More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- U.S. Securities and Exchange Commission Information This information sheet contains general information about certain provisions of the Investment Advisers Act of 1940 and selected rules under the Advisers Act. It also provides information about the resources available from the SEC to help advisors understand and comply with these laws and rules.
Who are the people who will most affect the way you practice your profession in the years ahead? We humbly submit the 2004 IA 25, luminaries who by their personality, intellect, longevity, innovation, and outreach have made, and will make, your life easier and more difficult, more rewarding and more frustrating. These are the people who build and maintain the partners you rely on, who regulate, prod, and legislate on the companies and vehicles in which your clients invest, and who provide the intellectual and moral leadership that helps to pull together a profession that has many shared ideals but even more competing agendas.
In drawing up this year's list, almost as notable as the honorees are the exclusions. Coming out of the bear market last year, we included several money managers; this year, just one made the cut. But we have included more regulatory and oversight folks, reflecting the higher profile of such individuals these days. Also, we included leaders of the custodial and clearing firms that have become a more important part of the independent advisor's business model. The bear market forced RIAs and independent broker/dealers alike to become better business people, and being pretty decent business people themselves, the custodians and clearing firms started delivering products and services that made advisors more efficient and allowed them to compete better, and also brought them closer together.
As with all such subjective lists (chosen by the IA editorial staff with input from the magazine's contributors and readers), the second edition of the IA 25 could easily have been expanded two- or threefold. To address that issue, this year we've included a sidebar (see page 58) listing several individuals who we think might very well come off the bubble in the years ahead.
Of course, to your clients, there's only one person who matters in the world of financial planning--you. But without these folks whose profiles follow, it would be infinitely more difficult for you to serve those clients.--James J. Green
In the field of financial planning, there are some names that pop up again and again: in the media, among conference speakers, in the media, in the media.... Harold Evensky--along with his wife, planner Deena Katz, a leading light in her own right--has been a respected leader of the profession for years, and his opinions, particularly on investment management, carry significant weight.
As chairman of Evensky, Brown & Katz in Coral Gables, Florida, Evensky, 62, has an opportunity to work with clients and client investments every day. But he also works to develop financial planning as a profession through his prolific writings and frequent public appearances. Looking ahead, he sees two primary challenges for his peers: Moving the profession from a world of mom-and-pop practices to real-world businesses, and maintaining a high level of professionalism after making this shift.
Evensky identifies two major trends that will benefit the consumer immensely: independent practices transforming themselves into businesses, and wirehouses transforming themselves from product-pushers to professional advisors. "The good news is that I think both sides are getting there," he says. "But it's not easy."--Karen Hansen Weese
It's fashionable to say that someone needs no introduction, but in the world of financial planning, Deena Katz really doesn't. Any time she speaks at an industry conference, chances are that most audience members have already read about her, previously attended one of her seminars, or perused one of her books on practice management. As president of Evensky, Brown & Katz, a high-profile planning firm in Coral Gables, Florida, Katz, 54, has plenty of opportunities to gather, refine, and ponder new material for her books and speeches. "Our future challenges lie in how well we adapt to nanosecond changes in our industry, how well we manage growth without sacrificing quality in our practices, and how effectively we harness technology to leverage our time," she says. "If we can master these, the big issues, like how we get paid and who might be our competition, will just take care of themselves."--Karen Hansen Weese
You'd be hard pressed to find an industry conference that didn't list Lou Stanasolovich as one of its speakers. As president and CEO of Legend Financial Advisors in Pittsburgh, 47-year-old Stanasolovich takes pride in the quality of service that Legend offers its high-net-worth clientele. His firm will do "whatever it takes to make clients happy and address their needs," he says, and that includes "picking up the phone in less than three rings." Since 85% of his clients are older than age 50--and 35% of them are retirees--Stanasolovich's priority is helping them make their money last. "Most people are trying to retire too early," he says. "We try to create a game plan that evolves over time where they can have enough money to retire." Part of that game plan includes investing clients' money in mutual funds with hedge fund characteristics, because "the long-term market outlook for domestic equities and bonds" is dim. As for the industry, Stanasolovich says its biggest challenge is credibility. "The majority of financial advisors, or those who call themselves financial advisors, are truly not financial advisors," he says.--Melanie Waddell
Ask Roy Diliberto about the assets in his Philadelphia-based fee-only practice, RTD Financial Advisors Inc., and he'll change the subject, although the numbers are public record. This reflects the focus of the Financial Planning Association's first president on "financial life planning." Says Diliberto, 63: "Eventually, there will be a bifurcation between money management and financial planning. As a money manager, you're managing money, not relationships. Your client is the money. The object of a good financial planner is to improve the clients' lives." But over his 41-year career, Diliberto has also devoted himself to improving the life of the planning profession itself. As an author and lecturer, he has argued that advisors must examine whether they are charging clients for asset management while essentially giving away their more valuable planning skills. Diliberto will expand on his philosophy in a forthcoming book, Financial Planning: The Next Step, to be published by the FPA. --William Glasgall
Which would you rather do? Spend your days wrestling other advisors over the tiny slice of the American population that counts its net worth in seven digits or more, or build a satisfying, profitable business serving the huge slice that is everybody else? For Sheryl Garrett, 41, founder of the Mission, Kansas-based Garrett Planning Network, serving the middle class is the answer. Over the past four years, she has built a network of more than 200 advisors dedicated to serving average folks with average bank accounts--and that's 60 more advisors than only a year ago, by the way. She provides the coaching, templates, resources, and sample documents to get them started and keep them going. The advisors, in turn, set up practices modeled on a doctor-patient relationship: periodic checkups on an as-needed basis and payments based on an hourly rate. "I am extremely proud of helping to change the financial services industry by proving the viability of working with Middle America and do-it-yourselfers on a fee-only basis," she says. "What was once deemed impossible is now the talk of the town at many industry conferences and with many financial journalists."--Karen Hansen Weese
As head of one of the world's largest clearing and custody firms, Joseph Velli is in a good position to view how Washington's regulatory onslaught will affect the broker/dealers that comprise a large share of his clientele. Velli, CEO of Bank of New York Company's BNY Securities Group unit, thinks tumultuous times lie ahead as B/Ds' compliance costs mount. Over the next two to three years, Velli, 46, thinks "it is realistic to look at a consolidation of 20% to 25%" among the ranks of U.S. broker/dealers. But Velli, whose bank bought Pershing for $2 billion in 2003, sees opportunities emerging from turmoil. Pershing, which serves some 1,100 B/Ds, is offering new ways to help its clients meet government demands for better recordkeeping and retail disclosure. By summer, Velli also plans to boost the clearing unit's research offerings. He also plans "a major thrust" in Pershing's efforts to win more custodial assets. All told, Bank of New York has $8 trillion in custody, with $600 billion of that at Pershing.--William Glasgall
Alfred West, Jr.
Financial services companies treat the baby boomer generation like the weather: everybody talks about it, but nobody does anything about it. SEI Investments' CEO Al West is an exception. West founded SEI in 1968 and built the company into an outsourcer nonpareil for, first, banks and trust companies, and then, advisors of all stripes. Now West, 61, is doing something about boomers, who "want their wealth to work for them." The clients of most RIAs these days are not boomers, West notes, but they are the future. SEI is turning down some advisor assets if said advisor eschews a closer, more comprehensive relationship with SEI that revolves around West's version of life planning, called "Life Wealth." For those advisors who partner with SEI, the company will provide a "case management" team that will provide access to a range of expert services far beyond money management for an annual retainer fee, with a strong referral network to boot.--James J. Green
The CEO of a bro-ker/dealer serving financial planners, Joseph Deitch, of Commonwealth Financial Network, is a big proponent of planning for his Waltham, Massachusetts-based firm. This year, the 25-year-old B/D is focusing on staff development. But Deitch, 53, also has ambitious plans for Commonwealth's 900 reps who, this year, are expected to produce $250 million in revenue. By year end, Deitch expects to roll out an online platform to help reps "increase their revenues and decrease their overhead" to counter "downward pressure on commissions and fees." He also plans a Web-based "molecular map of wealth management" that will provide reps with information on complex planning issues and links to Commonwealth reps and industry authorities. "Commonwealth is not a secretive company," explains Deitch. "We try to facilitate the sharing of expertise as much as possible." One thing Deitch says he has no plan for is an IPO. "I have no need to go public," he says. "I don't need the cash. I have no need to be speaking to analysts all the time. I'd rather be speaking to my brokers."--William Glasgall
Morningstar's managing director, Don Phillips, sees himself as the man in the middle--the guy between the company and the investor community. "My role is to talk to the people in the trenches, the individual investors and financial planners who are right on the front lines making investment decisions," he says. "Then I come back and talk to our research and design teams to come up with tools and approaches that can lead to better investment success." These days Phillips is most excited about the work Morningstar is doing on "ownership zones," where stock research, fund research, and portfolio assembly all come together. His goal is to create "a really holistic tool that can lead to better portfolio construction," he explains, noting that many people seem to be able to find good investments in isolation but run into trouble constructing an entire portfolio. From his vantage point, Phillips, 42, says he has been impressed by the professional growth of the investment advisor community and the number of investment clients working with dedicated financial planners.--Robert F. Keane
In many ways, Marv Tuttle can be considered financial planning's champion. A 20-year association veteran and advocate for the profession, the 49-year-old executive director and CEO of the Financial Planning Association enthuses, "I continue to have a passion for what we're trying to create, this thing called a profession for financial planning." That passion has been rewarded: As Tuttle points out, the certified financial planner movement is flourishing. "In the days when I started there were less than 6,000 [CFPs], and now we're at nearly 45,000," he notes. "I'm pleased to play a part in that." For the coming years, Tuttle stresses the importance of continued advocacy of the profession and conveying to the public what financial planners have to offer. "In order for us to succeed as a profession, we need to have statutory regulation," he says. Tuttle doesn't care whether that happens on a state or federal level, or through private sector recognition. In his view, what's more important is that the term "financial planner" means the same thing for everyone who uses one.--Robert F. Keane
"For the last 11 years, we've been focused on supporting advisors on their terms," boasts Jay Lanigan, president of Fidelity Registered Investment Advisor Group. Lanigan, 48, says advisors these days still want service and "technology to make them more efficient," he says. Fidelity over the past year introduced a range of other services to help advisors compete, including an open-architecture separate account offering, administrative trust services, and a series of regional best-practices conferences. In 2003, 2,100 affiliated advisors increased the assets under custody at FRIAG by almost $40 billion, or 65%, representing some $20 billion in net new asset flows, and bringing total custody assets to slightly more than $100 billion. In a sign of the value that Fidelity places on the advisor business, and its trust in Lanigan, early in 2003 FRIAG was elevated to the same level internally as Fidelity's retail operation.--James J. Green
As president of Schwab Institutional, the largest custodian for independent registered investment advisors, Deborah McWhinney has the highest-profile position in the RIA partner marketplace, with the benefits and disadvantages that such fame brings. Moreover, her division has become an even more valuable, and profitable, part of Charles Schwab & Co. over the past few years. Schwab Institutional has now surpassed $300 billion in advisor assets from about 5,300 advisor firms, accounting for 30% of the Schwab $1 trillion asset base, and growing by $70 billion since year-end 2002. But McWhinney hearkens back to a more humble past as a guide to how she interacts with RIA clients--she helped found several companies early in her career, and thus she understands, she says, and appreciates, the entrepreneurial bent and challenges of the average advisor. She notes that Schwab has found a receptive audience with its Schwab Advisor Transition Support program that was launched last year. "Virtually all the sessions have been sold out," she says, in a multi-city road show introducing the program to Schwab advisors.--James J. Green
J. Thomas Bradley
Tom Bradley, president of TD Waterhouse Institutional, says that what gets him excited is that the fee-based model of advice is prevailing in the marketplace, as evidenced by the $31 billion in assets that 2,600 advisors custody with TD Waterhouse, the U.S.-based subsidiary of The Toronto-Dominion Bank. Bradley, 41, also finds it significant that of the $7 billion in net new assets that TDW brought in last year alone, some 70% came from full-commission brokers "won by independent fee-based investment advisors," compared to prior years, when "we really battled it out with other custodians, trying to take market share away from each other." Waterhouse will provide compliance and marketing assistance to its affiliated advisors in the year ahead, seeking to help advisors become more efficient by attracting fewer, but larger, clients.--James J. Green
When it comes to poli-cing the U.S. securities markets, some argue New York Attorney General Eliot Spitzer has been more effective than the Securities & Exchange Commission. "The SEC fell asleep on the mutual fund scandal, or just ignored it," says Lou Stanasolovich, CEO of Legend Financial Advisors in Pittsburgh. Spitzer has "made further inroads into shaking up the industry than anybody else." Indeed, Spitzer's slam dunk in catching Canary Capital Partners' illegal trades last year prompted the SEC to unleash "one of the biggest requests for information [into mutual fund and hedge fund trading activities], which resulted in who knows how many enforcement proceedings," says David Tittsworth with the Investment Counsel Association of America. Lisa Hurley, general counsel at Bisys Fund Services, agrees that Spitzer's "aggressive moves" in investigating conflicted stock research methods at Wall Street firms, and in reining in mutual fund and hedge fund firms, are positives for the industry. But Hurley criticizes Spitzer for not collaborating with the SEC. "I don't think we can have a system going forward that pits federal regulators against state regulators."--Melanie Waddell
William Donaldson has been chairman of the Securities & Exchange Commission for a little more than a year, but what a year it has been. He's had to rein in the mutual fund and hedge fund industries, restore investors' faith in the market and in the SEC itself, boost morale at the Commission, and wrest control of regulating the securities markets from state regulators and Congress.
How has he done? Financial industry executives credit him for taking back the agenda for reform that had been seized by Congress and New York Attorney General Eliot Spitzer. Michael Tannenbaum, a partner with the law firm of Tannenbaum Helpern Syracuse & Hirschtritt LLP in New York, says Donaldson is "surrounding himself with very competent and diverse views." But Tannenbaum opposes Donaldson's wishes to have hedge fund managers register with the SEC. "There are plenty of regulations on the books that already protect the investing public from unscrupulous managers," he says.--Melanie Waddell
George W. Bush, (left), and John Kerry
Financial planners' advice to clients will change significantly regardless of who wins the November presidential election. The two tax bills passed during the past four years--EGTRRA and JGTRRA--follow the traditional Republican mantra: cut taxes, and companies and individuals will spend and invest more, and the economy and the markets will improve. Should President Bush, 57, be re-elected, expect further tax cuts and movement on his Lifetime Savings Account and Retirement Savings Account initiatives. Senator Kerry, 60, represents a traditional Democratic approach: the role of government is to regulate business and industry so that no one group profits at the expense of any other group. He has pledged to roll back some of the Bush tax cuts, to institute tax cuts and credits that would benefit manufacturers and college tuition payers, and to lower capital gains and dividend taxes for "middle-income" Americans while halving the budget deficit in his first term.--James J. Green
As director of the SEC's Division of Enforcement, 43-year-old Stephen Cutler wields the ultimate power in bringing enforcement actions against corrupt securities firms. Over the past few years, he's brought an unprecedented number of cases against mutual fund firms and hedge funds. There are more cases to come, he says, "involving advisors and mutual funds. We have a pretty heavy docket in that area." Cutler's biggest challenges are being "both tough and fair," and "seeing around the corner" to ensure the industry isn't rocked by further scandals. To do that, he is taking a more proactive approach to enforcing the law. "Enforcement is, by its very nature, reactive," he says. Now, Cutler says, his division is trying to "catch problems before they mushroom into scandals." Cutler is now investigating a number of potential trouble spots, including fees paid to advisors of index funds, as well as whether "funds are valuing the securities that they hold adequately and appropriately," he says. Another focus: "relationships between pension consultants and the investments that they recommend."--Melanie Waddell
Senator Richard Shelby (R-AL) said at a recent conference that his overarching theme as chairman of the Sub-committee on Capital Markets is "restoring the confidence of investors in our capital markets." There's no doubt that he means it. Since late last year, Shelby has held 10 bipartisan hearings on the abuses in the mutual fund industry. David Tittsworth, executive director of the Investment Counsel Association of America in Washington, says he's been worried that Congress would issue a "sweeping regulatory or legislative package" akin to Sarbanes-Oxley to address the fund mess. But thanks to Shelby's "measured and objective approach" in holding hearings, and allowing the SEC to weigh in with its proposed regulations, "it doesn't look like there's going to be legislation this year," he says. Shelby is taking the SEC to task on its 4 p.m. hard close proposal for mutual fund trades. He told the SEC that such a close would force retirement plan administrators and intermediaries "to impose transaction cutoff times as early as 12 p.m. EST, effectively relegating these investors to second-class status."--Melanie Waddell
As state treasurer, Phil Angelides, 50, is the driving force behind the California Public Employees Retirement System, the largest U.S. pension fund with $164 billion in assets and 1.4 million members. Investing in the inner city and markets traditionally underserved, his pension funds are at the forefront of the Democrat's "Double Bottom Line" initiative. "Our pension funds are getting positive returns, but are also creating jobs and opportunities in communities that have traditionally been bypassed by the financial markets," he says. Since becoming treasurer, Angelides has significantly increased the amounts deposited in ethnically owned banks, rural lending institutions, and credit unions. "If we make a deposit of $3 billion in community lending institutions, they can offer more home and business loans to California communities and more specifically to rural and inner city communities," he says. "Other pension funds and lending institutions are following in our footsteps and beginning to increase their investments in such neighborhoods where there is an available work force, a growing population, and in many respects where the future of our economy will be in the next 50 years." Angelides has also used CalPERS' clout in the corporate governance arena, refusing to vote its shares in favor of the reelection of directors at companies that do not meet its standards.--Megan L. Fowler
Mark Tibergien is a ubiquitous presence on the financial planning conference scene, giving 60 to 70 speeches and seminars in the industry yearly. Audiences are routinely wowed by his smooth speaking delivery and comprehensive grasp of the business planning and succession issues that face advisors today. But off the podium, Tibergien, 52, remains a soft-spoken, humble man who can count on having as many friends as admirers. He considers his greatest accomplishment building the Securities & Insurance Niche at Moss Adams in Seattle, a group with more than 30 people providing a range of consulting services to what he calls the "financial advice" community. A columnist for Investment Advisor as well, Tibergien thinks the profession is "its own worst enemy in terms of credentialing and positioning" of the different planner associations and platforms. He argues that anybody who is providing "financial planning advice should rally around one designation," while those who provide investment management should embrace another, "and be done with it."--James J. Green
No one has done more to change the world of mutual funds than John Bogle. Although he turns 75 this month, the founder and former chairman of the Vanguard Group shows no signs of slowing down and continues to call 'em as he sees 'em. In addition to his writing and speaking, he is also president of the Bogle Financial Markets Research Center, where he continues his work on behalf of investors. Among his recent public appearances was a February talk to the Institutional Shareholder Services annual conference, where he made an impassioned speech on corporate governance. "It is high time that we return capitalism to its owners," he said, noting that in recent years, the U.S. has moved from "owner capitalism" to "manager capitalism." Bogle calls for shareholder access to the corporate ballot, not just when it comes to nominating directors but also in business activities. "The corporation is the property of its owners, and it is utterly logical that they should be put in a position to have their ownership interests honored," he argues. "Proper corporate governance is not merely an ideal nor a luxury, but a vital necessity."--Robert F. Keane
Veteran financial scholar and philosopher Peter Bernstein, president of Peter L. Bernstein, Inc. in New York, began his career in the 1950s, and now, in a world of uncertainty, worries short-term performance has taken on a new meaning. "I think in client/manager relationships, there is too much focus on short-term performance, and too much focus on measuring performance based on your peers." You don't get high alpha without high tracking error, he says, and "the patience of clients on variability in returns is limited." Looking back, Bernstein reflects on the accomplishments of his money management days. "I'm proud of what we did. Our clients were what we called high-net-worth individuals, and we took good care of them. We were really involved in their lives, and nobody was trying to shoot the moon." His writing career is also nothing to sneeze at: Against the Gods: The Remarkable Story of Risk, published in 1996, has sold more than 500,000 copies worldwide. He also publishes Economics and Portfolio Strategy, a semimonthly letter to institutional investors.--Megan L. Fowler
Every month, Bob Veres holds forth from his bully pulpit in Mars Hill, North Carolina, about the latest big trends in financial planning. His Inside Information newsletter, which mixes technology, investment theory, politics, and barbed criticism of industry practices, has won a wide following, especially among fee-only advisors. Veres, 52, sees big changes ahead for planners. "We are at that magical moment when a trade becomes a profession," he says. "We're seeing more professional and serious management of businesses, we're developing an orderly market for buying and selling professions, and sole-practitioner firms are gradually giving way to multiple-practitioner firms with more staff support." Veres also notes the steady growth of advisors who hold both a college degree and the certified financial planner designation, and he sees a shift in the focus of the advisory business in the direction of life planning. "The more personal you make this service, the more powerful it becomes."--William Glasgall
Andy Gluck's presence on the IA 25 is well earned. A working journalist for more than 20 years and a long-time IA columnist, Gluck is also president of Advisor Products, a 22-employee company that provides custom content for advisor newsletters and Web sites, builds sites for advisors, and provides related technology services to keep advisors compliant with regulators and communicating with clients. There are other writers who cover how advisors can use technology, but Gluck's gift is to get ahead of the tech curve to show advisors how that piece of software or that Web application can make them better business people, and to warn them when applications or service offerings are not quite ready for adoption. Gluck, 47, believes better financial planning software is on the horizon, and expects further good times for advisors partly because "the benefits of the Web are finally being realized."--James J. Green
As chair of the Coalition for Environ-mentally Responsible Economies (CERES), from its founding in 1989 until 2001, Joan Bavaria has been at the forefront of the socially responsible investing movement. Prior to that, she was co-founder of the Social Investment Forum, a group of research, advisory, banking, and community loan fund organizations engaged in socially responsible investing.
Bavaria, 60, is most proud of the success of Trillium Asset Management, an employee-owned investment advisor in Boston with 34 staffers and $770 million under management, which she founded in 1982 and continues to serve as president and CEO. "We are an extremely client-focused and very high service firm," she says. "We react not just to the financial needs but also to the social needs of our clients. 'No client gets left behind,' I guess is our motto." Among the challenges she sees facing advisors in today's marketplace are access to good research and adapting to continuing technological advances, "not to mention the market."