More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
In a speech March 10 to the Japan Society in New York, Blackstone Group CEO Stephen Schwarzman lamented that "40% to 45% of the world's wealth has been destroyed in little less than a year and a half," Reuters reported. While that may sound hyperbolic to some ears, it turns out that, in fact, much wealth has been lost, especially in the United States, over the past year.
On March 12, the Federal Reserve reported that U.S. households lost $5.1 trillion of their wealth in 2008's final quarter, or 9%. That is the is the biggest single loss the Fed has recorded in the 57 years it's been keeping those records. In the fourth quarter, the S&P 500 fell 23%, while the value of residential real estate fell 4%.
For all of 2008, the Fed recorded an 18% drop in household wealth, or $11.1 trillion. That's the biggest drop in wealth since 2002, when household net worth fell 3% following the puncturing of the tech bubble.
In his March 10 speech, Schwarzman said he saw hope in the Treasury Department's unfolding plan to create a "bad bank" that would buy up toxic assets from commercial banks using public and private money. In a series of talks over the past week, Sheila Bair, the chair of the FDIC, said the proper term for this private/public "bad" bank should be "aggregator bank," that the program would be administered under TARP, and predicted that Treasury Secretary Geithner would announce such a plan "within the next few weeks."
Another report detailed the loss of wealth among the, umm, wealthy. Spectrem Group reported March 11 that the number of U.S. households with more than $1 million in assets, not including their primary residence, fell 27% in 2008 to 6.7 million, down from a record 9.2 million in 2007. The number of pentamillionaires--those with more than $5 million in assets--fell 28%, to 840,000, from 1.16 million in 2007.
In its annual listing of the richest of the rich, Forbes magazine reported that Bill Gates, No. 1 on the billionaires' list, saw his wealth decline $18 billion to only $40 billion in 2008, while Warren Buffett's fortune fell $25 billion, to $37 billion.