Feb 19, 2010

Dance With the One That Brung Ya'

The steps to a client-centered financial industry.
I am not going to lie to you. I was, and still am, a horrible dancer. In high school I would take a date to dances, but then I would awkwardly stand there as folks danced around me. Some girls would be kind and stick around as I made poor attempts. Others would head over to the group of guys that could really move. My first dance with my wife was not until our wedding dinner, safely after we had tied the knot.

I can’t recall where I heard the phrase, “Dance with the one that brung ya,” but it stuck with me; especially as those kind ladies put up with my lack of rhythm. I am reminded of the phrase once more as the financial industry and its consumers wait for the effects of new regulations.

For years Registered Investment Advisors who act as fiduciaries for their clients have been spreading the news that they are legally obligated to do what is in the best interest of their clients. Groups such as FPA (Financial Planning Association) and NAPFA (National Association of Personal Financial Planners) have been working to communicate the need for a fiduciary standard on Capitol Hill. Their efforts may be paying off. Congress is working toward a fiduciary standard for investment advice that would apply to both Registered Investment Advisors and Broker Dealers.

The fiduciary standard is an important step towards an industry that is client-focused, but it is not the last step. Instead, brokers who have been in a sales oriented industry for years will need to reconnect with the needs of their clients. They will need to listen to the age old advice, “Dance with the one that brung ya.”

Putting on the fiduciary hat will not change the way that business is done at wire-houses and brokerage firms. Commission based brokers will have to lose their sales mentality and they will have to begin meeting the needs of clients.

A 2005 study found that clients’ primary financial concern was losing their wealth. Their secondary desire was to mitigate taxes. Clients were calling for a consultative approach, where a financial planner would work hand in hand with other trusted advisors to ensure that the clients’ entire financial landscape was being tended to.

For years, the brokerage business has been focused on sales instead of focusing on servicing client’s comprehensive financial needs.

I enjoyed the 2006 Will Smith film, The Pursuit of Happyness. In the movie, Chris Gardner, the character played by Smith, struggles in his pursuit of a career as a stock broker. I had the joy of hearing Chris Gardner speak a few years back. He held up his hands and showed us a crook in the little finger on his right hand. He attributed this to the endless calls he had to make on a rotary telephone, dialing for dollars.

In contrast, a Registered Investment Advisor acting as a financial planner spends the day in a much different way. A meeting with a client and her accountant to discuss tax planning for next year. Lunch with an attorney to discuss the best interest of a mutual client regarding the client’s charitable trust. Phone calls to current clients to ask what needs have not been met. A fee-only financial planner’s job is to coordinate all of the financial efforts of their client. The financial planner is not paid by commissions on a sale; a planner is retained by clients who pay a fee in exchange for beneficial, consultative advice.

“You will get all you want in life if you help enough people get what they want.”
Zig Ziglar

This quote is certainly true in the financial industry. This is the reason that financial planners don’t have to follow the broker route of “dialing for dollars.” If folks in the industry would truly offer consultative financial advice, people would notice. Clients would be impressed and they would tell their friends and neighbors the good news. CPAs and legal professionals would notice and they would refer their clients.

I look forward to the baby steps that the financial industry is taking toward a fiduciary standard. But I wait with anticipation for the day that the financial industry loses its sales focus and all advisors are inclined to “Dance with the one that brung ya.”

Feb 11, 2010

Fishing for Irony

Today I had the privilege of hearing from one of the leading manufacturers of some pretty fancy fishing equipment. The presentation was fascinating and spoke to some of the huge changes in our economy. In passing the presenter made the comment,

“With the economy the way it is, fewer folks are fishing and more folks are worried about putting food on the table.”

The comment stuck in my head. It is interesting that an activity that was invented purely to put food on the table is no longer considered productive behavior. Fishermen spend a fortune on equipment and travel to exotic destinations to fish. After a great day of catch and release fishing, they go to a restaurant and spend $20 on a plate of salmon.

I enjoy fishing with my children and don’t intend to quit any time soon. I can’t help but wonder what areas of my life and of our society, were once crucial to survival, but have been reduced to a novelty.

Wealth Preservation, Tax Mitigation & Regulation

Notes from the 2010 TD Ameritrade Conference
Photo Courtesy of TD Ameritrade

If you have ever gone to a conference for your industry, you may relate to this. So much information is shared on diverse topics; ideas certain to improve services to clients. Often when returning to the office, catching up and getting back in the swing of things can hinder progress. The following is a summary of the conference highlights for the 2010 TD Ameritrade Institutional conference for financial planners. We share this information as a reminder to us and as information to clients.


Three major themes seemed to echo at this year’s conference. These ideas seemed to match with the concerns that are resonating in the hearts and minds of clients. As industry experts discussed where we have been and where our country is headed, there was certainly a focus on preserving wealth, managing tax changes, and the regulatory changes that will affect our industry and consumers.

George W. Bush and Bill Clinton spoke to the crowd on the events of the past few years. The pair was asked to describe their most important decisions. President Bush mentioned that during the turmoil in 2008, Ben Bernanke and Henry Paulsen warned him, “If you don’t move, you will likely oversee a nation in the midst of a depression greater than The Great Depression.” Bush followed up saying that the decision “to sell my soul and bail out Wall Street was not one of my proudest moments, but it was important.”

Through the turmoil of the last three years, investors have moved from growth mode to a desire for preservation. Fred Tomczyk, the president and CEO of TD Ameritrade, pointed out that TD Bank is one of only four AAA rated banks in the world. TD Ameritrade, through its partnership with TD Bank, was able to support clients in their goals for asset preservation through FDIC Insured money market and cash management strategies. Tom Bradley, the president of TD Ameritrade Institutional, shared that “TD Ameritrade’s role for clients is to provide safety and security for clients’ assets and best execution on trades.”

We heard further thoughts on wealth preservation from fixed income strategists and portfolio managers. Advisors expressed clients’ needs for security and experts shared preservation strategies.

One of the largest threats to clients’ wealth is taxation. Don Drummond, an economist for TD Ameritrade, emphasized this point. He shared a chart of U.S. Revenues vs. Spending, the gap between the two ever widening. “Without a tremendous policy change,” Drummond said, “taxes will have to increase dramatically.” George Bush also suggested that “Government can’t spend their way out of this… it will not lead to prosperity. Prosperity will come through stimulation in the private sector.”

Ed Slott, a consultant to accounting firms, suggested that “our tax system is a penalty on savers.” One of the biggest threats to clients’ assets is increasing taxes. “Tax rates are lower now than we will ever see again,” Slott went on to say, “Taxes on an IRA are like a cancer that is not going away.” He spoke to the substantial changes in taxes and the opportunities and pitfalls presented by the 2010 Roth Conversion.

This is just one of many changes that have occurred or will occur in the coming years. The financial industry and American consumers will be faced with new regulation from all sides.

When asked about this regulation and the need for accountability and a fiduciary standard in our industry, former presidents Bush and Clinton were at a loss for words. Bob Veres, a well published financial author was shocked that “the leaders of the free world for 16 years didn’t understand the importance of the fiduciary standard.” Upon further discussion, Bill Clinton mentioned that “transparency is crucial.”

Transparency is a key issue. There are folks that act as fiduciaries in the industry who are legally obligated to their clients. Proposed regulations would force many brokers and financial salesman to act as a fiduciary when preparing a financial plan, but would allow them to remove their fiduciary hat and put on a sales hat when suggesting products. Such advisors are known as “dually registered advisors”. Tom Bradley with TD Ameritrade said, “We think this is a conflict that needs to be eliminated. That is what we are trying to educate the SEC on.”

In an effort to further protect clients, TD Ameritrade has joined groups including NAPFA (The National Association of Personal Financial Advisors) and the FPA (The Financial Planning Association) in an effort to ensure that new regulations will benefit consumers. These groups are working on your part, not only on the Fiduciary Standard, but on regulations that deal with a Standard of Care in the financial industry and proper oversight for Registered Investment Advisors. They are also working against a proposed transaction tax on trades that would be used to pay down TARP.

It was extremely interesting to watch as former presidents from opposite parties came together, related well to one another and appreciated the work that each had done. One can only hope that folks on Capitol Hill can reach across party lines to look out for the needs of Americans and to take a realistic look at our growing national debt.

It is refreshing to have a partner and a system of checks and balances for clients through TD Ameritrade. It was also good to hear that we are not alone in our concerns about taxes and protecting assets.
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