Podcast Center
Video Center
Webcasts
Resource Center
Events
January 09, 2002 at 07:00 PM
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.
