More On Legal & Compliancefrom The Advisor's Professional Library
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
Over the past five years, the focus has shifted for the independent advice community, a shift that has been reflected in the IA 25, our annual subjective listing of the most influential people in and around the investment advisory universe, now in its sixth year. In those years, we've highlighted pioneers of the profession and the theorists who have provided the investment framework for that profession. We brought to the fore the companies with whom independent advisors must partner, such as RIA custodians and broker/dealers. We foregrounded individuals who were dragging along their advisor peers in their wakes by their leadership in practice management and compensation, and those whose regulatory mission would contend and conflict with advisors' own missions. In no other year, however, has a single job change captured the zeitgeist of the profession: Mark Tibergien's move from revered consultant and industry observer extraordinaire to running a custodial firm for RIAs, Pershing Advisor Solutions. That's because while there may be many gurus who promise to give struggling advisors a foot up on their competitors, the hands-down leader in helping advisors turn their practices into well-run, profitable businesses is now in the position of being the most-watched leader of an advisor-related company in the business.
Part of the fascination is with the ironic switch of a consultant to many firms becoming the leader of a single firm himself. Part of the watchfulness is the competitive issue: How quickly will PAS come to threaten the hegemony of Schwab Institutional and Fidelity Institutional Wealth Services? More significantly, the industry is holding its collective breath to see what hath Tibergien wrought--will all that brain power create a wealth management firm for the future that will use the heft and global reach of The Bank of New York Mellon, with its offices in 37 countries, $20 trillion in assets under custody or administration and $1.1 trillion in AUM, to, as Tibergien says, "help growth-minded advisors service sophisticated clients with complex needs?"
Tibergien argues that Pershing is the only custodian "not subject to conflicts," and that in providing solutions "to our partners...our global capability is deeper and richer than any of our competitors; we not only think globally, we act globally." It's an advantage to have such a worldview, Tibergien says, particularly when the U.S. "marketplace is suffering." One big example of that global reach is that the family office of the Bin Zayed Group of Dubai is now a PAS client. Greystone Financial Services, a big British wealth management firm recently acquired by Focus Financial Partners, is another PAS client. How will PAS compete with Schwab and Fidelity? "Part of our theory it that it's difficult to be a generalist and compete," Tibergien says, so "we'd rather have a higher touch for a few than a lower touch for many."
A solid Midwesterner whose brilliance is sometimes masked by his deadpan delivery, Tibergien believes that "the Federal government has some fundamental issues to think about," but that instead, "Republicans and Democrats view the contest between them as a football game." Referring to the political parties and showing his demographic bent, Tibergien laments that the parties "tend toward demagoguery and populism," and that our tolerance of their antics "might be a symptom of the boomers; we're self indulgent," which is reflected in the parties' take on taxes: "Democrats are tax and spend; Republicans are borrow and spend." As for the profession itself, it's back to demographics and leadership. The average advisor is getting older, Tibergien points out, but says the profession is not replenishing its ranks with younger people. That, he says, "is where the associations have fallen down," in failing to address the human capital issue, then suggests that Pershing will be "one of the leaders to address that," through a "human resources institute." In his disarmingly honest way, Tibergien says Pershing's motivation for such a project is "part enlightened self interest; part is for the community." Stay tuned to see how the Tibergien watch progresses, and read on for the 24 other women and men who constitute the IA 25 for 2008.--James J. Green
The biggest challenge facing the investment advisor community today is demographics: advisors are skewing older and looking for an exit strategy while demand for their services is growing in tandem with those aging boomers. Moreover, nearly every advisory firm is looking to add the term "wealth management" to its roster of services, if not to the very title of its name. Rudy Adolf's Focus Financial Partners is one of the more intriguing answers to that challenge. Since its launch in January 2006, Focus has acquired 15 advisory firms with total assets of about $26 billion. These are wealth management firms that offer clients trust, objectivity, and transparency, says Adolf, 45, and "we are investors in successful wealth management entrepreneurs." The most recent deal is perhaps the most intriguing: Greystone Financial Services Ltd., a U.K.-based firm with $1.6 billion in assets. In addition to adding the assets, the acquisition gives Focus Financial diversification and entr?(C)e to the international wealth management industry, particularly in Britain, where the SEC equivalent, the Financial Services Authority, is taking big steps toward fostering a fiduciary standard. Adolf won't rule out additional acquisitions overseas, but stresses that the U.S. is still Focus's focus.--James J. Green
There are three priorities for Dale Brown this year--"protecting 12b-1 fees, gaining regulatory clarity on the application of privacy rules, and fighting attempts to tax financial advisors at the state level"--and the 46-year-old president and CEO of the Financial Services Institute is aiming to mobilize his 13,000 financial advisor members to take the FSI's message to Congress and the regulators. Brown is particularly concerned about the issue of 12b-1 fees. "As long as the SEC keeps talking about changes to rule 12b-1 that might not be outright elimination of 12b-1 fees but could become de facto elimination of 12b-1 fees, I think the threat's very real."
In addition to his second inclusion on the IA 25, 2008 marks Brown's 20th anniversary as a financial services association executive: first with IAFP, then FPA, and since its inception, FSI in 2003. After two decades of professional advocacy, Brown still gets a tremendous charge out of personally taking his membership's message to Capitol Hill and the regulatory agencies. "I'm very energized by that process of making our case and trying to influence the outcome of the policy debate both on a big strategic level and then also in the nitty-gritty of some of the rules we work on," he says.--Robert F. Keane
On February 12, 2008, Kathleen Casey-Kirschling, the nation's first baby boomer, made history as the first of her generation to receive a Social Security retirement benefit. Born at one second after midnight on January 1, 1946, the 62-year-old received her first Social Security payment by direct deposit, a symbolic leap toward the retirement system's looming bankruptcy. Over the next two decades, nearly 80 million Americans will become eligible for Social Security retirement benefits with more than 10,000/day on average, according to Social Security Online. Furthermore, in 2011, the first Baby Boomers will turn 65 and be eligible for Medicare, and in 2012, those who didn't take early retirement benefits will turn 66 and qualify for their full share. The fiscal crisis about to hit the retirement sector of the economy is something Washington has yet to adequately confront, but whether the government is ready for them or not, these Boomers will have a significant impact on American retirement benefits. For advisors, Casey-Kirschling represents the first ripple in what will become a massive wave of boomers who will need ongoing advice as they try to meet their needs in a retirement far different than their parents'. Whether the advisor community is ready for that inundation is an open question.--Kara P. Stapleton
Back in 2001, when Peng Chen, president and chief investment officer of Chicago-based Ibbotson Associates, would stress an issue like longevity risk and its importance to proper retirement planning, listeners shrugged. Now, Chen's presentations are, more often than not, standing-room-only.
"People are more and more interested in these issues and are pushing advisors to give them additional tools to look at them," he says. "Things are dynamic and there are huge developments compared to five or six years ago."
Chen, 37, has focused his 11-year tenure at Ibbotson upon the importance of holistic retirement planning, which incorporates both financial capital as well as "human capital" (a person's earning power over the course of their lifetime). The confluence of these two ideas, he says, not only dramatically broadens advisors' ability to help their clients plan for a complete retirement, but also helps create a diversified portfolio at the appropriate level of risk.
The concept forms the cornerstone of the comprehensive research Ibbotson publishes that drives the company's investment process by examining a retirement portfolio's sustainable income levels and the risks of it coming up short, taking into account a range of parameters such as longevity and mortality risk. The research also evaluates the roles of various asset classes and investment strategies, such as principal-protected equity-linked products and variable annuities with lifetime guaranteed minimum withdrawal benefits.
"Different people have different income streams and this has a huge impact on how they invest in retirement," Chen says. "People tend to ignore the importance of human capital, but the idea is to look at everything and try to think, from investors' perspectives, how to reach their goal, and what instruments beyond stocks, bonds, and mutual funds make sense for that goal."
Chen, who was born and raised in China, has been working in research at Ibbotson since he finished graduate school in the U.S. "Independent investors and financial advisors need a lot of help in order to make complex decisions," he says. "Our firm tries to provide solid leadership to the industry in terms of our research, but we also are constantly trying to come up with new styles and new ideas."--Savita Iyer-Ahrestani
Other than his monthly column for Investment Advisor, 53-yearold Bob Clark does not have a high-profile position to give his opinions a prominent place on the agenda of the independent advice business. So why do his musings, rants, and not-so-gentle observations about advisors, their partners, and the environment in which they operate resound so loudly? Partly it's his long tenure of frustratingly observing a profession and its associations that appear, Peter Pan-like, to never want to grow up. Partly it's his intimate knowledge of the many strong personalities that helped create the financial planning profession and who still people its leadership posts today. Partly it's his prognosticating skills when it comes to the growing importance of Washington in advisors' lives, and particularly the drum he's been beating for a few years now that a major re-regulation of financial services is looming--sounds like Treasury Secretary Paulson's blueprint fits that bill. Mostly, though, it's his unwavering belief (charming to behold in a cynical journalist type) that independent advice planners are the principled, other-centered exceptions in a financial services universe littered with selfish snake-oil salesmen, though he worries that in the current Washington environment, advisors' reputation is not that sterling, and thus may not fare so well under the new financial services world order. In the meantime, however, we're glad he's on our side, and yours.--James J. Green
Andrew "Buddy" Donohue, the SEC's Director of Investment Management, holds a lot of sway when it comes to determining the outcome of several SEC initiatives that could profoundly affect the investment advisory space.
Early this month, he will recommend steps that SEC Chairman Christopher Cox should take in light of the Rand report, which studied the differences between advisors' and broker/dealers' practices, and whether investors understand those differences. In a recent interview, Donohue, 57, said advisors' biggest challenge is not in the legal or regulatory realms, but in their value proposition. "If you're an advisor, what differentiates you either from your competitors in the same space or folks that are doing similar things at times in alternate spaces?" That's the challenge that the advisors have: "Why is their model better for an investor than a broker/dealer model?" As advisors and broker/dealers dabble in each other's businesses, but are still thought of as "separate regimes, what are the benefits and detriments of each one of those" business practices, Donohue asked. "One of the SEC's challenges, which we clearly have on our plate right now, is trying to sort some of that out on the regulatory side, starting off with the results of the Rand study."
Donohue is also crafting an overhaul of the SEC's 12b-1 rule, with hopes of releasing a proposal sometime this summer. "As you know, that's a hugely complicated area, and don't be surprised if one element ends up not being happy," he warned.
Donohue says he's proudest of his work over the past year with the SEC's summary prospectus proposal and the re-proposal of Form ADV Part 2--both dealing with disclosure. "The summary prospectus ... is hugely important--not evolutionary but revolutionary. If we get it right, I think it will be phenomenal for all parties concerned, but particularly for investors," he said. Under the re-proposed Form ADV Part 2--the primary disclosure document that advisors present to clients and prospective clients--advisors would have to provide a plain English narrative to explain their services rather than the old check-the-box approach. The SEC "worked with the state securities administrators in the hopes there would be one document so that the 14,000 advisors that are registered with the states and the 10,000 or 11,000 registered with the SEC would have brochures that would look similar and that would be subject to similar requirements," Donohue said. The comment period on Form ADV Part 2 expires May 16. "We provided a relatively longer period of time for comments because this is hugely important to get right."--Melanie Waddell
One could argue that Ken Fisher deserves to be on the list of the most influential people in and around the independent advice business by virtue of his having grown the largest registered investment advisory firm in the universe, Fisher Investments. You could argue that the 56-year-old Fisher's ubiquitous--and successful--use of direct mail to attract clients and his highly efficient business model, especially when it comes to the effective use of human capital, could push him onto the list too. But this year at least, it's Fisher's decision to pull the trigger on his first RIA acquisition--EconosStrat Advisory Corp. in Bloomfield Hills, Michigan--that makes him an honorable member of the IA 25. "We expect to be an active acquirer of RIA businesses in the coming year and beyond," Fisher says.
As is typical with Fisher, he's decided to go about the process of growing the already large Fisher Investments by acquiring smaller firms in a unique way. Leave it to other roll-up firms to ensure that the original principals remain with their acquired firm for a number of years to assuage their clients and keep the firm humming along while they're paid their earn-outs. Leave it to others, too, to hold out the promise of an eventual payout by way of going public to the acquired firms. No, Ken Fisher may like your firm, and will conduct extensive due diligence before buying it to make sure it fits into his overall scheme, but in the end he's interested in your clients and their assets, not in you. Not such a bad deal for your clients, and for some of you.--James J. Green
Barney Frank, the brilliant and sometimes gruff veteran legislator from Massachusetts, warned before it was fashionable of the dangers of subprime mortgages before they metastasized, attempting in vain to legislate back in the days when he was in the minority party, specifically through a 2005 bill designed to reduce subprime lending. Now he is the lynchpin in efforts to overhaul the U.S. financial system and help bolster U.S. economic safety. As head of the House Financial Services Committee, 68-year-old Congressman Frank regularly talks with the chairman of the Federal Reserve, banking agency heads, and Wall Street honchos to craft responses to the deepening economic troubles that cascaded after the subprime market collapsed.
Frank is spearheading efforts to help stem the tide of anticipated foreclosures that some warn will hobble the economy, and is working with his Senate counterpart, Christopher Dodd, (D-Connecticut), to pass legislation by the August recess that will dramatically diminish foreclosures, he told Investment Advisor. At press time, Frank was planning hearings in tandem with Dodd. The first step is a plan to allow the Federal Housing Administration to shoulder some of the cost of misguided mortgages and guarantee a new mortgage. If the FHA writes down the principal, "then we have ways to make things flow better," Frank says. Frank says he will also try to improve the role of Fannie Mae and Freddie Mac through a Senate bill that may soon pass, and also seeing the House's subprime mortgage legislation passed.
He sees his moves to shore up struggling homeowners as being "pro-market," not as corporate or individual welfare, in that they bring "confidence back to the market." People have been "burned," he says, and "now they won't buy things they should." Next year, it will be the financial regulatory system's turn at bat, according to Frank.
Expect Frank to crack the whip on crafting tighter regulation for investment banks, perhaps requiring them to keep a cushion of capital, he says, as well as create an "enhanced" role for the Federal Reserve. He stresses there needs to be a restructuring of regulation to play the inevitable catch-up with the market, in this case the "new era of securitization," which has heretofore been unfettered by the rules and regulations of traditional banking. Securitization, he points out, dissolved the relationship between the lender or borrower without replacing it.
"Banks are fairly closely regulated; investment banks don't have the same rules," he says, and argues that there should be "capital requirements on investment banks." Also, the Federal Reserve "should be able to examine them," he says.
Frank did note he was pessimistic about the passage of strong legislation if, in the event of a John McCain victory, former Senate Banking Chairman Phil Gramm (R-Texas), and a McCain fan, returns to the government's financial services oversight sector in some capacity.
But Frank, in Congress since 1981, notes he has been involved in a similar crisis before with a Republican administration--namely the S&L crisis of the late 1980s, when he "worked very closely" with the first Bush administration, he recalled. Moreover, he says he believes the private sector needs to cooperate with the efforts.--Elizabeth D. Festa
The last year has been a good one for Greg Friedman, who exemplifies the entrepreneurial grit and problem solving expertise shared by many advisors. Among the many accolades for this founder of his eponymous wealth management firm in Novato, California, with about $235 million in assets under management, was winning Schwab Institutional's prestigious Best-in-Tech Award. That award recognized Friedman, 47, for achieving what many advisors can only wish for: becoming measurably more efficient through the effective use of technology, significantly growing AUM without growing his workforce. In Friedman's case, that comes from the clever use of Junxure, the CRM software he developed with partner Ken Golding whose latest version, 7.0, was officially released in April through CRM Software. Then there's Friedman's evangelism around Your Silver Bullet, the cooperative he helped found that is doing its darndest to make all advisor software, from all vendors, talk to each other. What keeps the frenetic Friedman functioning? "Every firm that adopts our software can serve more people and do a better job for their clients," he says. "That's cool; that I'm helping that many more people improve their financial lives." That's true when it comes to helping advisors, yes, says Friedman, but more importantly, their clients, too. When asked to list the most important things he's learned over the past annus mirabilis, Friedman answers quickly: "One is appreciation; the other is humility."--James J. Green
As founding chairman of the Retirement Income Industry Association (RIIA), Francois Gadenne has watched his vision become a successful reality. So successful, in fact, that Gadenne recently divested ownership in a company he created called Retirement Engineering Inc., to devote himself exclusively to furthering RIIA's growth.
Gadenne is now taking cues from RIIA's diverse membership to help advisors tackle their biggest challenge: morphing into a retirement management professional.
Unlike other associations, RIIA is "not wedded to a lobbying point of view for a specific product or a specific side of the industry," Gadenne says. Rather, RIIA offers a view across the financial services silos and provides a place where all members of the retirement income industry can come together "and figure out what to do."
The task at hand is finding an Empirical Validation Framework--the 60% in stocks, 30% in bonds, and 10% in cash guidelines that advisors have used when helping clients in the accumulation phase--for retirement income. "Sixty percent, 30%, 10% doesn't work in the Empirical Validation for retirement income because retirement income is much more than just accumulation and diversification and risky assets; it also includes insurance, hedges, and other types of risk-free assets," Gadenne argues.
RIIA members have said that the view across the silos "is the ideal place" to create the equivalent empirical framework for retirement income, Gadenne says. "The way we are getting there is realizing first that what's happening in the industry is that the financial advisor is being pushed by the clients, who are getting older, to not only be an investment-oriented advisor but to become a retirement-oriented financial advisor. That very much creates a new job description, a retirement management professional, where the personal professional skills required as well as the practice management skills required are not the same."
For instance, he says, "If you're a retirement management professional, not only do you need to understand the financial capital situation of your clients, but their human capital (their ability to work in retirement or not), and their social capital (whether they have Social Security, etc.). You need to integrate financial capital information with social capital information with human capital information to put together a retirement plan."--Melanie Waddell
Through the company he founded, Microsoft, Bill Gates has revolutionized how America and the world does business and has had an immeasurable impact on the advisory profession, but that's not why he was chosen for this year's IA 25. Instead it was for the example set by his remarkable philanthropy, and the donation of so much of his vast fortune to the Bill and Melinda Gates Foundation that was established, as its Web site says, "to help all people lead healthy, productive lives."
The U.S. is undoubtedly a generous country and in 2006, the most recent year for which figures are available, Americans gave almost $300 billion to charitable causes. That includes $1.9 billion from Warren Buffett as the first installment on his 20-year pledge of some $31 billion to the Gates Foundation (and Buffett still managed to be named this year as the world's richest man by Forbes). While a huge donation from a well-known billionaire is big news, the impulse to use our money to help others is found in all economic strata, and often grows in tandem with a person's assets.--Robert F. Keane
More than proving that the global financial system cannot do without a lender of last resort, Timothy Geithner, president of the New York Federal Reserve, has shown that it takes a strong leader who can act fast and provide the necessary guidance, to keep afloat a rapidly sinking ship.
The pivotal role Geithner played in arranging an emergency Federal Reserve loan for JPMorgan Chase's buyout of Bear Stearns may go down as the move that stemmed what could have become a real disaster for the international financial markets. Some have criticized the Fed for not stepping in sooner, but it is clear that without the central bank's help, the financial crisis would have spread a lot quicker and gone a lot deeper.
Geithner, who previously served as Undersecretary of the Treasury under President Bill Clinton and helped coordinate the U.S. response to the Asian financial crisis during that Administration, himself has warned about the continuing financial crisis and its possible repercussions and emphasized the need for both policymakers and financial market participants to act swiftly. "Their actions need to be proportionate to the challenges," he said in his 22-page testimony to the Senate Banking Committee. The Fed's involvement in the JPMorgan/Bear Stearns deal, he said, was aimed at halting a crisis that could have caused protracted damage to the economy. Whether or not that action could have come earlier is up for debate, but one thing is clear: It won't be forgotten soon.--Savita Iyer-Ahrestani
When Charles Goldman looks at the advisory landscape, he sees advisors continuing to struggle with managing the growth of their businesses. "It's an issue that they've been facing for some time as their growth rates have been around 20% per year over the last three or four years," says the 46-year-old head of Schwab Institutional. "The biggest challenge they're facing now--that may be different than before--is that the markets are so volatile and their clients need more help, more guidance, more handholding," noting that just dealing with the strains of growth, technology, and the human resources demands of employees would have been difficult enough. Goldman stresses that the primary objective of his 1,800-member team is to help their advisor clients grow their businesses, and notes that SI has long provided independent advisors with support in the areas of marketing, compliance, and back-office consulting. "Now," he points out, "we've launched a whole new suite of services around human capital to help them attract, hire, and retain great people," Goldman says.
As he nears the completion of his first year filling the big shoes of Debbie McWhinney, Goldman can look back on a successful leadership transition, which he acknowledges was a big deal. "When you add on top of that the incredible market volatility that we've experienced since mid-August, it makes me feel like this has been a great year."--Robert F. Keane
"I have a philosophy about life," says Rosanne Grande, managing director at the fee-only advisory firm R.W. Rog?(C) & Company in Bohemia, New York. "A negative experience creates the environment and opportunity to achieve something good." She is talking about time spent taking care of her aged mother, which eventually led to Grande specializing in working with elderly clients, or as she likes to call them, those with "experience in longevity."
During the 10 years she spent caring for her mother, Grande, 52, saw the need for more and better elder care facilities, as well as the importance of Medicare, Medicaid, and long-term financial planning, especially for those with Alzheimer's and other forms of dementia. "The personal gratification of helping a client have a better quality of life was the impetus that motivated me to pursue the field of financial gerontology, and in attaining the Registered Financial Gerontologist (RFG) and Certified Senior Advisor (CSA) designations." Grande received her CSA in September 2001 and her RFG in March 2002. "The designations compliment each other," she explains. "The classes teach attendees about dealing with emotional and financial scenarios that are common with the elderly--everything from getting dressed to balancing a check book--and also the signs of dementia and what to do about them." Grande says she wanted the designations after seeing an ad for the CSA on a Web site at the same time that a client came to her with a problem--her mom lived with her, was in poor health, and needed more care. Since that client, Grande has helped another 25-30 clients with similar issues. She recently took a client through the "whole process," which included finalizing the client's portfolio and taking her to plan her own funeral. "The woman is 92-years-old, lives in a retirement community, and has no immediate family," Grande recalls.
Now that the first client who needed help with everything from finding a living community to getting a ride to her estate attorney is complete, Grande is in the process of documenting the experience, with the hopes of creating a gerontology division within the Rog?(C) firm. "I just started networking with an estate planning attorney and a local Alzheimer's support group as well," she adds. As for what Grande believes to be one of the biggest challenges facing advisors, she points to diseases like Alzheimer's and dementia, since they will likely affect close to 20%, or about 14 million, baby boomers as they age. "As a result, this will also affect Medicare benefits," she notes.--Kara P. Stapleton
Art Grant, founder and principal of Syracuse, New York-based firm Cadaret, Grant and a well-known and respected figure in the world of independent broker/dealers, believes that advisors need to think more about what people want rather than what they should have.
"Financial planning is all about having a relationship with your clients," he says. "We need to listen to our clients and manage our businesses not as owners, but as what consumers want."
Relationships are at the core of Grant's approach, but he believes that their importance has been greatly muted by the increased amount of regulation in the financial services industry today.
"Whenever I go to conferences and meetings, the conversation is always about compliance and regulation and how to deal with lawsuits and arbitration, when we really ought to be thinking more about meeting the needs of advisors and investors," he says.
In today's turbulent financial markets, it is all the more important for advisors to focus on strengthening their client relationships because more and more people are going to be seeking professional advice. Indeed, Grant, 65, dismisses any notion that people preparing for retirement will do their own research and planning, as some surveys have pointed out. On the contrary, he believes that individuals will be "coming in droves" to get advice from qualified professionals, in order to avoid risks and maximize the many opportunities that are available. This suggests that advisors should not get bogged down with trying to comply with new regulations, but should instead be freer to actually listen to their clients and respond to their needs.
"If a typical advisor has to plough through regulation and paperwork, it makes it uneconomic to deal with most Baby Boomers, so we have to find a solution," Grant says. "Over the next few years, I'm looking forward to our firm becoming one that's more responsive to people and what they want."--Savita Iyer-Ahrestani
Tom James is a straight-talking throwback in many ways, yet he's also a forward-looking businessman who believes in continuing education of all sorts--especially for himself--as he helps shepherd Raymond James Financial into a future far different from the one in 1966 when he joined the company founded by his father. The throwback part is evident in the way he speaks to the assembled advisors and employees at the Raymond James Financial annual conference: "You have to be humble, which isn't easy for a sales person." Noting that 2008 marks the 25th anniversary of going public, James bluntly says "I'm disappointed in the performance of the stock," goes on to note the 18% rise in gross revenues and 17% jump in net income for 2007, preaches that "growth at Raymond James is an objective, not a means to an end," then returns to the stock price issue by predicting that "two to three years from now, look back and you'll see now was a good entry point for financial services stocks." James says "all of life is sales," and remains "frustrated that half my salespeople are not financial planners," stressing that at Raymond James "we sell a process," and concludes by arguing that "if you're a customer-focused business, there is no value in the transaction anymore." But Raymond James has always been about more than salespeople selling stock, and Tom James says "It's still all about services--first class service with a good attitude." Advisors, he says "are a different breed; they're entrepreneurs." He could just as easily be talking about himself: he still personally advises 30 families. Raymond James, Tom James says, has "proven that a combination of an entrepreneurial approach and wirehouse-like products can be successful."--James J. Green
When Deena Katz, chairman of Evensky & Katz, a wealth management firm in Coral Gables, Florida and an associate professor at Texas Tech University in Lubbock, was on the IA 25 last year, she stressed the importance of industry veterans welcoming the next generation of advisors into the community, since these younger advisors are the future of the profession. This year, the 58-year-old says she is especially proud of how advisors and their corporate partners are participating in the education of her 200 undergraduate, 150 master's, and 28 PhD students at the school.
Katz is especially pleased with the donations she received that are helping the university build a new technology complex, scheduled to be complete by September of this year. "I have been given software from any vendor I have asked--Morningstar, eMoney, NaviPlan, among others--everyone has given us access so we can teach our students everything they need to know about technology, and they can hit the ground running," she explains. Additionally, the vendors also agreed to create an exam students can take upon completion of the tutorials so that they can leave Texas Tech with certification in these technologies. "This is invaluable for advisors because the biggest hurdle is the learning curve," she adds.
Katz is also coordinating the building of a clinic that services planners nationwide who are doing pro bono work for the industry, and is busy getting financial planning academic programs into other colleges and universities. As for her greatest accomplishment, Katz says she is still working on it. "I'm a work in progress and I don't know what I can accomplish, but I know I have a passion for the industry and want to see it thrive," she concludes.--Kara P. Stapleton
It's a truth pretty much universally acknowledged that independent advisors rule the roost when it comes to offering the kind of personalized, unconflicted advice that many clients want. But that could change if Citi Global Wealth Management Chairman and CEO Sallie Krawcheck continues to guide the Smith Barney broker workforce toward embracing the fiduciary approach, and independent advisors might start to lose their differentiator.
Citi has recently separated its wealth management business into four units in a move that Krawcheck, 43, reportedly stated is designed to make Citi "the number one wealth management organization in the world" by focusing on developing a "client-first" rather than a "silo-first" approach, by leveraging capabilities across the entire firm. When she was first named to the IA 25 list in 2003, we noted that Krawcheck had recently joined Smith Barney in the wake of the research scandal, and she told us her responsibility was to "regain the trust of the investor." She spoke last fall about Wall Street's need to embrace the fiduciary approach. If it does, much will change, and not just at the wirehouses. --Savita Iyer-Ahrestani
There are times when you can see a shining object in the night sky only after its bright celestial neighbor leaves its orbit. That appears to be the case with Philip Palaveev, the Moss Adams principal who is coming into his own in the wake of friend and mentor Mark Tibergien's move across the country, and across the table, from Moss Adams to Pershing. Palaveev, 35, can speak comfortably and authoritatively about everything from the present and future of the independent broker/dealer community and how to structure partnership agreements in RIA firms to the prices being paid for those firms. He combines the macro knowledge gleaned from Moss Adams's comprehensive research studies with the specific insights gained from his firm's direct consulting work with individual firms to build a synthesis of wisdom that places him firmly in the ranks of the IA 25. The Bulgarian-born Palaveev likes to joke about his Communist sympathies, but his keen insight into what it takes for the best firms to get that way is deadly serious stuff. Part of a Moss Adams team with a deep bench put together in large part by Tibergien that boasts the very talented Rebecca Pomering as well, Palaveev's star is still ascending.--James J. Green
At this point it's too early to predict just who will the assume the office of President of the United States on January 20, 2009, but barring any major surprises in the next few months, it will be someone who is currently a member of the U.S. Senate and whose last name is either Clinton, McCain, or Obama.
Whichever candidate winds up sitting behind the big desk in the Oval Office, he or she will face a vastly different landscape than did President #43. In January 2001 a $710 billion budget surplus was predicted for FY09. Instead it looks like we'll end up with a $407 billion deficit. On top of that, the incoming chief executive will be forced to deal with a number of serious economic issues in the first term including Bush Administration tax cuts that are due to expire, the looming funding issues for Social Security and Medicare, a weakening economy exacerbated by the drain on U.S. resources of a seemingly perpetual global war on terror, and the ramifications of the subprime crisis.
On housing, both Democrats have offered competing packages to help middle-class homeowners stave off foreclosure, while McCain first suggested a national conference of accountants and mortgage lenders and now suggests he might support bipartisan legislation to help borrower and lenders.
On taxes McCain suggests making the Bush tax cuts due to expire in 2010 permanent, cutting the corporate tax rate, and offering middle-class tax relief by eliminating the AMT, while the Democrats are talking about increasing taxes on the wealthiest to offset tax breaks for those on the lower rungs of the economic ladder.
(The candidates' positions on a number of economic issues were summarized in Investment Advisor's March 2008 cover story.)--Robert F. Keane
Henry Paulson is making moves that are uncharacteristic of a Treasury Secretary. Drawing upon his years of Wall Street experience, he's taken it upon himself to jumpstart one of the most comprehensive overhauls of financial services regulation that the U.S. has seen.
In late March, Paulson released Treasury's Blueprint for a Modernized Financial Regulatory Structure, which includes a series of short-, intermediate-, and long-term recommendations for reforming the U.S. financial services regulatory scheme. In announcing the Blueprint, Paulson said the U.S. "should and can have a structure that is designed for the world we live in, one that is more flexible, one that can better adapt to change, one that will allow us to more effectively deal with inevitable market disruptions and one that will better protect investors and consumers. The challenge is to evolve to a more flexible, efficient, and effective regulatory framework--and that is the purpose of this Blueprint."
In the short term, the Blueprint suggests creating a new federal commission for mortgage origination to better protect consumers, modernizing the President's Working Group on Financial Markets, and clarifying the Federal Reserve's liquidity provisioning role. Intermediate goals include consolidating the SEC and the U.S. Commodities Futures Trading Commission (CFTC), creating an SRO for investment advisors, eliminating the thrift charter, and creating an optional federal charter for insurance.
Long-term goals would create a Market Stability Regulator--which the blueprint says would give the Federal Reserve the "ability to monitor risks across the financial system." A Prudential Regulator would focus on safety and soundness of firms with federal guarantees, and a Business Conduct Regulator would focus on consumer protection.
Washington insiders say Congress is already planning to hold hearings on the blueprint. Some critics have argued that the blueprint couldn't come at a worse time, since the U.S. is still reeling from the subprime fiasco and has yet to find a remedy. To the contrary, there are others in the financial services realm who say Paulson's blueprint will spark a debate that is sorely needed right now.--Melanie Waddell
Mary Schapiro's prestige and power was boosted when she became CEO of the Financial Industry Regulatory Authority (FINRA) in July 2007 through the consolidation of NASD and the New York Stock Exchange's regulatory and enforcement arms. FINRA is the largest non-governmental regulator for all securities firms doing business in the United States, overseeing more than 5,000 brokerage firms, about 172,000 branch offices, and more than 676,000 registered securities representatives. Now, Schapiro stands a chance of becoming even more influential due to Treasury Secretary Henry Paulson's plan to reform financial industry regulation, under which oversight of RIAs would be added to the FINRA portfolio as well. Schapiro continually stresses her commitment to the consumer, gladly accepting the chance to control an even larger population of investment professionals. "This blueprint marks an important beginning to a debate that is critical to the future of investor protection," she said in a statement responding to release of the Paulson blueprint. In January 2008, Schapiro was appointed by President Bush to the President's Advisory Council on Financial Literacy, a 19-member council formed to promote and enhance financial literacy among Americans, which is suitable since one of FINRA's top priorities under her leadership this year is protecting senior investors from fraud.--Kara. P. Stapleton
He served as chair of the Financial Services Institute (FSI) last year and he's currently on the board of the Financial Industry Regulatory Authority (FINRA). As such, John Simmers, the 58-year-old CEO of ING Advisors Network, is in the thick of important changes that are taking place in the financial industry.
He's also well known for his candor--something he believes has often helped getting people to talk about difficult issues.
"My approach is to be an instrument of change and to not walk away just accepting things as they are," Simmers says. "I'm not sure if I've inspired others to be as candid as I am, but I find that being candid does help in furthering dialogue."
Simmers prides himself on being able to take up both sides of an issue and argue each equally strongly, an ability he credits to his thirst for knowledge and desire to be as well-informed as possible. "I read voraciously so that I can understand the full impact of the entire financial industry and not just a single segment," he says. "I want to be able to understand what's happening at both full-service and specialty firms."
As a global financial services firm that is well diversified in both the markets it covers as well as the range of investment products it offers, Simmers believes that ING is well positioned to deal with the increasing globalization of the financial services industry. For sure, globalization is an irreversible trend and it is taking place at all levels, thereby spurring regulators to contend with the many changes it brings. Yet the regulators are having a difficult time staying current, Simmers says, which is why he is such a strong believer in dialogue with the regulators.
"There has never been a better time to be in this industry, with so many people retiring and large amounts of rollover capital coming in," he says. "But it is also a scary and confusing time, which means that we need to engage each other and share our visions. We need to be candid with regulators in a conservative way and try and make our industry a more creditable and transparent one."
This, he says, will inspire stronger confidence in participants and eventually lead to a greater level of saving and investing.--Savita Iyer-Ahrestani
Stephen Winks, who heads the Fiduciary Standards Council, has undertaken what he calls a labor of love: creating a definition of financial advice in the marketplace so advice itself becomes scaleable.
"Advice is not a product you sell; it is a process you manage," says the founder of the Society of Senior Consultants, managing director of Advisory Practice Services, and former president of FSC Advisory. He has invited the industry to provide input into the project, and says a white paper on the subject has received over 100,000 hits.
"Acting in the clients' best interest is essential in order for the trust the client vests in the advisor to be assured," he says. To help get to an agreed-upon definition of fiduciary, Winks has identified what he calls an "audited prudent investment process." Winks identifies six financial services that comprise advice. Each of these elements--asset/liability study, investment policy, strategic asset allocation, portfolio construction, performance monitoring, and practical asset allocation--can be audited back to case law, according to Winks. In order to truly provide fiduciary counsel, an advisor has to be expert in investment counsel for all six areas, expert in enabling technology, and be brilliant as human resources managers to create the best division of labor, according to Winks. A Herculean task, to be sure. There are 265 responsibilities to fulfill to meet fiduciary obligations, but 80% are disclosure and reporting--related and lend themselves easily to automation, Winks says.
Winks anticipates development of a fiduciary standard for the industry in the next five years, although he says it could be quicker than that. He is harnessing the free market to come up with the automation process. "My whole thesis here is that the intellectual capital necessary to move the industry forward is not necessarily in ivory towers but with the people in the industry doing the work," he says.
Winks is betting that the demand of large scale institutionalized support for fiduciary counsel is insatiable. In order for a new process to be embraced, it has to be easy to use, he notes, paraphrasing technology adoption expert Geoffrey Moore.
Winks thinks the biggest challenge will be generational. "I think we are at the end of that," he says, referring to opposition from the older generation of financial advisors to a new standard even "while a new generation of younger, more enlightened management emerges."--Elizabeth D. Festa