fi360 Blog

Fiduciary Links: Thinking through a Roth IRA conversion

Beginning this year, most investors can now convert traditional IRAs to Roth IRAs. The conversion could make sense for affluent investors, who anticipate their tax rates will only go up from where they are now. But the factors aren't that simple for many investors, or for fiduciaries who are advising on the decision. In his Other Voices column for InvestmentNews, AIF designee Andy Rice takes a look at many of the factors that a fiduciary needs to consider before making a recommendation for their client.

Also related to Roth retirement plans, there has been recent lobbying for Roth conversions to be allowed for 401(k) plans and the Obama administration last week endorsed Roth IRAs as the default option for automatic enrollment plans.

With the decision of whether to tax now or tax later on retirement assets having such a big impact on what investors will be able to withdraw, fiduciaries should be familiarizing with the benefits and risk of Roth plans and a process for determining what works best for each of their clients.

Note: Andy's article is an entrant in the fi360 member article competition. You can leave feedback on entered articles from our website. And, if you are an AIF/AIFA designee who has written an article in the past year and would like more information on entering it into the competition, log in to the designee portal for more information or email resources@fi360.com.

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

In the news/commentary:

• Survey shows that brokers think a fiduciary standard will not be implemented for advice [Registered Rep]
• Another look at the same study though, finds that advisors believe the fiduciary standard would be beneficial for their profession [Financial Planning]
• Expect the new 401(k) investment advice rules related to the Pension Protection Act to come out soon. [InvestmentNews]
• Scapiro says the SEC will examine 12b-1 fees this year [InvestmentNews]

From the organizations/associations/government/academia:

• A study shows that many plan sponsors are facing challenges in compliance with new 403(b) regulations [TIAA-CREF]
• Regulators are seeking comment on the use of annuities in retirement plans [DOL]
• Consumer group worries that the brokerage and insurance lobbies will be successful in weakening currently proposed fiduciary standard from regulatory reform. You can also listen to their news conference. [NASAA]

From the blogs:

• A look at the potential fiduciary issues associated with using ETFs in retirement plans [Fiduciary News]
• A look at how arms-length contracts can become fiduciary relationships via the Mark Cuban insider trading case [Business Law Prof 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: Principles for a stronger profession

In her opinion piece from last week, Deena Katz looks at the five core principles of The Committee for the Fiduciary Standard and asks, "who could argue against them?"

The financial advice industry is still young compared to the classic professions of medicine, law, clergy, etc. Growing pains are a part of the confusion as to who is a fiduciary and what that means in this context. But they are not an excuse to point fingers or to look for loopholes. Through a look back at her experience growing up the industry, Ms. Katz urges advisors to look past their differences and pull together in support of a stronger profession based on principles.

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

In the news/commentary:

• Financial Planning Coalition has scaled back their goals for regulatory reform [InvestmentNews]
• But the Coalition promises to continue the fight [WSJ Financial Adviser Blog]
• More state oversight of RIAs would mean more Ponzi schemes [InvestmentNews]
• SEC to use external auditors for fraud detection [InvestmentNews]
• New benchmark built for retirement income management [InvestmentNews]
• New bill would require DC plan statements to include monthly payments,  may boost annuity sales [Registered Rep]
• Don Trone looks at the basics of the fiduciary process [Financial Planning]
• Seven reasons for wirehouses to change their model [RIABiz]
• Proposed bill would requre proxy vote disclosure [Bank Investment Consultant]
• Advisors should pull together in support of a stronger profession based on principles [Financial Planning]
• Brokers fear the unknown of new regulation [InvestmentNews]

From the organizations/associations/government/academia:

• A new study shows automatic enrollment has also led to higher match rates from sponsors [Employee Benefit Research Institute]
• New members appointed to DOL's ERISA Advisory Council [DOL]
• Labor Secretary Solis to testify before Education and Labor Committee [House Committee on Education and Labor]
• SEC approved new money market regulations [SEC]

From the blogs:

• Uncertainty in the Senate not expected to change fiduciary standard in regulatory reform [WSJ Financial Adviser Blog]
• Are property appraisers fiduciaries? No, but an interesting thought. [The Personal Property Appraisers Post]
• An ERISA attorney's look at the Supreme Court decision not to hear the Hecker v. Deere case [Boston ERISA and Insurance Litigation Blog]
• Being proactive with transparency doesn't always work in your favor [Pension Risk Matters]
• A look at the studies that found advice improves participant outcomes with some personal experience mixed in. [401(k) Fiduciary Advice Blog]
• Another look at the studies indicating that advice helps participants [NYT Bucks 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: Bogle's plan for restoring the faith of investors

When John Bogle speaks, we all should listen. In an opinion column last week in the Wall Street Journal, Bogle said, "the faith of investors has been betrayed." Betrayed by an industry that has failed to act as good stewards to the investors they serve and has placed short term returns over long-term value. To restore this faith, he calls for the legislation of fiduciary principles and policies to reward longer term investing.

Mr. Bogle's logic is so typically well reasoned and principled that it is hard to believe anyone could argue with him. But another spin around the headlines continues to show just how much of a role lobbying, politics and posturing is playing in financial regulatory reform.

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

In the news/commentary:

• Sallie Krawcheck also has some suggestions for restoring investor faith [InvestmentNews]
• Everyone could use investment advice, the trick is figuring out how much you need, and how much it costs. [NYT]
• Conflict-free advice is among the changes needed to improve 401(k) plans, according to TIAA-CREF CEO Roger Ferguson [USA Today]
• Fee disclosure, target-date reform, fiduciary standard among reform to expect regardless of if Congress can enact large-scale reform [MarketWatch]
• Possible enactment of a more stringent fiduciary standard should be unaffected by Senate shakeup [WSJ]
• More fiduciary protections related to target date funds needed to fix DC retirement [Financial Times]
• A group of insurance organizations is pushing for a study into broker regulation, a move which some believe is designed to put off passage of reform [InvestmentNews]
• Supreme Court decides not to review Deere fee case [InvestmentNews]
• A call for fee transparency from Silicon Valley [Mercury News]
• Canadian media looks into the fiduciary debate occurring in the U.S. and Australia [The Star]

From the organizations/associations/government/academia:

• SEC Chairman Mary Schapiro outlines in a speech legal and regulatory goals for addressing a financial landscape that has changed drastically in the last 20 years [SEC]
• FINRA arbitration cases soared in 2009, led by breach of fiduciary duty claims [FINRA]
• The Western Michigan Fiduciary Forum, founded by AIF designees and friends of fi360, has proven successful and gained some attention for itself. [The 401(k) Fiduciary Advice Blog]
• BrightScope launches a 401(k) fee evaluation tool for plan participants [BrightScope Blog]

From the blogs:

• Goldman Sachs's Blankfein's support of a fiduciary standard is big news [WealthManagerWeb]
• A shift in thinking is occurring where not considering SRI factors, such as climate change, would be a potential fiduciary breach [Volans]
• FiduciaryNews last week talked to BrightScope about their news fee report and looked at the fall of target date funds as one of the top stories in '09 [FiduciaryNews]

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: In support of the Senate reform bill

Last Monday, the Financial Planning Coalition, Consumer Federation of America, North American Securities Administrators Association, Fund Democracy, and Investment Adviser Association wrote a letter in support of the Senate Banking Committee's regulatory reform bill, which would hold anyone who gives advice to a fiduciary standard by closing loopholes to the Investment Advisers Act.

Along with their role in the letter of support, the Consumer Federation of America also released a must read myth-fact sheet on the reform bill, addressing misconceptions that a fiduciary standard would end the brokerage business model, would limit product availability, and more. It is a great look at how the bill is designed to ensure advice is given under a fiduciary standard.

Also last week, both the CEO of Goldman Sachs, Lloyd Blankfein, and SEC Chairman Mary Schapiro threw their support behind the fiduciary standard in testimony to the Financial Crisis Inquiry Committe, with Blankfein saying, "The advice-giving functions of brokers who work with investors have become similar to that of investment advisors. But, investors may not understand that the person they are getting advice from may be regulated under different rules and regulations"

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

In the news/commentary:

• 401(k) automatic enrollment has had some unintended negative consequences, and it is being covered in consumer media [USA Today]
• In another story on negative consequences to otherwise good news, as 401(k) account balances recover, the less vocal the call for reform [LA Times]
• Shelly Banjo highlights firms that are getting ahead of the curb in preparing for a fiduciary future [WSJ]
• Mutual fund industry watching fee lawsuits with great interest [Financial Times]
• Bob Clark has nice things to say about fi360 and The Committee for the Fiduciary Standard [Investment Advisor]

From the organizations/associations/government/academia:

• Our friend Tom Kmak of Fiduciary Benchmarks says Americans are more prepared for retirement than you'd think [Portfolio]

From the blogs:

• A good fiduciary blog debates a name switch [The Investment Fiduciary]

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: Dodd's legacy to be a fiduciary standard?

The biggest story from last week in regards to regulatory reform is the news that Senate Banking Committee Chairman Christopher Dodd (D-Conn.) is retiring at the end of his current term. As one of the architects of the Senate's financial regulatory reform bill, this has raised a number of questions about the affect his lame duck status will have on the legislation, which still has a ways to go before becoming law. Without reelection to worry about, he is certainly more free to act without regard to his political future. The question now is, which direction does that free him to move towards?

One sentiment says that he will seek to reward longtime supporters of his from the hedge fund and insurance company industries by influencing legislation to be more friendly to their interests. Another says that his influence is diminished by his decision and that makes consumer-friendly reform less likely. However, the most optimistic theory is that, freed from outside influence, Dodd will be able to concentrate even harder on pushing a bill that is for the best interests of investors, including a stricter fiduciary standard. We can't think of a better parting gift he could leave as his lasting legacy.

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

In the news/commentary:

• Fred Reish looks at the fiduciary's duty to remove investments [PlanSponsor]
• InvestmentNews weighs the winners and losers of Dodd's retirement [InvestmentNews]
• Proposed legislation would make QDIA manager's act as fiduciaries [InvestmentNews]
• Kristina appears on a podcast addressing fiduciary duties for brokers under regulatory reform [Employee Benefit Adviser]
• Daily Finance has two stories of similar cases of John Hancock and Merrill Lynch arguing in court they are not fiduciaries despite marketing that suggests otherwise [Daily Finance]
• Some firms already preparing for a fiduciary future [Wall Street Journal]
• If InvestmentNews' 2010 Outlook comes to fruition, this will be a very good year for fiduciary standards. Make sure to check out the slideshow. [InvestmentNews]
• An article from two of our AIFA designees helps prepare plan sponsors for DoL examinations [PlanSponsor]

From the organizations/associations/government/academia:

• A new poll of nonprofit investment committees places liquidity issues and defining fiduciary roles among highest priorities for 2010 [SEI Institutions]

From the blogs:

• Do the events of the '00s mean an end to passive investing? [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: Welcome to 2010

Welcome to the first week of a new decade. A short holiday week obviously means few developments on the fiduciary front, but the new year and new decade does bring out a lot of looking back and looking forward columns from around the industry, as you'll see in this week's links. Hopefully the decision makers take notice in the almost universal call for meaningful reform for the benefit of investors above all else.

On to the best links from the last week of 2009:

In the news/commentary:

• This year's Financial-Planning magazine's Movers and Shakers list features some familiar names: 2007 fi360 Conference speaker and Behavior Gap founder Carl Richards, and our founder, Don Trone
  
• The SEC has begun randomly contacting advisor clients to verify the nature of relationships and verify asset custody.
• Bob Clark sets his sights on the CFP Board saying they've passed on the opportunity to elevate financial planning to a profession.
• Fiduciary responsibility, a new regulator and more make the list of changes to look for in the '10s.
• 2010 will feature a lot of discussion on mutual fund fees.
• Kate McBride sees 2010 as the year of reform, again.
  

From the organizations/associations/government/academia:

• Our friends at Brightscope get featured in BusinessWeek.

From the blogs:

• Shelly Banjo of the Wall Street Journal and Veronica Dagher from Dow Jones discuss how advisers are preparing for 2010 and what a higher fiduciary standard could mean for advisory practices in their video post on WSJ's Financial Adviser blog.
• Roger Wohlner hopes 2010 will be the year of the fiduciary in his new year wish list.
• Due diligence on hedge funds show that close to half have legal or regulatory problems and a quarter misrepresent themselves.

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: Who counts as a fiduciary under ERISA to expand

A short week last week leads to a short fiduciary links post. The most interesting news being the Department of Labor adding to its agenda the publishing of new regulations expanding the definition of "fiduciary" under ERISA to include consultants.

Matt Hutcheson summarizes the intent of the new regulations as, "Everybody who works with retirement plans should presume that they will owe a fiduciary duty or they will owe a duty for loyalty to those who they service."

The rest of the best links from the past week:

In the news/commentary:

• fi360's Kristina Fausti on KDKA's Sunday Business Page talking regulation and the impact on investors.
• Fee data still insufficient
• Bob Veres imagines the conversations that lead lawmakers to compromise investors' best interests
• New York Times looks at the banks that bundled bad debt and short sold them.

From the organizations/associations/government/academia:

• The top ranking Democrat and Republican on the Senate Banking Committee agreed to work together in continuing to craft their reform bill.
• The Government Accountability Office released a report on additional changes needed to the Form 5500

From the blogs:

• In response to the above New York Times article, a Seeking Alpha post points out that investor demand drives product creation and that pension fund managers share the blame for not fulfilling their fiduciary duties
• Fiduciary News asks you to vote on what were the biggest fiduciary stories of 2009?

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: Hat switching rule limits the potential of House reform bill

In her regulatory update last week, Kristina looked at the amendment to the House reform bill that would permit advisors to take off their "fiduciary hat" after completing the provision of investment advice. This is just the latest development in the battle over the fiduciary standard in regulatory reform, with the Financial Planning Coalition quickly responding with their displeasure.

As opined in a Market Watch column, the danger is that the provision basically negates the benefits of extending the fiduciary standard to all investment advice if the advisor doesn't have to live up to it at the point of transaction or in an ongoing capacity. If one of the goals of reform is to help clear up investor confusion over who is or is not a fiduciary, then the provision surely provides a set back.

Now on to the rest of the links, beginning with our Tweet of the week, which also was on the subject of the hat-switching provision:

@BeManaged: 'Hat-Changing' Fiduciary Proposal May Confuse Investors - WSJ - There is no "may" about it. It will. http://ow.ly/MTEe  #401k #fiduciary

In the news/commentary:

• IN calls House reform bill an early Christmas present despite the lump of coal
• A local paper story says to contact your representative to voice support of fiduciary standard
• Cincy and Indy papers help explain the differences in standards
• Reform progress was made in '09, uncertainty looms for '10 with Senate elections
• Mercer Bullard, AIF, named to the InvestmentNews top 20 influencers list
• A look at the efforts to improve the 401(k)
• Some thoughts on dealing with 12(b)-1 fees
• The unintended consequence of auto enrollment may be lower company matches
  

From the organizations/associations/government/academia:

• Retirement Research Council releases 403(b) compliance white paper
• In order for target-date funds to be QDIA eligible, new bill would require managers to take on fiduciary responsibility
• Junk bonds in target date funds make them riskier than investors believe
• Reish looks to ERISA to wade through the brokers as fiduciary issue
• SEC approves surprise audit rules
  

From the blogs:

• The Float recounts a first hand experience of dealing with an independent fiduciary
• What the SEC gains from the House reform bill
• A look at the multiple layers of fees that can add up in a 401(k) rollover
• Slow and steady wins the investment race
  

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: House reform bill reaction

The big news from last week was that the House passed their regulatory reform bill, the Wall Street Reform and Consumer Protection Act. You can view the entire bill and other documents explaining the legislation on the House website. One provision of the bill that did not make it into the final version passed was FINRA oversight of broker-affiliated advisors, which the Financial Planning Coalition had spoken out against early in the week.

Earlier in the week, Republicans apparently outlined an alternative bill. I haven't found text of their bill, but the Democratic response seems to indicate that it did not include any directive for a fiduciary standard. (UPDATE: Here is a side-by-side comparison of the Democratic and Republican bills released by the Republican Press Office)

The Senate still needs to finish and vote on their version of regulatory reform being drafted by Christopher Dodd's (D-Conn.) Banking, Housing and Urban Affairs Committee. At that point a committee would be formed from members of both the House and Senate to form a unified bill.

Here is a sampling of the responses that have come out since the bill passed:

• The Republican response calls it the permanent enactment of bailout policies and the "government takeover of financial services"
• Obama addresses the passing of the bill.
• Paul Krugman of the New York Times says that Republicans voting against the bill refuse to learn lessons from the financial crisis.
• An InvestmentNews editorial suggests the bill may not do much to grow the economy.
• IN looks at the influence of Rep. Paul Kanjorski (D-PA) on the Act.
• Today heads of the 12 largest banks in the U.S., who aren't necessarily on board with the entirety of the bill, will meet with Obama
• Regulatory reform means a hot job market for compliance officers.

That's just a sampling of the more prominent responses. You can also find many Representatives who released statements either in support or opposition to the bill. The vote went according to party lines, and the statements are all mirrors of each other with Democrats hailing this as the reining in of a corrupt Wall Street and Republicans deriding it for over regulating and over spending. We'll just say for now that we're glad the fiduciary issue is at least addressed and that the SRO option for oversight seems to have gone away. We still anxiously await to see what the fiduciary standard will look like and who will make that determination. We won't know exactly what the bill that eventually gets passed into law will look like until after the Senate votes on their version anyways.

This will be an interesting debate that will continue into 2010, so stay tuned for what will be a front burner issue for months to come.

Now on to the rest of the links, and there were a lot of them this week:

In the news/commentary:

• Blaine's latest Fiduciary Corner column looks at the four stages of the annual review
• Danny Sarch doesn't seem to think a fiduciary standard makes sense for investors
• NAPFA wrote a great argument for holding all investment advice to the standard of the Investment Adviser Act
• Designee Scott Simon writes about the various types of fiduciaries as defined by ERISA.
• The economy's turmoil has fueled demand for advice.
• Members of the Committee for the Fiduciary Standard describe how the authentic fiduciary standard benefits investors.
• Here's a great Q&A explaining to the consumer audience how the regulatory and legislative reform would affect 401(k) plans.
• A column from Australia, which is facing similar regulatory reform issues as the U.S., says the fiduciary standard could mean a higher price for advice, which would also mean more direct investment in mutual funds.

From the organizations/associations/government/academia:

• Mary Schapiro gave a speech at the Consumer Federation of America conference calling for "a strong fiduciary standard," as well as touching on 12(b)-1 fees, compensation, products and more
• Then the various adviser groups questioned if she was committed to the Adviser Act standard.
• Gerson Lehrman Group says plan sponsors should be prepared for more stringent requirements in providing advice for participants.
• The Department of Labor released a new page for information and interaction on their latest regulatory agenda.
• DOL's Employee Benefit Security Administration examining the ERISA fiduciary standard for loopholes

From the blogs:

• Fiduciary News looks at how recent comments by Schapiro regarding 12(b)-1 fees could mean increased fiduciary liability.
• Roger Wohlner lists the best Twitterers for advisors
  

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: the benefit of social networking for advisors

Social networking may or may not be an effective marketing tool for advisors, but that doesn't mean it isn't worth participating in. One of the great benefits to social networking sites like Twitter, LinkedIn and Facebook is the exposure to great ideas and the ability to interact directly with other professionals who are facing similar issues as yourself on a day to day basis.

Most people are probably already familiar with the idea of Facebook, which allows you to build a profile and network of "friends" that you want to interact with. LinkedIn functions similarly, with the difference being that the entire site is geared to your professional, rather than personal networking. Once you set up your profile, you can join groups that share common backgrounds or interests, such as alumni or professional membership groups. 

Twitter is a little different, but is probably the easiest to jump right into. After just a quick signup process, you begin searching for the people and topics you want to follow and before long you are following an ongoing conversation about the topics that interest you the most. You can just follow the conversation for your own interest or participate as fully as you are comfortable with. If you are an advisor, you could do worse than beginning by following the FINS list of Top 10 Twitter Feeds for Career-Minded Advisors, a list that we were honored to be named to last week.

Our participation on both Twitter and LinkedIn have allowed us to both expand our network to individuals we may not have otherwise ever crossed paths with as well as learn from many other great professionals. Of course, for registered advisers, there is the compliance angle to worry about before you begin sending information out where it can live forever, but even that issue provides a great example of how these social networking sites and advisor-oriented blogs provide a great place to look for more information when faced with a question for the first time.

We hope to see more of you in our social networks, now on to the best of last week's fiduciary links...  

In the news/commentary:

• Commonwealth requiring advisors for fee-based qualified plans to gain either AIF or CRPS professional designation
• Replacement advice regulations sure to be more stringent, industry worried
• Expect rise in ERISA lawsuits
• By overturning the dismissal of Wal-Mart 401(k) fee suit, appeals court may be signaling willingness to get involved in fees
• Fiduciary debate can't forget that clients need to come first
• Half of Americans have no 401(k) or pension
• FINRA on the lookout for advisors who target mortgage money to buy securities

From the organizations/associations/government/academia:

• SEI survey finds most advisors and brokers understand the fiduciary standard
• Reish's new report for plan sponsors is full of great information
• House financial reform bill to go to floor this week
• Fiduciaries have a duty to avoid conflicts of interest

From the blogs:

• How to make the big decision on asset allocation
• Three mistakes investors often make with their 401(k) plans
• Interpreting the fiduciary's duty to monitor investments
• Interpreting the fiduciary's duty to manage risk
• Explaining fee-only vs. fee-based compensation

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. And don't forget about our free webinar this Thursday from 4-5 p.m. EST, Top issues to include in your year-end report.