More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- 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.
Taking a fiduciary approach and putting the client first aren't marketing strategies adopted by the National Association of Personal Financial Advisors in the wake of the financial crisis and scandals rocking the advisors' world. Those approaches have been central to the NAPFA core for the now 26 years of its existence and--slowly--much of the rest of the advice-giving profession is coming around to the NAPFA approach, or at least that approach is now understood by the press. Answering a question on just that point from Investment Advisor Managing Editor Bob Keane, NAPFA Chair Diahann Lassus said that the consumer press is "beginning to get what the real issues are and tackle those. How effective we'll all be with getting that point out to consumers and Congress is going to be tough, because people don't differentiate."
In a January 8 interview at IA's Hoboken, New Jersey, editorial offices with Keane, IA Editorial Director Jamie Green, and Kate McBride from Wealth Manager magazine, Lassus and NAPFA Treasurer/Secretary Samantha Macchia spoke about NAPFA's growth, what the reaction will be in Washington to the Bernie Madoff scandal, and what NAPFA hopes to accomplish with the financial planning coalition.
Green: What is NAPFA's focus today?
Lassus: In the past year we've elevated regulatory issues and reform to one of our top four strategic objectives; that's how important we think it is. That's also why we're involved in this Coalition (see page 13); we have to increase our numbers and power to be at the table, to be part of this discussion, because until now I don't think any of us have been. We've been in Washington, but in most cases you wind up talking to staffers, who are very bright and capable people, but the reality is, how many of them came out of financial services? How many understand the regulatory issues and the battle we're fighting to protect the consumer? They don't. They want to protect the consumer--everybody has the same objective, they just don't know how to do it.
The concern right now is [that there may be a] kneejerk reaction to Bernie Madoff. You hear all these comments coming out of these Congressional hearings and it's scary because it's so obvious that they don't understand what's happening, and that you can't solve that problem and change the regulatory arena based on one individual problem. That's the message we have to get across: Let's back up and look at the whole landscape.
Keane: Do you get a better hearing from the consumer press these days?
Lassus: Oh, yes. We sent out a release on the Madoff case, and within five hours I did about seven interviews, mostly with the consumer press. A lot of the reporters and writers are beginning to get the real issues and tackle those. How effective we'll all be with getting that point out to consumers and Congress is going to be tough, because people don't differentiate. Most of us in the fee-only community get it, our clients get what we mean by independence and independent custodians because we talk about it: "You should always check your statements from Schwab and Fidelity, and check them against the quarterly reports we send you. And if there is a difference or a question, call us." We reconcile, but every once in a while there could be an issue there. They send that message on to their friends.
NAPFA's focus is about the consumer. No matter what you look at in terms of our strategic plan, it's about the consumer, it's about the profession. You've seen the statement of understanding from the financial planning coalition. That's all about establishing financial planning as a profession.
We need to make sure that the public knows that when someone says, "This is who I am," that they know exactly what they do: how they can expect to pay them and what qualifications they must have. That's a standard we have to get to, because the reality is that we are putting more and more pressure [on consumers] to take care of themselves, and we are giving them zero tools to do that.
Green: Would you welcome the SEC regulating financial planning? Because isn't part of the problem that the SEC isn't in trouble just because of Madoff, it's been a missing player throughout the whole credit crisis and the bailouts?
Lassus: To answer your first question, no, I don't think the SEC is the appropriate body to regulate financial planning. Look at what the SEC does: I'm an RIA, but I also have another relationship with the SEC as part of the small business capital formation side . . .there's a huge challenge for the SEC--the regulation of accounting for public companies--all the things that have happened there. We talk about the SEC from the viewpoint of registered investment advisors, but that's just one part [of its responsibility] and not the biggest part.
I don't see the issue as the RIA community. I'd like to see a study of all the problems with the RIA community over the past few years and show me why they need to do a lot more enforcement. Enforcement of what? You change everything in order to catch the next Madoff? I don't think so; that doesn't make sense to me.
So we're using it and getting a kneejerk reaction rather than looking at everything and asking, what makes sense as a cost-effective regulation to protect the consumer? We're not doing much of that now, but hopefully we will before we get through much more of this--blaming the SEC, and saying FINRA was probably asleep at the wheel, too.
Green: So who should be regulating you--a self-regulating organization?
Lassus: That's hard for me to say at the moment. We have the choice of an SRO, or a PRO (professional regulatory organization), or state regulation, like the CPAs are, or remaining with the SEC. So how do we create a model that can effectively regulate financial planning as a profession? That's what we're trying to do, because the reality is that it is a profession, and there's got to be a way of establishing a standard and raising it so consumers know what to expect from someone who calls themselves a financial planner or a comparable term.
Any one who's registered as an investment advisor automatically moves to a fiduciary standard. These guys who are dually registered are able to change hats, and that has to change at some level. The "solely incidental" rules--that I can sell you products and give you a little advice along the way--that stuff has to change.
The reason NAPFA started its Focus on Fiduciary campaign was to educate consumers about the fiduciary standard. We argue that you put clients first and always. That's the bottom line; that's the test. When you give advice or make a recommendation, are you putting the clients' interests first?
Green: Let's talk about the internal focus at NAPFA. What are the study groups doing?
Lassus: Networking is so important to us, such as at conferences, [where there will be discussion like]--"What are you doing? How are you talking to clients?" Sam [Samantha Macchia, NAPFA Treasurer/Secretary] did a town hall meeting with her clients that was hugely successful. A lot of people were doing conference calls for clients, podcasts...
Green: So you're communicating more with clients. Have you done this before--the town hall meeting?
Macchia: Never. And we told clients they could invite friends--this was not a marketing event, but if they wanted to bring friends they could. We had 100 clients [in November], and will have another one in six months. We got that idea from our study group.
The [online] discussion forums are very active--sharing newsletters they've sent to clients, for instance. And we have to make sure that we provide enough educational opportunities for our members, who maybe this year won't be able to travel to conferences because of cutbacks in revenue, so we're doing more Webinars.
Lassus: We have to do that for outreach, because everyone's looking at their budgets and tightening their belts.
Green: In this difficult time, how is membership going at NAPFA?
Lassus: The challenge is conference planning; everyone, including vendors, is trying to cut travel expenses. Membership is still going up: we have 2,093 members right now [up from 2,008 at the time of NAPFA's last annual conference in May 2008].
Communicate with Editorial Director James J. Green via e-mail at firstname.lastname@example.org.