Pershing Enters Custodial Services Business

The advisor custodial services market is about to get more crowded as Pershing-the nation's leading clearing firm-makes a push to compete with the likes of Charles Schwab, Fidelity and TD Waterhouse.

Pershing says it plans to aggressively pursue the custodial market as a way to get the advisors of its broker-dealer clients on one platform. As it stands now, company officials say, many advisors are placing their commission-side assets with Pershing and their fee-based business with another custodian.

"They [client broker-dealers] are interested as well as we are in getting these assets consolidated into a single custodial relationship," says Pershing managing director Jim Crowley.

With many advisors opting to use multiple custodians, advisors are likely to hear that message more often going forward. Schwab Institutional, the largest custodian in the advisor market, recently conducted a study of advisory firms' profitability. Sources say the survey found a direct correlation between fewer custodians and higher profitability.

Pershing actually has quietly provided custodial services to the high-end RIA market for eight years. Pershing currently has about 183 advisor custodial relationships, with the average custodial client keeping $66 million with the firm, says John Iachello, Pershing managing director in charge of its Investment Manager Services (IMS) unit. That $66 million figure indicates that Pershing already has a network of advisors with substantial businesses.

Pershing has decided to expand upon this existing service, extending it to smaller advisory firms through broker-dealers in the independent contractor sector, he says. "They have a bunch of smaller affiliate RIAs that we've never dealt with," Iachello says. "We're not targeting a specific company, or a specific competitor. We're trying to offer a service that our customers have been asking for."

Iachello says that the service's pricing will be competitive with other fees in the market, and that Pershing is touting the service as a way for advisors to streamline their business. "They get better compliance oversight because they're on one platform," he says. "They also get a single system to operate on-no more switching between computers."

Pershing started marketing the expanded custodial services to selected advisors about two months ago. "We've been launching it quietly by conversation," Iachello says. "We're doing this more on a one-to-one relationship basis."

The push into the custodial market comes on the heels of Credit Suisse Group selling Pershing to The Bank of New York for more than $2 billion. The merger created the largest clearing firm in the nation.

Chubb Offers Protection From Nanny Lawsuits

Some homeowners insurance policyholders can now purchase an add-on that covers them against lawsuits from household employees such as nannies, cooks, chauffeurs and housekeepers.

The insurance is offered by the Chubb Group of Insurance Companies, which started rolling out the plan in December in Connecticut and recently made it available in Colorado, Illinois, New Jersey and Utah.

Called Masterpiece Employment Practices Liability Coverage, it is being offered to homeowners who employ five or fewer residential staff members. It provides protection for claims alleging wrongful termination, sexual harassment and employment discrimination. It also includes coverage for reputation-related injury, including the costs of hiring a public relations firm to control reputation-related damage in connection with an alleged incident.

The coverage is available only as an add-on to a Chubb "Masterpiece" personal or excess liability policy with a limit of $5 million or more. Two coverage options are offered. One policy, which costs $650 per year, provides $250,000 of coverage per incident for damages, with a $10,000 deductible. It also covers $25,000 for reputation-related injury. The other costs $975 for damage coverage of $500,000 per incident and $50,000 for reputation-related injury.

The insurance covers lawsuits filed by residential staff who work 15 hours or more a week, including butlers, chauffeurs, cooks, gardeners, housekeepers, nannies, personal assistants and security personnel.

CFP Board To Develop Model Curriculum

It's rare to find someone with a bachelor's degree specifically in personal financial planning, but the CFP Board of Standards has started an undertaking it hopes will make such degrees more common.

The board is working with a group of 21 college professors to develop a model curriculum for personal financial planning-a seven-course program complete with recommended textbooks, course outlines and student projects.

"In the traditional academic world, personal financial planning is not yet widely recognized as a distinct study of its own. It's very rarely a major," says Kathryn Ioannides, the CFP Board director of education and examination. "We hope this will help get it recognized as an academic discipline."

The CFP Board and the professors, all members of the Academy of Financial Services-an academic group devoted to curriculum development in the areas of financial planning and services-hope to have a completed model curriculum by early October.

The goal is to set up a program that will amount to 21 junior- and senior-level college credits, and provide post-secondary schools with the foundation for starting a new program or revising an existing one, Ioannides says. The curriculum will include a model syllabus, course descriptions, course outlines, suggested texts and supplemental readings. The curriculum will include suggestions for both bachelor's and master's degree programs.
The first of the seven courses, still unnamed, will introduce students to personal financial planning as a profession, Ioannides says. The five courses that follow will focus on insurance, income tax, investment, retirement and estate planning, she says. The final class will be a capstone course in which students will create financial plans of their own, preferably with real clients.

Ioannides believes that while post-secondary schools that already have financial planning programs registered and approved by the CFP will make use of the model, its primary audience will be schools considering starting such programs.

"I think the greatest use of it will be by colleges and universities who've been thinking about this and need to know how to get started," she says. "They may use it in whole, or may use it in part." She adds that the model is a suggested framework for programs and will not become the criteria used by the CFP for registering academic programs.

A total of 160 colleges and universities in the nation have CFP-registered financial planning programs, either as part of broader bachelor's degree programs or certificate programs, Ioannides says. The only school the CFP Board is aware of with a bachelor's degree in financial planning is Texas Tech University in Lubbock, Texas.

Gen X Investors Shaken By Stock And Job Markets

Generation X investors may have more time to get their financial plans in shape than their baby boomer elders, but that doesn't mean they're any less worried about their money.
That was the general view of an annual survey which found that the 52 million "Generation Xers"-born between 1967 and 1981-while ambitious in their financial goals, have seen their assets erode.

"GenXers have been shaken by the prolonged recession and unstable job market," says Beverly J. Moore, managing director, New York Life Investment Management LLC, which recently released its Third Annual GenX Survey. "This has created a bias toward security, driving GenXers to reallocate their portfolios in favor of predominantly conservative financial products."

The survey found that while 77% of survey respondents describe their savings objectives as "equal" or "greater than" their parents,' only 59% own nonretirement assets-down from 70% in 2002. Those who stopped investing due to market losses went from 4% to 11% over the past year. Yet 61% expect a higher standard of living in retirement than their parents.

These trends added up to investors steering their money toward more conservative products. Insurance, for example, was the most popular choice, used by 75% of respondents-up from 62% a year ago. Mutual funds were second at 71%, which was down from 85% in 2002.

Some of the surveys other findings:

There was a rise in those who feel they don't have enough money, from 45% in 2002 to 58% in the new survey. Also, 29% feel they don't have enough experience to make smart investment decisions-up from 23% a year ago.
Most GenXers don't count on the government or their employer for support in retirement. The impact of Social Security was discounted by 76%, and 48% are bearish about their employee retirement savings plans.
Only 52% feel their families are financially secure enough to endure a terminal illness, disability or death-down from 60% in 2002.

Fund Complexes Start Launching New Vehicles

Advisors have some new choices when it comes to picking international funds, risk arbitrage/distressed securities funds and funds for risk-averse clients. The new fund launches indicate that the three-year-long retrenchment of the mutual fund industry may be winding down.

The funds were recently launched by Fidelity Investments, Franklin Templeton and OppenheimerFunds. The Fidelity Advisor International Small Cap Fund was launched as the 10th international equity fund in the company's Advisor product line. OppenheimerFunds, meanwhile, launched the Oppenheimer Principal Protected Main Street Fund, an equity fund that limits risk exposure to an investor's principal.

The Fidelity fund is managed by L.C. Kvaal, who joined Fidelity as an equity analyst in its London-based research department in 1994, and Tokuya Sano, who joined the company in 1993 as an analyst covering small- and mid-cap companies in the Far East.

"Small-cap companies are often under-researched compared to their large-cap counterparts, and this is especially true outside the United States," says Marty Willis, executive vice president of Fidelity Investments Institutional Services Co. "With analysts on the ground in London, Hong Kong and Tokyo, we believe that we have the significant resources necessary to help uncover investment opportunities internationally in the small-cap universe."

On June 2, Franklin Templeton launched the Franklin Mutual Recovery fund, a closed-end fund with a management team head by David Winters, a disciple of Michael Price who has been with the Mutual Series complex since 1987. The fund plans to utilize risk arbitrage strategies, while also investing in distressed securities and undervalued stocks.
For years Mutual Series funds have invested a portion of their assets in these asset classes, but only as secondary strategies to core value investing. The Mutual Series group has a bankruptcy attorney on its staff. Executives at Franklin Templeton apparently believe these asset classes are poised to perform as the economy moves into a post-recession period.

The Oppenheimer principal protection fund, like other funds of its type, minimizes risk through the use of zero-coupon securities or other U.S. government bonds and a bank warranty designed to cover any shortfall between a fund's protected principal and its net asset value at the end of a seven-year protection period.
"Principal Protected funds are a 'stepping-stone' into the equity market and, for the right investor, are a way to potentially benefit from returns higher than they might realize in money markets and CDs," says Jim Ruff, president of OppenheimerFunds Distributor.

Capital Trust Forms New Alliances

Capital Trust Company of Delaware has expanded its network of alliances in the advisor market, inking agreements with several large independent brokerages. The firm recently announced that it has agreements to provide trust services to the AIG Advisor Group and Commonwealth Financial Network.

Together, the two broker-dealer networks have 10,000 advisors-9,000 of them with the six broker-dealers that comprise the AIG Advisor Group.

"Our advisors want and need quality trust services to assist their clients in attaining their financial planning goals," says Joby Gruber, president and CEO of Advantage Capital Corp. and FSC Securities Corp. "Capital Trust has a strong technology platform, a solid executive team, financial strength and an extraordinary commitment to the advisor market."
In addition to Advantage and FSC, the AIG network includes Royal Alliance Associates, Sentra Securities Corp., Spelman & Co. and SunAmerica Securities Inc.

Commonwealth Financial, with offices in Waltham, Mass., and San Diego, Calif., has more than 1,000 independent registered representatives nationwide. It is considered one of the fastest-growing independent brokerages in the nation.

Capital Trust, with more than $3 billion in total assets and $500 million in personal trust assets, is among a small but expanding group of trust companies in the nation that works exclusively with financial advisors. Through similar agreements such as the two recently announced, and an earlier deal with TD Waterhouse, Capital Trust is accessible by 15,000 to 20,000 advisors, says Capital Trust CEO Jeffrey R. Lauterbach.

As baby boomers age and people live longer, Lauterbach says, advisors are finding a greater demand for trust services from their clients.

"You have more and more estate planning opportunities that occur because of the nature of life," he says. "I think there's a general growth in demand because the population is aging."