Advisors Wrestle With Growing Pains
The financial advisory field continues to grow rapidly, but it is experiencing growing pains as firms struggle to keep up with increased demand for services, according to a recent study. The 12th edition of the Moss Adams LLP Financial Performance Study of Advisory Firms found that, in terms of assets, clients and revenues in 2005, financial advisors are enjoying a booming business.
Yet the study also concluded firms are experiencing "tremendous" growing pains. "Margins are getting squeezed and other key performance indicators are beginning to lag," says Mark Tibergien, a principal of Moss Adams LLP of Seattle.
One of the key problems: Firms have been expanding operations, but haven't yet gotten a return on their investment. Although revenue per owner increased nearly 75% from 2000 to 2005, income per owner only went up about 8% in the same period, the study says. During the same period, compensation to professionals increased about 94%, while productivity in terms of revenue per advisor decreased by about 7%, according to the research. Overall, operating costs as a percentage of revenue are going up, the study concludes.
"Advisors' firms are doing more business than ever before; they are investing in their firms to meet increasing client demand and enhance services," Tibergien says. "Returns are yet to completely catch up with these investments, however, and the result is some significant profitability challenges for advisors."
The study looked at more than 1,000 firms, ranging in size from $50,000 to $45 million in annual revenues. Roughly half the study's participants generated more than $5 million in annual revenues, indicating they were substantial in size. The study was co-sponsored by SEI Advisor Network and JPMorgan Asset Management.
Across the board, Tibergien says, firms are getting bigger, as more advisors move from a book-of-business model to a "true enterprise." That's forcing firms to invest. "Most practices have a limited or finite capacity to grow unless they add technical and professional staff," he says.
Some firms, however, have had success in outsourcing their way to expanded services. "Many firms are leveraging their broker-dealer relationship and using an outsourcing solution," he says.
In offering recommendations on how to cope with the squeeze between investments and profitability, the study stresses that firms should try to grow efficiently. Outsourcing and focusing on profitable clients are among the strategies used by successful firms, according to the study.
"Advisors, particularly small ones, are adding administrative people and other overhead to deal with less appealing clients," Tibergien says. "That is adding drag to the business."
Another key decision many advisors will have to make is whether to move from a solo to an ensemble practice. Tibergien noted that larger practices spend a lower percentage of revenues on overhead, and do a better job of attracting wealthier clients. "Owners of the more developed firms are also less involved in active portfolio management," Tibergien says.
Firms usually start to hire a chief operating officer or office manager when annual revenues reach $1 million, he adds. "There comes a point where they say it doesn't make sense to be operating totally alone," he says, noting that 26% of the study's participants operate without any support personnel.

CFP Accepting Grant Applications
The Certified Financial Planner Board of Standards is accepting applications for its grant programs through March 1, 2007. The 2007 Financial Planning Grants program seeks to provide funding to "innovative and sustainable projects that reach people and encourage them to benefit from financial planning," according to the board.
The CFP Board started the grant program last year, when it provided $875,500 in funding to 20 projects that are "reaching people with the benefits of financial planning," according to the board. Grant recipients last year included nonprofit groups, educators and CFP professionals involved in projects ranging from the development of new ways of using technology to provide financial planning to creating partnerships that provide financial planning information and assistance through libraries, high schools, colleges and community-based organizations.
For the requirements for 2007 funding applications and an online application form, visit the Web site
Among the projects funded last year included programs offering financial counseling and education for women served by domestic violence agencies, low income and homeless people, and loved ones of people with gambling problems.

One In Five Americans Are
Forced To Retire Early, Survey Finds
While many advisors are working under the assumption that many Americans may need to delay their retirements, a new survey indicates that, in reality, the opposite is happening.
Sun Life Financial released a survey in which 22% of respondents said they had to retire earlier than they expected-an average of seven years earlier.
Layoffs and corporate downsizing were most often the reason for early retirement. Other reasons for leaving work included illness, injury and family obligations.
Whatever the reason, the study found that the workers who retired early were far short of their savings goals, with 55% saying they retired before they were eligible for Social Security benefits. On average, the respondents said they planned on saving about $1 million for retirement, but were only able to accumulate half the amount when they were forced to retire.
"It appears that unanticipated, forced retirement is occurring at an alarming rate, leaving the impacted retirees unprepared," says Mary Fay, vice president and general manager of annuities at Sun Life Assurance Co. of Canada (U.S.) "The survey findings reinforce the importance of preretirees [reassessing] their long-term financial plans" with the help of a financial advisor.
Planning should include a "rainy day scenario" to deal with an unexpected retirement, she adds. Early retirement has forced many Americans to make major adjustments to their original retirement plans.
Sixty-nine percent of respondents said their retirement plans have been impacted to a great extent or somewhat by leaving work early, forcing them to reduce expenses and change their lifestyles.
Those under 55 years old were impacted the hardest, with 77% saying their plans were impacted a great deal (57%) or somewhat (20%). Those with assets amounting to less than $250,000 also have struggled, with 76% saying they were impacted to some degree.
Among the steps retirees said they've had to take because of early retirement include reducing expenses (61%), reducing vacation time and social activities (47%), collecting Social Security before they wanted to (43%) and using money from a 401(k) or IRA (30%).
Slightly more than half, 53%, cited health insurance as their most pressing obligation above and beyond normal living expenses. The online survey was conducted in May and got responses from 701 adults.

Community Foundations Struggling, Poll Says
Community foundations-the charity vehicle of choice for many philanthropic investors-are having a tough time dealing with competition and an increasingly complex investment environment, according to a recent poll.
The poll, sponsored by SEI, found that community foundations view their biggest challenges to be competition for donations (46%), low overall brand awareness (46%), overworked staffs (42%) and rising healthcare and insurance costs (35%).
Respondents also said investment committees are spending an increasing percentage of their time researching complex investment products and making manager selection and asset allocation decisions.
"This poll supports a trend where many community foundations are reevaluating the traditional roles of their internal staffs and investment committees, as well as their external services providers," says Carolyn McLaurin, vice president and managing director of SEI's nonprofit group. SEI is a provider of outsourced asset management, investment processing and investment operations solutions.
Illustrating the operational crunch community foundations are facing, 69% of foundations surveyed said their internal staffs are spending more time on marketing and servicing current donors, and 30% said a lack of time and resources is impacting their ability to increase returns.
Many are dealing with the problem through third parties. Slightly more than half of respondents said they use an investment consultant, and 42% said they use a third party to select asset managers.
"In a much more difficult environment for nonprofits, many community foundations are moving toward new approaches that reallocate responsibilities and enable each role to maximize its core competency," McLaurin says.

Retirement Planning Software Is Upgraded
OppenheimerFunds Inc. has announced a major upgrade to its Retirement Income Manager software.
The original version of this free, stand-alone, Web-based software program provided advisors with a quick, concise overview of a client's retirement income situation. While it did a credible job given the constraints placed upon the developers, there were a few noteworthy omissions, such as the ability to model the preretirement period and an inability to compare two plans side by side.
Version 2.0 of RIM addresses these deficiencies and adds additional capabilities. "We have intensified our efforts in helping baby boomers in the 'Transition Ten' years-the five years before retirement and the five years into retirement-to generate the lasting income they need to maintain the lifestyle they want," says John Davis, vice president for retirement plans at OppenheimerFunds.
Enhancements include the ability to model preretirement savings up to ten years prior to retirement, the addition of new asset classes (REITs and commodities), the ability to model real estate holdings, control over the order of spending among tax categories, the ability to include reverse mortgages in the scenarios and controls that enable the advisor to create custom model portfolios by asset class.
"We added these enhancements, being careful not to add complication for the average user," says Davis. "The basic navigation is pretty similar to the original version, while the features for 'power users' are now in a second set of tabs." For further information, visit:

FPA Official Resigns
Neil Simon, the director of the Financial Planning Association's Government Relations Department in Washington, D.C., is resigning from the post effective January 31. Simon accepted what he characterizes as "an attractive offer" to become vice president of government relations for the Investment Advisor Association, a Washington D.C.-based advocacy organization.
"Neil has been at FPA for a little more than three years, and has played an important role in FPA's efforts to strengthen its presence in Washington," said Duane Thompson, managing director of FPA's Washington office. "We are sorry to see him go."

Hybrid Vehicle Tax Credit Running Out Of Gas
Environmentally conscious clients who buy a new Lexus or Toyota hybrid automobile after March 31 will get a smaller federal income tax credit than those purchasing it by that date. The credit for the Lexus RX 400h luxury SUV, for instance, is $1,100 through March 31 but falls to $550 for purchases between April 1 and September 30. For the popular Toyota Prius, the figures are $1,575 and $787.50, respectively. There will be no credit for any Lexus or Toyota hybrid beginning October 1, 2007.
The Energy Policy Act of 2005 created this tax incentive for buyers of new (not used) alternative fuel vehicles including hybrids, which combine a combustion engine and electric motor to boost energy efficiency. Each qualifying model's credit, which offsets federal tax dollar for dollar but cannot be taken by clients subject to the alternative minimum tax, is set by the Internal Revenue Service based on the vehicle's fuel economy, according to CCH Inc., a tax-information provider in Riverwoods, Ill. A list of all qualifying models and their credits may be found at
What the client pays for the car doesn't affect the size of his tax break, but when he buys it can. Only an automaker's first 60,000 qualifying vehicles come standard with the full credit. When sales reach that mark, the credit for every one of the manufacturer's models gradually falls until it is eliminated. Toyota, which makes Lexus, recently became the first automaker subject to the phase-out. Honda is most likely to be next - possibly by mid-2007 - with sales of 28,408 vehicles through September 30, 2006.
An archive of IRS news releases about the hybrid vehicle tax credit is at,,id=161076,00.html.

Johannessen Named FPA President-Elect
The Financial Planning Association has named Mark E. Johannessen as its president-elect for 2007. The appointment means that Johannessen will be the organization's president in 2008. He is managing director of Sullivan, Bruyette, Speros & Blayney Inc. in McLean, Va., which is part of Chicago-based Harris Private Bank.
Johannessen served on the FPA Board of Directors from 2003 to 2005 and participated in the development and implementation of the FPA's pro bono services program following the September 11, 2001, terror attacks.
A graduate of the University of Utah, Johannessen has served as chair of the Financial Planning Week Task Force, chair of the Hurricane Relief Center for Planners Task Force, chair of FPA Business Solutions 2007 and as a participant in the Membership Advisory Group. He led the FPA of National Capital Area as chapter president and was a member of FPA's Chapter Leadership Resource Council and Government Relations Committee.
The FPA also has named three new members to the FPA board: Michael Busch, president of Vogel Financial Advisors LLC in Dallas; Bonnie A. Hughes, president of A&H Financial Planning and Education in Kennesaw, Ga.; and Bill Moran, vice president of financial planning industry relations with Ameriprise Financial in Minneapolis. The new members fill three-year terms starting January 1.

New Fund Sees An Opening In CEFs
Cohen & Steers Inc. has launched the Closed-End Opportunity Fund in an initial public offering that raised about $475 million.
The fund seeks total return by investing in the common stock of closed-end funds that "invest significantly in equity or income-producing sectors, strategies and securities." The fund is managed by its subsidiary, Cohen & Steers Capital Management.
In the fund prospectus, Cohen & Steers called closed-end funds a "compelling" investment opportunity, partly because of a rising demand for income, growth in the number of closed-end fund new issues since 2001, a wide variety of high-income equity and fixed-income strategies and a lack of research and institutional investment in the market.

Dividends Keep Attracting Attention, Study Finds
Investors are putting a higher value on dividend-paying stocks, according to a new survey.
Eaton Vance Corp.'s Eighth Annual Investor Study found that 45% of surveyed Americans said they've increased their investments in dividend-payers over the past three years, compared with only 16% who said they've decreased dividend investments.
Overall, 73% of Americans surveyed agreed with the statement, "Firms that pay dividends tend to be predictable cash generators, and healthy dividends are a sign of financial strength."
Two-thirds of investors, 69%, also preferred companies that return cash to shareholders rather than buying back stock. More than half of investors, 58%, say they currently invest in dividend-paying stocks.
There is some discrepancy in the value investors place on income depending on age group.
Nearly half of seniors, 45%, say they depend on stocks primarily for income and capital growth, or just income. About two thirds of Generation Xers and baby boomers say they invest in stocks primarily for long-term capital appreciation.
In other findings, the survey reflected the general decline of defined benefit plans in America. More than half of investors, 55%, said that a 401(k) plan is their primary retirement savings vehicle. Only 25% said their primary retirement nest egg rests in a pension plan or self-directed brokerage account.
About 74% of GenXers are saving for retirement primarily through a 401(k) account.
When asked for the types of investments they prefer, GenXers, by a margin of two-to-1, showed more preference than seniors for assets that provide growth of capital. Baby boomers are mainly focused on capital asset growth, while 58% of seniors prefer income-generating assets.
When investing for income, seniors and baby boomers are most likely to choose stocks as the main investment, while GenXers tend to pick real estate.
The telephone survey took information from 1,209 U.S. residents 25 years or older with more than $50,000 invested in qualified retirement plans and nonqualified investments.