More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Somebody very smart once said that “All of life boils down to perspective,” and I have to agree that the biggest reason that we truly do get better as we get older is the broadening of our perspective. In the November issue of Financial Planning magazine, Bob Veres relied upon his vast industry perspective to write an insightful piece called “The FPA’s Dilemma,” in which he voices his disappointment about how the FPA has turned out since the merger between the IAFP and the ICFP in 2000. With the debate still raging in Washington about the future of retail financial advice in America, it does seem a good time to ponder how the “profession” of financial planning has fared in its little corner of the financial services world. (The FPA leadership wrote an exclusive rejoinder to its critics on AdvisorOne on Nov. 8; read it here.)
I have to admit to feeling a sense of deja vu myself reading Bob describing how he felt while walking through the exhibit hall at the FPA Experience in September—being transported back to the old tax shelter days by the annuity and REIT sales folks. While I didn’t go to San Diego, I’ve had similar feelings at recent FPA conferences. At least part of the reason for this notable shift away from a predominance of mutual funds in exhibit halls across the country is the dramatic reversal of the markets themselves.
When Bob and I started covering financial planners, a “prudently allocated” client portfolio contained real estate, gold, and oil and gas. This made a certain amount of sense because inflation was at double digits while the stock market had been flat for 17 years. Then oil prices plummeted, Fed Chairman Paul Volcker got inflation under control, President Reagan lowered the income tax rates and the markets took off on what was essentially a 27-year bull market (with a few “adjustments” along the way).
It was the Golden Age of financial planning, during which the emergence of fee compensation on allocated portfolios of no-load equity mutual funds enabled virtually anyone who could fog a mirror to
Hardest hit was the ICFP, with membership restricted to CFPs, and which carefully limited its sponsorship support of conferences and publications in the best of times. At the same time, the majority of financial planners had become fee compensated and was moving toward creating a true profession. Merging the more professional ICFP into the larger, better-funded trade association that was the IAFP appeared to be a win-win-win for both organizations, and for the whole of financial planning.
And like Bob Veres, I and many other observers strongly supported the merger. The benefits of a single financial planning organization moving toward a profession seemed to outweigh any negatives. But like the Continental Congress sidestepping the thorny slavery issue to reach consensus, in order to form the FPA the leaders of both associations gave lip service to creating a profession and largely ignored the role that industry sponsorships would play in the new organization.
So far, the FPA has made three major contributions to establishing a profession of financial planning. First, it eliminated a major conflict of interest by asking the independent B/Ds to form their own organization. (Not that BDs are bad per se, but their business agendas are not always in line with professional concerns.) Next, the FPA
And finally, the FPA joined with the CFP Board and NAPFA to form the financial planning coalition, largely to present a unified front in Washington over the writing of Dodd-Frank and its resulting regulation. While I, and many others, have been critical of the effectiveness of the Coalition’s efforts, the bigger picture is that the financial planning community actually spoke with one voice for the first time in, well, ever.
Certainly the FPA is still struggling to overcome its trade association roots, and its stumbling toward a profession is often frustrating to watch. But the bigger picture is that it’s moving in the right direction on many fronts. Hopefully, the FPA will continue to take the lead by absorbing the professionalism of CFPs and NAPFA, and mitigate the marketing inclinations of the CFP Board, in moving toward a profession that financial consumers can rely on for sound, client-centered financial advice.