fi360 Blog

Major commenting periods drawing to a close

Today is the deadline to submit comments on both the SEC's Congressionally-mandated study of the regulation of broker-dealers and RIAs and the DOL's proposed 408(b)(2) fee disclosure rule. In addition, last week was the deadline for comment to the SEC on the naming and marketing of target date funds. If you are still considering submitting comment, make sure you take a look at Kristina's post from last week on writing an effective SEC comment letter. Kristina is an attorney who came from the SEC before joining fi360 and lets us know what the SEC finds most valuable when reviewing public comments. In addition, check out The Committee for the Fiduciary Standard for their advice on how to voice your support for the fiduciary standard for investment advice.

Now on to the rest of the week's best links.

In the news:

• Will 12b-1 reform fizzle with the departure of Buddy Donahue? [InvestmentNews]
• Target date fund reform proposal not receiving much feedback [InvestmentNews]
• Three senators weigh in on target date funds [PLANSPONSOR]
• Comments agree thattarget date funds could be explained better, but renaming is excessive [PLANSPONSOR]
• New FDIC insured investment products now being offered for retirement plans [MarketWatch]
• Kate McBride attempts to clear up the misinformation being spread about the fiduciary standard [Investment Advisor]
• Our 2009 article competition winner, Andy Rice, follows up his winning article with a further look at Roth conversions [Investment Advisor]

From the organizations/associations/government/academia:

• The impact of 408(b)(2) on RIAs [Reish & Reicher]
• The greatestliability risks faced by plan sponsors [Chubb] Fiduciary News also provides an analysis
• Addressing target date fund naming and marketing [Brightscope]
• New proposed accounting standards for loans taken by employees from DC plans [Financial Accounting Standards Board]
• Study shows companies adding 401(k) features to spur saving [Charles Schwab]

From the blogs:

• Some advice for employees, don't borrow from your 401(k) [bnet's Evil HR Lady]
• Advice to investors, don't ask if it is a good investment, ask if it's a good investment for you [Chicago Financial Planner]
• A sampling of the target date fund reform proposal comments [WSJ's Financial Adviser Blog]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Everyone could use a little advice

For a lot of people, the idea of paying for investment advice seems like a waste. Do-it-yourself types and those who have been very successful in their careers believe they can put together an investment plan just as well as an advisor can. One article we found this week found that this is particularly true of young affluent investors who are web-savvy. But, as another article points out, everyone could use a little objective advice. Building a financial plan that covers all of your bases can be complex, and may include elements that never occurred to you. In addition, even those investors who are experienced at building a comprehensive financial plan, such as investment advisors, would probably benefit from the eyes of an objective, outside observer. In short, just about everyone could find a significant benefit from a knowledgeable professional who is putting the client's best interests first.

Now on to the rest of the week's best links.

In the news:

• Advisors, brokers spar over fiduciary standard, pt. 1 [Financial Advisor]
• Brokers, advisors spar over fiduciary standard, pt. 2 [WSJ]
• Advisors, brokers spar over fiduciary standard, pt. 3 [InvestmentNews]
• Is asset allocation just a cop-out for managers? [The Street]
• DOL fee disclosure rules were long overdue [Pensions & Investments]
• A sampling of the comments being submitted to the SEC on the fiduciary, other issues [RIA Biz]

From the organizations/associations/government/academia:

• The Committee for the Fiduciary Standard and four advisor organizations are holding a fiduciary forum next month. [Financial Advisor]
• Even advisors are in need of a little advice [Financial Post's Wealthy Boomer Blog]
• Carl Richards has launched a newsletter for his unique sketches [Behavior Gap]
• Fred Reish breaks down 408(b)(2) [Reish & Reicher]
• A wiki on expense ratios picks up our explanation of what's in an expense ratio [Bogleheads Wiki]
• Sign up for our free webinar on new fiduciary regulation [fi360]

From the blogs:

• Do 12b-1 rules create additional liability for plan sponsors [Fiduciary News]
• Letters in opposition to the fiduciary standard are outnumbering those in support so far [WSJ Financial Adviser blog]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Preparing for reform

We may still be a ways away from new regulation from the SEC, but that doesn't mean you shouldn't be preparing for it already. Even without the details, there are still some indications of what can be expected, both through new rules and the evolving investment advice landscape. One article this week from Researchmag.com addressed this topic with some tips on how to make reform work for you, including creative marketing, buttoning up your processes and looking for new trends in the retail industry.

At fi360, we'll be conducting our next free webinar on the subject of what to expect from new regulations and how advisors and brokers can be preparing themselves for a new reality. Attendance is open to everyone and space is limited, so make sure you sign up soon.

Now on to the rest of the week's best links.

In the news:

• Taking exception to the columnist who said last week that the fiduciary debate is much ado about nothing. [Advisor Perspectives]
• The CEO of Stifel is downplaying the impact of the fiduciary standard on brokers [InvestmentNews]
• The role of a fiduciary is timeless [InvestmentNews]
• SEC's 12b-1 proposal doesn't quite reach the level of full disclosure [MarketWatch]
• Lack of self-funding preventing SEC from reaching full potential in regulating [WealthManagerWeb]
• Securities worried that fiduciary standard could prevent the sale of IPOs [InvestmentNews]

From the organizations/associations/government/academia:

• Low fees predict better performance. [Morningstar]
• An auto-IRA bill is introduced in the Senate, would provide a safe harbor for employers. [Senator Jeff Bingaman (D-NM) & InvestmentNews]
• Free webinar on how financial regulatory reform is going to affect how advisors and brokers do business [fi360]
• The Committee for the Fiduciary Standard, Financial Planning Coalition and Financial Services Institute are holding a fiduciary forum on September 24 in Washington. [Financial Advisor]
• An overview of 408(b)(2) regulation [Reish & Reicher]

From the blogs:

• Target date funds require equal due diligence to other investment options. [Chicago Financial Planner]
• The industry is taking sides in the 12b-1 debate [Fiduciary News]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Separating skill from luck

In his post last week for Morningstar Advisor's Markets & the Economy Blog, Michael Zhuang (who also writes the very good The Investment Fiduciary blog) uncovered a study from the Journal of Finance that seeks to separate luck from skill in alpha. The study finds that most skill is wiped out in fees and expenses and money managers who provide real alpha are virtually nonexistant. This leads Mr. Zhuang to wonder how advisors justify their value. He also asks in the comments section of the post if past performance is advisors' number one criteria in fund selection.

If it is by claiming you can find that needle in the haystack, then it would seem you are taking a significant risk of not coming through. And if past performance is your primary consideration in fund selection, it would seem that you are more likely to be getting in after the manager's luck has run out. Unless you have a magic formula for fund selection, this study is another layer of evidence that advisors would be better served focusing on and communicating a strategy based on diversification and geared to achieve investor goals, not a pursuit of alpha.

Now on to the rest of the week's best links.

In the news:

• Collective trusts are a new alternative to mutual funds in 401(k) plans [Wall Street Journal]
• An interview with TD Ameritrade's Tom Bradley touches on fiduciary issues [Registered Rep]
• Ex-regulators leading the way in lobbying regulatory agencies [NY Times]
• While 12b-1 fees get scrutinized, soft dollars escape regulators' microscope [InvestmentNews]
• Scott Simon declares MPT and diversification "still good" [Morningstar Advisor]
• Matt Hutcheson: fiduciary crusader [Retirement Income Journal]
• Tamar Frankel: fiduciary thinker [Investment Advisor]
• Community foundations should think twice before allowing a donor's wealth manager to manage assets [Investment Advisor]
• More mutual fund fee scrutiny doesn't mean better performance [Forbes' Zenvesting Blog]

From the organizations/associations/government/academia:

• A fiduciary stress test for plan sponsors to make sure they are fulfilling key obligations [Vanguard]
• Five tips for plan sponsors to select and monitor fiduciary advisors [Reish & Reicher]
• A direct link to the online form to submit comments on the SEC fiduciary study [SEC]
• The Committee for the Fiduciary Standard is asking advisors to let the SEC know thatfiduciary standards are a must for protecting investosr [The Committee for the Fiduciary Standard]

From the blogs:

• A conversation on advice vs. guidance [The 401(k) fiduciary advice blog]
• The rest of the "Ten things you're probably still doing wrong as a plan fiduciary" list [PLANSPONSOR Perspectives]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Open season on regulatory initiatives

At her speech to the U.S. Chamber of Commerce in Washington last week, SEC chairman Mary Schapiro basically declared an open season on the various regulatory reform initiatives her agency is tasked with undertaking over the next year or so. Coinciding with that speech, the SEC opened up the public comment period to all of the provisions under the regulatory reform act that they are to consider. Typically, this is done after a rule has been issued, but with so much to accomplish in so little time, it seems the SEC decided it most efficient to proceed immediately. Related to the regulatory reform bill, but listed separately, is the ability to comment on the study of the fiduciary issue. In addition to these reform bill-related provisions, we highlighted other SEC and DOL initiatives that are currently open for public comment in a blog post from last week.

Of course, this debate will not be limited to the website and in the halls of the SEC. With this limited window of opportunity to have a voice in affecting how fiduciaries, advisors, brokers, etc. will do business in the future, the media and the major organizations and associations are all doing their best to sway public opinion on the issues at hand. This week's fiduciary links features a heavy dose of those opinions and it is safe to expect even more of this throughout August, during which time we'll try to share the best in our weekly links post.

We encourage all of our readers to investigate which issues will most affect them and submit their own comments. Most readers will likely never have a better opportunity to have their opinions heard by the regulators themselves. It is also worth noting that submitted comments live on the SEC and DOL websites, where they can be accessed by the public. Submitting comment and linking to them from your website or newsletters could provide a good opportunity to demonstrate to clients and prospects your opinions and your engagement in the process.

Now on to those and the rest of the week's best links.

In the news:

• What the regulatory reform bill means for the future of the suitability standard [Politico]
• Comments on the fiduciary issue are already streaming into the SEC [InvestmentNews]
• The twenty five basis points cap on marketing and service fees may cause some retirement fund providers to rethink their services [InvestmentNews]
• A guest op-ed piece says that the SEC is right on 12b-1 fees. As is usual for this topic, this creates heated debate in the comments section [InvestmentNews]
• Evan Cooper shows the comments he'd like to see on the fiduciary provision of financial reform [InvestmentNews]
• Bob Clark continues to see the advice industry morphing into a fiduciary-only one [Investment Advisor]
• Geoff Davey of Finametrica spoke with Wealth Manager Web at our conference in May [Wealth Manager Web]
• 12b-1 fees needed a revamp because investors didn't understand them [AP]
• How new 12b-1 fee rules are a step in the right direction of slowing the leak of excessive mutual fund fees [New York Times]

From the organizations/associations/government/academia:

• How the fiduciary duty requirement in insider trading enforcement has been eroded by two recent actions brought by the SEC [The Harvard Law School Forum on Corporate Governance and Financial Regulation]
• The latest Report to Plan Sponsors from Reish & Reicher
• The insurance industry is mobilizing their members to oppose the fiduciary standard [NAIFA]

From the blogs:

• Four ways new 408(b)(2) regulations will benefit plan sponsors [The 401(k) fiduciary adviser blog]
• In the wake of the Hecker case, excessive fees post an increasing risk for fiduciaries [Boston ERISA & Insurance Litigation Blog] 
• When "Yale envy" backfires for endowment committees [Behavior Gap]
• The first five of ten things fiduciaries are probably doing wrong [PLANSPONSOR Perspectives]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: SEC proposes eliminating 12b-1, introducing a capped "marketing and service" fee

Earlier this year, SEC Chairman Mary Schapiro said that they would be reviewing 12b-1 fees and that it may result in their elimination. Last week, the SEC followed through with a proposal for new rules that would eliminate 12b-1 fees and introduce a new, capped fee with a more easily recognizable "marketing and service" label. The official SEC press release includes a fact sheet overview, links to the rule itself and instructions for the public to submit comment.

The 12b-1 debate always promises to be contentious (See Blaine's January Fiduciary Corner column and the submitted comments), and the reaction has been predictably mixed and strong. Here is just a sampling of both the the positive and negative reaction to the SEC's proposed rules:

• FSI thinks the new proposal will hurt investors [InvestmentNews]
• Broker/dealer executives also see problems for both the industry and advisors [InvestmentNews]
• IN's Evan Cooper says it is a good move that was a long time coming [InvestmentNews]
• New rules will be a boon to investment consultants who can analyze fees for a plan [Pensions & Investments]
• Tara Siegel Bernard sees the rules as a positive first step in better fee clarity [New York Times]

Now on to the rest of the week's best links.

In the news:

• Trust is the single most important attribute to look for in an adviser [Index Universe]
• An interview with Jeff Spears, who leads an organization that supports advisors who have decided to go independent, on financial regulation, the fiduciary standard and more [WealthManagerWeb.com]
• Financial reform gives regulators, especially the SEC, more bite [RIA Biz]
• Humberto Cruz calls out Congress for not including the fiduciary standard in reform [Chicago Tribune]

From the organizations/associations/government/academia:

• The fiduciary duty to make 401(k) deposits in a timely manner [WithumSmith+Brown's The Journal]
• The Boston University Review of Banking and Financial Law and the Committee for the Fiduciary Standard have issued a call for papers on the fiduciary standard [The Committee for the Fiduciary Standard]
• Changes are coming to Form ADV, Part 2 with an emphasis on plain English [SEC]
• Most advisors not familiar with financial reform and how it will affect them [SEI]

From the blogs:

• Jason Roberts of Reish & Reichergoes over 408(b)(2) [PPA Fiduciary Adviser Legal and Compliance Report]
• How the ground breaking events in Washington will impact fiduciaries and plan sponsors [Fiduciary News]
• 401(k) Resource Guide: the summary plan description for plan participants [401kBasics]
• You need to forget about the past when valuing your own investments [NYT Bucks Blog]
• An AIF designee gives six signs that it is time to fire your broker [Forbes's Money Builder Blog]
• An advisor gives his thoughts on how financial reform affects his business practices [Seeking Alpha]
• The fiduciary duty to ask [Plansponsor Perspectives]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Financial reform, 408(b)(2) and more, oh my!

With the financial reform bill and it's direction for the SEC to conduct a study on the fiduciary standard of care being passed this week and the DOL finally releasing the long-awaited 408(b)(2) rule, last week was one of the most intriguing in recent memory on the fiduciary front. No one is quite sure what it all means yet, but we certainly weren't without opinion. If there is one theme to this week's links it is that advocates on both sides of the fiduciary debate are already positioning themselves to have their voice heard during the next six months as the SEC begins its fiducary study.

For fi360's take on last week's developments, make sure you check out Kristina's blog post from the end of last week.

This edition of the weekly Fiduciary Links might be our most extensive one yet. And there were many more worthy articles and blog posts that we weren't able to hit this week. Now on to those links.

In the news:

• Reform is passed with much remaining to be seen on the fiduciary issue. [RegisteredRep]
• Finding investment committee members can be a challenge when they are afraid of their fiduciary duties. [Employee Benefit News]
• An opinion piece likens the current Wall Street culture to a betting culture [Pittsburgh Post-Gazette]
• Government getting a head start on implementing reform bill for what promises to be a very busy coming year [The Washington Post]
• Some brokers see the fiduciary standard as more of an annoyance than anything else [Financial Advisor]
• The financial reform bill finally brings some clarity to where the fiduciary buck stops. [Money Management Executive] 
• Harold Evensky thinks its best to work with the idea of FINRA as fiduciary regulator and thinks that it can work [RIABiz]
• Target date funds continue to be enhanced with annuities despite tepid response from plan sponsors [InvestmentNews]
• Many questions remain with reform bill passed [InvestmentNews]
• Panel at SIFMA Summit discuss ramifications of reform bill [Wealth Manager Web]
• The effects of the reform bill on the portfolios of individual investors [Wall Street Journal]
• Brokers don't need to be afraid of the fiduciary standard [Investment Advisor]
• Not everyone thinks the reform bill was a success [MarketWatch]
• 408(b)(2) should make it easier for plan sponsors to assess fees [InvestmentNews]
• Is fiduciary oversight headed to FINRA? [InvestmentNews]

From the organizations/associations/government/academia:

•  DOL releases 408(b)(2) fee disclosure rules. Here's the news release, the rule fact sheet and the full text of the rule itself [DOL EBSA]
• Everything you need to know about the financial regulatory reform bill [House Financial Services Committee]
• Goldman settles SEC complaint, agrees to pay large fine and reform business practices [SEC]
• Reish runs through the details of 408(b)(2) [Reish & Reicher]
• Six steps for avoiding being sued and keeping your reputation intact [RIABiz]

From the blogs:

• Mike Alfred of BrightScope is interviewed on reform, fiduciary duties, plan fees, and more. [NYT Bucks Blog]
• Where did the ethics of investment advice go wrong? [Pilant's Business Ethics Blog]
• Knut Rostad's latest post uses the NFL-AFL merger as an analogy to merging the standards of care for brokers and advisors [Wealth Manager Web]
• Best practices for plan sponsors to avoid compliance issues [The Metropolitan Corporate Council]
• High fees can make small plans a sucker 401(k) plan [The Investment Fiduciary]
• In breach of fiduciary duty cases, the best defense is a good offense [Boston ERISA and Insurance Litigation Blog]
• It will cost money to build systems to disclose fees [Securities Technology Monitor]
• Deciphering Schapiro's words: what did she mean by "harmonized" fiduciary standard? [Registered Rep's The Advisor Reformation Blog]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Battleground of fight for fiduciary debate shifts to SEC

When the financial reform bill is finally passed sometime this week, the fiduciary debate will continue on no longer in the hands of Congress, but of the SEC. While on the surface this seems like a good thing, the SEC Commissioners have indicated their preferance for a strong fiduciary standard for all advice, time often has the effect of changing things. Blaine's most recent Fiduciary Corner column looks at what's ahead for the mandated study the SEC must undertake and eventual rulemaking, including where the progress for fiduciary reform may be derailed.

Now on to the rest of the best links from the past week.

In the news: 

• What exactly are 12b-1 fees, anyways? [Wall Street Journal]
• Sheryl Garret, founder of the Garrett Planning Network discusses a la carte advice, the fiduciary standard, and more in an interview. [Morningstar Advisor]
• With the end of the fiduciary debate within sight, a reminder that Washington is merely codifying what the market is already demanding [InvestmentNews] 
• Could a broader fiduciary standard result in higher insurance costs? [Registered Rep]
• The chief executive of RBC's U.S. Wealth Management says fiduciary standard should vary by function [Reuters]

From the organizations/associations/government/academia:

• SEC hosting an open meeting on rule changes for target date fund naming and marketing [SEC]
• Even though lawsuits involving large plans make the biggest headlines, small plan litigation is increasingly prevalent as well. [Reish & Reicher] Also, the Boston ERISA Law Blog had some comments to add to the newsletter.
• One study says that many plan sponsors don't want more fee information [Transamerica Center for Retirement Studies]

From the blogs:

• Carl Richards of Behavior Gap recommends caution before applying generic investment advice to your individual needs [NYT Bucks Blog]
• Roger Wohlner updates his 2010 Fiduciary Wishlist and offers an analogy to investment advice using his experience at two Chicago restaurants [Chicago Financial Planner]
• Danny Sarch points out that enacting a fiduciary standard won't eliminate crooks [IN's From the Headhunter]
• Why the fiduciary standard isn't at the front of advisors' minds [Unlocking Real Value Blog]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Fireworks on the Fourth

Fi360 hopes that you had a wonderful Independence Day weekend with friends and family.  In the spirit of the holiday, we’ve decided to bring you some fireworks and some links from the past week.

After a recall of the conference committee last week, the House approved the Finance Reform Bill.  The committee was reopened to review and replace a bank tax, used to help pay for the Bill. After the Senate returns from their holiday recess, they will review and vote on the bill. 

The Senate review does not come without its own fireworks. The death of Senator Robert Byrd and the votes of Senators Brown and Feingold cast uncertainty on the passage of the bill.

One of the provisions of the bill shifts the oversight of advisors with $25 million to $100 million to the states.  Some states are preparing for this shift by collaborating on resources and examinations. However, Carlo di Florio, director of the SEC's Office of Compliance Inspections and Examinations does not believe that some states have adequate examination procedures in place. 

Another provision that has gotten a lot of press is the proposed six month study by the SEC on the fiduciary standard of care versus the suitability standard of care.  But that’s not the only study the bill requires the SEC to undertake.   

In other news…

While the U.S. is wrangling over the fiduciary debate and the financial reform bill, Canada is still debating appropriate mutual fund disclosure standards.

In other international news, Venezuela cracks down on their brokerage industry.

How do you calculate a safe withdrawal rate?  And where did the 4% withdrawal rate come from?

Let’s wrap up with some more fireworks!  Fi360’s hometown of Pittsburgh is not too far away from the Fireworks Capital of America, New Castle, PA.  New Castle is home to both Zambelli Fireworks and Pyrotechnico.  Enjoy the fireworks!

Fiduciary Links: Fiduciary duty for broker-dealers soon to be in the hands of the SEC

The Dodd-Frank Wall Street Reform and Consumer Protection Act was approved by the House of Representatives and Senate conference committee last week. The bill paves the way for the SEC to impose a fiduciary duty upon broker-dealers.

The financial community now turns its attention to the SEC to see how they will proceed with their new responsibilities.

Of course fiduciary measures are not the only component of the bill.  Other components of the bill include, among others, the creation of the Consumer Financial Protection Bureau, hedge fund registration requirements, and derivatives regulation.  Check out the Journal for an overview of the components, and Investment News for an advisor highlights overview.

It’s been interesting to read all of the comments from advisors.  What’s your take?  Leave your comments on the bill below.

Every coin has two sides, and critics of the financial reform bill have also been voicing their opinion.

If you’'re late to the game, here’s a convenient timeline of the fiduciary debate since the framework for the Financial Reform bill was originally proposed by the Obama administration.

In other news:

The target date fund rules proposed by the SEC are getting some pushback.  Proponents of the rules indicate that it’s a step in the right direction, while others propose that the SEC still has some work to make “Target Date” funds understandable to the public.  Robert Powell weighs in on the debate.  

Target date funds became especially popular after they were considered a QDIA option under the Pension Protection Act.  You can catch up on some QDIA essentials here.

Noise about the public pension crisis continues to grow. Cities like Baltimore, Pittsburgh, and San Francisco are facing budget concerns over the underfunding of pensions. Pension valuation changes may also shine a light on the issue. Are your client’s facing pension uncertainty?

As always, share your thoughts and links below and follow us on Twitter @fiduciary360 for links throughout the week.