Congress Grills "Senior" Advisor Designations

Members of the Senate Special Committee on Aging grilled the financial services industry on September 5 over its use of "alphabet soup" credentials to defraud senior investors, and vowed to write legislation cracking down on abuses, especially the Certified Senior Advisor (CSA) certification.
"Our seniors should not have to worry that the letters after an advisor's name are nothing more than a marketing ploy," said Committee Chairman Herb Kohl (D-Wis.). "We can't tell the difference in any names up here. Can you? Our seniors can't either," said Kohl as he waved at a poster containing the wide cross-section of designations financial service professionals and salespeople use.
"While it's true that many financial advisors hold reputable credentials, many more do not," said Kohl.
While three state regulators and an attorney general testified about the hundreds of abuses seniors are reporting, the industry is bracing for more bad news: The Securities and Exchange Commission (SEC), in conjunction with state securities regulators, will release findings from a joint exam of "free lunch" investment programs marketed to seniors by so-called "senior specialists."
"Our findings show that seniors are often subject to fraud and other securities violations, often by people with misleading certifications used to gain seniors' trust," SEC Chairman Christopher Cox said.
Cox, whose staff at the SEC has brought four cases against operators defrauding seniors since July, said he would make further regulatory and legislative suggestions after meeting with staff to discuss findings of the joint "free lunch" sweep. Cox said his own mother was harassed by scam artists trying to sell her products "that weren't just unsuitable, but were harmful to people in my parents' situation."
The use of the myriad designations that suggest financial expertise to work with seniors "is just plain confusing to everyone," Cox added. "One of the main problems is that there are so many different organizations issuing even legitimate designations."
State securities regulators are readying a model regulation imposing fines and jail terms on those using a designation to harm or defraud seniors or any investors. Cox and others suggested that fines and jail time should also apply to executives at the insurers, banks and broker-dealers that employ such scam artists.
The CFP Board, which oversees 55,000 certificants, did not testify at the conference. But it submitted a written statement saying that its leadership would support curbs on the recent proliferation of questionable financial designations. The group also announced it has formed a task force to determine if its own continuing education requirements encourage high-level financial planning.
Financial Planning Association President Nicholas Nicolette said he "commended the committee for shining a spotlight on the alphabet soup of designations." He said that the FPA supports the CFP mark "as the highest standard of education, examination, experience and ethics."
The Certified Senior Advisor designation drew much ire during the hearing. Committee member Sen. Gordon Smith (R-Ore.) said he had one of his staffers take the CSA exam. She quickly passed and can now say she is a Certified Senior Advisor. "I think she's brilliant, but does she have any expertise to work with seniors?" the senator asked.
Edwin Pittock, president of the Society of Certified Senior Advisors, said the group would on January 1 require its certificants to disclose that the CSA is only educational in nature.
But Sen. Claire McCaskill (D-Mo.) expressed grave doubts that this would be enough to end abuses of seniors. "In looking at your marketing materials, you say they can use your certification to show people 'how to invest without risk' and 'grow in a volatile stock market without giving back gains,' but very few chapters involve any financial education. You say clergy, CPAs, nurses, doctors and even grave site directors can benefit from this. I think there are people who are taking advantage of seniors here, and there are things we have to do about it."
-Tracey Longo

Live Long And Prosper

Many people will live longer than expected, which can be both a pleasant surprise and a financial problem if they don't plan properly. Unfortunately, many pre-retirees significantly underestimate the length of their retirement years and how long their savings will need to last, according to a recent report from the Fidelity Research Institute in Boston.
The institute's research shows pre-retirees believe they will need to make their retirement savings last until an average of age 83. Yet, estimates today give a healthy 65-year-old man a 24% chance of living to at least 90 and healthy women a 35% chance of reaching that same age. This discrepancy highlights how many pre-retirees underestimate their life spans, and therefore risk outliving their assets.
The report, "Structuring Income for Retirement," notes that pre-retirees will face a widening guaranteed income gap as Social Security and pensions play declining roles in their nest eggs. It also describes how to manage this risk by assessing combinations of three basic lifetime income options.
The first is a lifetime income annuity (LIA), with fixed or variable payments, that provides lifetime payments to the purchaser and represents longevity insurance. The second is a variable annuity with guaranteed living income benefits for life and the potential to both increase future payments and to leave some bequest if the owner dies "prematurely."
The third is a traditional systematic withdrawal plan (SWP) from a portfolio that invests in stocks, bonds and cash based on a self-chosen asset-allocation mix. The withdrawals, made at set time periods, are usually an established percent of total assets.
Each investment option plays a different role in portfolios designed
to provide structured retirement income. For example, the SWP option should be a significant income source when hedging against inflation is a big concern. If providing a fixed payment every month-regardless of how markets perform-is important, the LIA may be most suitable.
The report suggests that retirement income plans should not only consider asset allocation among stocks bonds and cash, but also "product allocation" such as income products that can offer longevity insurance, inflation-hedging and assured payment streams. At the same time, investors must realize the trade-offs that come with balancing goals such as income distribution, inflation protection and bequest
targets versus investment control,
liquidity, and fees and costs.

Fidelity Planning Income Annuity

In less than two years, assets in the low-cost Fidelity Personal Retirement Annuity (FPRA), designed for asset accumulation, have topped $4 billion. And the Boston-based financial giant is planning to launch a companion income-oriented annuity in the next several months, according to Jeff Cimini, executive vice president of Fidelity Life Insurance Co.
The stunning sales of this no-load vehicle indicate that, contrary to conventional wisdom, some annuities are bought, not sold, especially by baby boomers wrestling with the realities of retirement planning. Many have already maxed out their 401(k) plans and are seeking additional tax-deferred vehicles.
"The 2005 product is principally an accumulation product with
no bells and whistles," Cimini says. "Simplicity and low cost resonates with customers, many of whom work with Fidelity, but also with fee-based advisors."
Cimini says FPRA sales have boomed with "only a little marketing" to participants in 401(k) plans where Fidelity is the provider. More sales have been generated by users of its software program, Fidelity Retirement Income Advantage.
FPRA boasts lean management fees of 25 basis points and average fund expenses of 70 basis points.

Mansueto To Receive Award

Morningstar founder and CEO Joe Mansueto was named as recipient of the fourth annual Skip Viragh Award.
The award, which will be presented on October 8 at the Financial Advisor Symposium in Chicago, was established in 2004 in honor of Viragh, who founded Rydex Investments and died in 2003.
Mansueto founded Morningstar in 1984 after working as a securities analyst at Harris Associates. Over the next two decades, he built Morningstar into a leading provider of software, print and Web-based services and products for both financial
advisors and individual investors.
Winners of the Skip Viragh Award are chosen based on innovative contributions that advanced the financial advisory profession. Last year's award went to dual winners, Harold Evensky and Lynn Hopewell, two advisors whose research was central to financial planning's development.

Pomering Succeeds Tibergien at Moss Adams

Moss Adams LLC has appointed Rebecca Pomering to succeed Mark Tibergien as head of its business-consulting unit. In addition, Philip Palaveev was named a principal at the firm.
Although the move follows Tibergien's decision to leave Moss Adams after 13 years, Tibergien says that even before he accepted
an offer to become CEO of Pershing Advisor Solutions, he had planned to step aside and name Pomering as his successor so he could work full time with clients and spend less time on administrative and management issues.
Pomering has spent virtually her entire career at Moss Adams. She joined the firm in 1997 after spending six months as a controller of a root beer microbrewery and was named a principal of the firm in 2003 at the age of 29.
In her new position she will oversee 50 consultants, of whom 15 work with financial advisors. Other business units at Moss Adams that will report
to Pomering include its broker-dealer and custodian-auditing and consulting businesses, as well as its hedge-fund auditing business.
Pomering doesn't expect major changes in Moss Adams' consulting operations. However, she says they will become more selective in the number of speaking engagements they accept and try to spend more time working on one-on-one consulting engagements with clients.

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