FPA Weighs Decision On Lawsuit's Fate
After six years of debate and litigation, the controversy over
broker-dealers getting an exemption to the Advisers Act of 1940 may be
in its final stages.
Yet whether the final chapters of this drawn out saga will be conducted
peacefully, or through a court battle, remains to be seen.
What's certain is that the Securities and Exchange Commission-after
delays that inspired a lawsuit by the Financial Planning
Association-decided unanimously on April 6 to allow brokers to offer
fee-based advisory accounts without being regulated as investment
advisors.
The SEC released the full 117-page ruling a week later, at which time
FPA officials said they still had not decided if they were going to
press on with their lawsuit against the SEC.
The FPA, along with consumer groups and other organizations, has fought
against the exemption, arguing it would allow brokers to dole out
investment advice without having to adhere to important fiduciary
standards mandated by the Advisers Act. In its initial response, the
FPA commended the SEC for enhancing the disclosure requirements for
brokerage customers, including a requirement that fee-based brokers
disclose that their interest may not always be the same as those of
their customer.
The FPA also praised the SEC's decision to launch a 90-day study to
identify the issues of investor protection raised by the rule proposal.
But a lawsuit filed by the FPA in February to force an SEC decision on
the issue remains active.
Some observers, like Roy Diliberto, the first FPA president and the
initial point man on the issue, believe the association should press
ahead with the suit, even if it stands little chance of success. The
profession has received "a lot of favorable publicity," he says, so
that the business will will come out ahead even if the lawsuit founders.
At press time, FPA officials said they were still reviewing the full
ruling and no decision had been reached on how to proceed with the
lawsuit. The FPA was expected to reach a decision by April 29-the date
by which parties to the lawsuit have been asked to file any further
petitions.
"We need to look at the rule itself, and see whether or not our board
believes it satisfies the concerns we expressed when the lawsuit was
originally filed," says Duane Thompson, the FPA's advocacy group
director.
The brokerage industry applauded the move, after having argued that
putting fee-based broker accounts under the auspices of both the
Advisers Act and the Securities Exchange Act of 1934 would dissuade
many broker-dealers from offering fee-based services. "Placing
broker-dealers that offer fee-based brokerage accounts to their clients
under an additional, and wholly unnecessary, layer or regulation could
have severely limited the availability of these popular accounts," Marc
E. Lackritz, president of the Securities Industry Association, said in
a statement.
The ruling allows brokers to offer fee-based accounts outside the
requirements of the Advisers Act as long as they meet certain
requirements, including the stipulation that they provide investment
advice that is "solely incidental" to their brokerage services.
The SEC went on to explain that "solely incidental" does not include
exercising investment discretion or situations where "the broker or
dealer charges a separate fee or separately contracts for advisory
services."
The SEC also modified its original ruling in 1999 by expanding the
disclosure requirements for exempt broker-dealers. The rule states that
all advertisements, contracts and other documents related to fee-based
brokerage accounts contain "a prominent statement that the account is a
brokerage account and not an advisory account."
The disclosure would also have to explain that, as a result, the
interests of the client and the broker-dealer may not always be the
same.
Female Planners Have Reasons To Be Optimistic, Study Finds
Female financial planners are more optimistic about their practices
than their male counterparts, and tend to have larger practices with
more high-net-worth clients. Those were some of the differences between
male and female practitioners that were identified by a new study
released by the Financial Planning Association and OppenheimerFunds.
The study found "clear differences" in the way men and women approach
their financial planning businesses in a wide range of areas, including
practice management, practice size and business development. It also
suggests that women have found success in the financial planning field
and detected no evidence of a "glass ceiling" that is holding women
back.
The survey of FPA members was conducted in August and September through
an online questionnaire. Information was collected from 140 men and 184
women. The survey has a margin of error of 4%.
Fidelity Expanding Commitment To RIA Business
Fidelity Brokerage Services is sending signals to registered investment
advisors that it wants to overtake Schwab Institutional as the nation's
leading custodian for independent RIAs. Ellen McColgan, president of
the brokerage services unit, told advisors exactly that at the firm's
annual conference in Palm Beach, Fla., in early April.
Meanwhile, several financial services executives who have interviewed
with senior Fidelity management for the open position of president of
the RIA business say they came away with the distinct impression that
Fidelity wanted an executive with experience in running a large
organization, indicating how ambitious their growth goals are. That
position opened following the resignation of its longtime president,
Jay Lanigan, at the turn of the year.
Interestingly, when Schwab placed Deborah McWhinney in charge of its
institutional business several years ago, they chose someone out of the
banking world with the same sort of experience that Fidelity reportedly
is seeking. In early April, Schwab also named longtime executive
Charles Goldman as chief operating officer of Schwab Institutional,
reporting directly to McWhinney, indicating its desire to expand its
management team.
Under Lanigan, the Fidelity Registered Investment Advisor Group grew
very quickly, doubling its assets under custody in the last two years.
Yet advisors who have spoken with top Fidelity executives say they got
the impression that the Boston-based financial giant was willing to
invest more capital to expand market share and that Lanigan was overly
concerned with the bottom line.
One sign of their growing interest in the RIA business came when Ned
Johnson, Fidelity's CEO, held a town hall-type Q&A session with
advisors. Several attendees say Johnson made it clear that "our
business was of significantly more interest to Fidelity" than it was
several years ago. "His depth of knowledge about our business was quite
impressive," this advisor says.
At the meeting, Fidelity also announced the launch of an integrated,
single sign-on technology platform designed to help independent RIAs
simplify workflow and increase operational efficiency. The platform is
being developed on .NET, a Microsoft Web-based technology. Fidelity
expects the initial release of the platform later this year, with an
enhanced version to follow in early 2006.
According to Patrick Jancsy, senior vice president at Fidelity
Registered Advisor Group, the initial release will integrate Integrated
Decision System's (IDS) portfolio management and trading tools,
NaviPlan financial planning software from EISI, and Fidelity's existing
Advisor CHANNEL platform.
When the platform is fully built out some time in 2006, it will offer
contact management, account servicing and practice management support
in addition to trading, portfolio management/reporting and financial
planning capabilities. No decision has been reached yet with regard to
CRM software partners. According to Jancsy, Fidelity is currently
conducting research to determine what systems are being used by their
RIA clients today. "Although no decision has been reached, I would not
be surprised if we aligned with multiple third-party CRM providers," he
said.
Practice management support will include access to third party
providers from within the platform. For example Fidelity already offers
a business transition program, access to a third-party compliance
provider, and discounts on a range of other services used by RIA firms.
LPL Hits The Road To Help Advisors Train Staff
Linsco/Private Ledger (LPL) has taken to the road in an effort to train
its advisors and their staff in all aspects of the financial advisory
business.
The firm has launched the "Fast Forward" training program, which will
make stops at 12 cities throughout the country during the course of the
year. The effort started in San Francisco, where a three-day program
was held from March 30 to April 1.
The Fast Forward program offers advisors and their staff courses on
topics that include LPL technology, building a fee-based practice,
marketing, investment products, practice management, business
processing, client service and wealth management strategies. The
courses are taught by a mix of LPL professionals, industry experts,
product specialists and other guest speakers, the company says.
The program also includes regional business development events, various
online learning modules and LPL's national conference, the company says.
"Fast Forward's extensive course offering and CE-approved content
addresses the training needs of everyone from the most experienced LPL
financial advisor to new advisors just joining the firm and sales
assistants," says Rochelle Putnam, LPL's executive vice president of
service and training. "Based on the feedback so far, we think this is a
training program that enables our advisors to develop the advanced
skills they need to build the businesses they want."
Fast Forward city tours are planned this year in Tampa Bay, Baltimore,
Chicago, Dallas, New York, Boston, Denver, Seattle, Philadelphia and
Detroit.