Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > State Regulation

The Local Solution

Your article was successfully shared with the contacts you provided.

Tip O’Neill said all politics is local. The corollary for financial planners and investment advisors–at least for those who are independent and independent minded–is that all planning is local. Schwab Institutional chief Debbie McWhinney is fond of pointing out that Schwab-affiliated advisors have a geographic advantage over their bigger-company competitors. Those advisors are not just located in a specific community, she argues, but are members of that community. That gives them–meaning you–an advantage over your deeper-pocketed competitors that no amount of name recognition and image advertising can overcome.

Localization may have an effect on stock performance, too, according to a study reported by Mark Hulbert in his New York Times column of September 11. Two academics–Christo Pirinsky of Texas A&M and Qinghai Wang of the University of Wisconsin at Milwaukee–researched the stock prices of companies that were headquartered in the same geographic region of the country (the report can be found at They found that “stock returns of companies headquartered in the same geographic area exhibit a strong degree of comovement . . . unexplained by comovement in underlying fundamentals.” The researchers conclude that “the existence of a local component in stock returns implies that geography might be an important consideration in achieving efficient diversification.”

There’s an interesting interplay between the local and the national in our country. Most Americans cherish the notion of local autonomy and resist the encroachments of the federal government. We like our independence because we believe that in most cases local people can do more good than someone from the state capital or from Washington. My home state–the fourth smallest in the Union–has more than 500 municipalities, each with its own school board. Highy inefficient, to be sure, but don’t try and take away those inefficient boards from any New Jersey town.

Finding the balance between home rule and federalism is on many American’s minds in the aftermath of Hurricane Katrina. Many are angry over the seeming incompetent and even unfeeling response of the federal government to the hurricane’s victims in the Gulf Coast, but local officials, especially in Louisiana, must share some of the responsibility, too. One police officer I spoke to said standard emergency preparedness training begins with the understanding that the first 72 hours following the event is in the hands of the locals. Only then will the state and the feds step in, assuming you ask them. By law, a state’s national guard can’t even be called out prior to an emergency, and one state must formally notify another before the second state’s Guard can be summoned. The groups that functioned best in this emergency were those with a strong local presence of officials and volunteers–think the Red Cross and the Salvation Army–backed by a national organization.

After Katrina, the independent financial planning community was hamstrung by its very independence. While the local branch offices of national financial services companies could lean on the national corporate structure to relocate operations, independent advisors had no such safety net. At least that was true until the Financial Planning Association, spurred on by folks like Bob Clark, set up an online clearinghouse for displaced advisors to ask for help from their peers and for generous planners unaffected by the disaster to offer office space, equipment, and even their homes to colleagues in need. The planning community should use this experience to build a more formal way for advisors to help each other in future times of trouble, while maintaining the independence of local groups and individual planners. Maybe the Red Cross could help.



© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.