FPA Gets Tough On Capitol Hill With Lobbying And Advertising

Fearful that the lack of action on the pending "Merrill Lunch rule" has already given brokers a green light to pose as investment advisors, the Financial Planning Association has taken its case against the rule directly to Capitol Hill.

In a full-page ad in Roll Call, a hallowed Capitol Hill newspaper delivered directly to lawmakers' doors each week, the FPA directs the Securities and Exchange Commission to "do the right thing for investors. Withdraw the rule."

The ad is a first for the FPA. "Typically, we don't go to Congress when the SEC proposes something we don't like, but if they're not responding and this is going on for two and half years, we don't mind expanding our audience and communicating directly to lawmakers," says Duane Thompson.

The proposal, controversial since its introduction in 1999, would create a permanent exception from investment advisor registration for brokers, if they term their advisory business "incidental."

Wall Street firms "would do away with the strict disclosure and fiduciary standards that protect investments ... by exempting themselves from it when offering financial planning to their brokerage clients," reads the ad, which cost the FPA $8,000.

Further frustrating the FPA is the fact the SEC made it clear in the proposal that it would not bring enforcement action against any brokerage firm that began offering advice without registering its brokers. Much of the industry has taken the agency at its word, with firms spending tens of millions to tout their burgeoning "advice" offerings.

Undoubtedly, the SEC has been busy dealing with corporate accounting fraud, continuing Wall Street analyst scandals and five-year stock market lows, Thompson says. "But we've never heard anything positive from the SEC in the sense that there needs to be substantive change beyond some small disclosure. To us, the only way to fix this is to get rid of a bad idea."

The worst thing that could happen is that the SEC lets the proposal just idle, with brokerage firms adopting it anyway. At least if the agency passed the rule, some entity, though not necessarily the FPA, could litigate to overturn it, Thompson adds.

Thompson and former FPA President Roy Diliberto were planning to meet with several SEC commissioners on September 18. "I can't believe that, with all the conflicts that have been exposed on Wall Street, the SEC is still clinging to this," Diliberto says.

SunAmerica Firms Rechristened By AIG

SunAmerica Financial Network is history. Parent American International Group, the nation's largest insurance company, is changing the name of the broker-dealer network to AIG Advisor Network, which encompasses six separate broker-dealers including Royal Alliance Associates, SunAmerica Securities and FSC Securities.

"We now have a business and product model where the market will go. This will remove the redundancies and consolidate the various functions of the network," says John Graf, vice chairman of AIG SunAmerica.

The six brokerages-which have about 8,900 reps-will retain their individual entities for now. However, AIG's name will now be prominently featured in the marketing and advertising of the six brokerages. Recruiting will be centralized. James Cannon, president of Sentra/Spel-man, will be in charge of recruiting all new reps. "We think we have a firm that is very attractive to a wirehouse producer," Cannon says. The average annual production of new recruits coming into the network is $175,000, he said. AIG officials say that wirehouse reps, at that level, are often pushed out, but can be profitable with one of the AIG firms.

The financial services giant is also expected to build a platform for registered investment advisors who don't hold securities licenses. "We can offer multiple compensation models that make sense," says Mark Goldberg, president of Royal Alliance Associates.

Pacific Life Creates No-Frills Broker-Dealer

Think of it as broker-dealer services lite. In essence, that is the concept behind a new broker-dealer subsidiary that was to be launched by Pacific Life Insurance Co. in late September.

The new subsidiary, Contemporary Financial Solutions (CFS), will be designed to provide a slimmed-down menu of offerings for advisors who don't need a full array of services.

One of the key target groups of the new company will be advisors who are looking for an easy way to exit the business. CFS will allow these advisors to de-register as advisors by acting as caretakers for their firms during the exit transition. The arrangement will give advisors the chance to retire, yet continue to receive a stream of income for several years or more, says Vince Cloud, who will be executive vice president of the new company. Cloud is also executive vice president of Mutual Service Corp., Pacific Life's largest independent broker-dealer subsidiary.

"They can move their license to CFS for two or three years while they exit the business," Cloud says. "We will service and support their accounts, to keep them alive and active."

The CFS niche will also include accountants, attorneys, insurance professionals and others who are looking for a limited, but not full-blown, menu of broker-dealer services, he adds. "These would be people who want broker-dealer affiliations, but don't have production that's big enough to get on the radar screen," Cloud says.

CFS will contract most of its broker-dealer functions out to Mutual Service Corp., but will operate as an independent company, Cloud says. The firm may also find it fits the needs of advisors just getting into the business, he adds.

CFS will not offer many brokerage services, he says. The broker-dealer's services will be limited to mutual funds, annuities, life insurance and direct investment products.

Another aim of the niche strategy is to give smaller clients a higher level of service than they'd typically get at a large broker-dealer, Cloud says.

"There are a significant number of people who have a need for limited broker-dealer services-tons of them," Cloud says. "These professionals don't get the right level of treatment because they're not a $2 million producer."

Investors Still Reeling From One-Two Punch

Fear and distrust have again turned up as the central themes in an investment survey.

In the latest poll, 85% of financial advisors say their clients moved money out of the stock market and into conservative investments as a result of September 11 and accounting scandals. Bank accounts, fixed-income alternatives and real estate were the favored alternatives to the stock market, according to the survey.

The survey of 939 Farmers Financial Solutions registered agents also found that 62% believe government efforts to protect investors and prevent accounting malpractice have had no effect.

The e-mail survey was conducted from August 20 through September 3.

"Investors are still reeling from the one-two punch they took over the last year," says Brian Cohen, president of Farmers Financial Solutions. "A roller coaster of market volatility and distrust has created an environment where investors are looking for someone they can truly depend on to help them determine their appropriate investment strategy."

Insurance Agents, Brokers Top Annual List Of Scandals

Talk about dubious distinctions. Independent insurance agents have once again earned the top spot in the annual list of leading securities scandals, and this year for the first time have been joined by unsavory stock brokers.

"Record-low interest rates and a raging bear market are taking their toll on gullible investors and opening the door for unscrupulous and naive salespeople," says Joseph Borg, president of the North American Securities Administrators Association, which compiles the list of "Top 10 Investment Scams" each year.

The news isn't good for insurance agents, who were involved in hundreds of regulatory cases from Washington state to Florida, lured by high commissions into selling fraudulent investments or into selling securities, which they're not licensed to market. "Commissions are the draw," says NASAA spokesman Ashley Baker. "We're seeing this in greater numbers than ever before."

Arizona agents were found guilty earlier this year of bilking investors out of $20 million, using high-risk brokered CDs, real estate deals and equipment leases. In another case, Ohio regulators found agents selling fictitious limited partnerships to hundreds of investors who were promised double-digit returns.

The declining stock market also caught up to brokers, who won the No. 2 spot on regulator's 2002 scam list, receiving their own stand-alone category for the first time. "Long story short, the bull market covered a multitude of brokers' sins now being revealed by the bear market," Baker says.

The New York attorney general's office took action against seven brokers earlier this year for bilking hundreds of elderly out of more than $12.5 million in return for "risk-free" 14% returns. North Dakota regulators, tipped off by an investor who received conflicting account statements, found that two H.D. Vest brokers were falsifying statements to cover up hundreds of unauthorized trades and unsuitable option contract recommendations. The firm agreed to repay investors $3.2 million.

Some Advisors Are Missing The Internet Boat

Many financial advisors fail to understand the Internet's growing importance to high-net-worth individuals, according to a new report from Schwab Institutional.

The report cites a survey by Lifespan Millionaire Insight Monitor that says 90% of millionaire investors over 50 years old (those with investable assets of more than $1 million) use the Internet at least once a week and spend an average of 9.5 hours per week online.

Schwab's report, "The Online Opportunity: Building A Competitive Presence," notes that many independent advisors have been slow to develop company Web sites.

The report says that crucial elements advisors should include on their Web sites are account information and access, performance reporting, account aggregation, investment research and market data, communications tools, security-assurance tools and services, site development tools, site maintenance tools and usage tracking.

The Internet was once perceived as a threat to advisors, but the report predicts it "will prove to be one of the most important means by which advisors attract and retain high-net-worth investors."

The report is available to Schwab Institutional customers at www.schwabinstitutional.com.

Women Bring Home The Bacon

Consider these statistics from MetLife Financial Services in New York:

Women earn more than their partners in nearly 33% of all married couples, making approximately 10.5 million women the primary breadwinners in their households.

Women control approximately 80% of household spending.

Women own 66% of all home-based businesses.

Women make up 47% of the investing public.

So it should come as no surprise that dual-income households increasingly are looking for financial advice. More than half the planners surveyed by MetLife have seen an uptick in two-income families over the past five years.

The MetLife survey also found 40% of respondents say they find women save earlier for retirement than men, while 31% put men ahead of women.

Women's top planning goals are retirement planning and living on one income following a divorce or death of a partner. Nearly two-thirds (64%) of the planners cited retirement planning as their female clients' top goal, followed by living on one income (23%).