FPA To Spin Off Broker-Dealer Division

The Financial Planning Association is planning to spin off its broker-dealer membership into an independent organization. The creation of a new entity to serve the interests of broker-dealers has been under consideration for some time, as the interests of practitioners and brokerages have increasingly diverged.

A proposal that would have about 100 of FPA's broker-dealer members split off into a new organization at the end of the year and become a completely independent organization by the end of 2004 is now under study, FPA President David B. Yeske says. Under the proposal, the broker-dealer entity would be supported financially and administratively by the FPA during a transition period that would last through 2004, he adds.

A steering committee that includes members of the FPA's Broker-Dealer Advisory Council has been formed to explore issues involved in forming a new association, according to Yeske. "We seem to have a high degree of agreement that it makes sense to go forward with a steering committee," Yeske says, adding that that the chances are "extremely high" that the split will happen.

Another source familiar with the negotiations says the split is virtually guaranteed to take place, probably as of January 1. "The FPA is going to fund a stand-alone broker-dealer organization," says the source, who requested anonymity.

Divergent interests and needs on the part of the FPA and its broker-dealers seem to be at the heart of the split. One of the main underlying issues, according to those familiar with the plan, is that broker-dealer members are looking for aggressive advocacy on legislative and regulatory issues. It's the type of service they have not been getting from the FPA, which openly acknowledges that its lobbying muscle is chiefly focused on issues of importance to financial planning practitioners. Lobbying efforts, in fact, have sometimes placed the FPA and broker-dealers on opposite sides of the fence, such as with the FPA's opposition to the broker-dealer exemption to the Advisers Act of 1940.

Yeske says the proposal to split acknowledges the fact that it would be impossible to hold the lobbying interests of both the FPA and broker-dealers under one organizational umbrella. "In order to avoid muddling our message, we need to stay focused on financial planning," he says.

The FPA's focus on practitioner concerns, rather than broker-dealer industry issues, also has been underscored by its drive to make the CFP mark-a credential not held by many of the broker-dealers' brokers and agents-a defining credential for FPA membership.

Yeske also emphasizes, however, that the FPA hopes to maintain close relations with broker-dealers after any separation takes place. He notes that the FPA and broker-dealers do have an overlapping interest in moving the financial planning profession forward. "There's agreement on all sides that no matter what happens, that broker-dealers are an important part of our community and we want to remain connected to them." Yeske says.

The departure of the FPA's broker-dealers will result in a hit to the organization's annual revenues, although exactly how much is not yet clear. Yeske says broker-dealers contribute about $500,000 annually in fees and other contributions, which represents about 3% of FPA's annual revenues. He adds, however, that some broker-dealers could remain with the FPA as corporate members after the new association is formed.

StatementOne Enters RIA Portfolio Management Market

StatementOne, a data aggregation software company, is entering the portfolio management and performance reporting business market with a new software package.

The Lawrenceville, N.J., company's software will compete against Advent, dbCAMs and Schwab's Centerpiece platform. StatementOne got its start from providing data aggregation software at the enterprise level and now has more than 50 broker-dealer clients.

"Since the beginning, our RIA clients were asking for more RIA functionality, enhanced performance reporting and more control for reporting gains and losses," a StatementOne executive says.

The product is priced on an annual subscription model that is dependent on assets under management. In addition, they will provide consolidation and reconciliation of clients' portfolios.

Tiburon Study Finds Need To Increase Marketing

Client referrals are the lifeblood of the independent advisor industry, but advisors need to consider that taking in new business may not always be so easy, a new study warns.

The study, by Tiburon Strategic Advisors, says advisors need to get more creative in their marketing efforts to prepare for a possible falloff in referrals. "The reason for the concern is two-fold. First, the 1990s brought many passive referrals to independent reps because the market roared ahead-making clients happy-and competition was limited," the study's authors say. "Unfortunately, the next decade may bring more moderate market returns and more competition, lessening the number of passive referrals."

The study, which includes information from 1,476 advisors, goes on to say that the typical advisor pays little attention to proactive marketing efforts and chiefly relies on client referrals, which constitute 56% of all new clients. "Independent reps would be wise to consider whether they need to beef up their marketing efforts," says the study.

The study found that advisors generally make minimal investments in marketing and advertising, partly because they don't feel a great need to do so. Among the comments made by survey participants was, "I think up until recently, the market was so strong that all you needed to be is barely competent and you had masses of clients walking in your door."

Business expenses for the average independent rep total about $204,000, the study found, and are led by compensation for reps and administrative support personnel. Marketing and advertising are on average allocated $22,000, or 11% of the average independent rep's expense budget. Larger firms spend an average of $99,000 on marketing and advertising, but the total represents only about 8% of their operating expenses, the study notes.

"In short, while passive client referrals are wonderful to receive and account for 36% of all new independent rep clients, there are two key points to consider regarding client referrals: methods for making them more frequent and methods for lessening one's reliance upon them," the study says.

Among the steps advisors may take, the study says, is actively encouraging clients to make referrals, networking with other professionals such as attorneys and CPAs, holding seminars, publishing newsletters or creating an engaging Web site.

If an advisors feels uncomfortable asking clients for a referral, the study says, "there are subtle ways to accomplish the goal; for instance, maybe mention your desire for referrals in a newsletter or in a confirmation letter for a meeting."

Schwab Names New Head Of Advisor Network

Schwab Institutional has named one of its veteran client services managers to head the Schwab Advisor Network-making her the network's second chief in little over a year.

Edie Heilman, most recently Schwab's senior vice president of Active Trader Services, takes over from Rob Klapper, who was named to head the network last year. Klapper was appointed senior vice president of service offers in Schwab's marketing division.

"Rob's performance in launching and growing the Schwab Advisor Network in its first year was extraordinary, and we are delighted to see him take on a new leadership role in the Schwab organization," says Deborah McWhinney, president of Schwab Institutional. "We are thrilled to bring Edie aboard, and we are confident her experience and hands-on leadership will continue the success of the Advisor Network."

Heilman started with Schwab in 1997 as a vice president, coming from the telecommunications and marketing industries. She was initially involved in Schwab's development of voice technology for broker services, customer relations and contingency planning on Y2K issues. She was appointed senior vice president in 1999 and two years later joined the Active Trader Services unit, where she was responsible for providing service and trading advice to Schwab's 250,000 clients and supervising training for about 4,000 brokers and managers in retail client services.

The Schwab Advisor Network consists of about 330 independent investment advisor firms. It was launched in May 2002 as the successor program to Schwab AdvisorSource, which was launched in 1995. In the second quarter of 2003, the network referred more than 5,700 clients to advisors in the network, which was up 30% from the first quarter, according to Schwab. A total of 2,177 of these clients, representing $1.5 billion in assets, were converted into new client accounts, Schwab says.

Parents Rank Other Priorities Ahead of College Saving

A new survey suggests ballooning college costs are making it harder for parents to keep up-to the point where many expect their own children and grandparents to chip in for the costs.

The study, commissioned by Charles Schwab & Co., found that other financial obligations are among the chief reasons parents are feeling squeezed by college costs.

Respondents, for example, ranked college savings fourth in priority behind home purchases and improvements, saving for retirement and emergencies. Saving for college ranked ahead of only saving for a vacation and buying a new car among the choices respondents were given.

"Parents today are in a tough spot with several important priorities, such as home ownership and retirement, competing for their savings dollars," says Rande Spiegelman, vice president of the Schwab Center for Investment Research.

The majority of respondents-60%-say they have a college savings plan of some type, but most don't feel they're putting enough money away. Nearly two thirds of respondents say they have less than $100,000 in total savings and investments, excluding home equity.

Among the other findings:

Seven in ten of those who don't have a college savings plan cite "too many debts" and "other financial priorities" as the chief reasons for not investing.

Many parents are looking to sources other than savings to make up for their shortfalls. Almost half of parents expect their children to receive college scholarships or grants and 41% plan to rely on financial aid to supplement their savings. Only 15% of parents surveyed strongly believe it is their responsibility to pay the full costs of their children's' college education. Others say they are looking to their children and their own parents to contribute.

Just under 60% say they expect to use household income to pay for college expenses.

The study questioned 507 parents in August 2003, all of whom had a household income of at least $60,000 in 2002.

Retirement Income Planning Misunderstood By Investors

A new study raises the possibility that many workers will have a rude financial awakening after they retire.

Among the study's findings was that 41% of respondents were not familiar with the term "retirement income planning." Of those who did understand the term, only 24% were seeking the assistance of a professional planner to get ready for retirement, according to the study by GE Financial.

The study's authors say that in light of recent studies that indicate less than 25% of Americans between the age of 40 and 59 have at least $100,000 in retirement savings, there's a danger many Americans will retire short on funds.

"Americans clearly don't understand the critical difference between retirement savings and retirement income requirements," says Pam Schutz, president & CEO of GE Life and Annuity Assurance Company and leader of GE Financial's Wealth & Income Management Division. "The numbers show yet again that many consumers are unaware of the basic elements-both products and strategies-that go into a retirement income plan."

Among the surveys other findings are that 49% of Americans expect to retire before age 65, 60% expect to spend at least 15 years in retirement and 68% feel they will need at least 75% of their current annual income in retirement.

When asked what they believed would be their largest source of retirement income, 64% cited 401(k)s, mutual funds and stocks. The national survey questioned 1,010 randomly chosen adults living in private households.

Dimitroff Elected To CFP Board

Marilyn Capelli Dimitroff of Capelli Financial Services Inc. in Bloomfield Hills, Mich., has been elected to serve on the Certified Financial Planner Board of Standards governing board.

Dimitroff won the majority of 890 votes cast, edging out fellow nominee Robert Glovsky of Boston, according to the CFP Board of Standards. She will begin her three-year term on January 1.

In 1999, she joined the CFP's Board of Practice Standards, which oversees development of financial planning practice standards, and became chairwoman of the group two years later.

Before becoming president of Capelli Financial Services, Dimitroff was a senior vice president and private banking manager at Citizens Bank in Michigan and Illinois. She became a CFP certificant in 1982.

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