The Scholarly Financial Planner: Observations: Transforming the Firm from a Sales Culture to a Fiduciary Culture

Ron Rhoades of The Scholarly Financial Planner discusses the signs of an implemented fiduciary culture throughout a firm.

Excerpt: Twice a semester I take a group of students in a 15-passenger van on visits to local financial services firms. My financial planning program (undergraduate) students benefit from exposure to different practice models, learn about “day-in-the-life” of a financial advisor, and some even make connections leading to future internships or jobs. They obtain a real picture of the environments they may join, and upon their return most become more committed to their studies and to joining this emerging profession.

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Financial Planning Coalition to President Obama: Make Investor Protection a Priority in 2014 “Year of Action,”

In advance of the State of the Union address, the Financial Planning Coalition urges the President to make investor protection part of his agenda.

WASHINGTON, D.C. – As President Obama prepares to deliver the State of the Union address, the Financial Planning Coalition – comprising Certified Financial Planner Board of Standards, Inc. (CFP Board), the Financial Planning Association® (FPA®), and the National Association of Personal Financial Advisors (NAPFA) – urges the President to fulfill the promise of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act by making investor protection part of his “year of action for the American people”:

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Think Advisor: Never-Examined Advisors Top SEC’s 2014 Exam Priorities List

Melanie Waddell of Think Advisor reports on the SEC’s examination priorities for 2014, including advisors who have never been examined.

Excerpt: The Securities and Exchange Commission today announced its examination priorities for 2014, which include advisors who have never been examined, including new private fund advisors; wrap fee programs; quantitative trading models; and payments by advisors and funds to entities that distribute mutual funds.

As for broker-dealers, the securities regulator says it will zero in on sales practices and fraud, issues related to the fixed income market, and trading issues, including compliance with the new market access rule.

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The Wall Street Journal: Voices: John Taft, on the State of the Financial Industry Post-Crisis

John Taft of WSJ’s Wealth Adviser discusses fundamental reform issues that remain, particularly when it comes to the ethics and culture of the financial industry, including the fiduciary standard of care.

Excerpt: There are a lot of milestone dates used to mark the failure of the financial system. But the milestone that most affected my clients was the breaking of the buck of the Reserve Primary Fund, the largest money-market fund, on Sept. 16, 2008.

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Broad Coalition Message to Congress : Support H.R. 1627 to Improve SEC Investor Protection

WASHINGTON, D.C. -In a letter sent last week to all Members of Congress, a broad – based group of organizations, including consumer and industry groups and state regulators, urges support of H.R. 1627, the Investment Adviser Examination Improvement Act of 2013. The bill – sponsored by Rep. Maxine Waters (D-CA) and Rep. John Delaney (D-MD) – would authorize the Securities and Exchange Commission (SEC) to collect an annual “user fee” from registered investment advisers to increase the frequency of investment adviser examinations and to better protect American investors.

According to the groups that signed the letter, “It is imperative that the SEC be able to properly oversee the activities of registered investment advisers. We are deeply concerned that the SEC’s current inability to examine investment advisers more frequently increases opportunities for investor fraud and abuse.”

The group added: “A user fee is the best option to increase investor protection because it is an efficient, economical, and common sense solution to the SEC’s chronic problem of insufficient examination resources.”

The coalition is composed of a broad range of organizations, including AARP, Consumer Federation of America (CFA), Certified Financial Planner Board of Standards (CFP Board), Financial Planning Association® (FPA®), Investment Adviser Association (IAA), National Association of Personal Financial Advisors (NAPFA), and the North American Securities Administrators Association (NASAA).

The SEC has responsibility for examining about 11,000 federally registered investment advisers that manage approximately $48 trillion in assets. But the agency faces significant resource challenges in maintaining a robust examination program, as evidenced by the low examination rate of 8% last year and the projected 10% examination rate for the current year. Using recent examination rates as a barometer, the typical federally registered investment adviser can expect to be examined only once every 12 to 13 years. Moreover, approximately 40% of federally registered investment advisers, or two out of every five, have never been examined.

The group’s letter to Congress underscored that a user fee provides a funding source that impacts neither taxpayers nor the federal treasury. H.R. 1627 contains a number of meaningful safeguards that ensure that the fees will be collected and deployed in a manner consistent with Congressional intent. For example, the bill:

  • mandates that any fees collected be dedicated solely to an increased level of adviser examinations by the SEC;
  • requires the SEC to develop its fee formula through a public notice and comment rulemaking;
  • requires the SEC to consider, among other things, factors such as the size of an adviser, the adviser’s assets under management, and the adviser’s risk profile in determining a fee; and
  • requires the Comptroller General to conduct a biennial audit of the SEC’s use of fees.

SEC Chair Mary Jo White has stated that, due to a lack of resources, the SEC is unable to “enforce compliance with the securities laws in a way that investors expect and deserve.” In November, the agency’s Investor Advisory Committee recommended that the SEC request user fee legislation from Congress. The recommendation noted that the current level of examination “is simply inadequate to detect or credibly deter fraud” and that the SEC
cannot “enforce compliance with the securities laws in a way that investors expect and deserve.”

Financial Planning Coalition Statement on Obama Administration’s Opposition to H.R. 2374

WASHINGTON, D.C. – The Financial Planning Coalition issued the following statement regarding the Obama Administration’s opposition to H.R. 2374:

“The Financial Planning Coalition applauds the Obama Administration in standing up for American investors by stating that it would recommend the President veto H.R. 2374, the dubiously titled bill ‘Retail Investor Protection Act.’ If it were to become law, this legislation would have a chilling effect on crucial rulemaking efforts for both the SEC and the Department of Labor in extending the common sense ‘put the client first’ fiduciary standard of care and continue to leave American investors without important protections. By making clear its opposition to this legislation, the Administration is putting American investors first.”