Author Archives: Carolyn Sofman

Coalition Statement on President Obama’s Proposed FY 2016 Budget

The Financial Planning Coalition issued the following statement regarding President Obama’s FY 2016 budget proposal:

“The Financial Planning Coalition is pleased that President Obama addresses the current and persistent underfunding of the SEC in his 2016 budget proposal, once again requesting $1.7 billion. While Congress modestly increased the SEC’s budget for 2015, the agency’s funding remains woefully inadequate, impeding its oversight and examination of investment advisers. We urge lawmakers to support greater investor protection by adequately funding the SEC.”

Financial Planning Coalition Statement on Hensarling and Garrett User Fees Letter

The Financial Planning Coalition issued the following statement regarding the letter from House Financial Services Committee Chairman Jeb Hensarling (R-TX)and Rep. Scott Garrett (R-NJ), chairman of the committee’s capital markets subcommittee, to Securities and Exchange Commission (SEC) Chair Mary Jo White regarding the costs of proposed user fees to increase investment advisor oversight:

“While we are pleased that Chairmen Hensarling and Garrett recognize there is a problem resulting from the lack of investment advisor examinations, we strongly disagree that merely asking the SEC to reallocate its stretched and inadequate resources or outsourcing examinations to third parties is the solution. Chairmen Hensarling and Garrett’s recent letter opposing user fees ignores a well-documented Boston Consulting Group economic analysis that shows that user fees are the most cost-effective solution to increasing examinations. Current legislation authorizing the SEC to assess user fees is supported by the very industry it would affect, has no impact on the American taxpayer and is scalable to address any small business concerns.

“In Washington there is a tendency to make complex what should be simple. The simplest and most cost-effective solution that will in fact protect investors is to enable the SEC – the expert agency on advisor regulations – to increase examinations with very strong support of advisors and at no cost to taxpayers. We will continue to work to encourage the 114th Congress to embrace the user fee solution.”

Ahead of SEC Chair’s Expected Announcement on Fiduciary Standard Rulemaking, Pro-Fiduciary Groups Advocate for Economic Analysis that Supports Strong, Pro-Investor Rule

A group of organizations advocating for the Securities and Exchange Commission (SEC) to move forward with a rulemaking that would extend the fiduciary standard to broker-dealers providing retail investment advice have called on SEC Chair Mary Jo White to ensure that the Commission’s economic analysis will be “well-reasoned” and “lay the groundwork for a strong, pro-investor policy.”

The letter, which outlines key elements the economic analysis must include to achieve that goal, is signed by the Consumer Federation of America, Fund Democracy, Inc., Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors.

A copy of the letter, which was delivered to the SEC on Friday, November 21, can be accessed here.

In releasing the letter, the group also made this statement:

“We have all long advocated for a uniform fiduciary standard that would, consistent with Section 913 of the Dodd-Frank Act, apply to broker-dealers when they offer personalized investment advice to retail investors. With this letter, we want to make it perfectly clear that we believe a thorough, well-reasoned economic analysis will offer strong support for rulemaking.

“Past actions – and inaction – by the Commission have permitted broker-dealers to misrepresent themselves to the public as advisers without requiring them to meet the fiduciary standard that is appropriate to that role, and unsuspecting investors have been harmed as a result.

“It is time for the SEC to develop a rational, pro-investor policy for the regulation of financial professionals. Toward that end, we urge the Commission to follow the staff recommendation made nearly four years ago and move forward with a rulemaking.

“American Investors deserve to have their interests put first and adoption of a uniform fiduciary standard would immeasurably improve investor protection. Investors should not have to wait any longer to get the protection they expect and deserve.”

Washington Post: Find a Financial Adviser Who Will Put Your Interests First

Financial adviser and columnist Barry Ritholtz urges consumers to look for and hire a financial adviser who is legally obligated to put the client’s interest first under a fiduciary standard in his latest article for The Washington Post.

Excerpt: Today’s column is going to be on the wonky side, but stay with me — it is very important stuff. For investors seeking some help, it can be crucial.

If you want financial advice, there are two things you should be aware of: First, the quality of advice you receive varies widely. You probably knew this already. The quality of everything you buy varies widely. It is as true for financial advice as it is for any product or service you may buy or otherwise consume. You can buy a Yugo or a Mercedes-Benz. They may both be automobiles, but they vary dramatically.

Regardless, everywhere these cars are sold, they each must meet the same government rules. Safety regulations, crash worthiness standards, fuel economy, consumer warranties, etc., apply equally to both vehicles.

This is decidedly not true of the people who provide you with financial advice. So we come to the second point: There are two completely different standards for these people — they are governed by two wholly different sets of regulations. The two standards are “suitability” and “fiduciary.”

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Coalition Research Featured in Investment News, Think Advisor, Financial Advisor

The Financial Planning Coalition’s research on the current insufficient regulatory standards for financial planners was featured in reports by Mark Schoeff at Investment News, Emily Zulz at Think Advisor, and Karen DeMasters at Financial Advisor.  Click through to read more.

Financial planning clients not getting what they pay for: study
Investment News
October 20, 2014
By Mark Schoeff Jr.

Third of Clients Say They Didn’t Get Adequate Financial Planning Services
Think Advisor
October 20, 2014
By Emily Zulz

Financial Planning Profession Needs More Regulation, Group Says
Financial Advisor
October 20, 2014
By Karen DeMasters

The New York Times: Before the Advice, Check Out the Advisor

The New York Times’ Tara Siegel-Bernard examines the important role of fiduciary standard, how it differs from a suitability standard, and what to look for when it comes to both standards when hiring a financial advisor.

Excerpt: When Elaine and Merlin Toffel, a retired couple in their 70s, needed help with their investments, they went to their local U.S. Bank branch. The tellers knew them by their first names. They were comfortable there.

So when a teller suggested that they meet with the bank’s investment brokers, the Toffels made an appointment. After discussions and an evaluation, the bank sold them variable annuities, in which they invested more than $650,000. The annuities promised to generate lifetime income payments.

“We wanted to make the most amount of interest we could so if we needed it to live on, we could use it,” said Ms. Toffel, 74, of Lindenhurst, Ill.

What she says they didn’t fully understand was that the variable annuities came with a hefty annual charge: about 4 percent of the amount invested. That’s more than $26,000, annually — enough to buy a new Honda sedan every year. What’s more, if they needed to tap the money right away, there would be a 7 percent surrender charge, or more than $45,000.

Michael Walsh, a spokesman for U.S. Bank, said that the investments were appropriate for the Toffels, that fees were disclosed and that the sale was completed after months of consultations. But the Toffels now question whether they were given financial advice that was truly in their best interests. Like many consumers, they say they didn’t realize that their broker wasn’t required to follow the most stringent requirement for financial professionals, known as the fiduciary standard. It amounts to this: providing advice that is always 100 percent in the consumer’s interest.

Many people think that they are getting that kind of advice when they are not, said Arthur Laby, a professor at the Rutgers School of Law and a former assistant general counsel at the Securities and Exchange Commission. “Brokerage customers are, in a certain sense, deceived,” he said. “If brokers continue to call themselves advisers and advertise advisory services, customers believe they are receiving objective advice that is in their best interest. In many cases, however, they are not.”

Brokers, like those at the Toffels’ bank, are technically known as registered representatives. They are required only to recommend “suitable” investments based on an investor’s personal situation — their age, investment goals, time horizon and appetite for risk, among other things. “Suitable” may sound like an adequate standard, but there’s a hitch: It can mean that a broker isn’t required to put a customer’s interests before his own.

There are some specific situations when brokers must act as fiduciaries — for example, when they collect a percentage of total assets to manage an investment account, or when they are given full control of an investor’s account. But under current rules, a broker can take off his fiduciary hat and recommend merely “suitable” investments for the same customer’s other buckets of money. Confusing? Absolutely.

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