Fiduciary Magazine

Archive for June, 2009

I’ve heard about having Senior Citizen retaking a driving test to make sure their ability is sharp and that they don’t plow into people at the Farmer’s Market.

The death of the 60-year-old captain of a Continental Airlines jetliner as he flew 247 passengers across the Atlantic could spark a new debate over age limits in the cockpit.

Craig Lenell, the pilot who died Thursday, was believed to have suffered a heart attack. A cardiologist aboard the plane tried to revive him with a defibrillator.

Until 2007, U.S. rules required airline pilots to retire at 60, but Congress raised the limit to 65.

Should there be age limits on driving or Piloting? What say ye?

First it was “Death Due to Smoking” then the growth of the National Debt in real-time. Now there is a Times Square billboard that calculates the Carbon released into the atmosphere.

By JANE J. KIM and AARON LUCCHETTI

Buried in President Obama’s proposed regulatory overhaul is a change that could upend Wall Street: Brokers would be held to a higher “fiduciary” standard that would compel them to place their client’s interests ahead of their own.

Currently, brokers are only required to offer investments that are “suitable,” which means they can’t put clients in inappropriate investments, such as a highly risky stock for an 80-year-old grandmother. The move could change the way products are sold and marketed and even how brokers are compensated.

The first step should be to do away with the Series 7 Registered Representative’s license. I don’t think they all need to sit for the CFA, but they need to be better able to manage risk. There is not a single question on the test about how to minimize losses nor how to maximize profits.

“This is a smart and overdue move” for the large brokerage firms owned by investment banks, says Sallie Krawcheck, who formerly ran the wealth-management business at Citigroup Inc. “It’s certainly a victory for clients.”

Many investors don’t even know the difference between the two standards, believing their brokers already are acting in their best interests.

But requiring brokers to operate under a fiduciary standard could force them to offer products that are less costly and more tax-efficient. They will have to disclose any potential conflicts of interest, such as any fees they may get for favoring one product over another. That could mean clients will be offered fewer proprietary products if the broker can find a lower-cost option elsewhere.

For example, a broker couldn’t put you in a mutual fund with higher fees — or one he gets a bigger commission for selling — if he could get a comparable fund with lower fees elsewhere, says Tamar Frankel, an expert on fiduciary law at Boston University School of Law.

The proposal addresses a long-simmering debate over how brokers and investment advisers, who have traditionally offered more financial-planning advice, are regulated.

For years, investment advisers — regulated by the Securities and Exchange Commission as part of the Investment Advisers Act of 1940 — have been held to a fiduciary standard, meaning that in serving the clients, they have to put their clients’ interests first. Brokers were excluded from that definition of investment advisers as long as they didn’t get paid special compensation for that advice, and gave it as “solely incidental” to their brokerage services.

But over the years, that distinction became more blurred as brokers held themselves out as financial planners, even as they continued to operate under the more lenient standards. Making matters more confusing is the fact that some brokers became dually registered, operating under a suitability standard when they are selling products, but under a fiduciary standard when doling out investment advice.

Richard Ketchum, chairman of the Financial Industry Regulatory Authority, says “a fiduciary standard should be established for broker-dealers when they are offering investment advice.” He said the SEC should lead a discussion of how to define those situations and adds that features of both broker and adviser regulation should be kept.
The Intelligent Investor

* The Fight Over Who Will Guard Your Nest Egg

The change also will give investors more power if they take their broker to court. “If a fiduciary violates his duty — that is, gives advice which is contaminated by self-interest — he could be sued not only for damages that have been caused for this advice but could also be sued for punitive damages,” says Boston University’s Ms. Frankel.

The tougher fiduciary standard would discourage brokers from charging trading commissions instead of fees based on a client’s assets, says Alois Pirker, a senior analyst at Aite Group LLC. That is because brokers could be accused of recommending trades simply to drive up their commissions. Some firms have already been encouraging brokers to register as investment advisers.

The Securities Industry and Financial Markets Association, a Wall Street lobbying group, has pushed for updating standards so brokers and financial advisers are held to the same rules when they provide the same service to clients. But the group stops short of saying the standard should be the more expansive and potentially more costly fiduciary standard.

Changing to a tougher standard won’t be easy. “They’re going to have to rejigger the whole bloody thing…and rethink what services they offer and by whom,” said William Spiropoulos, chief executive of CoreStates Capital Advisors LLC, a Newtown, Pa., money manager. Mr. Spiropoulos, who worked as a broker for many years, now operates under the tougher standard.

For those of you who are like me, have friends in all the four corners of the planet, you should check out using BlackBerry Messenger. I’m surprised how many of my friends don’t know what it is or that it existed.

What It Is

It’s just like any IM program you might use such as AIM or Google Chat.

Why Should You Care?

When you “message” or “bbm” a friend or colleague who you have connected with, you are not charged texting fees. Moreover, if this same friend or colleague is in another country, there are no International texting fees, which I’ve been nailed with and can be as high as $0.40 per sms.

My guess is that because it does not come pre-installed on your BB device, you might not have heard of it.

You can download it directly from BlackBerry – it’s free.

Allen Stanford was arrested shortly after being indicted.

Had anyone done a full-on fiduciary review, they could have gone a long way to side-stepping the Madoff and Stanford crimes. In Madoff’s case, there was no transparency: Madoff was the Investment Advisor, the Broker/Dealer, and the custodian of the client funds.

You couldn’t have stopped the crime from happening, but you could have avoided being a victim.

Mr. Sanli is President of Sanli Pastore & Hill, a business valuations firm in Los Angeles. He has a very unique vantage point on the US economy and I always learn something from speaking with him. Check out the full interview in the Featured Video section of the blog.

Now that you can buy gold out of vending machines, this has to be a top for Gold.

I’ve seen tons of things on red wine and resveratrol. The Science Times of the NYT just ran an article on alcohol and health.

“The moderate drinkers tend to do everything right — they exercise, they don’t smoke, they eat right and they drink moderately,” said Kaye Middleton Fillmore, a retired sociologist from the University of California, San Francisco, who has criticized the research. “It’s very hard to disentangle all of that, and that’s a real problem.”

This article points out something that happens in investment research all the time: causation or causality. Warren Buffett is rich because he is lucky, not necessarily smart. Popular wisdom concludes that “because he is enormously wealthy, it must be b/c he’s made prescient investment decisions.”

As the song goes, “It Ain’t necessarily So…”

Moderate drinkers might live longer b/c they spend xyz amount of time doing light aerobic activity for example and they “happen to drink in moderation.”

Ivan “Pudge” Rodriguez has broken the all-time career record for games caught as a catcher with his 2,227th game. It was previously held by Carlton Fisk.