Expecting The Unexpected

While following the ironic twists and turns of the Securities and Exchange Commission's so-called Merrill Lynch rule in late July and early August, I couldn't help being reminded of how so many things in life and business often take a turn we never could have anticipated.


After the nation's largest wirehouses spent the better part of five years lobbying to obtain an exemption from the fiduciary regulations governing registered investment advisors (RIAs), they finally railroaded the rule through the SEC this spring. Yet no sooner had they been granted their wish than some of the Wall Street poohbahs started entertaining second thoughts about the rule.

In particular, some are quite displeased about being required to tell clients that they put their own interests first, not the clients'. Credit the Financial Planning Association for demanding that the SEC spell out clear disclosure requirements when they decided to proceed with the exemption. Remember they only had five years to think it through. The rule was supposed to go into effect on October 24, but now they are asking for a five-month delay. How the SEC responds will prove an early and interesting test for incoming SEC Chairman Christopher Cox.
Apparently, top lawyers in the wirehouses think some confusion still exists about what "solely incidental" means. But these were the same folks who argued that average investors could understand all the hairsplitting and could clearly differentiate between an advisory account and a brokerage account.

The irony is delicious. Please turn to our Frontline News section on page 29 to read more about it.

While some advisors may be forgiven temporarily for chuckling about their competitors asking the SEC for an exemption, having their wish granted and then ruing the day, there are many other surprises in life that don't break your clients' way-or yours. All you have to do is recap all the events of the last 20 years to understand.

Think about the attacks of September 11, the accounting scandals at America's biggest corporations or the fall of the Berlin Wall. Virtually nobody saw any of these events coming.

Take it down to the personal level of your clients. Look at who lost their jobs, who switched jobs, who got divorced or who married a widow with three kids about to go to college, or who died or lost a loved one, or whose life just underwent a radical unexpected change in direction. It happens all the time.

Even the most farsighted planner doesn't possess the clairvoyance to predict these developments. All you can do is help a client structure a solid enough financial foundation so that when things change direction dramatically, they can deal with the emotional stress without letting financial issues exacerbate their problems. If you've done that, you've performed a major service.

Evan Simonoff
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