Schwab Announces Portfolio Center (Centerpiece) Pricing

Schwab recently announced pricing for PortfolioCenter, the next generation of the Centerpiece portfolio management system. As their annual licenses come up for renewal, all current Centerpiece users will be upgraded to the new PortfolioCenter product and become subject to the new fees.

Maintenance on the first seat will jump to $1,150 from $750 per year. Additional seats will increase to $600 from $500 per year each. The Schwab custodial interface is included in the base price, but each additional interface will cost $600 per year, a $100 increase. Finally, the new rights management feature, which is optional, will cost $500 initially plus $500 annual maintenance.

The initial purchase price for the first license will increase to $5,300 from $3,450 for advisors who custody assets at Schwab. Advisors who are not affiliated with Schwab will see prices more than double, to $8,000 initially. Each custodial interface (other than Schwab's) and each additional seat will cost $600. The new rights management module will cost $1,000. Annual maintenance fees will be the same for all users after the initial purchase.

When PortfolioCenter is released, a new customer with two non-Schwab custodial arrangements and two seats, who wanted rights management, would pay $11,550. If the same advisor did not have a relationship with Schwab, the price would be $14,250 (see table below).

The enhanced reporting module will be included in the initial purchase price, but maintenance will cost an extra $500 per year, if desired.

According to Schwab, "Portfolio-Center represents a very competitive offer and licensing fees remain well below those of competitors." The company last raised prices on Centerpiece four years ago.

According to Dan Skiles, a vice president at Schwab, advisors will be able to purchase Centerpiece at existing prices until Portfolio-Center goes on sale (the tentative release date is Sept. 21, 2004). Once Portfolio-Center is officially released, Centerpiece sales will cease.

Those who purchase Centerpiece will be eligible for upgrade pricing, but will not receive the new PortfolioCenter product until their license comes up for renewal. Anyone purchasing before the deadline would save a minimum of $2,250 and possibly much more, depending upon configuration.

NAPFA Starts Site For Selling Practices

Fee-only advisors have another place to go if they're considering selling or buying a business.

The National Association of Personal Financial Advisors (NAPFA) announced that it has started a transition planning Web site for its members, in partnership with Business Transitions LLC.

The site,, includes confidential listings by buyers and sellers of practices, a private communications system and opportunities for discounts on closing commissions.

NAPFA, an organization that represents the fee-only financial advisory business, has about 1,100 members. NAPFA members will receive pay Business Transitions a fee of 5%, compared to the 7% the company charges at its own site.

"NAPFA advisors have a very high level of skill and knowledge, and their clients appreciate this," says NAPFA CEO Ellen Turf.

"When it is time for one of our advisors to retire or reduce the size of their practice, their clients want another NAPFA member to take over. Through our strategic partnership with Business Transitions, we are addressing the future needs of not only our advisors but also the public, who want to continue working with a NAPFA advisor after their current advisor retires," she adds.

The site will also give NAPFA members access to transition planning consulting services offered by Practice Merger Consultants, a firm run by NAPFA members David Drucker and Kristofor Behn.

FPA Challenges Broker-Dealer Exemption

After nearly five years of lobbying with no results, the Financial Planning Association is going to court in its effort to jettison the broker-dealer exemption to the Investment Advisers Act of 1940.

The FPA filed a lawsuit in July against the Securities and Exchange Commission, saying it has waited long enough for the SEC to act on a rule proposal that it considers damaging to both financial advisors and consumers.

They note that the proposal, which essentially frees brokers from the regulatory burdens faced by RIAs, is in actuality a de facto rule because the SEC has allowed broker-dealers to operate under the exemption pending its official adoption.

In explaining the reason the FPA resorted to the lawsuit, FPA President Elizabeth Jetton noted that more than 250 letters have been written to the SEC against the rule since it was proposed in 1999.

"I think we gave it plenty of time," says Jetton, noting that a recent survey of FPA membership demonstrated widespread support for legal action.

Although the FPA expects court action could take a year or longer to resolve, Jetton says her hope is that the matter can still be remedied outside of the courtroom.

"It's not a hostile thing we're doing," she says. "We're convinced that it was important for us to make our case absolutely known in no uncertain terms and our hope is that it will be expedited."

The SEC has declined comment on the lawsuit.

The lawsuit was filed in the District of Columbia U.S. Circuit Court of Appeals, and argues that the SEC violated the federal Administrative Procedures Act by not completing its rulemaking process in a timely fashion. It also accuses the SEC of misinterpreting its authority under the Adviser Act in crafting a new exemption.

The rule in question was proposed by the SEC in 1999, and would expand the broker-dealer exemption to the Advisers Act under certain conditions:

The advice is provided on a nondiscretionary basis.

The advice is solely incidental to the brokerage services.

The broker-dealer prominently discloses to its customers that their fee-based accounts are brokerage accounts.

Among the FPA's complaints, as well as those of the consumer groups lobbying against the rule, is a clearer definition of what "solely incidental" means.

Given the blurry lines between incidental and actual investment advice, the FPA is advocating that RIAs and brokers operate under the same rules and regulations.

"Clearly consumers, financial planners and compliance professionals still do not know what the SEC meant under the rule proposal," Jetton said in a statement. "However, instead of attempting to define a difficult legal concept, we believe the public would be better served by requiring brokers to operate under the higher standards of investor protection afforded by the Adviser Act."

The FPA's court action has the support of several consumer groups, including the Consumer Federation of America (CFA) and the Consumers Union.

"The SEC has given brokers a wholesale exemption form the Advisers Act that Congress never intended," says Barbara Roper, the CFA's director of investor protection. "The recent mutual fund scandals provide ample evidence of the enormous gap between the advisory image brokers promote and the seamy reality of their conduct."

Armstrong Named Fain Award Recipient

Veteran financial advisor and author Alexandra Armstrong has been named the winner of the Financial Planning Association's 2004 P. Kemp Fain Jr. award.

Armstrong, a CFP and CMFC, was the first CFP certificant in Washington, D.C., and is president of Armstrong, MacIntyre and Severns in the same city. She was also instrumental in the first endowment campaign undertaken by The Foundation for Financial Planning, and later served as chair of that organization. She also has written a monthly financial planning column for Better Investing Magazine for more than 20 years.

She co-authored On Your Own: A Widow's Passage to Emotional and Financial Well-Being and has worked extensively, many would say relentlessly, for numerous nonprofit organizations during her career.

The award is scheduled to be presented to Armstrong at the FPA's annual conference in Denver, September 10-14. "Alex has given countless hours and dedication to building the financial planning profession," says FPA President Elizabeth W. Jetton. "Her high level of commitment to her clients and dedication to her community is admirable, and sets a great example for all financial planning professionals."

The P. Kemp Fain Jr. award is given annually to individual FPA members who have been judged to make outstanding contributions to the financial planning profession, according to the FPA.

Schwab Transitions Retains Valuation Firm

Schwab Transitions (, the service launched by Charles Schwab & Co. in January of this year to help advisors sell and buy advisory practices, is starting to ramp up. "We're excited about our progress," says Tim Welsh, director of strategic programs for Schwab Institutional. "We just passed the 300-listing mark." Welsh says their initial projections would have led them to be satisfied with fewer listings in their first year.

As with other "transition" services, buyers dominate sellers at the rate of 260 to 40, respectively. However, no transactions have been consummated yet. This is not entirely unexpected, as there is a lead time before transactions in the pipeline come to fruition. Welsh anticipates some closings in the next several months.

In the meantime, Schwab Transitions has continued to add new ancillary services. In addition to partners Moss Adams and Stark & Stark, it has added Quist Valuation, a Broomfield, Colo.-based independent valuation firm, to assist sellers in pricing their firms. It's also entered the workshop business in a big way. "In January and February we did 13 workshops around the country on transition planning. We limited the attendance to 25 per workshop and sold them all out," says Welsh, who expects to do more workshops this coming winter.

In addition to workshops, there are new partners and the accumulation of new articles and white papers on its site, Welsh says, "We are also working with new banks to set up arrangements for internal succession loans and acquisition capital. This is a new venue for many banks which aren't experienced with investment advisors, so we've been educating them on how these businesses work and their growth potential."

Welsh also sees firms evolving their thinking about the addition of partners, and says Schwab Transitions will add new content to address that trend. In other words, stay tuned.

Hedge Funds Continue Growth, Survey Finds

The hedge fund industry grew to $795 billion in assets in 2003-34% growth that was partly fueled by fund of funds products and direct investments by pensions, according to a new survey.

The 10th Annual Hennessee Hedge Fund Manager Survey also found that the number of hedge funds grew 23% from 2002 to 2003, to a total of 7,000.

Coming at a time when the U.S. Securities and Exchange Commission is proposing stricter regulation of the hedge fund industry, the survey was cited by Hennessee as evidence that the hedge fund market is not as overleveraged and risky as some portray it.

Hennessee noted that 85% of the hedge funds surveyed have never exceeded 50% leverage, and that hedge funds represent less than 2% of the world financial markets.

"The survey continues to dispel common misperceptions about hedge funds being highly leveraged investment pools, or that hedge funds have a greater impact on the broad market than mutual funds or institutional, long-only funds," says Charles Gradante, managing principal of Hennessee Group LLC.

The survey respondents consisted of 789 hedge funds from 174 management companies, constituting a total of $144 billion in assets.

Hennessee's views of the hedge fund market contrasts with those of the SEC, which voted 3-2 last month to propose sweeping new rules that would, among other things, force hedge funds to disclose details on their operations, advisors and holdings.

SEC Chairman William Donaldson has called hedge funds so risky that they are "an accident waiting to happen."

Other survey findings noted by Hennessee include:

Since 1987, surveyed hedge funds have generated an annualized return of 15.34%, with 40% less volatility than the S&P 500 return of 12.11% over the same time period.

Individuals and family offices represent the largest source of capital for hedge funds, accounting for 44% of total industry assets.

Fund of funds are the fastest growing sector of the industry, with assets increasing to $191 billion from $21 billion since January 1997.

Assets directly invested in hedge funds by pensions have grown to $72 billion from $13 billion since January 1997.

Hedge funds turned over their portfolio more than three times per year.