fi360 Blog

Listen to the experts at fi360 this week

Blaine Aikin and Kristina Fausti will be both be speaking this week on regulatory issues, so we wanted to pass on information on how you can listen in.

Later this afternoon, from 3-4 p.m. EDT, Director of Legal and Regulatory Affairs Kristina Fausti will be giving her reactions to the Obama administration's financial reform proposal on a joint webinar from Investment Advisor and Wealth Manager magazines.  Also included in the panel are Brian Rubin of Sutherland law firm, Kate McBride of Wealth Manager magazine and Melanie Waddell of Investment Advisor magazine. 

UPDATE: The archived recording of the webinar can now be found here: https://www1.gotomeeting.com/register/477363008

Then on Sunday, CEO Blaine Aikin will be appearing on AIFA designee Gary Allen's radio program, Gary Allen on Business.  The program is broadcast from San Francisco and will be on from 9-10 a.m. PDT/12-1 p.m. EDT.  You can stream the program live at: http://radiotime.com/station/s_34231/KNBR_680.aspx. For more information on the show, Gary Allen's blog or to listen to archived shows, visit the show's home page: http://garyallenonbusinessknbr.ning.com/.

And, if you haven't already done so, make sure you check out our own webinar from earlier this month, The Promise and Prospect of a New Fiduciary Environment.  The webinar was also on the various regulatory reform proposals and the version fi360 would like to see put in place.  Also included is information on how you can contact your representatives and the various regulators to voice your opinion.

An interview with independent fiduciary, Matthew D. Hutcheson

The friendship between Matthew Hutcheson and Fi360 goes way back.  He was one of the first AIFA® designees (2003) and we’ve maintained that friendship ever since.  Hutcheson has been very busy with his participant advocacy work in Washington D.C. and with his independent fiduciary practice.  We caught up with each other at the most recent Fi360 conference and had an opportunity to find out what he was up to and learn more about his practice.  Matt specializes in acting as an independent fiduciary, and we wanted him to share information on his unique practice, and how fellow designees might benefit from learning about a new potential source of professional fee revenue. 

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Fi360:  You have a unique practice. Could you clarify for us exactly what you do as an independent fiduciary?

Hutcheson:  Of course.  ERISA identifies four primary types of “named” fiduciaries.  The first one is described under ERISA section 3(16).  A 3(16) fiduciary (click on ERISA 3) is the “Plan Administrator.”  The Plan Administrator is different than a third party administrator, the latter not being a fiduciary, but rather a professional service provider.  ERISA section 3(21) describes a named fiduciary with discretion over the disposition of plan assets, plan operations, appointment of other fiduciaries, and hiring/firing of service providers.  A 3(21) fiduciary (click on ERISA 3) with full discretionary authority is the principal – or “chief” – fiduciary over a plan.  That is the position I am appointed to serve on many plans.

Fi360:  As a 3(21) fiduciary, how do you interact with the plan sponsor’s management (CEO, CFO, Investment Committee Chairperson).

Hutcheson:  In my case, company executives have arrived at the conclusion that they don’t want to be the chief fiduciary over their plan, so they ask their legal counsel to find a qualified independent replacement.  That’s how I receive most of my appointments.  I also receive independent fiduciary appointments by Federal Courts from time-to-time.

Fi360:  Federal Courts?  Why do they appoint you?

Fiduciary Links: Movement in Reform

It's been a while since we did a Fiduciary Links post, as we've been most of our linking via our Twitter account.  But with all the movement this week on legislative and regulatory reform, we thought we should compile them in one place:

• The 401(k) Fair Disclosure for Retirement Security Act was approved in subcommittee today.  Related to this, view the hearing recap, learn more about the Act, and see our letter of support.
• In the same hearing, the Conflicted Investment Advice Prohibition Act was also approved.
• SEC's Target-Date funds hearings will be tomorrow.  Announced panelists include AIF designee Claiborne B. Morton III, friend of fi360 Lou Harvey of Dalbar, and New Frontier Advisors' Dr. Richard Michaud, co-developer of Resampled Efficiency, which is the optimization technique utilized in our very own Asset Allocation Optimizer. Both the SEC and DOL will have live webcasts from their websites tomorrow.
• President Obama announced his plan for financial regulatory reform.  Here are the basics. Here's the WSJ comprehensive overview. Here's commentary from The Economist.
• Senator Jack Reed (D-RI) introduced hedge fund regulation legislation.  The Compliance Building blog reminds us of two other bills addressing the same issue. 

Of course, stay tuned as we are drafting our responses to a number of these bills as well as initiating other advocacy efforts. Our advocacy page tracks these initiatives as well as lets you know how you can lend your voice.

Finally, if you aren't already doing so, make sure to follow us on Twitter.  We're building a great network of fiduciary-minded followers and putting out the best links that come through here each day.

Fiduciary Q&A: Invesment options not within the scope of the IPS?

The following question was sent to us from an investment committee member for a local medical research institute:

Q: We as a committee have done most if not all of the things suggested in your Prudent Practices handbooks. We have a situation where one of the senior members of the board has recommended an investment that lands outside our current investment policy statement (IPS). 

It is a synthetic insurance product.  We have current benefactor who is 82 years old, in good health and has excess insurance capacity.  His insurance agent has proposed we take $1MM from our endowment and buy a $1,060,000 insurance policy and a single premium annuity.  The income for the annuity will not only cover the insurance premiums but will allow for a current cash flow on the investment.  When the client dies, the annuity will disappear but will be replaced by the insurance policy. (Almost like a synthetic bond with a yield to maturity of 8.0%. But the maturity of the investment depends on the date of death of the participant)

I’m not terribly comfortable with this.  I was wondering if fi360 has any opinion on this vehicle when it comes to Endowments.  Thank you for your help in advance.

A: We always say that no investment is imprudent on its face and that certainly applies in this example.  Having said that, however, the concerns you have are legitimate and need to be addressed.  If the IPS does not address the investment in question, then the IPS should be changed to allow for it before making a decision to invest.  This necessarily will lead to a thorough discussion about this investment’s pros and cons, which is exactly what should happen.  It forces a discipline that helps to keep ad hoc investment decisions, that may not be prudent, at a minimum.  Think of this investment in terms of the other six Fiduciary Precepts as well.  For example:

• What standard or law governs this investment vehicle?
• Does it fit in with the overall asset allocation?
• Who is your prudent expert for this insurance vehicle?  How were they selected?  Was it an objective process?
• Have you considered fees and expenses?  Are they fair and reasonable?
• Who has the expertise to monitor the prudent expert?
• Are there any conflicts of interest that will result from making this investment?

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If you have any fiduciary-related questions you would like to see answered in the Fiduciary Q&A, let us know by emailing blog@fi360.com or leave your thoughts in the comments below.

Our last day in Sewickley

 

(Fi360 Team members Kevin Haugh, Steve Rydzak and Jeff Chen prepping for the move)

Sorry for the slow down in the blog and Twitter over the last couple of days.  We are on our way out of Sewickley and things are slow with the move.  In fact, today is our last day at our home of the last six years.  Tomorrow is the move day and our offices will be closed.  You'll still be able to access our website, the Toolkits, Web-based programs, designee portal, etc., but for the most part will be unavailable for customer service.  If you need immediate assistance, please email the appropriate contact and we'll try to attend to you as soon as possible. 

Our new home is in Bridgeville, which is a southern suburb of Pittsburgh (Sewickley is to the north).  This move gives us more space for our current staff and for our continued growth.  It also includes better space for our production and storage needs (all of those Prudent Practices handbooks take up a lot of space).

For more information on the move and our new address, check out our contact page.  Thanks for your patience as we get through the physical move and for your support that has necessitated our growth to our third home over the last ten years.

We'll see you on Monday from Bridgeville!

Commissioner Aguilar's regulatory reform proposal the best option for investors

We've been focusing on this topic a lot lately, so I'll be brief.  Blaine's latest Fiduciary Corner column throws our support behind the ideas of SEC Commissioner Luis Aguilar.  Chief points among Aguilar's comments during a recent speech at the Investment Advisor Assocation's annual conference were:

• “There is only one fiduciary standard and it means that a fiduciary has an affirmative obligation to put a client's interests above his or her own.”
• "[None of the alternative proposals] measures up to the fiduciary standard that currently exists, and there is great concern that these proposed standards may have the effect of diluting the existing high fiduciary standard that serves as an important investor protection.”
• The SEC was orginally given oversight of investment advice, brokers were exempt because, at the time, they weren't giving advice.  Now that they are giving advice, they should fall under the same oversight as the investment advisors who have always been regulated by the SEC.
• All the SEC needs to successfully take on this role for what would be a much greater pool of advisors is increased resources.   

The logic of this proposal makes the most sense to us. It is the brokers who have transitioned their models to include the provision of investment advice, so why should regulation and oversight cater to them with a watered down fiduciary standard? We also prefer the idea of a more adequately resourced SEC for oversight than a conflicted SRO like Finra.

There is clearly a lot at stake for the impeding reform. And, with a lot to lose, there are well-organized, well-funded groups who will vigorously defend their interests.  Aguilar's proposal prefers the interests of investors over those of those who are supposed to serve them.  If you agree, we urge you to contact the SEC and your elected representatives to voice your support.  Here are additional resources for you get involved:

• Our letter to the SEC in support of Aguilar
• Our recent Webinar on regulatory reform
• Contact information for the SEC, the House and the Senate for you to submit your own letter

Make sure you read Blaine's full article at InvestmentNews.com and click the "Recommend" button at the top of the page if you like it.  And, make sure to leave your thoughts in the comments section below.

Webinar follow up

Thank you to everyone who attended this afternoon's webinar. We hope you found it informative.  If you did not make it, make sure you go to our webinars page, where you can download the slides as a PDF and a recording of the session.

So now that we've expressed our support behind Aguilar's positions, we want to know what you think.

While we're focusing on those who provide investment advice to be brought under the fiduciary standard of care, others would say all brokers and other financial agents should be included as well.  Who do you think should be included?

And what about the regulatory authority? While we agree with Aguilar's position that the SEC is the most logical authority for that role, we know that others, including some of you out there, would argue for a self-regulatory organization, possibly even Finra or the Financial Planning Coalition as the regulator.  Why would that be preferable to the SEC? What other options should be considered?

Finally, the clock is ticking on having our voice heard. There are many organizations and associations out there with strong opinions and strong interests to protect.  We'll do what we can to advance our position and let you know how to do the same, but we're still interested in hearing your suggestions for how to better advocate for change. 

If you have opinions or suggestions on any of these topics, let us know in the comments section below.  Also, submit any questions you have to the comments or email resources@fi360.com and we'll answer as many as possible in upcoming blog posts.

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Other follow up items related to the webinar:

• You can download our letter to the SEC from our advocacy page and find contact information for the SEC Commissioners and your elected representatives so that you can voice your support for Aguilar's or other positions.
• Attendance can be submitted for one hour of CE for your AIF/AIFA designation on your next renewal form.  Just indicate your attendance at the June 2 webinar.
• Visit www.fi360.com/tools for Toolkit demonstration webinars
• Visit www.fi360.com/training for an upcoming training schedule, including AIF and AIFA programs in San Francisco in July.

Rally around Aguilar

Last week, Kristina posted in support of the positions made by SEC Commissioner Luis Aguilar in his May 7, 2009 speech at the Investment Advisers Assocation Annual Conference. In his remarks, Aguilar gave support to the true fiduciary standard and advocated for charging the SEC with regulatory oversight. We followed up with Kristina's promise to write to the SEC Commissioners with this letter advocating for (1) protection of the strong fiduciary standard that exists under the Investment Advisers Act of 1940, (2) application of that standard for broker-dealers who provide investment advice and (3) for Congress to provide the resources necessary for the SEC to remain the regulator of the investment adviser industry.

Unfortunately, Aguilar's comments have not gained the same attention as other proposals that favor a watered down standard and conflicted oversight. For this reason, we wrote the SEC Commissioners and now ask that you do the same.  If you share our appreciation for Aguilar's and our apprehension about the alternatives, take the time to voice your concerns by writing the SEC Commissioners at SEC headquarters and your elected representatives in the House and in the Senate. 

We also invite you to join us tomorrow for our free Webinar on regulatory reform. The one-hour session from 4-5 p.m. EDT is good for one hour of CE for your AIF or AIFA designation.  The session will examine in more detail why Aguilar's comments contain the best solution for investors and why other proposals miss the mark. We'll also cover the characteristics of an ideal regulatory reform proposal and how successful implementation of a rigorous standard of care would change the financial services environment for the better. If you cannot attend, the session will be available in our webinar archive later this week. This is a great opportunity to familiarize yourself with the two paths regulatory reform could go down, and hopefully inspire you to lend your voice in support of Aguilar's comments. 

For more information on other fi360 Advocacy initiatives, visit our Advocacy page under Resources.