August 6, 2010
I am very concerned about the increased regulatory discretion being given the SEC. Compliance costs-both in terms of finances and time-are high, and those costs are eventually felt by clients. Adding another layer of regulation means another layer of compliance, and even more cost to clients.
I hold a Life Health insurance license in five states, including my resident state of CA. Additionally, I'm licensed as an IAR in those same five states. I hold the Series 6,7,63 and 66 licenses for securities. In 2005, I earned the CFP(r) designation, and also the CLU designation in 2009.
We have annual compliance reviews for both insurance and securities business, done by our company compliance officer. These reviews last about 3 hours, and are pretty in-depth, even though I run an ethical practice.
We spend about 5 hours per month specifically dealing with compliance reporting and documentation, even though much of the process is computer-based through our Broker/Dealer, Thrivent Investment Mgmt. My assistant helps me maintain the records, and it takes time away from client service to maintain a compliant operation.
Although I've been a CFP(r) for five years, I do not regularly charge a planning fee to clients. I prefer that clients only pay for products they purchase, which help them reach their fiancial goals. A paid financial plan, which is not acted upon, does the client no good. I am not a member of the Financial Planning Association (FPA), and I disagree with their position on fiduciary responsibility.
I'm 40 years old, and I've been in this business for 17 years. As a Thrivent Financial rep, I have built a very strong, loyal client base of 400 families, and I love them dearly. Everything I do is based on doing what will help them reach their financial goals.
I work with proprietary insurance, annuity and mutual funds offered by Thrivent Financial for Lutherans. I also have the opportunity to work with other carriers as the need arises. Thrivent is one of the finest insurance companies in the country, while their mutual funds are about average.
The only fee-based service we provide is asset management.
In that realm, I have a clear fiduciary responsibility to the client to get them low-cost, well-managed funds within their risk tolerance and time horizon. They pay a fee for advice, and provide that advice and service as well as possible.
So, can I still offer Thrivent Mutual Funds to my clients, if the new "fiduciary standard" is applied, because they will be paying a sales charge. Who determines which funds are the "best" available, and under what circumstances? Should most load-based mutual funds be banned from the marketplace? Will the SEC make Morningstar's bottom-quartile funds "Closed to New Investors" until they get their act together?
I encourage the SEC FINRA to work to get rid of the "bad apples" in our industry. There are many products and advisors available to customers which are not the best available. But, this a free market. Clients need appropriate disclosures to help them make a wise decision. Ultimately, the client works with someone they feel they can trust. Please work to rid our industry of dishonest Registered Reps and Advisors.
If the SEC pushes the industry to a "best product available" fiduciary standard, the end result will be fewer advisors. My business would still do just fine, and probably continue to grow, but it would be terrible for consumers.
In an already complicated financial world, consumers will choose to do more planning on their own. How will consumers know which insurance and investment products and services will be appropriate for them? In the end, they need advice from professionals who are committed to growing their business by serving clients well and getting referrals.
Every investment transaction I complete already involves multiple pages of Suitability documentation. Applying the "best interest" standard sounds good, but it opens the door to many different interpretations of "best interest".
I encourage the SEC to reject the "best interest" standard, and implement an "expected betterment" standard. Every transaction should expect to make the client better off than they were before.