Outside voices and views for advisers

Jun 21, 2017, 3:15 PM EST

Time for Finra to pull back the curtain on its oversight and board

Finra black

By Benjamin P. Edwards

The public faces a transparency problem with the Financial Industry Regulatory Authority Inc. Finra plays a central role in investor protection and financial regulation. Surprisingly, it often refuses to tell the public much information about itself or the industry it oversees.The public cannot use ordinary tools like the Freedom of Information Act to get more information. These open-government laws do not apply to Finra because it is a quasi-governmental, self-regulatory organization. Unlike other regulators, Finra must decide for itself how much information it will reveal to the public.Instead of revealing the full picture to the public, Finra often only offers a peek, granting access to tiny slices of information but refusing to reveal the rest. This serves a purpose: By disclosing some limited information, Finra may pretend to publicize information without enduring sunlight's disinfecting scorches. At times, Finra's preference... Read full post

Jun 21, 2017, 1:24 PM EST

Market forces could cause fundamental changes to small and midsize 401(k) markets


By Fred Barstein

For years, experts have predicted the small-plan 401(k) market would have to change. Although prices have come down, they are still high when compared with larger plans, and the market is rife with inefficiencies. However, a series of dramatic industry changes this year could finally cause fundamental shifts and improvements in the small and perhaps even midsize 401(k) markets.Today, there are hundreds of thousands of 401(k) plans with less than $10 million in assets, run by insurance company record keepers, sold by inexperienced (or "emerging") advisers and designed by independent third-party administrators. Payroll company record keepers have the next-largest market share after insurers, and many plans suffer from poor service and high turnover. Inefficiencies are rife. Each plan sponsor is forced to form and run its own plan and create their own investment menus, something they are ill-equipped to do. Most of the plans are sold and... Read full post

Jun 20, 2017, 6:01 PM EST

Thinking about M&A? Keep these three issues in mind


By Vanessa Oligino

Mergers and acquisitions have the potential to accelerate the growth and profitability of financial advisory firms if they're properly planned and executed. To improve their likelihood of success, advisers need to ask some tough questions up front of both their counterparties and themselves. Adviser interest in M&A has recently been rising, and most have their sights set on small transactions. According to a recent FA Insight survey, more than 60% of independent RIAs considering M&A are looking to acquire a solo adviser, while 47% intend to buy a book of business. Big fish are in demand too: 42% anticipate acquiring firms with multiple advisers. (More: RIA firms ride consolidation wave)The allure of M&A is easy to understand. Well-executed deals can bring about new revenue, assets and clients at a pace that could take years to cultivate organically. Transactions can be a vital component to succession planning and create a more... Read full post

Jun 20, 2017, 3:02 PM EST

The case for a single fiduciary standard based on the Investment Advisers Act of 1940


By Charles Goldman

As the industry continues to wait for more clarity on the ultimate future of the DOL fiduciary rule, there is no shortage of public debate. Although the Labor Department declined to further delay the rule and partial implementation began on June 9, many still believe the rule will be repealed after the DOL finishes its full review ordered by President Donald J. Trump. The debate is still very much alive. Proponents of the rule cite a fear that by abandoning it we will miss a key opportunity to better protect investors. In contrast, those opposed to the rule often point to the inefficient regulatory burdens it creates. Both sides have valid concerns. Yet there is a clear solution that makes sense from both an investor protection and regulatory simplification standpoint. The Securities Exchange Commission must establish a single fiduciary standard for financial advice based on the Investment Advisers Act of 1940. Not only is the Act of... Read full post

Jun 20, 2017, 11:32 AM EST

Reforming compensation practices in the retail alternatives space


By Clive Slovin

It's become increasingly clear that, while the investment goals of retail alternative products are crucial to investor portfolios, a number of alternative product sponsors should seriously consider moving towards a cost and compensation model that better serves retail investors.Let's start with the up-front costs and income distribution practices: Typically, 10% of total investors' capital is removed immediately to pay expenses and commissions for the product sponsor, broker-dealers and financial advisers. Additionally, regular quarterly distributions are often met out of liquid capital rather than true profits.Moreover, for many retail alternatives that envision a capital appreciation event, it's unclear as to how product sponsors are incentivized to aggressively seek such an outcome. (More: Advisers wary of bitcoin vindicated after big drop)Plan sponsors, who generally are the asset managers, typically receive a percentage of the... Read full post

Jun 15, 2017, 10:40 AM EST

The latest in financial adviser #FinTech


By Michael Kitces

Welcome to the June issue of the Latest News in Financial Advisor #FinTech – where we look at the big news, announcements and underlying trends and developments that are emerging in the world of technology solutions for financial advisers and wealth management.This month's edition kicks off with the not-so-surprising news that robo-advisers are increasingly pivoting toward offering human advisers and pursuing a more affluent, and not necessarily millennial, clientele; and the somewhat-more-surprising news that one new robo-platform, BrightPlan, has decided to enter the marketplace by raising $25 million of capital and using it to buy an existing $3.6 billion life-planning-oriented (and human-adviser-based) independent RIA, raising the question of whether adviser tech companies could become an entirely new buyer category in the world of adviser M&A and whether existing RIAs may actually be a superior way to distribute new... Read full post

Jun 14, 2017, 2:28 PM EST

Driving clarity on Finra's rules on outside business activities


By Dale Brown

Independent financial advisers' ability to share their expertise in areas that are often outside the traditional role of a financial adviser — such as tax and accounting, insurance and even legal advice — is a crucial part of the value the independent model offers to Main Street investors, especially those who live in smaller communities where other options for accessing these services may be limited.With this in mind, we applaud Finra's recent announcement that it will re-examine its rules covering these outside business activities (OBAs) and the similar (but distinct) category of private securities transactions, or PSTs. The review comes as part of Finra's ongoing Retrospective Rule Review, under which the regulator is taking a fresh look at its existing regulations to gauge whether they remain effective in accomplishing their intended goals.(More: Finra CEO Robert Cook promises to give brokerages more guidance on... Read full post

Jun 13, 2017, 6:57 PM EST

5 benefits of transitioning to independence


By Joshua Pace

The RIA channel is one of the fastest-growing areas of the advisory market, expanding more than 11% annually, compared with an 8.6% rate for the overall industry, according to Cerulli Associates. This growth has been fueled in part by a migration of advisers from the traditional broker-dealer and wirehouse channels. The RIA market is expected to account for nearly 28% of the advisory market by 2018, compared with a 13.7% market share in 2013.Why are so many advisers making the move to independence? For many, it comes down to having greater control — over their business, lifestyle, income and the strategies they can offer. Moreover, according to a recent Envestnet study, three-fourths of advisers who transitioned to the RIA space were able to boost their financial situations. (More: RIAs tout their fiduciary status to clients as DOL rule implementation begins)Here are five benefits of transitioning to the RIA channel, either by... Read full post

Jun 8, 2017, 6:40 PM EST

Where retirement advisers should focus their preparations for the DOL fiduciary rule


By Blaine F. Aikin

It's now official: On June 9, the Department of Labor's fiduciary rule will take effect. The heart and soul of the rule, and the part on which all retirement advisers should focus their preparations, is the requirement to have and follow "impartial conduct standards."ICS is a construct associated with the most important new prohibited transaction exemption established by the fiduciary rule: the best-interest contract exemption. When the DOL, under the direction of the Trump administration, imposed a delay in the initial applicability date for the rule from April 10 to June 9, it also deferred all requirements of BICE — except for the impartial conduct standards — until a final applicability date of Jan. 1, 2018. Requirements for the advisory firm to establish an enforceable contract with the client, provide specific disclosures, assign oversight responsibilities to an identified individual, notify the DOL of reliance upon ... Read full post

Jun 8, 2017, 3:19 PM EST

DOL fiduciary rule: What's wrong with the financial advice industry?


By Mark Mersman

After a tumultuous election cycle, the United States is more divided than ever. This division is happening at a time where our country could arguably be at one of its most significant crossroads in its history, and the financial advice industry is along for the ride. In 1940, the "F" word entered the world of financial advice. Decades later, the industry is at odds with a new rule attempting to clarify how the word is defined, how it will be enforced and to whom it will apply.Fiduciary. It's a simple concept: Put the interests of your client ahead of your own. It's a concept that's divided our industry in ways no one could've predicted.(More: How broker-dealers have changed compensation to prepare for the DOL fiduciary rule)WHAT'S RIGHT WITH THE RULE?Establishing a unified code of conduct that centers around financial professionals having an ethical and legal obligation to act in their clients' best interest is a no-brainer. Find me a ... Read full post

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