More On Legal & Compliancefrom The Advisor's Professional Library
- Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
- 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.
Fiduciary die-hards will tell you that at the heart of the financial planning process—which has many steps—is the critical step and client deliverable of the investment policy statement.
The IPS, as it’s referred to by advisors, records how client monies will be managed, along with guidelines and constraints affecting investment decisions and responsibilities.
CFPs Norman Boone and Linda Lubitz literally wrote the book (“Creating an Investment Policy Statement,” FPA Press 2004) on the topic, and their IPSAdvisorPro has been the flagship software product in the financial planning field.
Now, that product may soon reach a much larger array of financial advisors with its acquisition by fi360, a leading fiduciary tools and training organization, which certifies fiduciary advisors through its AIF and AIFA designations.
Fi360 announced its purchase of IPSAdvisorPro on Thursday, without disclosing terms of the sale, and ThinkAdvisor reached out to Norm Boone to find out what the sale of his flagship product and life’s work means for the industry.
“We’ve been thinking and writing about this this for a long time,” says Boone, head of San Francisco-based Mosaic Financial Partners — "we" being him and his wife and business partner, Linda Lubitz Boone, head of Miami-based Lubitz Financial Group.
Boone wrote an article on the topic for the Journal of Financial Planning in 1992 and developed a product for Ibbotson in 1996 — “It was on an 8¼-inch floppy disk,” he says — before he and Lubitz published their 2004 book and then launched IPSAdvisorPro in 2006.
“I’ve been doing this for 26 years, and Linda for a little over 20,” Boone says. “And in our work with our clients, transparency became an increasingly important issue for us.
“We really believe that having a document that reports all of the agreements that we’ve made with the client about how we’ll invest the money helps their level of trust with us and eliminates the possibility of unhappy clients because they’ll get exactly what was expected.”
Those benefits of the IPS clearly resonated with fiduciary advisors. Today, IPSAdvisorPro has some 700 to 800 users — investment advisory firms whose advisor head count totals close to 2,000 or 3000, Boone says. He adds that the number of individual or institutional clients using the IPS through the software is now close to 50,000.
But there is plenty of room for expansion, Boone says.
“Our greatest competition is 1) people not writing investment policy statements and 2) advisors using basically a word document, creating a template and filling in the blanks later on.”
Boone says that latter approach has lots of drawbacks, including the likelihood of office mates (there are 19 staffers at his firm) not updating or messing up the template and the huge time and trouble it takes to input broad policy changes across all investment policy statements within the firm.
“If you buy new portfolio rebalancing [software] and you’ve got 150 clients, you need to go into each account and change each one of them,” he says.
Apart from the time savings, consistency and efficiency, the IPSAdvisorPro keeps advisors’ compliance officers happy.
“It relieves them of concern that [advisors] are making unwanted changes to the document.”
Boone says compliance officers will have even more reason to be happy with fi360’s acquisition, since the fiduciary firm has its own IPS tool, and Boone and Lubitz, who will serve fi360 as consultants, intend to combine the best features of both products.
“They have testing back end that allows the compliance officer to say, “You said you’d do X, now how has your performance been?’”
But perhaps the biggest benefit of the merger is fi360’s prominent position in the fiduciary marketplace.
“They have a greater presence than Linda and I had,” he says. Besides the untapped U.S. advisor marketplace, Boone says there is demand from the fiduciary communities in Canada, Australia, Japan, the U.K. and New Zealand, which fi360 is better positioned to meet.
“Most advisors haven’t known what should go into an IPS. [IPSAdvisorPro] has given them a starting point,” Boone says, adding that he is excited about where fi360 will now take it.
Check out Dalbar: Advisors Should Sell Goals, Not Funds on ThinkAdvisor.