What began several years ago as a response to consumer concerns over the financial interests advisors may have in regard to client recommendations has, after much deliberation, emerged as proposals that would change some of the rules governing CFP certificants under the CFP Board Code of Ethics and Professional Responsibility.

The rules govern the responsibility of CFPs to disclose to clients how they are compensated for their services. As such, the focus has been on the Fairness Principle of the Code of Ethics: A CFP Board designee shall perform professional services in a manner that is fair and reasonable to clients, principals, partners, and employers and shall disclose conflict(s) of interest in providing such services.

While getting interested parties to compromise has been a daunting challenge for the board’s Disclosure Task Force, there appears to be light at the end of the tunnel.

In October, the CFP Board released a working draft of rule changes relating to conflict of interest. The draft was actually an extensive rewrite of the findings of a previous CFP Board task force

Rick Adkins of Little Rock, Arkansas, who heads the task force, explains that while the board’s primary advocacy lies with the general public, “We have to be aware how things affect the practitioner, since that’s who we license to deliver the services to the public.”

With this interest of fairness in mind, the board invited certificants, consumer groups, regulatory agencies, and other interested parties to comment on the present working draft. “At this time, the criticisms are pretty well balanced between those thinking we didn’t go far enough and those who think we went too far,” says Adkins. These comments, posted on CFPs Web site (www.cfp-board. org/disclosure.html), are a mix of high praise and criticism. “Thank you for your hard work,” said one CFP certificant, expressing the sentiment of many. But others found the proposed rule changes confusing, and sought further clarification. One wrote that the changes “do a wonderful job of obscuring the various costs a client may directly or indirectly incur, minimize the disclosure of the planner’s area of competence and remove protections (to the public and practitioner peers).”

A representative of the American Association of Retired Persons pointed out that disclosing the general method of compensation–sales commissions on investment products, customer fees, or both–was “inadequate to insure that consumers are making informed decisions in selecting a planner and have the tools necessary to assess the objectivity of the CFP’s investment recommendations.” AARP believes the planner should provide clear information detailing exactly “how many dollars of compensation are actually earned by the planner and his or her firm for products sold or services rendered.”

The Disclosure Task Force met on December 3 to discuss the comments on the draft, and will develop a final exposure draft. Interested parties will then have six months to review the draft and again make comments. “It hasn’t been easy,” says Adkins of the long review process, “but I’ll say it has been gratifying. There’s been lots of compromise and consensus and openness in this process in an effort to try to get it right.”–Cort Smith


A Steady Hand

An IA survey shows that advisors are staying the course amid choppy waters

Investment advisors have a reputation for being buy-and-hold types, even in stormy markets. Their experience over the past year proves this out. An exclusive online survey of planners conducted by Investment Advisor for WorldlyInvestor.com, an investment Web site owned by Advisor Software Inc., has found that a majority of planners and other financial professionals have not changed their investing styles, either in the last 12 months or since the terrorist attacks on America last September 11.

Of the 729 advisors and other pros responding to the survey in late October and early November, a solid majority–58%–indicated they’ve stayed the course on their portfolios. But 64% also conceded that pressures on themselves and their businesses have increased over the last year and 52% noted an increase since Septem-ber. Pressure seemed especially intense among those identifying themselves as brokers. By contrast, just 11% of those identifying themselves as fee-only advisors observed a dramatic increase in pressures over the past 12 months, and only 5% thought pressures have increased dramatically since September.

Although buy-and-hold continues to be favored, 14% of those responding said they planned to buy more bonds or raise cash reserves. But only 2% plan to move into commodities, despite entreaties from gold bugs to shift funds into bullion for security, and just 3% said they planned to buy more stocks or mutual funds at this time.

The survey also showed that advisors have an appetite for Web-based technology solutions for their practices. No. 1 on the advisors’ wish list of tech tools: a Web application to generate client-specific reports of current performance and recommendations for changes. Also of interest were Monte Carlo simulation and Web-based tools to help determine clients’ tolerance for risk.

Asked whether Charles Schwab or American Express were their main competitors, nearly half answered Schwab and just over a third chose AmEx. Among brokers, 63% chose Schwab. However, just over half of all fee-only advisors, mainstays of the Schwab Institutional channel, also saw Schwab as threat No. 1.–William Glasgall


New Trust Twists

The repeal of the estate tax may have some predicting a decline in the use of trusts, but there were few such Cassandras at a November meeting in Wilmington hosted by Capital Trust Company of Delaware. “Do you really think transfer taxes, estate taxes, and generation-skipping taxes will be permanently repealed?” asked Thomas Pulsifer, an attorney and conference presenter.

The full house and positive response at the conference suggested that some advisors agree. Capital Trust competes with the likes of Santa Fe Trust Company and the new National Advisors Trust Company (NATC) to serve advisors who wish to manage clients’ assets even after they’re funneled into trusts. The conference highlighted some of the benefits of Capital Trust’s location in Delaware, including greater privacy, beefed-up protection of assets from creditors, and favorable Delaware state tax treatment.

Among the trust variations showcased was a Capital Trust product called a family private annuity. Here’s a summary: An elderly client sets up an annuity agreement with an adult child. An asset is then transferred to the child in return for a promise of fixed payments for the rest of the parent’s life. The parent also creates a family limited liability company (LLC) and an intentionally defective irrevocable trust, and transfers the asset into the LLC. The parent is the grantor of the trust, and sells shares to the trust with a private annuity. The trust avoids the double income tax bite that normally plagues private annuities; the asset can be anything from land to securities. The transfer into the annuity removes the asset from the estate; it is also not considered a gift and thus evades gift taxes. Control of the asset remains in the family, and the parent is guaranteed an income that he or she cannot outlive. The strategy works best when the transferred assets grow at a rate that exceeds the payments back to the parent, Capital Trust Chairman Jeffrey R. Lauterbach noted.–Karen Hansen Weese


Need A Discount?

Fidelity Investments will be significantly beefing up a key service that allows advisors to realize savings on everything from airline tickets and car rental costs to Web site design.

The service, offered only to advisors who custody assets with Fidelity Institutional Brokerage Group, is called PracticeAdvantage. Fidelity has negotiated deals with a number of outside vendors that allow Fidelity advisors to get a better price than they would on their own. “The vendors know we can send a lot of business their way so they are willing to lower the price a little,” says Jeffrey Cathie, Fidelity spokesman.

Advisors can now get savings on Web site design, car rentals, printing, airline tickets, postage, marketing and advertising plans with third-party agencies, research, conference tickets, continuing education opportunities, and errors and omissions insurance. Cathie says more deals are on the way.–Mike Jaccarino


Life Changes

Sales are up, and insurers are tinkering with life policies, following September 11

Although the official sales figures from LIMRA won’t be out till February, the insurance industry is seeing a lot of reshuffling in the marketplace. Sales are up, particularly on term life. Jack Dolan, associate director of media relations for American Council of Life Insurers, says companies are reporting business as “brisker than ever” and term insurance quote services are reporting a significant increase in inquiries.

Whole life is also getting more attention these days, as people spooked by the market downturn and desperate after the terrorist attacks to provide some kind of safety net for families reconsider whole life insurance. Variable policies, however, with their increased volatility and diminished returns in down markets, are getting short shrift from buyers.

Paul Ramseth, regional VP for American Express Financial Advisors, says that there are two distinct movements within insurance sales at the moment. The interest in term life policies, he says, is a result of September 11; the renewed interest in whole and universal life policies is attributable to the market’s downturn.

American Express, says Ramseth, is “going to go back into our fixed product lines to update the features of those policies. We’ve been a variable life company, and put universal life on the back burner. But we’re going to update those products, bring in some unique riders, and update the class of insurance–see what we can do to bring more value and flexibility to a consumer that is now taking a more conservative position. Especially in larger-net-worth situations where people want to make a life insurance decision and know it will hold up for the next ten years and solve an estate problem.”

Chuck Kavitsky, executive VP and chief marketing officer at Allianz Life, says that the company is seeing “double-digit increases across the board on everything” in sales. “I don’t think there’s any company not saying that,” he says. “There’s plainly a greater awareness that ‘I won’t live forever’.”

Planners are not necessarily seeing a boost in insurance queries from their clients, though. Kathie Barnes, a planner with Barnes Investment Advisory Inc. in Phoenix, Arizona, agrees that “There’s more of an interest in getting things in order, for instance, beneficiaries. ‘Did I finish the trust, is the will like I want it?’”

Insurance is part of the financial plan Barnes does for her clients, although she is a fee-only planner and does not sell policies. In the wake of Sept. 11, it has not become a prime focus for her clients. Nancy Coutu, a planner in Oak Brook, Illinois, concurs. Her clients have not shown an increase of interest or concern in the subject. The only economic concern they have voiced, she says, is at massive layoffs by large financial services companies; then they might ask her if that will affect their portfolios. But insurance? Not on the radar.

Life is not rosy for all insurers, however. Group life providers have gone to Capitol Hill to seek inclusion for their segment of the industry in the legislation currently under consideration to provide governmental assistance to the property and casualty industry. According to Iowa Insurance Commissioner Terri Vaughan, a number of companies providing group life insurance have been told by their reinsurers that those reinsurers are unwilling to provide coverage for acts of terrorism due to the potential for catastrophic exposure.

The legislation currently being considered provides a governmental backstop; i.e., the industry will bear a certain amount of loss for future acts of terrorism, and then the government will step in as a reinsurer to bear the rest of the loss. Such legislation had been considered only for the property and casualty industry in the wake of September 11, but group life insurers are arguing their case for inclusion in whatever insurance bill, if any, emerges from Congress.–Marlene Y. Satter