CFP Board To Punt On The F Word
Barton C. Francis, chairman of the CFP Board of Governors, says the word "fiduciary" has so many meanings it could cause confusion if included in the revised ethics code, which he expects to be released for comment in June or July. His comments came in response to the National Association of Personal Financial Advisors (NAPFA), which has argued that all certificants should be held to a fiduciary standard.
Different states do interpret the word fiduciary in distinctly different ways, several experts agree. "The term 'fiduciary' has many different meanings under the law, so even though we may agree with certain concepts and facts, we can't just drop it in" the code of ethics, Francis says.
In a May 5 letter to CFP Board of Standards CEO Sarah Ball Teslik, Peggy S. Cabaniss, chairwoman of the NAPFA board of directors, says the CFP ethics code should require "that any financial advisor giving financial planning advice adhere to a fiduciary standard to place the client's interest first." In the letter, Cabaniss says that without adopting a fiduciary standard in the ethics code, CFP certificants will be operating under two different standards. She notes many CFP certificants are brokers.
"At the moment, the only guarantee that an individual client has that his or her advisor is adhering to a fiduciary standard is if the advisor is an RIA or a member of NAPFA," she wrote. "By contrast, a holder of a CFP might be a fiduciary, and might not be a fiduciary. The public is confused, and the CFP certificant must go through an additional layer of explanation about where his loyalties lie."
Teslik could not be reached for comment. Francis says he's hopeful that the revised code will be released for public comment in June or July.
While Francis says he agrees that there needs to be more clarification for consumers about what rules advisors are using, he says including the word "fiduciary" in the ethics code would be legally problematic. "There are a number of people who want to see the word 'fiduciary' in there," he says. "But the word itself, if not put into context, has all different kinds of meanings in all different kinds of locations." Nonetheless, he says the issue has been discussed as part of the revisions. He noted other organizations, including the FPA, have provided input on the issue. "I think it will be apparent in reading the revision that the CFP Board discussed this as well as other matters," he says.
The fiduciary standard issue has been a controversial one because the SEC, after years of wrangling with the issue, recently approved a rule that exempts brokers from the Investment Advisers Act of 1940 under certain conditions. Among the provisions of the Act is that advisors operate under a fiduciary standard that places clients' interests first.
Advisor organizations such as NAPFA, whose membership consists of fee-only advisors, and the FPA have argued against the rule because they say it it results in advisors operating under different standards that confuse consumers. Cabaniss says NAPFA is speaking up on the issue because of concerns the revised CFP ethics code will be "watered down." She says in public comments on the issue, Teslik has been "pretty wobbly about the issue of being a fiduciary."
Some see the CFP Board's actions as driven by its own revenue concerns, not public protection. "That, frankly, sounds like an excuse to me," says Roy Diliberto, RTD Investments CEO. "The essential legal principle of placing the clients' interests first would serve all of us. Of course, if CFP Board adopted the "F" word, they take the risk of large companies forcing their CFP certificants to give up the mark. Wouldn't it be refreshing if someone on the Board acknowledged that elephant in the room?"
As the CFP mark continues to move toward a place as the defining mark in the financial planning profession, Cabaniss says, the code of ethics should be strengthened. "I don't see how we are going to be considered a profession until we do hold to a fiduciary standard," she says.

Raymond James Demands Cheaper VA Products
Raymond James Financial is requiring its variable annuity carriers to make their products cheaper, easier to understand and more consistent in the commissions charged. The company says it will require the restructuring of variable commissions by August, after which its nearly 5,000 financial advisors will no longer offer variable annuities from carriers that do not meet the new requirements.
The firm says it intends to offer alternative pricing and reduced client costs without impacting standard or optional benefits. "Once our requirements are met, Raymond James financial advisors will be able to recommend the same annuity features and benefits from leading insurance companies as those offered by competitors-simply at a lower cost to the client," says Raymond James President and Chief Operating Officer Chet Helck.
The firm says it expects the change will have a short-term impact on revenue, but will lead to higher client retention and client assets in the long run. If other brokerages follow Raymond James' lead, the effects on the insurance business and variable annuity market could be far-reaching.
"Our providers have been supportive," says Scott Stolz, president of the firm's insurance and annuity general agency. "We are confident they appreciate the issues addressed by Raymond James' product design requests and that most will meet our deadline."
The move comes at a time when the SEC and the NASD are cracking down on fraudulent and unsuitable sales of investment products to senior citizens, including the sale of variable annuities. In the company's home state of Florida, the two regulatory bodies have teamed with state regulators to scrutinize investment product marketing that targets seniors.

More Clients Need Insurance Help
Financial advisors are facing a market that has an increasing need for help on health care and other insurance needs, according to a new report.
The report by Tiburon Strategic Advisors looks into the insurance product and risk management market, and what may lie ahead for advisors and clients who will deal with the market.
Noting that risk management is one of the four main components of wealth management, the report says advisors are in a market consisting of 76 million aging baby boomers-all of whom account for one-third of the U.S. population.
"This number is expected to increase, as over half of the population will be over age 45 by the year 2010," the report states.
It is also a market, according to the report, where the top ten insurance companies control over half of total insurance assets. There are currently more than 837,000 insurance agents, brokers and service employees, according to the report.
Advisors, meanwhile, are serving a consumer market that is struggling with health insurance and other risk management issues.
Among the facts cited by the report:
About 45 million people do not have health insurance.
Only 60% of businesses offer health insurance to their employees, but 90% of health care policies are purchased through employers.
About 20% of Americans under the age of 65 are not eligible for employer health insurance programs, and 13% of those who apply for health care policies are turned down.
Disabilities are responsible for 48% of mortgage foreclosures.
One out of six consumers will require long-term care within their lifetime.
Only 6% of consumers own long-term-care insurance, 70% of which are women.
About 48% of Americans more than 65 years old will spend time in a nursing home in their lifetime, while 23% of all 65-year-olds will spend a year or more in a nursing home.
Annuity sales, the report notes, have reached $152 billion and there are currently $1.17 trillion in annuity assets. The majority of new annuity investments-about 80%-are variable annuities.
The report also notes that insurance distribution channels are expanding. There are six emerging distribution markets consisting of retail banks, full-service brokers, discount brokers and online financial advisors, independent advisors, other financial advisors and upscale competitors, according to the report.
About 69% of brokers are currently licensed to sell insurance, and 22% of independent reps have previous experience in insurance sales.

Calling Young Advisors
The Financial Planning Association is launching a conference for the up-and-coming segment of its membership.
Called NexGen: 2006: A Communities of Practice Conference, the event will be held August 18-20 in Estes Park, Colo.
It's described by the FPA as an affordable conference for those just starting out in the planning profession, and will offer two concurrent session tracks focusing on career development and the technical aspects of financial planning.
Advisor Paul Fain will conduct the opening general session, titled, A Practice 31 Years in the Making. A second general session will focus on best practices in asset management.
A joint educational session will offer the views of a panel of financial planning business owners, who will talk about "the challenges they face as owners and managers of talent, and the skills attendees need to hone to be more successful," according to the FPA.
Registration before June 9 is $125 for FPA members and $195 for non-members. More information is available at

Rydex Repaying Funds Lost in Refco Fiasco
Rydex Investments has sent a letter to advisors with clients who have invested in its SphinX fund, telling them that Rydex has decided to fully repay funds frozen or lost as a result of the bankruptcy of the giant commodities brokerage firm Refco.
The funds, estimated at between $18 million and $22 million, will come from Rydex's own resources, according to a letter sent to advisors.
Rydex said in the letter that it was still working on the mechanics of how this "contribution" would work. The amount of the SphinX fund's assets frozen in bankruptcy are estimated at about 11% of total assets.
In a letter to advisors on April 26, Rydex told advisors of a proposed settlement "to transfer a sizable portion of the assets back to the creditors of Refco. Rydex was not a party to the settlement and was not consulted regarding the settlement," the letter continued.
"Should this proposed settlement be approved by the Bankruptcy Court, the assets released to Rydex SphinX shareholders would be less than the full amount of the 11% bankruptcy holdback-a situation that is simply not acceptable to the owners and management team of Rydex Investments."
While Rydex didn't say precisely when investors would be made whole, it clearly didn't want investors to wait for a resolution via litigation.
The Refco bankruptcy, triggered by the embezzlement of more than $400 million by CEO Philip Bennett, managed to ensnare some of the most sophisticated investors in the world, including the cocky, fast-talking, commodities-touting James Rogers, who was believed to be owed more than $360 million by Refco. Refco's bankruptcy filing shocked Wall Street since it happened less than two months after the firm went public.

Millionaires Hitting Brakes On Optimism
In a possible reaction to soaring gas prices, millionaires are expressing their lowest level of optimism since November, according to a recent survey.
The Spectrem Group announced that its Millionaire Investor Index (SMII) fell three points in April, the second month in a row that index has declined.
The index still remains at a "mildly bullish" level, but the back-to-back declines are in stark contrast to a four-month run of increases that began in November and took the index to within two points of its all-time high.
In a separate survey, Spectrum reported in April that the number of millionaire households-those with $1 million or more in investable assets aside from primary residence-in the U.S. has been booming, with an 11% increase from 2004 to 2005.
Spectrem said its affluent investor index-which measures the optimism of those with between $500,000 and $1 million in investable assets aside from primary residence-has followed a similar pattern, dropping in both March and April.
Those surveyed for the SMII most frequently cited stock market conditions (14%) as the factor most influencing their investment decisions in April.
Spectrem, however, says that the April drop came at a time when rising gasoline prices-topping $3 per gallon in some regions-were the nation's top news story.
"It seems clear that a question more focused on news-our 'news event' question is scheduled next for the May index-would point to energy costs as a driver of the April decline," says Spectrem Group President George H. Walper Jr. "With the broader affluent population mirroring millionaires' falling optimism, whatever forces are at work appear broad-based and perhaps trend-defining."

Search Firm Forms Advisory Division
Stanton Chase New York-an arm of the Stanton Chase International executive search firm-has announced the creation of a financial advisory division.
The firm says it will recruit high-end financial advisors for clients that include brokerage houses and other financial services firms.
"Stanton Chase's financial advisory division will work with their clients on a retained basis to identify and partner with the top talent in the industry," says Andrew Sherwood, the firm's managing director.
The advisory division will be headed by Senior Director Dewey Raymond, a 24-year veteran of the recruiting industry, according to Stanton Chase.
The firm says it will provide advisors with administrative, research and marketing platforms to help them through the transition period between firms.
In addition to its New York City headquarters, Stanton Chase New York has offices in Connecticut and New Jersey and serves the greater New York metropolitan area.
Stanton Chase International says it is the seventh-largest executive search firm in the world and has 60 offices in 40 countries.

Housing Correction Predicted
Ninety-three percent of lenders in a survey expect a housing correction to result in real estate prices dropping 10% to 20% across the country, with the Northeast and West likely to be hardest hit.
"Lending Climate In America," done quarterly by Phoenix Management Services Inc., based in Chadds Ford, Pa., also found that two-thirds of surveyed lenders think the United States has a real estate bubble, with half believing it has already begun to burst or will burst in the next several months.
"A year ago, 46% of lenders believed we were in a housing bubble. Today, that number has climbed to 66%-and many of them believe a correction is imminent and could lead to a drop in housing prices of up to 20%," says Michael E. Jacoby, managing director and shareholder of Phoenix Management.
When asked which area would be most affected by a housing correction, 30% said the Northeast; 27%, the West; 14%, the Southeast; 5% each, the Mid-Atlantic, the Midwest or all regions equally; 5% were split between the Southwest and the Northwest; and 9% said there isn't a housing bubble in the United States.
Survey respondents included 92 lenders who completed a written survey in January and February.