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Keebler Kills At Roth Conversion Webinar And Proves Some Advisors Are Nuts

Bob Keebler killed at yesterday’s session of the Financial Advisor Webinar Series. Attendees who filled in our post-webinar survey with ratings and comments on the session raved.

Keebler over the past decade has established himself as the premier educator of financial professionals on IRAs.

While he lacks the showmanship of other IRA experts, Keebler is great at making IRA esoterica understandable. He does not try to make things simple but clearly explains the arcane.

Keebler received the highest rating of any speaker since we started the weekly webinar series in October 2008. With five being the best score, attendees gave the webinar overall a 4.7 rating, and that was dragged down ratings on my performance as moderator. Keebler’s rating, without mine factored in, was an astounding 4.8!

In fairness to all of the other presenters that have come before Keebler, advisors are incredibly critical. No matter what we do on these sessions, some attendees complain.

If we go beyond one hour to take questions, some attendees ream me out in the surveys for letting the sessions go long. If we don’t take many questions because we want to end on time, I get an earful from some attendees about that.

Even Keebler, who was obviously great, got some flak for speaking too fast, and several attendees several attendees actually gave him a rating of 1.

What this demonstrates is that some advisors are really nuts. They complain no matter what you do for them.

On the other hand, more than half of the advisors on the session took the time to fill our post-webinar survey and the vast majority gave us great ratings. And the fact that a small handful of advisors found something to give us poor ratings is not all bad. At least they care enough about what we’re doing to express an opinion.

If you’re a member of
Advisors4Advisors, you can get CFP Continuing Education by viewing a replay of the session. If you’re not a member, you can view it (with no CE credit) at the Advisor Products webinar page.

I’d ask one favor of you: We have plans to automate the attendee ratings from the post-webinar survey to feed the ratings module in A4A, but we’ve not gotten to it yet. If you’re one of the 1,500 members of the A4A community, please take a minute to go to the Events page on A4A and rate the Keebler webinar and any other sessions you’ve attended.

Below are comments attendees gave us on Keebler’s session, in answering the question, “What could we do to improve the webinar?

  • Good topic and good presentation - thanks!

  • Excellent

  • Excellent! Great info!

  • Excellent

  • The content was excellent, but you should have allowed more time & had Bob speak in more depth about various of the issues

  • Don't change a thing.

  • Very informative

  • Excellent. All excellent material that I can use to communicate with clients

  • Thank you

  • This particular webinar was very helpful. However, in other webinars (last week's) this survey form did not populate at the close. Therefore, in order to receive CE credit, I must call in or email advisors4advisors the following week. This has been frustrating since it has happened multiple times. Improvements here would be much appreciated!

  • Great seminar. The best one I have heard on this topic by far.

  • How to market this concept?

  • Very useful. This will be a bigger topic than many advisors realize this year.

  • Liked it, very helpful

  • I think it is really excellent. Perhaps being ab;e to access the slides as soon as the webinar begins would be great it was hard to keep up at times

  • I thought the webinar was great and there's nothing that comes to mind to improve it.

  • Great webinar, extremely useful, looking forward to receiving the two-pager.

  • Excellent!

  • I thought it was very good and put together well. My only issue is that it went by so fast. I will probably have to listen to it again once you get it online.

  • Great information!

  • Awesome. This helped me raise the bar on evaluating CPA quality!

  • Very in-depth discussion. I think the opportunity to print out the front/back handout in advance of the webinar might have helped. It would have been good to be able to read.

  • Very good...Bob is a little fast in delivery.

  • Absolutely, wonderfully informative.

  • Splendid. No suggestions.

  • Wow! May be the most relevant subject and best speaker possible. Excellent info. I have attended many of your webinars the past year and found this one and the Don Phillips webinar last Feb to be the best. Thanks for making this available.

  • This was one of if not the best webinar I have attended on advisors for advisors.

  • Bob did a great job of answering specific questions. He went well beyond the basics which have been outlined many times. Nice work!

  • Great job

  • Honestly....a little hard to keep up but I'll download the presentation....thanks.

  • You might consider posting the handout, in addition to the slides, prior to the start of the webinar. Overall, time well-spent! Thank you.

  • Every time I listen to a presentation on ROTH conversions I pick up new information

  • It was great, a real eye opener on Roth conversions.

  • Great speaker

  • This was the best ever. Bob Keebler was the sharpest, most knowledgeable presenter you have ever had. My head is still swimming.

  • Have Bob speak again-Great Webinar!!!

  • Very informative

  • Great presentation and useful material. More info on case studies will be handy as I visit with clients down the road.

  • Good topic. thanks.

  • Great Seminar. Thanks Andy!

  • I'm a CPA/PFS and not a CFP. Can I get CPE credit for these webinars?

  • One of the best yet, but too many questions..

  • Excellent, thank you for allowing it to run over for questons.

  • Awesome!

  • Very knowledgeable speaker

  • Difficult to cover it all on this topic. Nice job though.

  • I have heard several presentations on htis issue and this was the best in terms of being understandable and detailed at the same time.

  • It was a great overview of all concepts regarding the topic.

  • I thought it was great. One of the best sessions on ROTHs and conversions I've listened to. Bob is very knowledgeable and I'm sure I'll go listen to the replay when questions hit me in the middle of the night! Thanks again!

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5987 Hits

Is This New Tool What Life Planning Needs?

Life planning has influenced financial planning enormously over the past decade but it is still in its infancy and not widely embraced by the independent advisory industry. I doubt the new tool I am about to tell you about will change that single-handedly, but it may be a step in the right direction.

While leading financial advisory firms have embraced life planning, the vast majority of financial planners do little or nothing to incorporate the “soft” side of planning in their practices.

For example, George Kinder, a founding father of the life planning movement, and his organization, The Kinder Institute of Life Planning, the leader in the training life planners has trained only about 1,000 of the nation’s 60,000 CFP licensees. Why has this style of planning, which has been embraced by many leaders of the industry, not achieved deeper penetration?

Largely because it takes a significant effort to enter life planning. For instance, Kinder Insitute’s program involves an intense five-day training program and six-month mentorship, which can earn a practitioner a Registered Life Planner designation. Money Quotient, a relative newcomer to training advisors in life planning, offers a three-day training program that incorporates practical tools and processes that can be implemented by its licensees. These programs require a major commitment.

It's difficult to change your business model and invest the time and resources to revamp your practice in even the best of times. Doing so in the wake of the financial crisis is even more difficult.

Now, in a move that is likely to be derided by advisors who have been trained as life planners by one of the established educational programs, let me introduce you to a new life planning solution for advisors who want to dip their toe in life planning without making a huge commitment in time and money.

To read my full article, please join Advisors4Advisors.

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Financial Planning Coalition Gets It Right

The Financial Planning Coalition (FPC) released a statement this morning clarifying its position on the Obama Administration regulatory reform proposal.

The FPC applauded the Obama Administration proposal to require a fiduciary standard of care to brokers, repeating a position first articulated in its release of June 18, the day after the Obama Administration’s white paper on regulatory reform was released. However, the FPC now also expressed concern that the fiduciary standard would be “watered down” by the proposal.

The FPC is a recently created group comprised of the Financial Planning Association, National Association of Personal Financial Advisors, and the CFP Board of Standards. Please note that my blog of June 18 swiped at FPC for not mentioning that the fiduciary standard could be watered down by the Obama proposal.

Apart from qualifying its support for the Obama Administration proposal, today’s FPC statement, which I’ve highlighted for quick scanning, clears up an important part of the Obama Administration’s June 17 white paper. The 88-page white paper called for establishment of a Consumer Financial Protection Agency (CFPA) to help protect consumers from bad financial advice. Some observers interpreted this to mean an entirely new regulatory regime would replace the current regulatory framework. Not so.

FPC explained that the CFPA’s jurisdiction “would cover consumer financial products such as credit cards, savings accounts, and mortgages, and possibly insurance, but notably leaving securities transactions and investment advice to the SEC.”

This makes a lot of sense. While coverage in the trade press would have led you to believe that the CFPA was taking over responsibility for regulation and enforcement of advisors, it’s clearly not. Point is, wrangling over regulatory reform is going on behind closed doors and we know little about the structure of what’s to come, much less who the winners and losers will be.

With that qualification, I’ll speculate that our government bodies and existing institutions are likely to be relied on more heavily as reform is implemented. My guess is FINRA will gain power to regulate RIAs advising consumers.

FPC’s effort to prevent the watering down of the fiduciary standard of care for clients is important. If brokers are fiduciaries but can continue to be compensated on commissions, then the fiduciary standard of care has no teeth. And if the U.S. government bans commission compensation of independent financial advisors, as was done last week by Great Britain’s Financial Services Authority, an extremely unlikely reform, then telling the difference between fiduciaries will be difficult.

Clearly, once the fiduciary standard of care is defined under a new regulatory regime, it could be watered down as to be almost meaningless. The reform measures may not make it easier for a consumer to know the difference between an advisor who puts a client’s interest above his own and one who does not.

The FPC’s release today is laudable for pointing this out and for giving advisors tools to speak out. The bottom of the FPC release contains “message points” advisors can borrow to write letters to legislators.

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5796 Hits

Schapiro: “Harmonize” RIA And B/D Obligations

Testifying before the Senate Committee on Banking, Housing And Urban Affairs Thursday, SEC Chairman Mary Schapiro submitted documents saying the agency anticipates “harmonizing investment adviser/broker dealer obligations.”

“We are studying whether to recommend legislation to break down the statutory barriers that require a different regulatory regime for investment advisers and broker-dealers, even though the services they provide often are virtually identical from the investor's perspective,” Schapiro said in prepared testimony. “Some of our rules regulating financial intermediaries need to be modernized, and the Commission is considering what, if any, legislation to ask for from the Committee.”

Along with her prepared remarks addressing the SEC’s priorities and possible reforms for restoring investor confidence, Schapiro submitted an appendix to her testimony to provide “an overview of the major functions of the SEC, a summary of recent activity, and the resources allocated to each function.” The document says that “anticipated 2009 activities” of the SEC’s Division of Investment Management and Division of Trading And Markets, which regulate RIAs and B/Ds respectively, included “harmonizing investment adviser/broker dealer obligations.”

In 2008, according to the appendix submitted by Shapiro, the SEC, using risk-based targeting, conducted examinations of 1,521 investment advisors (14% of registered universe of 11,300 registered investment advisors). During the same period, the agency conducted examinations of 720 broker/dealer firms (together with FINRA, 55% of universe of 5,500 registered broker/dealers examined).

Schapiro, who served as CEO of Financial Industry Regulatory Authority, the self-regulatory organization for broker/dealers, was appointed by President Barack Obama on January 20 and was confirmed unanimously by the Senate and sworn in as SEC chairman on January 27, becoming the first woman to serve in the post.

With her strong ties to FINRA, many RIAs have speculated that Schapiro would act to bring regulation of RIAs into alignment with brokers, a development most RIAs do not welcome and most B/Ds cheer. RIAs managing more than $25 million are regulated by the SEC while those with less than $25 million under management are regulated by state securities bureaus. Brokers are licensed by FINRA and supervised by broker/dealers.

Compliance regimes imposed by most B/Ds on registered reps are generally far more invasive and bureaucratic than the compliance system faced by RIAs. However, B/Ds have a long history of violating rules governing sales to retail investors, while instances of abuses by RIAs been comparatively rare.

The $65 billion Ponzi scheme by Bernard Madoff has created an environment in which investors and legislators are demanding change to the regulatory framework, which is widely considered to have been outmoded in recent years by the growing use of complex derivatives, unregistered hedge funds, and private equity partnerships, and the conflicts of interests at credit rating agencies responsible for passing judgment on debt issues that pay huge fees to the rating giants. In her prepared remarks, Schapiro’s promised to address a number of these issues.

While Schapiro offered no details about how she might bring BD and RIA regulation into closer alignment, her remarks make it clear that a review of the regulatory framework faced by RIAs is high on her list of priorities for 2009. An area affecting RIAs that she offered some details about are instances in which an RIA takes custody of assets. While few RIAs accept custody of client assets, the Madoff fraud would likely have been discovered sooner if stricter rules had been in effect governing instances in which RIAs take custody of client assets.

“I have asked the staff to prepare a proposal for Commission consideration that would require investment advisers with custody of client assets to undergo an annual third-party audit, on an unannounced basis, to confirm the safekeeping of those assets,” Schapiro said. “I also expect the staff to recommend proposing a rule that would require certain advisers to have third-party compliance audits to review their compliance with the law. And to ensure that all broker-dealers and investment advisers with custody of investor funds carefully review controls for the safekeeping of those assets, I expect the staff to recommend that the Commission consider requiring a senior officer from each firm to attest to the sufficiency of the controls they have in place to protect client assets.”

Schapiro said the list of certifying firms would be publicly available on the SEC's website so that investors can check on their own financial intermediary. In addition, the name of any auditor of the firm would be listed, which would provide both investors and regulators with information to then evaluate the auditors.

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Custodian Succeeding With Small RIAs

Amid the gloomy landscape stands an oasis: Shareholder Services Group.

About a year after Peter Mangan left TD Waterhouse Institutional in 2002, he along with Barry Boyte and a few other veterans of the RIA custody business started Shareholder Services Group (SSG). (See my April 2003 article.)

Initially, I had my doubts. Could a custodian focusing on small advisors compete? It was the middle of a bear market, and the established custodians were still struggling in the aftermath of 9/11. I feared they'd fall flat on their faces. Boy was I wrong.

SSG is now a custodian to 480 RIA firms and it is experiencing a boom amid the economic bust. While the $1.7 billion amount of assets SSG custodies for RIAs is dwarfed by the big-name custodians—Fidelity, Pershing, Schwab, and TD Ameritrade, SSG has built a profitable business around smaller RIAs that the larger custodians don’t value as much.

According to Boyte, since the market meltdown about 15 to 20 new RIA firms have been signing on with SSG each month.

About 75% of the new RIAs are registered reps coming from BDs, Boyte says, and the vast majority are dropping their securities licenses. With a new regulatory regime likely (see previous post), these registered reps seem anxious to move to a fee-only or fee-based business-model now rather than wait.

These advisors are probably moving now because they have less to lose. The stock market meltdown has eroded the value of their 12b-1 fees, making it easier to walk away from them.

Other custodians are saying they’re seeing an influx of new assets, too, but the details of SSG’s growth tell a compelling story.

“It’s a good business model,” says Boyte. “Peter Mangan laid it out in a business plan in 2002 and we’ve adhered to it very closely because it works. First and foremost, it’s about giving good quality service.”

How is SSG succeeding? Nothing fancy, no unbelievable tech story, no huge discounts. Just good service.

Boyte says SSG pricing is competitive versus other custodians, but what separates the firm is the deep experience of its principals and staff, and SSG’s sole focus the RIA custody business. In contrast, Fidelity, Schwab, TD Ameritrade, and Pershing are financial services behemoths with an RIA division.

Boyte says the firm is not trying to bring in more advisors because it fears service issues. SSG, he says, is able to maintain a high service level because it only hired personnel experienced in working with RIAs. “Everyone on staff here now worked with us at Jack White and TD Waterhouse,” says Boyte. “When we need a new person, we know where to go and who to speak to.”

Any advisor who is discouraged because of tough business conditions should take comfort from SSG’s story. If you’re smart enough to stay focused on your business model and on doing the right thing for people in this business, you, too, will probably be doing back-flips in a few years.

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Making Sense (And Dollars) After The Plunge

“If you go to a doctor because your elbow hurts, the doctor isn’t going to treat you heart or hand,” says Craig Israelsen. “He’ll treat your elbow. That’s what advisors need to do with clients now.”

“It’s not like a client’s entire portfolio is hurt,” says Israelsen. “It’s just part of it.”

Israelsen, an associate professor at Brigham Young University and frequent contributor to Financial Planning Magazine, likens the market crash of 2008 to a client’s elbow that's taken a very unfunny blow to the funny-bone.

Israelsen will speak about how the market cataclysm affects rebalancing at this Friday’s 4 p.m. EDT session of the Financial Crisis Webinar Series.

Israelsen says that advisors who did not have retiree or pre-retirees holding age-appropriate cash positions before the global economic crisis decimated stock prices are vulnerable but have no one but themselves to blame. He has always argued that it was misguided to think of cash as being a drag on portfolios. “No one thinks cash is a drag now!”

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NAPFA Stained By Scandal

It was only a matter of time before NAPFA’s reputation would be tainted in the national media.

Ron Lieber, the personal finance columnist at The New York Times, wrote a story in today’s paper entitled, “How a Personal Finance Columnist Got Caught Up in Fraud.”

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Ways RIAs Can Reassure Clients

Five more advisory firm frauds made headlines in the past week. Meanwhile I received two hateful emails about my recent blog posts saying old ways of assuring clients of advisor integrity are no longer enough.

I’m sorry if I stepped on some toes or if you feel I was too harsh with my comments about NAPFA. But unless advisors communicate proactively, candidly, and in detail with clients right now about the trust issue, client assets could start moving away from advisors toward discount brokers.

I’m not predicting a huge stampede. But clients who have seen portfolios slashed in value and who see the string of frauds make headlines need reassurance.

During the last market pullback—the tech bubble of 2001-2002—discount brokers did not have the easy-to-use technology they do today, and only a fraction of the investors used the Internet. It’s different this time. Advisor clients are on the Web and the discount brokers have slick, easy-to-use interfaces.

The history of innovation should make advisors cautious. Disruptive technology systems (discount brokers) are always viewed as crude when introduced. This lulls established market leaders relying on existing technology (traditional financial advice outlets) to believe they will not lose business to the new competitor.

However, incremental improvements in once-crude innovative systems gradually overcome the established regime. This pattern of innovation adoption has been
documented extensively.

Advisors would be wise to watch the progress of the major discount brokers in coming months to see how much market share they pick up from the retail flight of assets from Wall Street brokers.

Ironically, advisors are more than ever in need of help from the big discount brokers. After all, these same firms are also the largest providers of custody services to RIA assets. And the custodians can provide advisors with crucial assistance in reassuring their clients of their fidelity and competence.

Perhaps the most important idea an RIA can communicate to assure clients fearful of fraud is that you have an independent custodian. This is a time to emphasize to clients that, unlike Bernard Madoff, you have an independent custodian.

Because of the important role an independent custodian plays in RIA client relationships, I emailed four major custodians a week ago—Fidelity, Pershing, Schwab, and TD Ameritrade. I asked them how RIAs can reassure their clients by emphasizing the role played by a custodian. Only two of the custodians responded.

To me this was surprising. Here’s a chance for the custodians to be on your side and play a valuable role. Your custodial firm can earn its fees by helping you communicate proactively right now. You’d think they would jump at that chance.

Mark Tibergien, who heads
Pershing Advisor Solutions, replied within minutes. Brian Stimpfl, a managing director at TD Ameritrade Institutional, responded a day later by spending an hour on the phone with me.

If Fidelity and Schwab contact me after seeing this post and have good ideas to add, I’ll post another entry. Keep in mind, Advisor Products is incorporating these messages into articles we write for RIA client newsletters and websites.

Tibergien says the simple fact that you have a custodian must be communicated to clients. Madoff’s firm was itself custodian of client assets. Almost all custodians mail statements monthly directly to clients. You want to mention to your clients that these statements provide independent verification of their account holdings, transactions, and values.

Stimpfl points out that only about 1,000 of the approximately 11,000 RIAs providing retail investment advice take custody of client assets. You may want to mention to clients that RIAs not holding their assets at custodians require far more due diligence on an ongoing basis.

Clients should understand that portfolio performance reports they get from an RIA can easily be compared against the independent custodian’s statement. This is also a good time to remind clients that custodians will send them notices of trade confirmations whenever a transaction occurs in their accounts. Mentioning that the custodian has its own website where account values are posted 24/7 would also reassure many clients.

You may also want to remind clients of the URL on the custodian’s website where they can sign up to receive the electronic trade confirmations directly from the custodian. Custodians years ago rolled out a feature allowing them to notify your clients of trade confirmations and they can send an email to your clients with the URL where they can download each trade confirmation. They also archive every confirmation for each client. Many clients will appreciate the reminder and your being proactive in disclosing how transparent your business is. It will instill confidence in your firm.

Incidentally, you may want to ask your custodian about its policy on ex-clients. If you move a client’s assets away or if the client fires you and moves to another clearing firm, how long will the custodian keep those old trade confirmations? Stimpfl says they’re archived for seven years at TD Ameritrade.

Stimpfl says several months ago TD Ameritrade produced and distributed a set of materials for RIAs to help them answer questions from nervous investors after the Madoff scandal and market break. The package of materials included a letter that could be copied, pasted, personalized, and mailed out under the RIA’s letterhead.

The letter, Stimpfl says, reminded clients to check their client services agreement with their RIA firm to see exactly what their advisory firm can do with their money. Reminding clients that you have discretion to trade their accounts and how carefully you manage that responsibility would be reassuring. While the majority of RIAs do have discretion of their client accounts, those that do not may want to remind their clients of this fact.

“We live in a transparent society,” says Stimpfl. “And if you're holding back anything, you could unintentionally and unnecessarily put client relationships at risk.”

RIAs who invest in alternative investments should be proactive in communicating about the value of those assets. Advisors who recommend alternative investments should have Investment Policy Statements for each client who holds them. Reminding these clients of the details about holding alternative investments would be wise. Advisors who do not hold alternatives or who hold less than 5% of total client assets in them should consider reminding clients of these facts.

Tibergien says clients should be told about processes and protocols your firm has in place to review investment decisions. If your firm has conducted a “mock SEC audit,” showing clients a report from your compliance consulting firm would be another way to demonstrate your commitment to run your firm with integrity.

You can also remind clients that your custodian has its own responsibilities under the law to ensure client assets are protected. SIPC insurance covers investors in the event of the insolvency of the custodian for up to $500,000 of losses. In addition, a custodian is likely to have separate insurance coverage purchased privately. One custodian has coverage for losses in securities accounts of up $149.5 million and up to $900,000 in cash accounts.

And speaking of cash accounts, Stimpfl says TD Ameritrade has safeguards in place that prevent an RIA from moving cash from a client’s account into the firm account. RIAs can move cash from a client’s account to another account held by the same client, but TD Ameritrade must receive written approval via mail. Similarly, client address changes must be verified via mail.

Finally, both Pershing and TD Ameritrade said they have automated systems in place to monitor RIA client accounts. Software to ensure compliance with anti-money laundering laws and programmatically search for suspicious trading patterns in customer accounts are yet another protection for RIA clients.

By the way, the two hateful emails I received were more than offset by two uplifting messages. I appreciate the kindness and support.

One More Thing:

If you are interested receiving notification of the continuing drumbeat of advisor frauds being uncovered almost daily, I’ve been “tweeting” the headlines about them. Follow me on Twitter to receive these notifications. Here’s the recent crop of those tweets:

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How Will RIA Regulation Change?

As the number of Ponzi schemes and investment frauds prosecuted by the U.S. Securities and Exchange Commission soared in recent months, so did the odds for change in the way small RIAs are regulated.

You don’t have to be a math genius to understand the calculus. In the last six weeks, the SEC issued press releases about prosecuting 18 fraud cases involving registered investment advisers, hedge funds, and Ponzi schemes. During the same period a year ago, the agency brought just six such cases. It prosecuted one such case during the same period in 2007.

Add to these grim statistics the Obama Administration’s vow to clean up Wall Street, massive mistrust in Wall Street, and the announced intention of the SEC chairwoman Mary Schaprio to “harmonize” RIA and broker regulations. The equation logically leads to one solution: RIAs are likely to be regulated by FINRA.

The coalition announced earlier this year of the Financial Planning Association, National Association of Personal Financial Advisors, and Certified Financial Planning Board of Standards is likely too little, too late. The coalition proposes creation of a new regulatory body to regulate financial planners. However, Congress is unlikely to complicate the regulatory framework further by supporting any effort to create yet another regulatory body that is new and has little history of regulating other than the 60,000 or so CFP designees.

I’m not an expert on Washington affairs but a proposal to create a new regulatory body to oversee financial planners would look wasteful, since a statutorily-empowered self-regulatory organization that regulates retail financial advisors already exists. While FINRA’s bureaucracy and history of being dominated by large Wall Street firms is likely to put RIAs in a bad position, it’s hard to imagine any entity other than FINRA taking the reins in regulating RIAs.

So it’s time to start wondering aloud about what it will mean if indeed FINRA becomes the regulator of RIAs. What will the new regulatory regime mean to RIAs and financial planning firms? Here are my guesses:

  • Compliance expenses for RIAs are likely to rise sharply once FINRA is in charge.

  • RIAs will be required to pay some additional fees to FINRA to help defray the cost of a FINRA examination program.

  • Instead of naming a junior-level employee your chief compliance officer (CCO), your CCO may have to pass an exam as is required by FINRA.

  • IA reps will have to pass a competency exam akin to the Series 7.

  • RIAs will be required to submit for review to FINRA client communications touching on certain subjects, such as limited partnerships, recommendations of stocks, mutual funds or derivatives, or that describe your performance history.

What do you think? Let the speculation begin.

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5673 Hits

Fraud Outbreak Makes Posting Form ADV A Must

The Securities and Exchange Commission took emergency action Wednesday to charge Nashville, Tenn.-based investment advisor Gordon B. Grigg, 46, and his firm, ProTrust Management, Inc., with securities fraud, and the agency obtained a court order freezing their assets.

“The Complaint alleges that ProTrust, a Tennessee corporation with offices in Nashville, is engaged in ongoing securities fraud,” according to the litigation release posted on the SEC’s website earlier today. “The Complaint further alleges that Grigg is a purported financial planner and an investment adviser who controls ProTrust.”

The SEC alleges that Grigg and ProTrust defrauded at least 27 clients out of at least $6.5 million and misrepresented that their money was invested in the federal government's Troubled Asset Relief Program (TARP) and other securities that, in reality, do not exist. The SEC alleges that Grigg bilked investors by selling them private placements and then fabricated account statements for the non-existent U.S. Government-guaranteed commercial paper and bank debt.

Grigg and ProTrust consented to the emergency relief sought by the SEC. William J. Haynes, Jr., a U.S. District Court Judge for the Middle District of Tennessee, Nashville Division, issued a temporary restraining order to prevent Grigg and his firm from further violations and froze their assets. While the ProTrust website is no longer online, the image to the right obtained by from WayBack Machine was previously on the firm's home page.

Grigg's scheme begain in 2003, according to the SEC complaint. In August 2007, the says charges, Grigg recommended that a client in North Carolina and a client in California, each of whom was a retired U.S. Air Force pilot, invest in “Private Placements.” Grigg “falsely and fraudulently” told the two piltos that the Private Placements were not available to individual investors but were available to his clients through the pooling of their funds. One client wired $237,000 and the sent $100,000 in cash.

Grigg, from approximately January 2008 through December 2008, faked monthly account statements to the North Carolina client, reporting positions in a $100,000 “Jumbo Corporate Debenture” with an 8.15% fixed annual return and a $132,000 “Kohlberg Kravis Roberts” investment product with a 14% fixed annual return. “In fact, no such investment products had been purchased by the Defendant,” says the SEC complaint, and no such KKR investment product exists.

Last month, the scheme took a new turn when, according to the SEC, Grigg mailed correspondence to the two pilots saying his firm “had access to debt guaranteed by the U.S. government through the government’s TARP program.”

ProTrust Management has been a very small participant in a partnership that is headed up by Berkshire Hathaway and Kohlberg Kravis and Roberts, or KKR,” Griggs reportedly wrote in a letter to both of pilots. “Via the partnership, ProTrust has purchased over eight million dollars worth of banking debt and commercial bank paper over the last five years with interest rates from 7.5% to14%. ProTrust was offered to participate in the latest offerings with Morgan Stanley and Goldman Sacks [sic] through investments and loans.”

Added Griggs, “I agreed with the partnerships and committed to over $5 million dollars of commercial paper offering 12.5% in government-guaranteed commercial paper and bank debt. Griggs, in the portion of the letter provided by the SEC, declared: “This is an amazing opportunity as we now have a U.S. government guaranteed 12.5% bank debt. If you do not want to participate in the 12.5% government guaranteed fund please send me the enclosed liquidation form.” An additional 25 clients were told a very similar story by Griggs, the SEC alleges.

Perhaps most disturbing is that Grigg was terminated as a registered representative of a broker-dealer on April 25, 2002 for multiple compliance violations. In addition, on June 28, 2006 Grigg and ProTrust were the subjects of an administrative cease-and-desist order issued by the North Dakota Securities Department. North Dakota ordered them to pay restitution and a civil penalty of $570,000 for falsely representing to a client that her funds had been invested in certificates of deposit and other securities. The state authorities found that Griggs and ProTrust had violated registration and anti-fraud provisions of the state’s securities laws.

The 2002 and 2006 charges raise questions about why regulators at FINRA and the SEC did not discover Grigg’s alleged scheme earlier. If the SEC charges are true, Grigg brashly continued his fraudulent ways two and a half years after the North Dakota securities regulators identified him as a repeat securities offender.

Grigg’s case is the latest in a series of frauds that have unraveled after the market fallout, when nervous investors began trying to redeem their money only to learn that it was gone. None of the recent fraud cases compare to the $50 billion Ponzi scheme allegedly perpetrated by broker-dealer Madoff Securities and its disgraced founder Bernard Madoff, but the number fraud cases involving investment advisors in recent weeks has suddenly escalated to what appears to be an unprecedented level.

On Monday, Nicholas Cosmo, a Long Island, N.Y. investment-firm owner, surrendered to federal authorities. Mr. Cosmo allegedly raised more than $370 million between 2006 and 2008 by promising investors 48% annual returns from funding commercial loans, according to a federal affidavit in support of his arrest. On Tuesday, authorities arrested Arthur Nadel, the missing Florida hedge-fund adviser, who was accused by federal authorities of defrauding clients of millions of dollars. Less than two weeks ago, A Hamilton County Indiana Superior Court judge froze financial advisor Marcus Schrenker's assets and those of his wife after Schrenker reportedly parachuted out of his company-owned plane over Alabama Sunday while the plane continued flying on autopilot before crashing into Florida swampland two hours later. After a manhunt, Schrenker was apprehended and is now in custody.

As of today, Advisor Products, a leading developer of websites for for financial advisors, is recommending that all Registered Investment Advisers it serves post a Form ADV on their website, or a link to the SEC’s Investment Adviser Public Disclosure website where consumers can view the Form ADV. In both the Cosmo and Grigg cases, prosecutors allege the advisory firms were unregistered. So a Form ADV provides assurance to clients and prospects that you are properly registered and subject to SEC inspections.

Latest news about the Grigg case.

Latest news about the Cosmo case.

Latest news about the Schrenker case.

Latest about the Nadel case

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5308 Hits

Thank You For Making My Life More Meaningful

In running Advisor Products Inc. for over 12 years, I’ve seen some wild market cycles. There was the roaring bull market of the mid-1990s, when large-cap growth stocks led the way for so long and by so much that some professional investors declared small-cap value stocks forever dead. Then, there was the dot-com boom of the late 1990s, followed by the dot-com bust of 2000, and the post-9/11 bear market. Then came the Bush bull market, which gave way in recent months to a collapse of confidence in America’s financial institutions and triggered a global economic crisis.

While I much prefer the ups to the downs, I have to admit to gaining some special satisfaction from this most recent flight from equities. It’s perhaps borne of the maturity that comes to us all in our 50s. Or maybe it’s just that I’ve been through so many market crises since I began covering Wall Street in the mid-1980s at The New York Daily News that this meltdown is somehow easier to bear. For whatever the reason, Advisor Products was better prepared than ever to help advisors manage the financial crisis.

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5193 Hits

Putting The Macarena, Charles Barkley & 10-Year Stock Returns In Perspective

Hey Macarena!

Ten years ago, Will Smith was a rapper, Wikipedia did not exist, Charles Barkley—now running for Governor of Alabama—pleaded no-contest after allegedly throwing a bar patron through a plate-glass door, and many of us were still dancing the Macarena. A lot can happen in 10 years.

That’s why, in financial circles, 10 years means a lot. Ten-year returns have a ring of authority, bestowing an imprimatur of long-term success or failure on an investment manager or strategy. Ten years would seem to be long enough to smooth market bumps. It would seem to be long enough to include all kinds of weird market events. It would seem to be long enough to use as a predictor of future events.

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4924 Hits




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