Outside voices and views for advisers

Aug 23, 2016, 4:40 PM EST

Use the DOL fiduciary rule as a catalyst to transform your business

By Scott Dixon

We've seen it before.A major regulatory change like the recent release of the Department of Labor rule prompts firms to use internal and external resources to formulate an action plan to comply. Revenue forecasts, compensation reviews, intricate client segmentation and many other activities are scrutinized to help with the process. As must do's, these are all critical and necessary steps that have to be completed prior to the rule taking effect.While these tasks are urgent, they can also prevent us from looking at the bigger picture and asking the transformative question: “What's possible?”One thing that is clear to me is that progressive and visionary firms can use an industry sea change — like the DOL fiduciary rule — as a catalyst not only to comply, but also to transform their business. There will be a small percentage of forward-looking firms that use the new rule as a platform to drive an improved client... Read full post

Aug 23, 2016, 3:35 PM EST

How frivolous customer disputes can be erased from Finra BrokerCheck

By Doc Kennedy

Danny Sarch's blog regarding Finra's BrokerCheck hit the mark with his assessment of a tool that can be a double-edged sword. Designed with good intentions, BrokerCheck can oftentimes provide a sort of online early warning system for prospective clients looking to place their money with a trusted source. Alternatively, BrokerCheck can raise erroneous red flags on advisers with disclosures that may not be appropriate — or worse — lack merit entirely. As of June 6, the Financial Industry Regulatory Authority Inc.'s amendment to Rule 2210 took effect requiring all broker-dealer webpages and online profiles of advisers to conspicuously link directly to BrokerCheck. No doubt this measure will increase the use of BrokerCheck as a prequalifying tool for your clients. Finra has spent millions of dollars on advertising and has shown that it is committed to this being the lynchpin of its campaign of transparency to protect... Read full post

Aug 22, 2016, 2:57 PM EST

Few financial advisers pitch ESG funds to clients. Missed opportunity?

By Thomas Hoops

My firm has sponsored a series of surveys, trying to understand what is driving retail investors. Some of the answers have come back exactly as expected — consumers value high performance, they don't believe they have enough saved for retirement — but others have surprised us.One example: women and millennials report increasing interest in and want to buy funds with strong environmental, social responsibility and corporate governance (ESG) components. Yet investors tell us that few financial advisers are suggesting, let alone recommending, these funds.If investors are coming in predisposed to purchasing ESG funds, why aren't FAs getting out front? Only they can say, but they risk missing opportunities to serve their clients' interests.Surveys show that “socially-responsible investing” (SRI) is an almost universally familiar term. Whether also called “sustainability” or ESG, it's here to stay. It can... Read full post

Aug 19, 2016, 2:00 PM EST

Why Modern Portfolio Theory is frozen in time

By Jeffrey S. Ferraro

Ready for a quick pop quiz?What do the following five items have in common? The first KFC franchise; the beginning of the diet soda era; Modern Portfolio Theory; the first video recording; and the treadmill's predecessor. To save you a little search engine wear-and-tear, these trend-setting events all debuted in 1952.Now, which of the above trend-setters remains frozen in time, operating in the same way, shape and form as it was back in 1952? The answer: Modern Portfolio Theory, which 64 years later, isn't so modern anymore.When Nobel Prize-winning economist Harry Markowitz introduced MPT, he gave the investment world an academically rigorous understanding, for the first time perhaps, about constructing a portfolio of assets in which the expected return is maximized for a given level of risk. Today, MPT is so engrained in the DNA of portfolio construction that it's the go-to model for the majority of financial advisers and, more... Read full post

Aug 17, 2016, 2:07 PM EST

Top five reasons the independent broker-dealer space continues to shrink

By Jodie Papike

When I first entered the business 19 years ago, advisers expected a lot less of their broker-dealers. Firms could recruit and stay attractive simply by keeping service standards high, processing business efficiently and paying their advisers on time. Broker-dealers felt a lot less regulatory pressure and there were more profit centers available, making it easier to run a firm while staying profitable.Fast forward to today, and the expectations of broker-dealers and the role they play for advisers have changed dramatically. Firms today must do much more in their relationship with advisers to keep them satisfied. The mounting pressure on broker-dealers has forced a significant contraction in the space. In 2005 there were 5,111 broker-dealers, while today there are roughly 3,917. A decrease of approximately 23% over an 11-year period is certainly not something advisers are taking lightly.I frequently hear from advisers that their No. 1... Read full post

Aug 16, 2016, 3:06 PM EST

As the Bill Miller era ends, how will Legg Mason move beyond his legacy?

By Nir Kaissar

It's the end of an era at Legg Mason.Bill Miller — stock picker extraordinaire who famously outpaced the S&P 500 for 15 consecutive years, and undoubtedly a first-ballot-hall-of-famer — is leaving the firm after 35 years.Mr. Miller isn't hanging up his stock charts for good. He will keep trying to outsmart the market at LMM, a money manager he owned jointly with Legg Mason that will now be all his own.Joseph Sullivan, Legg Mason's chief executive officer, had this to say about Mr. Miller's departure: “Bill has been an important part of the growth and success of Legg Mason over the years and we appreciate his many contributions.”That's a wild understatement.Legg Mason traces its history back to 1899, but you'll be forgiven if you had never heard of the Baltimore-based firm before the 1990s.That changed when Legg Mason's money management business took off, with assets under management skyrocketing from the early... Read full post

Aug 15, 2016, 2:53 PM EST

Key principles to guide corporate governance procedures for the IBD space

By Robert Moore and Larry Roth

Following our recent transformation process in June, we have officially turned the page on a challenging chapter in our company's history. As we forge ahead, redeveloping and refining our corporate governance procedures has emerged as one of our top priorities. A reflection of this can be seen in our formation of an entirely new board of directors, as well as the naming of a non-executive board chairman. These changes are among the first of what we hope will be many concrete steps that will enable us to rebuild our corporate governance procedures from the ground up. Although this process is just beginning, we believe we have already made significant strides. At the end of the first board meeting, for instance, a critical consensus was fostered: A board of directors should exist to serve the interests of the company and its key stakeholders — not the other way around. This foundational belief will continue to serve as the basis of ... Read full post

Aug 12, 2016, 12:55 PM EST

A new risk playbook for solving the allocator's dilemma post-Brexit

By Ted Lucas

June's Brexit vote was another reminder of the difficult road ahead for investors. The news jolted markets and sent advisers and their clients into yet another huddle session to adjust or reinforce long-term plans. While a significant event, the truth is Brexit is just one of many challenges advisers must navigate on behalf of their clients. The news doesn't change the fact that these are tumultuous times and finding growth is one of the greatest obstacles we all face.Earlier this year, we talked to financial advisers about their clients' expectations. Most of these advisers said that their clients expect returns of 5%-7% a year for the next three years. In a growth-starved global economic environment with low yields and few cheap assets, it's a lofty, maybe even unachievable, demand. And add to that an almost steady stream of market shocks and investor worries, the path forward is anything but clear. This is the allocator's dilemma.... Read full post

Aug 11, 2016, 4:50 PM EST

RIAs must mind details when it comes to advertising

By S. Brian Farmer and Brian J. Daly

Hidden among the more prominent regulatory burdens faced by registered investment advisers is a cache of nuanced guidance from the Securities and Exchange Commission on advertisements, which RIAs must heed in order to avoid a potential enforcement action. The anti-fraud provisions of the Investment Advisers Act of 1940, found in Section 206 and Rule 206(4)-1, generally prohibit advertisements that contain untrue statements of material fact or that are otherwise false or misleading. The SEC has provided specific guidance on advertising practices over several decades through rulemaking, “no-action” or interpretive letters and enforcement actions. The SEC defines advertisement broadly; a good rule of thumb is to assume that any written materials sent to clients or potential clients are subject to the advertising rules. Rule 206 prohibits advertisements that contain “any untrue statement of a material fact” or that ... Read full post

Aug 11, 2016, 2:52 PM EST

3 significant anomalies in the DOL's new fiduciary rule

By Phil Troyer

As is the case with most chief compliance officers these days, I have spent considerable time reviewing 1,000 plus pages of the Department of Labor's new fiduciary regulations and commentary. The following are a few of the significant implications I believe are not receiving the attention they deserve:1. Say goodbye to solicitors agreements — at least with regard to accounts subject to ERISA.The Advisers Act and most state codes specifically allow investment advisers to compensate third parties for client referrals but require them to provide potential clients with a “solicitor disclosure document” outlining the solicitor's role and fee. Under the DOL's new rules, a solicitor's recommendation of a particular adviser in exchange for compensation will become conflicted investment advice. Although the DOL created disclosure regimes for conflicted advice regarding investments, it did not incorporate the solicitor... Read full post

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