress passed in October included an option allowing retirees age 701/2 to take their IRA payouts and give up to $100,000 directly to a public charity without counting it as taxable income. That should encourage charitable giving to some degree.

But what advisors should be doing, says Wright-Violich, is helping clients make donations of assets that have retained their value better than downtrodden stocks. This could include life insurance, IRAs, real estate, cars, airplanes and artwork. It might also include methods as diverse as offering in-kind pro bono consulting work or donating bottles of wine from your vineyard.

"The biggest issue is not so much that donations are going to be off," Wright-Violich says. "It's the triple threat of endowments being down, that government funding is going to be down and the big contributions are going to be off."

Drew Hastings, vice president of external affairs at the National Philanthropic Trust, believes charitable giving will level off in 2008 and won't take a big hit. "I think the real challenging years will be 2009 and 2010," he says. Hastings adds that Americans typically give about 2% of their pretax income annually to charity regardless of economic conditions, but as income drops so too does charitable giving.

"Charitable giving is among the first items to be pulled back on and will likely be among the last to be replaced as the economy rebounds and people's confidence improves," Hastings says.

'Wealth Management' Turnoff  To Many Clients
Wealth management is an industry buzzword, but a lot of affluent folks don't like the term.

In a survey conducted last summer by Spectrem Group of 503 households with at least $500,000 in investable assets, 41% of respondents either "strongly disagree" or "disagree" that the term "wealth management" is appealing to them. The percentage comfortable with the term increases as wealth level increases, and the phrase is more acceptable to senior level executives than to business owners.

As for the type of services offered under the "wealth management" umbrella, the affluent most want comprehensive financial planning (78%), estate planning (68%) and tax planning (64%). Legacy planning to pass along wealth to the next generation was next (59%), followed by asset management (57%).

The survey also found that independent financial planners (29%), independent investment advisors (15%) and full-service brokers (18%) were by far the ones affluent individuals first turned to for assistance.

In addition, 59% of respondents prefer to pay a fixed fee, rather than commission, although business owners have a stronger preference (67%) than senior corporate executives (48%) for fees. Additionally, 24% are not aware their financial provider has wealth management programs. Of those who are aware, only 32% of those with less than $1 million in assets are taking advantage of these services, while 51% of those with more than $1 million in assets are taking advantage of wealth management services.

This suggests advisors would do well to clearly define their client base and make sure clients know the services offered, the study concludes.

Platform Souls
When Fidelity Investments last month announced the formal launch of its WealthCentral wealth management platform, it became a formidable rival to the acknowledged leader in providing bundled services to independent registered investment advisors-Schwab Institutional Services. So says Cerulli analyst Scott Smith, who follows the space for the Boston-based research firm.

Just don't ask him which one is better because Cerulli doesn't take sides. "They're both good," he says, adding that each offers all of the important bells and whistles such as CRM, portfolio management, and financial planning and trading options.

And Smith says both get good reviews from users, with maybe some grousing on the margins about this item or that. "They both have engines to power advisors interested in moving into the space," he says.

Fidelity says WealthCentral, which to date cost roughly $33 million to develop and is expected to cost $50 million after it's fully deployed, is used by 25 clients and will be rolled out to the rest of its 3,500 RIA clients in 2009 and 2010. Fidelity says the Web-based platform's core applications are compatible with each other, enabling advisors to enter client information into the system just once, and that it provides automatic updates and reconciles information across the platform.

Schwab and Fidelity currently lead the pack in terms of offerings to independent advisors, Smith says, but Pershing Advisor Solutions is one to keep an eye on. "Pershing has made every indication they are in this game as a player," he says. "They have a large footprint on the broker-dealer side with their clearing business, they have a degree of scalability, and they're learning from everyone else's mistakes. I think they'll be knocking on the door."