Breakaway Brokers Boost RIA Ranks
The number of registered reps transitioning to investment advisory practices-so-called "breakaway brokers"-are boosting the growth of the RIA field, according to industry officials. Experts who have reviewed the filings say the majority of new entrants into the business come from two sources: reps opting to become independent advisors and hedge funds forced to register by new regulations.
Some observers expect the number of new RIA registrations to accelerate next year, perhaps even doubling. The Securities and Exchange Commission, meanwhile, is projecting a healthy boost in the ranks of registered investment advisors this year.
The number of SEC-registered investment advisory firms grew from 8,535 as of October 2004 to 9,022 in October 2005, according to SEC spokesman John Heine. The agency projects that the number will grow to 10,000 in October 2006, he adds.
Those numbers do not represent the total universe of RIA firms. The SEC figures do not include advisors with assets of less than $25 million who register with their respective states.
"The increase in new RIA practices over the past few years has become unprecedented, with many of these new entrants establishing wealth management practices," says Scott Dell'Orfano, executive vice president of Fidelity Registered Investment Advisor Group, which saw 200 newly formed firms sign up for its custodial services last year.
Dell 'Orfano thinks that number could double to 400 in 2006. "Based on our experience with new entrants, much of this movement is, among other things, driven by a desire to manage and build equity in their own business," he says.
Competition over breakaway brokers is heating up among firm that provide custodial and clearing services to RIAs, including the big three: Charles Schwab, Fidelity and TD Ameritrade. Moreover, traditional firms like Merrill Lynch, which has its own RIA services custodial unit, are strengthening their competitive offerings, partially to retain assets but also to participate in the growth of this business.
In March, Fidelity Investments introduced a tool that helps reps plan the transition to an RIA practice. The online guide is available at and includes "a check-list and timeline for addressing virtually all of the critical areas associated with establishing a new RIA practice," according to Fidelity.
The tool provides help on areas ranging from financial projections and registration to compliance and opening accounts, according to Fidelity. Also, Schwab has announced it is reinvigorating its strategy for capturing the business of registered representatives interested in transitioning-either totally or partially-to a fee-based RIA practice.
TD Ameritrade also has what it describes as an end-to-end transition program tailored to the needs of breakaway brokers, including dedicated sales specialists to guide reps through the transition. Part of the recruitment strategies have hinged on the ability to give reps a way to conduct "hybrid" dually registered practices that retain some commission-based work.
Fidelity offers a tool that allows reps to estimate revenues and expenses based on their expected assets under management.

CFP Board Opens Annual Meeting To Public

This summer CFP Board of Standards will hold an annual meeting in Santa Monica, Calif., and Los Angeles that will be unlike any meeting it has held in the past. The meeting is open to the general public and features such keynote speakers as Queen Noor of Jordan, Pfizer CEO Hank McKinnell, former United States Senator Bob Kerrey and NASD Vice Chairman Mary Schapiro.
According to some sources, the organization is expecting 4,000 to 6,000 people to attend. CFP Board's Web site is urging consumers with questions about mortgages, credit cards, retirement savings and other topics to attend and meet with experts "who have the gold standard of personal financial planning certification" and "will not charge you anything" or "attempt to sell you anything." The meeting also features special tracks for educators who run and teach financial planning programs and for firms that employ CFP licensees. Some CFP practitioners were surprised that no sessions appear to be targeted for continuing education.
However, CFP Board CEO Sarah Teslik has indicated she wants to expand the organization's reach, and the list of other speakers reflects her interest in financial literacy. They include financial literacy advocate Louis Barajas, Elizabeth Donati and Robert Duvall and Fund Democracy President Mercer Bullard.

New Planning Tools Unveiled
Financial Profiles Inc. recently released its much-anticipated Universal Desktop Application (UDA), a new platform with its planning and needs analysis tools. Meanwhile, SunGard has upgraded PlanningStation, its browser-based financial modeling and planning solution for financial advisors.
Financial Profile's UDA is a hybrid platform that delivers the capabilities of desktop and Web-based applications in a single package. Both Profiles+ Forecaster and Profiles+ Professional are available on the UDA platform offering advisors enhanced client functionality and case management. At the same time, the UDA system facilitates oversight, business reporting and analysis at the corporate level.
The UDA enables advisors to work in both online and offline modes within the same user interface. For more information visit products_solutions/enterprise/uda.php.
The new version of SunGard's PlanningStation includes improved scenario and estate planning capabilities, a new forms repository, support for the Roth 401(k) and a new asset allocation module.
Enhanced scenario planning helps advisors to create multiple client scenarios and profiles for further analysis and comparison on hypothetical financial plans. With enhanced estate planning capabilities advisor can now model inter vivos gifting, credit shelter trusts, transfers of existing life insurance policies to irrevocable life insurance trusts (ILITs). PlanningStation now helps advisors produce comparisons for Roth 401(k) decisions.
Visit www.sungard. com/planningstation for more information.

Ticking Time Bomb: Home Title Problems
The surge in home refinancing in recent years has led to a new problem for today's home sellers and refinancing customers: a logjam of clerical problems.
Title searchers and others in the real estate industry say that the refinancing explosion led to overworked lawyers, lenders and filing clerks making an increased number of errors that are still embedded in the marketplace.
Some title searchers say they've seen an increase in cases in which sellers or refinancing applicants have been unable to prove clear title because of missing or erroneously filed documents. "It will take many years to work the problems out of the system," says Stan Kaplan of Commonwealth Title in Sudbury, Mass. Kaplan says at least a third of the 40 to 50 titles he researches a month for home sales and refinances suffer from problems."You cannot sell or refinance unless your title is clean," he says.
Experts say home sellers and refinancing applicants should be diligent in researching their titles early in the mortgage application process.

Managers Think Tide Turning For Large-Caps
Whether it is a case of bullishness or bullheadedness, money managers say they remain optimistic about large-cap growth, according to a new survey. The results of Russell Investment Group's quarterly money manager poll found that 70% of managers surveyed are bullish about the prospects of the large-cap growth sector for the remainder of the year.
The results evidently reflect a feeling among managers that a shift in market momentum is on the horizon. Those sentiments come at a time when the Russell 1000 Growth and Russell Top 2000 Growth indexes were the lowest-performing segments of the Russell index family during the first two months of the year.
"To understand the managers' allegiance to what have been out-of-favor market segments, we have to consider some historical perspective," says Randy Lert, chief portfolio strategist with the Russell Investment Group. "Over the past decade the Russell 2000 Value Index has outperformed the Russell 2000 Growth Index significantly outside of historical norms, and investment managers believe that such a level of disparity between market segments may not be sustainable."
Managers had an overall positive attitude toward the market, with only 8% saying the market is overvalued. A majority, 67%, feel the market is fairly valued and 24% feel it is undervalued.
After large-cap growth, managers were most bullish about mid-cap growth, which drew a positive outlook from 63% of managers, and non-U.S. equities, which got a bullish rating from 57% of managers.
More than 100 managers participated in the survey, according to Russell Investment Group.

Criminals Using Brokers For Money Laundering
Criminals are laundering money in annuities and life insurance policies through independent brokers, according to a U.S. government study.
The report, U.S. Money Laundering Threat Assessment, said the insurance industry generates more than one-half trillion dollars in premiums and contract revenue. However, the primary business of life/health insurance companies has been gravitating heavily to the underwriting of annuities.
"The expansion from insurance policies to investment products has substantially increased the money laundering threat posed by the insurance industry," it says.
"Money launderers exploit the fact that that insurance products are often sold by independent brokers and agents who do not work directly for insurance companies. These intermediaries may have little know-how or incentive to screen clients or question payment methods. In some cases, agents take advantage of their intermediary status to collude with criminals against insurers to perpetrate fraud or facilitate money laundering."
Examples of insurance money laundering:
Rogues buy deferred annuity or life insurance policies that can be cashed out. This makes it easy to put dirty money in and take clean money out in the form of an insurance company check.
Rogues borrow against a life insurance policy that has been funded with dirty money.
Rogues can invest money in an immediate or deferred annuity and receive a clean income stream from the investment.
The report notes that insurance companies are required to have anti-money laundering procedures for nongroup insurance, including annuities and other products with cash value or investment features.
Nevertheless, it's tough for companies to ensure that policies and procedures are followed when they use agents who are not their employees.
Plus, it is difficult for both advisors and insurance companies to conduct due diligence when the annuity or insurance buyer may not be the beneficiary. It's even harder with multiple parties involved in a single contract.
The report cites complications due to the fact that the insurance industry is state regulated. State regulation, it says, focuses more heavily on safety and soundness than anti-money laundering. Only 38 states, it says, have anti-money laundering statutes; 21 have currency reporting requirements and only one state has a suspicious activity reporting requirement.
The report also indicates that investment advisors are exempt from the Bank Secrecy Act regulations.
In one instance, says the report, federal law enforcement agencies discovered Colombian drug cartels were using drug proceeds to buy life insurance policies, which were subsequently liquidated with the cash value transferred to an offshore jurisdiction. The cash value of a life insurance policy can be less than the amount invested due to surrender charges. But the fees are considered a cost by the criminals, it says.
In another instance, drug proceeds were wired to the insurer based on a broker's instructions. Once the money was received, the broker allocated assets in a variable annuity. The broker also received cash from the client in Colombia and credited the client's policy with funds from the broker's business and operating account or from commission checks. Later the money was withdrawn from the annuity.
The report reflected work by 16 government agencies.