More On Legal & Compliancefrom The Advisor's Professional Library
- The Custody Rule and its Ramifications When an RIA takes custody of a clients funds or securities, risk to that individual increases dramatically. Rule 206(4)-2 under the Investment Advisers Act (better known as the Custody Rule), was passed to protect clients from unscrupulous investors.
- 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.
I recently sat down with two leaders of the Financial Planning Association—Marv Tuttle, executive director and CEO, and Paul Auslander, FPA’s president—to talk about the top issues facing advisors.
We began with the SEC’s attempts to put brokers under a fiduciary mandate; the aging of the profession and its lack of diversity; the importance of practice management and succession planning; the Financial Planning Coalition’s efforts in Washington; and how the younger generation of planners holds the key to moving the industry forward.
But something else is worrying the FPA: a drop in membership. As of May 1, FPA had 23,300 members, down 200 members since June 1, 2011, the start of FPA’s fiscal year. This drop, which Tuttle attributes mainly to the challenging times advisory firms are facing as well as differences of opinion over certain issues, has prompted the trade group to launch an “aggressive” campaign for new members, “largely from those in the CFP community and those who believe in how FPA stands for the practice and profession of financial planning,” Tuttle told me.
Tuttle says he believes there’s a “great opportunity” in the coming year and next for FPA to grow its membership. “There is a resurgence in the use of the financial planning process as the core for financial and investment advisory relationships today. This should bode well for FPA as the professional home for financial planning.” (This interview took place before Tuttle announced in early May that he plans to retire from his position in 2014.)
Tuttle acknowledged, however, that the FPA has to do a better job of communicating the value of membership for those who “believe in financial planning as a profession and the value of our efforts” to support members through everything from ongoing professional education to practice management programs.
Regarding whether the SEC’s attempts to write a fiduciary rule will eventually be unveiled, Auslander says he’s confident that the train has “already left the station;” now “it’s just how it applies.” SEC Chairman Mary Schapiro told me last month that she’s hopeful the SEC can release a fiduciary duty proposal this year. Auslander argues that the debate has now moved on to how a fiduciary duty for all advice givers “is going to be applied—and there are many different iterations.”
A fiduciary duty that would apply to all business models remains the biggest challenge, Auslander said, “but I think we can get it right.” He also pointed out that serving in a fiduciary capacity is compensation neutral. “You can be a fiduciary if you’re a commission broker or a fee-only planner,” he said, acknowledging as well that all business and compensation models contain within themselves “a potential for conflict.”
Both Auslander and Tuttle agreed that two pressing issues for the industry are practice management and succession planning. The FPA, Tuttle said, is putting “a greater focus on practice management, from A to Z” as well as how succession planning plays into that. Tuttle said an area where FPA “can excel” is in practice and business management, hoping to become a “go-to resource for financial planners and maybe others that can benefit from a professional standards standpoint.”
Auslander, however, lamented the fact that FPA is tackling the issues of succession planning and practice management within the group “maybe later than we should have.”
“There are a few cases where some folks have really thought it through,” Tuttle said, referring to building actual succession plans, “but that’s the exception rather than the rule.”
The Diversity Issues
Tuttle conceded, too, that the industry is still in the early stages of “examining where we can make a difference in the diversity of those who practice financial planning and those who are receiving financial planning.”
The industry is still predominantly made up of white males, with only 23% of FPA’s members being women. “If we want to be seen as a profession, we have to figure out how to deliver this [financial planning] benefit to various segments of society,” Tuttle said. The ratio of male and female financial planning practitioners needs to be closer, he said, to “50-50.”
Auslander added that while more women are entering the industry in the United States, Japan and China have this country beat in that “most of their planners and CFPs are women.”
With the average age of FPA members being 56 years old, Tuttle also noted the importance the younger generation plays in shaping the profession. “The younger generation is the one that is going to make financial planning stick,” he said.
Hope of the Young
Tuttle and Auslander stopped to talk at Investment Advisor’s Washington office during financial literacy week after having spent some time at Virginia Tech University in Blacksburg, Va.—a campus that was marking the fifth anniversary of the 2007 rampage that left 32 students dead. Virginia Tech is one of nearly 100 colleges offering a baccalaureate program in financial planning.
Both Tuttle and Auslander enthused about the intelligence and vigor of the students whom they met at Virginia Tech who were about to enter the profession. “They get it, and they are hungry to find those opportunities to practice,” Tuttle said, noting this younger generation of planners will be different from the previous generation, which took a more “entrepreneurial approach” to their careers.
Auslander noted that “every one” of the students they talked with had a job offer lined up—some as interns and others with full-time work—at both smaller RIA firms and larger firms. “You put these [students] into Ameriprise, Northwestern Mutual and Merrill Lynch and you’ll have different companies than they are now,” he said.