The final sorry chapter of the great Internet bubble of the late 1990s may be written later this month-on April 15 to be exact. That's when the big bill for exercising stock options on once high-flying tech stocks comes due.

Some advisors in tech meccas such as Silicon Valley, Seattle and northern Virginia have been scrambling to help formerly wealthy technology workers "disqualify" portions of their exercised stock options to avoid huge tax hits.

In many cases, it's too late to offer any help at all.

"People will get killed," says Greg Sullivan, principal at Sullivan Bruyette Speros & Blayney in McLean, Va. One of his partners, Eleanor Blayney, says many young workers are getting hard hit by the Alternative Minimum Tax (AMT) because they decided to exercise incentive stock options-but not sell the stock they bought.

The reason for doing that is if the stock is held for at least a year after exercising the options or two years from when the options were granted, the owner pays capital gains rather than ordinary income taxes when he or she does sell. However, if the stock wasn't sold, the owner is subjected to the AMT in the year the options were exercised.

The AMT, in many cases, is causing tax bills to balloon, at the same time that the value of stock holdings is sinking. "They are now, this April, conceivably looking at a tax liability that is several times greater than the shares that they hold," she says. "For some people, they technically could be facing bankruptcy."

She cited one example involving Micro Strategy, whose share price has gone from more than $300 in early 2000 to a current price of about $20. Workers who exercised options at the stock's peak probably couldn't pay their taxes now, even after selling all their holdings, she says.

Theoretically, taxpayers who are subject to the AMT are allowed tax credits to use in subsequent years. Even these credits, however, sometimes won't be enough to make up for the taxes people will pay in 2001. "There are some people who will not live long enough to recover the upfront taxes they've paid in AMT," Blayney says.

Sitting at the cusp of California's Silicon Valley, Barbara Steinmetz started sounding the alarm for her clients in July. "I had a ton of people come in here," said Steinmetz, president of Steinmetz Financial Planning in Burlingame, Calif.

Steinmetz uses as an example a single employee with an annual income of about $100,000 and the typical assortment of mortgage deductions, dividend income and interest income. Without any stock options, this person would be paying $19,582 in federal income taxes for 2000. But take this same person and factor in the exercising of stock options representing a $70,000 gain for the employee. With the AMT kicking in, that would raise this person's federal tax bill to $34,565-regardless of the value of the stock after the options were exercised, Steinmetz says.

For some the picture is worse, she says. Some people have walked into her office after having margined their stock holdings last year. As the values of those holdings tanked, people found themselves facing margin calls as well as hefty tax bills, she says. "Most people don't pay attention to their tax situation until it's after the fact," she says.

In addition to helping clients, Blayney has also been busy writing letters to members of Congress. She believes the tax laws should be changed to avoid situations like this. "I think the AMT needs to be reformed so that people are not in a situation where they can't recover the credit," she says. "It was never designed for that purpose."

Schwab Names President Of Group For Advisors

Deborah Doyle McWhinney has been named president of Charles Schwab & Co.'s Services for Investment Managers, which provides operations and trading support to about 6,000 independent fee-based advisors.

McWhinney is taking the helm of one of Schwab's fastest-growing units. Advisor-managed assets at Schwab have grown at a compound rate of 34% the past five years and total $234 billion, about 27% of the company's client-asset base.

In recent months, Schwab has suffered a big decline in its retail business, and its institutional unit faces a host of new rivals. In early March, the firm raised eyebrows among advisors when it announced plans to offer managed accounts in three offices for private clients with $1 million or more in assets. Schwab has managed to balance advisors' concerns with its own need to grow in the past, but all its businesses now face serious competitive pressures.

McWhinney was previously president of Engage Media Services Group, a firm that assesses Internet-site performance. She reports to John Philip Coghlan, president of Schwab Institutional.

FPtransitions.com Buys Competitor

A Web site that specializes in matching buyers and sellers of financial-advisory businesses has done some buying of its own.

FPtransitions.com, a Portland, Ore.-based company, has bought one of its competitors, Success-ionPlanner.com, also in Portland. The purchase price was not disclosed.

Since the deal was closed in February, 250 buyers and sellers with listings on SuccessionPlanner.com have been transferred to FPtransitions.com, says David Goad, CEO of FPtransitions.com and one of its founders. The deal brings FPtransitions.com's total registered buyers and sellers, not all of whom have listings on the site, to about 1,250, Goad says. The Web site has about 600 buy, sell and merger listings, and about 65% are "buy" listings.

Rick Thomas, a founder and former president of Suc-cessionPlanner.com, says the deal benefits former users of his site. "FPtransitions has established itself as the industry leader in transitioning and financial-advisory practices," he says. An irony of the deal is that Goad and Thomas started Succession-Planner.com together in spring 1999. Shortly after, the partners went their separate ways, and Goad started FPtransitions.com about six months later.

FPtransitions.com was launched in fall 1999, and since then, it has received more than 1 million visits at its Web site and has facilitated 36 deals involving businesses with more than $1 billion in managed assets, Goad says. The company provides succession-planning services in partnership with Moss Adams Advisory Services and Stewart Title & Escrow.

The company also has agreements to handle succession planning for the registered representatives of 45 broker-dealers, he says. To expand its broker-dealer services, Goad adds, the company recently launched BDtransitions, which matches buyers and sellers of broker-dealer businesses. The new venture currently is working to find businesses for 22 buyers. The service is not Web-based to protect the anonymity of those listed, Goad says.

LTC Tax Deduction Considered

A new above-the-line income-tax deduction for long-term-care insurance premiums may be just what the doctor ordered to stimulate LTC sales to the aging U.S. population.

And to ensure that advisors and insurance agents are prepared for the implications, the Financial Planning Association (FPA) and American Council of Life Insurance (ACLI) are planning to launch a joint Web-based information and training program by year-end.

A bill (H.R. 831), introduced by Reps. Nancy Johnson (R-Conn.) and Karen Thurmond (D-Fla.), would allow LTC premiums to be deducted on income-tax returns, essentially like contributions to tax-qualified retirement savings accounts. Senate Finance Committee Chairman Charles Grassley (R-Iowa) is expected to introduce a Senate version of the bill this spring.

"Similar bills cleared both the House and Senate in 1999 and 2000," says Herb Perone, chief spokesman at the ACLI. "We see broad, bipartisan support for this legislation." Congress didn't act on the 1999 bill after it got out of committee, and former President Clinton vetoed the 2000 legislation.

With just 6 million LTC policies on the books today, ACLI says the gap would leave 64 million Americans age 65 and over without LTC protection over the next 30 years.

The joint FPA-ACLI information and training program, which will offer continuing education credits, should be available on the FPA's Web site, www.fapnet.com, by December, says the ACLI's Shannon Moser.

Agents and advisors say they already have started noticing a growing interest in LTC insurance.

Appointment

Roy Diliberto, board chairman of the Financial Planning Association, has been named head of the American National Standards Institute delegation, which is helping to develop international standards for the financial-advisory industry.

Correction

An article entitled "Cumbie's Turn At The Wheel" in the March issue of Financial Advisor magazine incorrectly reported that in 2010, planners without CFP licenses will no longer be eligible for membership in the Financial Planning Associa-tion. Non-CFP licensees can still remain members, but not in the FPA's financial-planning division.

Industry Issues Debated At FPA Retreat In Florida

Attendees at the Financial Planning Association's Annual Retreat at the Saddlebrook Resort north of Tampa, Fla., held a spirited discussion about key issues affecting the profession. These included the role of non-CFP licensees within the FPA, the status of corporate members within the association, the organization's legislative agenda and the integration of the chapters and societies of its two predecessor organizations, the International Association For Financial Planning (IAFP) and the Institute of Certified Financial Planners (ICFP).

What was particularly surprising was the degree to which members of both predecessor organizations voiced views that strayed significantly from what the orthodoxy of their former associations. Henry Montgomery, an advisor from Minneapolis who had served as ICFP president and who had opposed the merger, referred to the FPA as his last line of defense. He praised the association for taking a strong stance on the Securities and Exchange Commission's so-called "Merrill Lynch rule," which exempted wirehouse brokers from investment-advisor registration.

Several former ICFP members raised concerns about the role of corporate members and expressed fears that a few big companies with deep pockets could, in effect, use their resources to purchase influence at the association. However, the FPA is sending signals that it intends to be a practitioner's organization first, and officials are aware that if they stray from that course, members might defect.

The role of non-CFP licensees also generated intense discussion. According to the merger agreement, former IAFP members who are practitioners have 10 years to earn their CFP licenses if they want to remain members of the financial-planning division. If they do not get their license by 2010, they can remain members of the FPA, but not in its financial-planning division.

One CFP licensee questioned the fairness of this rule and asked if there wasn't a way to grandfather these members. Another wondered if it wasn't time to resurrect the "Registry." In the 1980s, the IAFP started the Registry as a way to allow serious practitioners to network. Another 30-year veteran of the business commented that he planned to earn his CFP, even if he didn't think it was completely fair for him to be required to do so.

IPO Positions Investors Capital To Pursue Growth Strategy

Armed with millions from an initial public offering, Investors Capital is looking to become more than an independent broker-dealer. The company is pursuing a strategy of expanding its mutual fund offerings, upgrading its Web-based services and doubling the size of its registered representative force within five years.

"We want to be more of an asset gatherer and asset manager, rather than solely a broker-dealer," says CEO Ted Charles, who founded the Lynnfield, Mass.-based company in 1992. "We'll provide the best value by having the management of these assets, not just being product-sales people."

The company set off on these changes following an IPO on February 8 of 1 million shares at $8 each. Minus commissions, underwriting discounts and other expenses, Investors Capital netted $6.7 million.

Other independent brokerages are also contemplating IPOs. LPL Financial Services of La Jolla, Calif., one of the largest and fastest growing firms in the business, told reps two years ago it was considering an IPO within the next five or six years. Were LPL to go public, it probably would have a market capitalization in the $1 billion area.

Investors Capital has 1,200 independent brokers around the country, and Charles says he wants that number to double by 2006.

Investors Paying More Attention To Taxes On Fund Gains

Investors are paying more attention to how their mutual funds manage taxes, according to a survey commissioned by Eaton Vance, the tax-managed equity fund company.

Fifty-eight percent of 500 investors responded that the impact of taxes on their investment returns has increased in importance over the past year.

Built-up gains from prior years, high portfolio turnover and "insensitivity to tax considerations ... created a 'Perfect Storm' that dumped large capital-gains distributions on many unsuspecting shareholders," says Duncan W. Richardson, Eaton Vance's senior vice president and manager of the company's Tax-Managed Growth Fund.

The study also found investors have a limited understanding of investment-related tax issues, with 25% of them not knowing their federal income-tax bracket and 26% unfamiliar with the concept of tax-efficient investing. Sixty percent say mutual fund companies should disclose after-tax returns.