DeVoe says that RIAs are getting more sophisticated in their M&A deals, which include a small but increasing number of management buyouts. He's also seeing more interest in doing deals in order to cut costs and bolster finances in a challenging environment.
Unsafe Harbor
The point of being an independent financial advisor is that you don't have to work for the man (even if you are affiliated with a broker-dealer or RIA firm). But under proposed legislation in Congress, advisors might lose their "independent contractor" status and instead become employees of their affiliated firms.
In late July, Rep. Jim McDermott (D-Wash) introduced legislation in the House that would eliminate Section 530 of the Revenue Act of 1978, the so-called safe harbor provision that lets employers classify workers as independent contractors rather than employees as long as they meet specific criteria.
Critics contend that it's a loophole used by some employers to avoid paying employment taxes and workers' compensation and benefits.
"Our industry isn't a specific target, but we're concerned that it could apply to financial advisors via the law of unintended consequences," says Dale Brown, president of the Financial Services Institute, a membership group representing independent broker-dealers and advisors. "We're concerned this could give the IRS an entrée to question the independent contractor status of advisors."
Should independent advisors become classified as employees, Brown says, it would force broker-dealer firms to pay Social Security taxes, provide benefits and assume liabilities for these advisors. He notes it would also require additional personnel and compliance costs that could be a financial burden for many small- and midsize independent broker-dealers.
It's thought that President Obama favors ditching the safe harbor provision, given that he co-introduced a Senate bill in 2007 to eliminate it.
Advisory Industry Pioneer Jailed
During an emotional court case last month, a federal judge sentenced 71-year-old former planner Judith Zabalaoui to 97 months in prison for using a Ponzi scheme to embezzle millions from clients in the New Orleans area.
Citing the severity of the offenses, Federal District Judge Mary Ann Vial Lemmon also ordered Zabalaoui to pay $3,255,000 in restitution and a $100,000 fine. Zabalaoui also will be under federal supervision for three years after her prison term.
Zabalaoui founded the financial advisory firm Resource Management Inc. in Metairie, La., in 1974. By the time she left the firm in 1991 to set up her own business, Zabalaoui, a certified financial planner, was regarded as one of the pioneers of the financial advisory profession and among the first advisors to transition to a fee-only model in the early 1980s. However, she never joined the National Association of Personal Financial Planners and allowed her CFP license to lapse several years ago. Resource Management has denied any involvement with Zabalaoui since she left the firm and has not been accused of any wrongdoing.