MARCH 2010
M a g a z i n e
Business Management for Independent Financial Advisors
TABLE OF CONTENTS Letter from the Editor ..................... In the News .................................... Wirehouse Rep Movement ............ Calendar of Events ........................
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Doctors or Pilots: Which Are We? .. 7 by Stephen Wershing, CFP® How to Set Up Your Business, II ..... 11 by Sydney LeBlanc
Are You a Doctor or a Pilot? Page 7
Financial Investments, Inc. Page 27
&
Schwab
Investment Proposal Systems Page 13
Page 28
Does Your Life Need a Tuneup? Page 17
How to Select an Investment Proposal Generation System ....... 13 by William R. Nelson, Ph.D. & Scott Winters You Vehicle of Wealth .....................17 by Stu Zimmerman The Exit Planning Process: Step Two ........................................ 21 by David Leitner, Esq. CExP™ Beyond Reproach: Are You a Fiduciary? ................................. 23 by David Loeper, CIMA®,CIMC® Book Review: Affluent for Life ..........26 authored by Ted Ridlehuber "Advisor High Five" Financial Investments Inc. ............................... 27 "Advisor Advocate High Five" Schwab ............................................. 28 A Conversation with Kim Butler, Founder, Partners for Prosperity RIA or IAR: Which is Best for You? . 29 Grin and Bear It! ........................... 31 Resource Directory ...................... 32
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Transitions Magazine
From the Editor Dear Readers,
Change. This is what it is all about today; in our economy, our markets, our country, the world.
Our industry is changing so fast my head is swimming; it not possible to keep up with all of the mergers and acquisitions. I continue to receive phone calls every day from advisors and brokers who are not only confused, but also extremely distraught about how they and their clients are being affected the events. Some of the conversations are heart-breaking.
I don’t need to tell you that the industry’s survival depends on its ability to meet the increasing demands of clients and to be able to provide you with the tools you need to maintain and grow your business. Firms must encourage and empower their advisors to compete on the basis of the value they provide clients. I truly believe that some firms will never step up to the plate, and that will force you to make a decision to either leave your current wirehouse environment and go independent, or if you already are independent, you may be forced to choose another B/D, or go the RIA route. If your firm does not step up to the plate in a big way, YOU will have to work harder, compete for fewer HNW clients, and have a difficult time articulating your value to them.
Isn’t that exactly what you’re facing now? Change is the hard process of closing one door behind you and cautiously opening another. Many of you have already discovered — by moving through the anxiety and the fear — that change is simply a process we all must go through to accelerate our growth. It is painful, frightening, and absolutely necessary.
I’m always amazed at how —after taking the time to think and talk clearly and logically about certain life-changing issues — things always seem to follow the path they were meant to take. Our industry is seeing this change. Many are embracing it, and those with vision are carefully mapping out the steps they need to take for the process. • Not being afraid to make a change. • Not being afraid to grow.
Making the transition to owning your own independent business is a big leap, but one that can be made in small, careful steps. Or you can make a clean break and go for it, like quitting smoking or saying goodbye to a relationship in which you’ve stayed too long.
So, you already know the “why” but not the “how.” As we’ve mentioned before, through the pages of Transitions Magazine we will help you move forward into the business model of the future. We will continue sharing the secrets of making a successful transition, as well as how to maintain and grow your independent business. We are in the process of bringing you the advice and counsel of some of the leading marketing, technology, business and practice management experts in the industry — people who have helped some of the most successful people in the business get where they are today. Our goal is to stay with you as you make the transition and beyond. Recognizing “change,” and its importance to your business, and the fact that clients are demanding fiduciary standards of care, and they want and need to trust you, is a huge first step toward your continuing success. If you have been thinking about this, you are already on your way.
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March 2010
From the Editor s
• Not being afraid to step outside of the familiar.
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Industry News Publishers Lyn Fisher & Sydney LeBlanc Editor-in-Chief Sydney LeBlanc sydney@transitions-mag.com Managing Editor Cami Miller cami@transitions-mag.com Contributors David Leitner, Esq., CExP™ David B. Loeper, CIMA®, CIMC® William R. Nelson, Ph.D. Stephen Wershing, CFP® Scott Winters Stu Zimmerman IT Directors John Weeks Shane Hansen
In the News
Advertising Sales • Stephanie Kunz stephanie@ffpublish.com 435.750.0062 x3
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• Lyn Fisher lyn@ffpublish.com 435.750.0062 x1
Published by Financial Forum Inc. 550 North Main, Ste. 221 Logan, UT 84321 435.750.0062 • info@ffpublish.com
Innovest Portfolio Solutions, LLC Honored on “Top List” Innovest Portfolio Solutions, LLC, in Denver, Colorado, has been chosen by the Denver Business Journal as the #3 Investment Manager and Financial Planner in the Denver area and was published in its 20092010 “Book of Lists.” Innovest is an independent RIA with approximately $3.5 billion under management. Their culture is client-centered, riskfocused, and performancedriven. They have a team of talented professionals with expertise in a variety of disciplines that benefit their diverse roster of clients which include highnet-worth families, large municipalities, respected corporate organizations, and prominent foundations. For more information about Innovest, please visit their website at www.innovestinc.com Benjamin F. Edwards & Co Opens Second Office in the Land of Lincoln On February 17, officials at Benjamin F. Edwards & Co. announced the opening of its second Illinois office in Springfield and the hiring of eight financial services professionals. The new office, which is the St. Louis-based brokerage firm’s sixth, will be led by Craig Schermerhorn, a longMarch 2010
time Springfield financial consultant who joins as the branch manager and managing director – investments. Chairman and Chief Executive Officer Benjamin F. (Tad) Edwards IV started Benjamin F. Edwards & Co. in 2008 after a distinguished 30-year career at A.G. Edwards, the firm founded by his great-great-grandfather, Albert Gallatin Edwards. “This group represents all of the qualities we are looking for in our financial consultants – integrity, strength of character and a passion for helping clients – and also embrace our guiding principles,” said Edwards. “Based on everything I have seen and heard, our clients have been – and continue to be – wonderfully supportive of our new firm. I believe this talented team of professionals in Springfield, Ill. will enjoy similar success.” Schermerhorn brings with him nearly 35 years of industry experience and is a CFP®. Most recently he worked at Wells Fargo Advisors, having started his career in 1976 at A.G. Edwards. In 2008, Wells Fargo Advisors acquired Wachovia Securities, which had previously purchased A.G. Edwards in 2007. Also making the move with Schermerhorn to Benjamin F. Edwards & Co. www.transitions-mag.com
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Industry News are the following: David Brumme – Having joined A.G. Edwards in 1988 after a brief tenure at another firm, Brumme has 25 years of financial services experience. He signs on at Benjamin F. Edwards & Co. as a vice president - investments. Mike Dunlap – Dunlap obtained his CPA designation in 1972 and spent 30 years in public and corporate accounting. He moved to A.G. Edwards (now Wells Fargo Advisors) in 1999, and joins Benjamin F. Edwards & Co. as a financial consultant. Tom Pape – After a 14-year
career in state and local government and politics, Pape joined A.G. Edwards in 1986. At Benjamin F. Edwards & Co., Pape holds the title vice president – investments. Kathy Nash and Denise Edwards are coming aboard as financial associates and will assist Schermerhorn with his client service responsibilities. Susanna Voights also joins as a financial associate, while Sonia Royer will serve as an operations specialist. All of the company’s full-time home office employees are veterans of A.G. Edwards and have, on average, 25 years of
experience, Edwards added. Edwards plans to continue building the company’s branch development efforts around experienced financial services talent in middle market and major metro areas. For more information about Benjamin F. Edwards & Co., please visit www.benjaminfedwards.com David L. Leitner, Earns the Preeminent CExP™ Designation for Exit Planning David L. Leitner, J.D., CPCU, CExP, of MG Consulting Group, and member of The BEI Network of Exit Planning Professionals™, recently earned the designation
Discovery Database Rep Movement Update
In the News
In January, 2,372 reps were identified as moving from one BD to another. Of these reps, the largest movement came from independent and institutional BD's. There were 645 (27%) reps that moved from an independent BD and 486 (20%) reps from institutional BDs. The remaining reps were dispersed among the following channels: Bank Discounter, Insurance, Mutual Fund, Regional, Wirehouse and other. (chart below, left)
Of the 360 wirehouse reps that have changed firms in the last month, 29% have stayed within the wirehouse channel, but switched firms. The remaining reps were dispersed among the categories listed above (chart above, right) NOTE: Information provided by Discovery-RR database. This information is provided for informational purposes and is not to be redistributed without permission. Data provided may be delayed as specified by our data providers.
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Industry News
In the News
of a BEI Certified Exit Planner (CExP™), making him Iowa’s first and only certified exit planner. The BEI CExP™ designation is the highest for Exit Planning certification. Through training, rigorous testing and in-depth Exit Plan Creation coursework, Leitner has demonstrated that he is qualified to provide comprehensive, professionally executed Exit Planning services to the business-owner community. He has also published 14 books on various subjects, from Insurance Law, to Litigation, from Software to Healthcare.
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“Exit Planning Professionals who successfully complete the BEI Certified Exit Planner program are known as premiere Exit Planning Professionals because their in-depth knowledge and demonstrated application of The BEI Seven Step Exit Planning Process™ perfectly positions them to counsel business owners and their advisors on a wide array of business issues. These issues range from building value within a business to identifying exit objectives, addressing key employee incentive planning and retention issues, incorporating business continuity planning, and establishing wealth preservation,” said John Brown, President of Business Enterprise Institute.
The business owner community benefits from engaging an Exit Planning Professional who holds the BEI CExP™ designation by having greater confidence that the service they receive is professional in quality, adheres to ethical and industry standards of practice, and meets a level of expertise BEI deems credible and worthy of one of its certified members. MG Consulting Group, Ltd. is dedicated to providing the best possible business advice at the most reasonable cost, in a timely and efficient manner. Concentrating on exit planning, the Group helps business owners with the most important financial decision of their working lives — the decision to exit their business. For more information about Business Enterprise Institute, please visit them at www. exitplanningforadvisors.com Gladney To Head R.I. Foundation Advisory Council Richard J. Gladney has been named chair of the Professional Advisory Council of the Rhode Island Foundation. Gladney serves as senior vice president and managing partner for Gladney Consulting Group of Wells Fargo Advisors. He is a member of the Rhode Island Association of Investment Advisors and Advisors in Philanthropy. March 2010
He also participates at the City Meal Site Make-A-Wish Foundation of Rhode Island and serves as an ambassador of the United Way of Rhode Island. According to Gladney, his main goal as head of the R.I. Foundation Advisory Council is to find additional ways that the members of the council can help the foundation raise its visibility in the community. The professional advisers on the council are ambassadors who can help spread the word about the foundation, its work and the incredible need in the state. The foundation is committed to making an impact and improving the lives of all Rhode Islanders. They are the state’s largest funder and they make grants to organizations in every city and town for education, health care, the environment, economic development, arts and social services. Gladney also said that as the trusted adviser to clients, they can ensure that they know what a valuable resource and partner the foundation can be. New Time Management Tool Calculates Real-Time Cost of Business Meetings It’s the first ever portable time management cost calculator designed to provide a constant reminder for staff and team members to stay on topic and www.transitions-mag.com
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Industry News the President of American Realty Capital Markets, LLC and the Managing Partner of Chess Law Firm, PLC. He is a national speaker regarding acquisitions, due diligence, 1031 like-kind exchanges, tenant-in-common structures, REITs and local/state government relations. Previously, he worked for Triple Net Properties and Hirschler Fleischer in the TIC industry.
Bring TIM! is a professional yet lighthearted consumer electronic device that politely conveys that Time Is Money - the TIM in Bring TIM! The message set forth is that when a company BRINGS this creative clock to a meeting, they can help bring any painfully long business meetings to a succinct and successful close. When people understand the cost involved in a single business meeting, discussion becomes brief, topical and productive.
Renee Brown of Wildwood Wealth Management currently serves as the 2010 REISA President. The other 2010 officers include Daniel Oschin of BGK Integrated Group as Vice President, Mark Kosanke of Concorde Financial Group as Treasurer and William Swayne III of WMS Financial Planners Inc. as Secretary.
For more information visit www.BringTim.com Real Estate Investment Securities Association (REISA) Elects President-Elect and 2010 Officers The Real Estate Investment Securities Association (REISA) elected its 2010 officers. Richard Chess will serve as the 2010 President-Elect. Chess will serve as President-Elect through December 2010 and begin a one-year term as President in January 2011. Currently, he is www.transitions-mag.com
Rick Murphy will replace Richard Chess’ seat on the Board of Directors in the broker-dealer category. Murphy currently serves as the Executive Vice President of Berthel Fisher & Company Financial Services, Inc. He oversees business development, managed money department and the insurance department. Murphy will serve a one-year term. About the Real Estate Investment Securities Association (REISA) The Real Estate Investment Securities Association (REISA) is March 2010
a national trade association for professionals who offer and distribute securitized real estate investments. REISA promotes the highest ethical standards to its members and provides education, networking opportunities and resources. For more information, contact Jill Delaney at 317.663.4175 or jdelaney@reisa.org. linkedFA – Fully Compliant Social Networking Site for Financial Professionals Launches Unique networking site offers features and benefits to drive business growth Social networking site linkedFA announces full commercial global launch offering financial advisors, registered representatives, registered investment advisors, insurance advisors and CPAs the opportunity to leverage social media to connect and interact with investors, while complying with FINRA’s supervision and record keeping regulatory requirements. linkedFA offers all the social media and client relationship building benefits of Facebook and Linkedin with a unique document retention feature which stores all communication between financial professionals and investors relating to business for a minimum of six years as per the Securities
In the News
keep business meetings efficient and effective. Bring TIM! is a sleek and easy-to-use meeting cost calculator and clock that shows the cost of a meeting in progress. Users simply enter the number of attendees, estimate an average hourly rate and press the start button. This allows Bring TIM! to prominently display the cost of every second ticking by.
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Industry News Exchange Act 1934 rules under 17a-3.c. These communications are extractable and reportable at any time.
In the News
linkedFA’s proprietary reputation management software separates personal and private information with secure access control for diverse audiences. Members can create three separate profiles to interact and display different information to clients, peers and recruiters enabling them to present a professional image and demonstrate their business integrity to enhance investor confidence. It adopts the highest privacy and security standards protecting users from information poaching, phishing/spyware/ malware/hacking, illegal and unauthorized disclosure of personal or confidential information. Other features include: Document storage for private and safe document sharing between relevant individuals for real time information share and comment; Invite Others for linkedFA members to invite new members adding them to their networks; My Blog which can be public outside the site if so desired; Photos and Videos; My Resume to demonstrate FAs credentials and experience; My Network displaying personal networks of members. The shift in acceptance towards 6
social networking for financial professionals was demonstrated last month with the publication of FINRA guidelines 10-6 helping financial firms to establish procedures for communicating with the public through blogs and social networking websites. A survey by Charles Schwab says that Independent investment advisors believe that managing existing client relationships is their top business priority in the current economic environment. When asked to prioritize key areas of business management, 71 percent ranked focusing on existing client relationships as job one and 96 percent said it is one of their top two priorities at this time. Says linkedFA CEO, Brian Byrne: “Social Media is changing the way we do business. Until now, the financial world was largely prohibited from using it due to compliance issues. linkedFA is focused on improving the Financial Advisor’s ability to grow relationships with investors without the concern of security, privacy and reputation risks of other social media sites.” *linkedFA is not approved by, endorsed by, or affiliated with FINRA. linkedFA is a privately owned, independent company, founded in NovemMarch 2010
ber 2008. It is the first and only social networking site for the financial community, evolving the way financial professionals and investors connect, inform and interact. linkedFA adheres to FINRA required compliance, supervision and record keeping features. For further information contact: Helen Downey/Michelle Milsom Downey McKay Marketing 954 804 1941or helen@downeymckay.com uuu
— 2010 — CALENDAR OF EVENTS MARCH March 1-3 FPA Business Solutions Conf Dallas, TX
OCTOBER Oct. 9-12 FPA Annual Conference Denver, CO Oct 17-19 REISA National Conference Las Vegas To include your upcoming events, please email the info to info@transitions-mag.com
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Transitions Magazine
Doctors or Pilots Which Are We More Like? By Stephen Wershing, CFP®
Could the key to better planning and client service be a simple checklist?
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George’s move was not so clean. Incomplete and disorganized information left him unsure of his outstanding client commitments. He spent weeks chasing down clients for transfer paperwork. Determining how to properly service clients in the new environment consumed critical work time after changing firms. George’s practice is healthy and growing, but it took months to hit his stride after the transition. (The situations are real, but the names have been changed.) Looking back, much of the difference could be attributed to how each organized and ran his practice. In some ways, George was like a doctor performing emergency surgery and Jim was more like a pilot executing a flight plan.
What Does Dr. Gawande Know That You Don’t?
Cover Story s
im’s transition to independence was as smooth as silk. It would be misleading to say the first week of his practice progressed as if nothing but his address had changed, but it was pretty close. Other than the predictable glitches and a bunch of extra work for a limited time, his client relationships kept to their normal rhythm wit little interruption.
I love medical analogies in our business. Maybe it’s because I’m a former paramedic, but I see the parallels all the time — assessment and diagnosis, care plans, art and science, responding to the unexpected development. There is so much our professions share, so I was excited www.transitions-mag.com
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Cover Story version of medicine, where, over the past century knowledge and skills have developed so extensively that even specialists can no longer master everything even in their own narrow discipline. However, Dr. Gawande observes that even in an era of the medical superspecialists, complications and failures are alarmingly common. In searching for a solution, he found the research of Dr. Peter Pronovost of Johns Hopkins, who raised an intriguing possibility: A simple checklist might accomplish an improvement of outcomes well in excess of any new drug or technology. Pronovost found that utilizing a well researched and tested list of precautions when inserting a central line (a catheter inserted into the jugular vein) had, in one year in one hospital, reduced the rate of infection in the first 10 days of placement from 11% to zero. That translates into preventing an estimated 43 infections, 8 deaths, and $2 million. It became clear that the practice of even relatively simple processes in highly technical fields long ago advanced beyond the ability of memory.
Learn From the Pilots
Atul Gawande discussing his book, The Checklist Manifesto
to receive the new work of Atul Gawande, a surgeon who writes about improving performance from a medical perspective. It’s The Checklist Manifesto and it may hold the key to improving the quality of your service, your advice, and the success of your practice. And one of the key concepts is that surgeons can learn a lot from aviators. From the dawn of financial planning as a discipline barely 40 years ago, we have evolved into practitioners requiring knowledge of investment markets and vehicles, tax codes, insurance strategies, mathematical modeling. Our expertise is greater than ever. It is a scaled down 8
He relays the story of the Boeing 299. On October 30, 1935, the government held a competition for the contract to build the next generation bomber. It was considered more a formality than an actual contest, and when the shiny new aircraft piloted by the former U.S. Army Air Corps chief of flight testing took off, banked, dove, and crashed. The cause was determined to be pilot error. A newspaper account commented that the technology had created “too much of an aircraft for one man to fly.” The operation of the vehicle was so complicated, even one of the most experienced pilots in the world missed unlocking a wing setting prior to flight. In the aftermath, a group of aviators worked out a solution. The result was a pilot’s checklist. Step-by-step checkoffs for takeoff, flight, landing, and taxiing. It listed things all pilots know how to do: unlock the brakes, make sure the doors and windows are closed, that in-
March 2010
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Cover Story struments are set – “dumb” stuff. Equipped with these written prompts, pilots subsequently flew the Model 299, dubbed by the military the B-17, 1.8 million miles without a single accident.
Learn From the Surgeons
ent kinds of lists: Read-Do checklists are like recipes, carrying out tasks and checking them off, and Do-Confirm lists, where different team members perform jobs based on knowledge and training, then pause and confirm that everything that should have been done is complete.
Gawande applied this approach in a project with the World Robust Reminders Health Organization, developing a checklist to reduce sur- Good checklists are not easy to create. To take a comgical complications worldwide. His research identified six plex process, distill out the most critical aspects, and despecific safety steps fundamental to surgical practice, in- termine which require detail and which can be left to the cluding the timely administraexpertise of the individual team tion of antibiotics, verbal conmembers is hard and requires Much has been written about the trial and evaluation to develop. firmation of patient identity, and accounting for surgical sponges importance of processes in your Investing the time and effort, at the end of a procedure. The practice, but not enough has been however, yields a significant restudy uncovered that the best written about the value of checklists turn. Illustrating the applicability hospitals in this study missed to our own field, Gawande interas tools in those processes. at least one step 6% of the time viewed three professional invesand the average hospital missed tors who manage between 70M at least one step 2/3 of the time. Implementing checklists and billions of dollars, each of whom had painstakingly to confirm all the six steps reduced major complications by translated their own expertise and observations of oth36% and reduced deaths by 47%. ers into checklists for evaluating investments. The lists So what does this have to do with you and your clients? are not formulas. They don’t tell them what to do. They Like surgery, most of the failures in our practices are remind them of issues that must be considered and afpreventable or predictable, and, like medicine, we find ford them the opportunity to assure that their skills are ourselves in an environment where expertise is no lon- adequately utilized at each critical step in the process. ger enough. Most client dissatisfaction is a result of ex- One of the investors described the use of checklists as a pectations not met: Follow-ups are missed or delayed. way they “improve outcomes with no increase in skill.” Paperwork errors. Risks we did not evaluate when creat- Jeff Smart, Ph.D. in psychology, observed similar experiences in venture capitalists, and documented similar ing the plan. improvements in outcome. Much has been written about the importance of processes in your practice, but not enough has been written about Save a Life; Save a Life’s Savings the value of checklists as tools in those processes. The Even with the demonstrable results, neither investors nor importance of simple reminders of the issues and actions doctors readily adopt the use of checklists. It is against that must by considered in the client engagement; not so the surgeon’s ethic. Developing checklists is painstaking, much recipes as prompts; notes to yourself to assure all and using them is not fun. It runs counter to our deeply the bases get covered. Daniel Boorman, veteran pilot who held beliefs about what makes an outstanding practitiohas spent the last two decades developing checklists for ner great. The author even describes his own reluctance Boeing aircraft from the 747-400 on, describes two differwww.transitions-mag.com
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Cover Story
to adopt them in the operating theatre. If only to avoid the hypocrisy of advocating their use around the world, he incorporated a version of the World Health Organization’s surgical checklist in his procedures. Since then, he has yet to get through a week without the checklist leading his team to catch something significant they would have missed, sometimes saving a life. Plagued by errors and failures, we, like doctors, do not routinely study them. Aviators have adopted a different perspective. There are governmental agencies that study failures and systematically incorporate the lessons into procedure. They recognize that systematically referring to a well-designed list of prompts leverages their skill to assure the best outcome, despite the unexpected. Gawande points out that all learned occupations have a definition of professionalism, a code of conduct that contains three elements: placing the needs of those we serve above our own, exercise of skill, and trustworthiness.
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He notes that aviators have a fourth: discipline. I have always considered investment advisors and financial planners to be a lot like doctors. Maybe we should be more like pilots. What would be the effect on your practice if every client service issue were diligently and rapidly addressed and resolved, each plan systematically addressed both routine and obscure issues, each investment were consistently researched considering all of the important risks? The benefits may not require more training or skill. The answer may be as simple as the right set of checklists. uuu
Stephen Wershing is President of Ensemble Financial Services, Inc., the leading outsourcing company for independent advisors. His firm provides broker-dealer, investment advisor, technological, compliance, and virtual staffing services. Ensemble Financial was named one of the Top 50 Independent Broker/Dealers of 2008 by Investment News. www.ensemblefs.com
March 2010
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Transitions Magazine
How to Set Up Your Independent Business: Part 2 Choosing Local Professionals to Help You
Editor’s note: This is a great article that originally was published in a book Lyn Fisher and I wrote for John Peluso, President, Wachovia’s FiNET division (now WellsFargo Advisors Financial Network). The book is called “Independent Business Ownership: Navigating to Your New Destination.” We think you will find it very helpful when starting up your new business.
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oing independent is not as easy as cleaning out your desk and switching off the lights in your office. Making the move requires careful planning from start to finish. This ensures that you’re protected legally, and helps guarantee that your transition to independence goes as smoothly as possible.
Planning Ahead It’s important to create a checklist of your first steps to keep yourself on track as you prepare to make your move. These critical steps should be completed before the proposed launch date of your new business (obviously). Make your own list and create a timeline for your process, noting the approximate time you believe it will take to complete each step.
• Choose local CPAs and attorneys (this article) • Select the right legal business structure
• Determine your plan for, and selection of, office space/building • Create banking relationships
• Structure your business relationships
• Filing and registration considerations
• Examine Federal, State and Local compliance issues
Setting Up Your Business
By Sydney LeBlanc
• Study tax issues
• Research insurance options
• Select a business bookkeeping and accounting system www.transitions-mag.com
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Setting Up Your Business
Choosing Local Experts to Help You According to William G. (Bill) Beattie, managing director with Richmond, Virginia-based Keiter Stephens, a CPA and consultant firm for emerging businesses, one of the first things you need to do when starting your own business is to carefully select your local experts. Bill explained that these choices are crucial to your future success because they will be in your primary circle of consultants helping you during the various stages of launching your new business. These specialists, of whom there are four, include a real estate agent, a Certified Public Accountant (CPA), an attorney, and an insurance agent. Since these individuals represent a critical component of your future plans, you don’t want to feel rushed when deciding who to choose. Haste really does make waste at this stage of the game, so feel free to interview as many candidates as necessary until you discover the individuals who are best suited for the job, and who you feel comfortable with. Your real estate agent can provide an inside scoop on zoning credits or perks available within the county or city where you are thinking of setting up shop. Be sure to have your real estate agent sign a non-disclosure agreement.
Your consultants don’t like unexpected surprises and neither should you, which is why you must communicate with each other on a regular basis. Insist that they provide you with a detailed account of expenses incurred along the way to ensure they remain in line with your budget. Let them know in advance that you expect to be notified whenever potential budget variances appear. Finally, make sure they provide detailed billing statements for any and all transactions.
Your CPA provides a valuable link to all things financial relating to your journey to independence. In addition to advice on managing your business finances, your trusted CPA will offer tax tips, tax return preparation, cash flow requirements and forecasting. Your accountant will also assist you in securing a Federal Employer ID number (FEIN) that will identify your firm on all federal and state tax documents Your attorney is responsible for drawing up the entity registration documents such as any operating agreements and buy/sell agreements you may require. Your attorney also acts as your knowledge base in establishing a legal structure compatible with the guidelines of your particular state. Your insurance agent can provide guidance in creating an insurance strategy that meets your company’s specific needs. The agent can assist you in designing a Business Owner’s Policy (BOP) which, traditionally, combines essential insurance coverage in one package. Your agent can also advise you on additional plans that would be prudent for your business. As you will no doubt turn to your lawyer on numerous occasions at the beginning and throughout the course of your transition to business owner, a “transactional” attorney is recommended for this most important role in your future. This way you will have access to ongoing legal counsel regarding all manner of current and future concerns, including the formation of your business, real estate, lease contracts, employment issues, as well as securities and regulatory matters. Your insurance agent will steer you in the right direction in formulating an insurance strategy that goes hand-in-hand with your new company’s specific requirements. As mentioned above, your insurance agent will also help in creating your Business Owner’s Policy (BOP), which typically bundles essential insurance coverage under one umbrella. As with your real estate agent, your insurance agent will also need to sign a non-disclosure statement. Regarding fees you can expect to pay, CPAs and attorneys typically bill by the hour or via a monthly retainer. Knowing this, it is prudent to obtain a quote that includes a detailed list of services before your initial meeting. uuu
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Proposal Output Dry and factual versus warm and fuzzy? Does the proposal look like an analytical S.E.C. filing or a descriptive travel brochure? Both kinds of proposals exist and each is appropriate for some investors, otherwise the proposal generation firms of one type or the other would likely be out of business. So what is an advisor to do? Have two proposal generation systems and guess which kind of proposal is right for each investor? Or show up to every meeting with two proposals and switch if one is falling flat? No, a better alternative is to use a proposal that can appeal to both types of people, but surprisingly few firms have managed to meld both proposal types together. With a well-rounded proposal, investors who like the dry, legal style will tend to pay more attention to the logic and numbers while those who like the warm and fuzzies will obviously pay attention to the pictures and non-analytical impressions of the charts and graphs. You can use a proposal that contains both analytics and impression, because you have the ability to to guide the prospects’ attention to the attributes that are most germane to their individual decision-making processes.
Investment Proposal
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elping you win as many accounts as possible is the primary purpose of an investment proposal. The system you use to create investment proposals has a broader mandate. In addition to helping you close a high percentage of prospects, it should also save you time and ensure your SEC/FINRA compliance. We will discuss several ways in which proposal generation systems vary including the pros and cons of each alternative.
You acquire accounts by highlighting the value you provide to the investor, typically a combination of service and investment return/performance. If you do not convince the investor that you care about him or www.transitions-mag.com
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Investment Proposal
her and will be there in times of need, then the account is essentially lost, regardless of the performance or analytics you display. Accordingly, an explanation of the process you follow when working with clients is critical and when incorporated in the proposal saves time and effort. After your commitment to service is trusted, your next hurdle is to prove to the investor that you can guide prudently. Acquire their confidence by showing investors things that they can understand and agree with followed by things they can’t understand but still agree with. If the investor feels that they can duplicate your efforts, then you will likely be perceived as providing little value. According to the above logic, you should look for a proposal that explains the process that guides your client relationships, contains the theory underlying your investment philosophy, su p p l i e s s u p p o r t i n g quantitative analytics that demonstrate how your philosophy will add value, and provides an attractive finished product with the depth and flexibility required to win many new clients with varied decision-making processes.
System Integration To run a highly profitable advisory business requires that you, the advisor, spend the majority of your time interacting with investors, preferably prospects. The time best spent talking with prospects can easily be consumed by meeting preparations, admin tasks, and non-sales client relations. Non-sales client relations are necessary, but should be automated as much as possible. Admin tasks can be performed by your admin or, even 14
better, outsourced to a turnkey asset management program. Creating proposals can eat up hours or take merely minutes. We suggest choosing a system that facilitates creation of a proposal in ten minutes or less. This way you avoid spending your own time, avoid paying for someone to do it for you, and can create a new proposal while a client is in your office requesting minor adjustments to your original recommendations. Remember, as an advisor your time is the most critical resource. Treat it like gold by selecting systems that allow you to do more, faster. Time is also saved by using a proposal generation system that shares information with the other software required to run your business. For example, some investment proposals systems include a CRM and others require you to integrate your CRM typically via application programming interface (API). The benefit of the self-integration is the freedom to choose the CRM and proposal combination of your dreams; the problem is that software integrations tend to be more time-consuming and expensive than originally planned. Accordingly, a system that includes CRM to proposal integration is often preferable and surely less risky. Especially, if you are a breakaway broker trying to set up an entire office, this extra expense, risk, and timesink is not recommended. Investment proposal systems may also integrate with the investment solution reducing both startup and ongoing costs. Startup costs are reduced by choosing an already integrated solution because you do not have to ensure that the proposal matches the investment solution you decide upon using. Ongoing costs are reduced because an integrated solution will almost certainly share data across
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Transitions Magazine
Investment Proposal the proposal generation and the investment solution meaning that your time is saved and Time is saved by using a errors reduced proposal generation system when preparing the that shares information with Investment Policy the other software required Statement a n d to run your business. account-opening paperwork.
Technology Delivery Model The technology solution can be delivered in one of two ways, either as a desktop program or as an online application. Desktop programs have been available for many years and, thus, are familiar. But the advantages of online applications are mounting. In the past, online applications lagged in terms of speed Magazine and sophisication, but as online technology has advanced the advantages of desktop programs have disappeared while those of online applications have increased. Some advantages of online applications include: your data is typically stored on a secure server with multiple redundancies so if you lose your computer you don’t lose your data; you can access your data from any computer with an internet connection rather than being tied to your office; the software is maintained and updated on the servers, meaning that you don’t have to worry about updates saving you time and money; and, you can collaborate with others without any office networking because anyone with internet connectivity and a browser can access the service. Online applications are the future of computing. If you choose a desktop program now, you will likely switch away in the next couple of years, creating a huge amount of unnecessary work. Prudent advisors will choose online software as a service now to avoid a painful transition later.
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The Three Considerations When Selecting a System When selecting a proposal generation system an advisor is wise to analyze the following three considerations. 1. Will the proposal output appeal to all of the investors in my target market? 2. Does the proposal generation system integration facilitate other necesaary functions and technologies such as CRM,investment solution, and SEC compliance? 3. It the technology delivery model a desktop program or online software as a service? As required by full disclosure, our firm, Eqis Capital provides a solution that we would recommend, but we are not alone. Several other turnkey asset management platforms offer alternatives that meet these standards to varying degrees. You are welcome to call one of our business building consultants at 800.949.9936 for some free advice regarding alternative solutions. uuu
Scott Winters is National Sales Director of Eqis Institutional, and Dr. William R. Nelson is the Chief Financial Strategist of Eqis Capital. Dr. Nelson’s acclaimed original research has been published in the American Economic Review, The International Conference on Information Technology ITCC 2004 Proceedings, the Journal of Economic Behavior and Organization, Latin American Finance and Capital Markets, among many others. Eqis Capital provides a turnkey asset management platform that delivers enhanced power, flexibility and efficiency. Based in San Rafael, California, the company enables Registered Independent Advisors (RIAs) and Registered Representatives (RRs) to engineer portfolios that combine diversification, sophistication and world-class insight. Eqis provides pioneering technology with a global reach. For more information, visit them at www.eqiscapital.com
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Sound Off!
--WANTED--
Outstanding Wealth Management Teams to feature in the 4th Edition of The Wealth Factor: A Team Approach This customized, hard-cover book provides an objective, third-party endorsement for you and your team. It's authored by veteran journalist Sydney LeBlanc, and published by Financial Forum Publishing. Books can be distributed to clients, prospects, members of your network, editors and writers at targeted publications. Call today for details and to see if you and your team meet the criteria for inclusion. CONTACT: Stephanie at 435.750.0062 x3, or email stephanie@ffpublish.com *Fee includes 300 copies of the book and a complete marketing and PR package.
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Transitions Magazine
How's Your Vehicle of Wealth Running? By Stu Zimmerman
In our society, especially as investment advisors, we tend to equate wealth purely with financial net worth. Even with the rally in the markets since the March 2009 lows, most of us (and our clients) don’t have the net worth we once had. So, we may not think we are as wealthy today as we have been in the past.
Yes, money is an important element of wealth, it’s just not the only one. Consider wealth as a vehicle that takes you where you want to go in your life. Financial wealth is certainly one wheel. Without that… well, let’s not go there. The other wheels? They’re your physical, emotional and spiritual wheels. Frankly, they are every bit as important as your bankroll. If any of these wheels are flat, the ride is going to be really bumpy! And you just aren’t going to get where you really want to go. Clearly, if your vehicle of wealth isn’t running smoothly, not only are you unhappy with your personal life, but it’s going to be a drag on your business as well. Conversely, if your wealth vehicle is humming, your clients, prospects and loved ones are going to want a lift… and you’ll be in for a true joy ride, personally and professionally. So, pull your vehicle into the virtual shop here for a little diagnostic first, then a tune-up. Don’t worry. You probably won’t need a recall.
Physical, Emotional, and Spiritual Wealth
Personal Improvement
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ruth is, wealth is a state of being, actually a profound state of well-being. It’s also the sense of having more than enough.
Let’s take a look at your physical wealth. After all, health is your first wealth. On a scale of 1 to 5 (1= strongly disagree. 5 = strongly agree), respond to the following statements: • I feel great in my body. www.transitions-mag.com
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Personal Improvement
• I exercise regularly. • I eat balanced, healthy food every day. Be honest with yourself. Just notice where you’re landing right now. Also, consider your blood pressure, cholesterol levels, any medications your taking. We’ll get to the tune-up later. Now, let’s look under the hood at your heart, your emotional well-being. On a scale of 1 to 5 (1 = strongly disagree. 5 = strongly agree), respond to the following statements: • I love my personal relationships with my family and friends. • I love my professional relationships with colleagues and clients. • I love my life. Again, just be honest with yourself. Also, consider your stress levels, emotional volatility and any areas of conflict in your life. We all have them from time to time. We simply want to re-inflate this emotional wheel efficiently and effectively when lows in your life do occur. Lastly, and perhaps most frequently overlooked, is spiritual wealth. Here we are referring to your identification and direct connection with something greater than yourself, rather than any specific organized religious beliefs you may have On a scale of 1 to 5 (1= strongly disagree. 5 = strongly agree), respond to the following statements: • I am a spiritual being in human form. (If you are an Atheist, use this statement: I am an energy or consciousness beyond my physical body.) • I am dedicated to a regular and effective practice in which I connect directly with something greater than my individual self. • I practice my core spiritual values in my daily personal and professional life. 18
In case you couldn’t guess, there’s a close relationship between these other distinct wheels of your wealth vehicle. Strong spiritual wealth has tremendous positive influence on your emotional and physical wealth. Of course, your emotional and physical wealth has favorable implications for your financial wealth. In fact, your spiritual wealth may very well open new doors for your business. Consider that many of your clients and prospects may be more attracted to engaging you simply because they are highly identified with their spiritual identity and core values. This is especially true as trust has been so undermined in the securities industry and people are focused on character more than ever. Now that your diagnostic is complete, how do you rate your vehicle of wealth? In what areas do you need greatest alignment? Here’s some simple suggestions to get your vehicle back on track, wheels balanced and properly inflated: 1. Physical Wealth • Treat each day like a series of 90 minute sprints, rather than a marathon. Take a 15- minute break every 90-120 minutes. Get up and stretch/move around, get some fresh air or simply close your eyes and meditate. You’ll have more energy at the end of each day/week. • Drink plenty of water. Our bodies are 70-80% water. Ideally, drink a quart of water daily for every 50 lbs. of your weight. Not only will you be less likely to overeat, you’ll be releasing more toxins from your body. • Eat your greens! At the risk of sounding like your mom during your adolescence, fresh green vegetables (preferably organic, not-GMO) like kale, spinach, broccoli are rich in nutrients, easier to digest than meat and carry direct sun energy.
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Personal Improvement 2. Emotional Wealth
learn from others and add rich texture to your life.
• Spend quality time with your loved ones. We can often talk ourselves into believing that we put in all this blood, sweat and tears to provide for our loved ones. What they want most is our love. And, deep down, isn’t that what we want most too … their love?
Okay. Your diagnostic and tune-up is complete. These suggestions should get you back on track to the road to riches… all of them, from the financial to the spiritual. Please feel free to identify for yourself what you can do to keep your vehicle of wealth humming. (And do it!)
• Share your loving nature in business. If it isn’t historically your nature to be expressive of your sincere care and gratitude … Knock! KNOCK! This is your opportunity! And if you sincerely don’t care or are not grateful for people who are making some contribution to your livelihood, you’re in the wrong profession.
The bottom line here is that we do get over-identified with our net worth, to the detriment of our self worth. Your state of wealth does go far beyond your finances. Wealth really is a feeling of abundance, of having (or being) more than enough. Further, it is to be shared. So, get in that vehicle of wealth, share and enjoy the ride.
• Do What You Love. Whatever it is, so long as it does uuu no harm to anyone. You have already received the Magazine greatest gift you can possibly receive – the gift of your own life. Use it wisely… do what you love. Stu Zimmerman is the co-founder of Inner Securities, Inc., a 3. Spiritual Wealth • Spend some quiet time in contemplation. Consider how you would answer some deep existential questions such as: “Who Am I?”,” Why Am I Here?” and “How Can I Be of Greatest Service to Humanity?” The more you ask these questions of yourself, the greater the likelihood that you will discover the answers for yourself. Discovering these truths unlocks a wealth unlike any other.
coaching firm offering tools for security and wealth beyond the financial. A securities professional for 20 years, Stu is a former registered investment advisor and hedge fund manager. www.innersecurities.net
• Become more aware of your breathing pattern. When we are aware of our breath, we become more present to the moment. We can notice that by shifting to a deeper, rhythmic pattern of breathing, we feel calmer, more centered, and connected to something greater than one’s self. This awareness also offers a state of greater creativity. • Share and practice your core values and/or spiritual practices with others. What good is awareness without action? Create deeper bonds with people, www.transitions-mag.com
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The Exit Planning Process Step Four: A Sale to Outsiders By David Leitner, Esq., CExP™
7-Step Process for Exit Planning Step 1 Your Destination Step 2 Valuing Your Business Step 3 Enhancing Your Value
Step 4
Sell to Outsiders
Step 5 Step 6 Step 7
Sell to Insiders Business Continuity Estate Planning
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Following the 7-step Exit Planning Process, you will have determined what your post-exit goals and needs are. You will have determined the value of your business and you will have taken such steps as are appropriate to enhance that value. (See February issue for Step 3) Now you are at step four – a sale to outsiders.
ale to an outsider gives the business owner the best chance of receiving the maximum purchase price for the company. The owner is also in the best position to receive the maximum amount of cash at the closing of the sale to an outsider. Other advantages to the sale to an outsider include allowing the owner to have better control over his date of departure and to facilitate company growth without owner investment or risk. But, a sale to an outsider is not without its disadvantages. First, sale to an outsider is inconsistent with the principal exit goal of most business owners who wish to transfer their business to an insider or, an employee, group of employees or family member. Also, although a selling business owner must be prepared to walk away from the company, he must realize that he may be required, under the terms of sale, to work for the new boss for one to three years. This sometimes results in emotional or psychological problems for business owners who see the company as their alter ego. Similarly, the corporate culture of the business will change or be lost. Additionally, many business owners fear that a sale to an outsider will put the jobs of trusted and well regarded employees at risk. But, perhaps the biggest disadvantage of sale to a third party is the possibility that too much of the purchase price will be paid to the owner based upon the future performance of the company, over which he will have no control.
Just How Do You Sell to a Third Party? That being said, how does one go about selling to a third party? Sometimes one receives an unsolicited offer that is too good to turn down. Although this does happen, it does not happen very often. Most generally, owners desiring to sell their business use some sort of broker or other intermediary to find a qualified buyer. If one wants to use a broker, who services come at a price, extreme care should be taken in selecting one. It is important that the broker be familiar with the industry of which the owners business is a part. The broker needs to have familiarity www.transitions-mag.com
March 2010
Exit Planning
What are the Disadvantages?
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Exit Planning
with the local business climate as well as the ability to reach out to potential purchasers outside the immediate geographic area of the seller’s business. An owner should be careful to select an experienced broker that will act aggressively in marketing the business to potential purchasers. All too often brokers simply maintain a list of types of businesses that they have an agreement to sell rather than taking affirmative steps to find the buyers. And discretion is very important. You do not want the whole world to know you are considering selling until your are ready to make an announcement. A Certified Exit Planner (CExP) can help guide the business owner to an appropriate broker. Once a potential purchaser is identified, it will insist on reviewing the selling company’s financial and business records. Since the owner will have already undergone this process in steps two and three of the process, there will not likely be any surprises. The seller may also want to perform his own due diligence of the potential suitor. A proper and binding confidentiality agreement must be executed prior to the exchange of any proprietary information. At this stage, it is vital that the seller and the seller’s Certified Exit Planner, assess the prospective purchaser. A qualified purchaser should come to the table well prepared. By prepared, I mean that the buyer has well defined objectives. And a competent team of advisors. The purchase or sale of a business is to complex and fraught with potential pitfalls that no one should try to do it alone. Serious suitors have a handle on what type of financing they can secure, having communicated with lenders in advance. The most common sale to outsiders arrangement is one in which the seller receives some cash at closing, with the remainder of the purchase price paid out over time, usually two to six years. Your Certified Exit Planner can guide you through the process and help to assess your options. During that deferral period, the selling owner is usually expected to remain active in the business. Al22
though all cash up front sales do occur, they are rare, and becoming more so. That is why planning ahead is so important.
Additional Options While the preponderant majority of third party sales are negotiated sales, there are some other options than can be considered. If you are lucky enough to have more than one qualified suitor, you may want to have a controlled auction. Usually this is a viable alternative for the business worth several million dollars, but can also work with a somewhat smaller enterprise. The advantage to the controlled auction is that you will probably get the best price and a prompt closing. Having multiple suitors bid against each other is considerably more expeditious and efficient that dealing with each seriatim. Another option for sale to outsiders is to take the company public. (In the case of an advisor working with business owner clients.) This is not for the faint of heart, however. While outside the scope of this article, suffice it to say that going public is a long and expensive process, best left to specialists. uuu
David Leitner, CExP™ has helped numerous business owners achieve their goal of exiting from their business in style and with financial security. He is a 1976 graduate of Stony Brook University and a 1979 graduate of the University of Iowa College of Law. He has been licensed to practice law in Iowa since 1979, before the United States Supreme Court since 1994 and in Nebraska since 2000. In addition to his law practice, concentrating in civil litigation and estate planning, he has published or contributed to 14 books and many law journal articles on subjects ranging from insurance coverage litigation to employment discrimination and from managed care to software. David has been recognized by the American Bar Association, Who’s Who in Emerging Leaders, Who’s Who in American Law, Who’s Who in the Midwest, Who’s Who in the World and others. He can be contacted at 515 252 0777 or dleitnerlaw@gmail.com
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Transitions Magazine
Beyond Reproach Are You a Fiduciary?
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by David B. Loeper, CIMA®. CIMC®
For example, anyone who is paid compensation for services to an ERISA plan is by definition a fiduciary. But what type of fiduciary and for what services? Does your contract evade taking responsibility for the specific selection of funds to offer in a 401(k) plan, making the trustees ultimately accountable? Does your contract merely state that you will assist trustees in finding candidate funds for the trustees to select? Is this limitation of your fiduciary responsibility effectively communicated in your presentation about your research and selection services; or does it just say you are a fiduciary and make it incumbent on the trustees to understand that you really have little real responsibility? If so, is that ethical?
sEthics,
While the SEC requires that your disclosure documents disclose conflicts of interest and dual registration as a securities broker or insurance agent, it is your ethical obligation (above and beyond the legal minimum) to make sure the client is not misled in your presentation. IF you highlight in your presentation that you are a fiduciary (in an attempt to earn trust), should you not ALSO highlight all of the things you do that ARE NOT fiduciary services? Put yourself in the shoes of the client and think about what their perception would be of your content. If the conflicts of interests, limits of the fiduciary services and dual registrations (and the implications thereof) are not featured in your presentation, but the fiduciary term is, wouldn’t any reasonable person assume that you are always acting in a fiduciary capacity? Isn’t that what such a presentation implies?
Integrity and Trust s
ost financial advisors offer advisory services that cause them to have a fiduciary relationship with either some, or all of their clients. Many advisors toss this fiduciary term around in a rather cavalier manner when marketing their services for the specific purpose of trying to garner trust from the client. While it is understandable that you would want to highlight the fact that you may be a fiduciary, in a practice that is beyond reproach you also have the obligation to make sure the client understands when you are not acting as a fiduciary or the limits to which your services apply a fiduciary standard.
Dual Registration There has been much talk about holding brokers to a fiduciary www.transitions-mag.com
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Ethics, Integrity and Trust
standard on Capitol Hill in an effort to protect consumers. In fact, I think that consumers would actually be harmed more by instituting this standard. The problem isn’t that there are not fiduciary services available in the marketplace (there are thousands of SEC and stateregistered investment advisers who are supposedly already held to a fiduciary standard). The problem is that consumers cannot tell the difference between a true fiduciary working solely for the client’s best interest and a conflicted one that serves two masters—the client and the product vendors that pay them. Permitting conflicted brokers to represent they are a fiduciary would make matters worse, not better. If Congress really wants to protect consumers, the only course of action would be to eliminate dual registration completely. There are too many stakeholders with strong lobbying groups to make such a system a reality, so once again the obligation to act ethically falls in no one’s lap but your own. Regardless of the political realities of what is in the consumer’s best interest, the “beyond reproach” approach would be to make it clear whether a firm is only working for their clients’ best interest or whether the firm is serving two masters in being paid by both the client, and product vendors. This is where consumers are most confused and it is understandable that they would be. The real risk to consumers are those firms that attempt to do both and skate around the reality of the conflicts of marketing fiduciary services while also being compensated by product vendors. If you are duly registered, ask yourself why. For example, there is no need to be licensed to earn commissions on that term life policy you sold to a client in order to serve your client’s best interest as a fiduciary. If the client indeed had a legitimate need for term life, if you were not compensated by product vendor for writing the policy, you would objectively find a lower cost no-load insurance product. The same applies to both fixed and variable annuities. Yet how many “fee based fiduciary” 24
advisors write policies for their clients? If you were truly an ethical fiduciary to your clients (as your presentation may have implied), you would use the lower cost product that was free from the burden of the commissions you could otherwise make. The fact that you are placing them in a product that pays you commissions ethically requires you to highlight this fact to the client. If you are earning a product commission for insurance, partnerships, mutual funds, etc. you have an ethical obligation to let the client know that you are conflicted in the selection of the product, that you are being paid by the product vendor, how much you are being paid in commission, and, that you are NOT acting as a fiduciary in the case of this recommendation.
Does Disclosure Make You Feel Uncomfortable? Many advisors would be uncomfortable with this sort of explicit disclosure. That begs the question as to why? We all honestly know that disclosing the conflicts, the source and size of compensation is what would be needed for any consumer to make an informed, objective judgment. This is part of our New Year’s resolution to actually earn the trust clients freely give us. Today, there is no reason any fiduciary advisor needs to be compensated by product vendors. Those who recognize this will either ethically disclose such compensation, or will relinquish their licenses that encourage this conflict of interest with their clients. If you are uncomfortable fully disclosing this information it is the very reason that you should make such disclosures if you truly wish to build a practice that is “beyond reproach.” uuu
David B. Loeper is the CEO of Financeware, Inc. which does business as Wealthcare Capital Management. An SEC Registered Investment Adviser with nearly 25 years experience, Loeper has appeared on CNBC and has been a featured contributor on Bloomberg TV and CNN.
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Transitions Magazine
Ethics, Integrity and Trust Loeper joined Wheat First Securities as vice president of investment consulting in 1988, where he served for 10 years. He was promoted to managing director of investment consulting, and then eventually to managing director of strategic planning for the retail brokerage division. He left his position at Wheat First Securities in 1999 to found Financeware. Active in industry associations throughout his career, Loeper has been a member of the Investment Management Consultants Association (IMCA) for over 20 years, serving on the advisory council for more than 5 years, most recently as chairman. Loeper was also appointed by the governor of Virginia to serve on the Investment Advisory Committee of the nearly $30 billion Virginia Retirement System.
He received his CIMA速 designation in 1990 by completing a program offered through Wharton Business School, in conjunction with IMCA. Drawing on years of experience in financial services including serving as a fiduciary for all types of ERISA plans, Loeper has authored numerous whitepapers and books including the top selling book, Stop the 401k Rip-off! as well as The Four Pillars of Retirement Plans, Stop the Retirement Rip-off and Stop the Investing Rip-off
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Book Review AN EXCELLENT CLIENT EDUCATION TOOL — Are you educating your clients on these issues? —
Title: Affluent for Life: 13 Wealth Management Issues to Protect You and Your Family Author: Ted Ridlehuber
Cover Price:$29.95 (hard cover, 186 pages) To order, click here: http://www.ffbookstore.com/ashop/shipping.php?product=360&quantity=1 Enter discount code FFCF3322 (case sensitive) for a 20% discount.
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rom one of America's most respected authorities on wealth management, a refreshingly straightforward book that explains the 13 issues essential for expanding and protecting your net worth. For more than 35 years, Ted Ridlehuber has helped thousands of affluent individuals and their families diversify investment portfolios, safeguard wealth and pass hard-earned assets tax-efficiently to future generations. Affluent for life tells in simple terms how a person can increase their wealth without taking on uncomfortable risk, how to preserve wealth for children and descendents, and how to gift wealth wisely to charity during your lifetime and through your estate at death. Your clients will love this handy resource and will refer to it time and time again. The book explains the concepts and strategies essential for discussions you have with your clients, including: • How to maximize your investment potential by allocating and rebalancing your portfolio.
Book Review s
• How to prevent IRA and 401(k) assets from passing mistakenly to the IRS.
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• How to effectively exercise and sell stock options and restricted stock. • How to pass a family-owned business to heirs -- without friction or costly feuds. • How to gift assets tax-efficiently to children and descendents during your lifetime. • How to leave your family value legacy by setting up a charitable gifting program. About the author: Ted Ridlehuber is president and CEO of the Cannon Financial Institute in Athens, Ga., one of the country's largest providers of training and certification programs for private wealth advisors. Ted began his career as a trusts and estates attorney, and has served on the boards of several banks. As a private wealth management consultant, he helps affluent families maximize their wealth potential and advises the majority of the nation's best-known financial institutions on the needs of the high-net-worth marketplace. Ted speaks at numerous events each year on the topics covered in this book. March 2010
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Transitions Magazine
ADVISOR "HIGH FIVE"
CRAIG KENDALL
Financial Investments, Inc. D.C. Asset Management Firm Among Top Corporate Philanthropists Craig Kendall is the president and CEO of a multi-million dollar asset management and investment strategy firm in Herndon, Virginia. In the last two years, he’s helped lead his company, Financial Investments, Inc. (FII), through one of the worst recessions in the last century and has earned numerous awards for the remarkable growth FII has achieved despite the tough economic climate. When the Washington Business Journal (WBJ) named FII its “7th most generous Washington, D.C., business,” however, Kendall says the honor trumped all the others.
This is the second straight year FII has made it into the top ten on the business publication’s esteemed “Corporate Philanthropists” rankings. The WBJ ranks D.C. metro area businesses in terms of local giving as a percentage of total revenue. Even in a difficult financial climate, the financial consulting company continues to work with nearly a dozen charities and non-profits, including the D.C. Central Kitchen, the Arts Council of Fairfax, and the American Heart Association. “It’s easy to put the blinders on and focus on what goes on within your company’s four walls when times get tough,” says Kendall. “As a result, it’s been a difficult period for charities and non-profits. We know that. But we’ve never wavered from our commitment to the community, and that’s something I take a lot of pride in.” Founded in 1997, FII is a registered investment management firm whose principal alternative investment programs consist of alternative investment products dealing with commodities, futures, equities, and equity indexes. The financial consulting company specializes in an alternative investment strategy that targets “Absolute Returns in an Uncommon Market.” As many of their competitors struggled, FII continued to earn an excellent reputation among its institutional and high net worth clients. FII features more than 300 institutional and individual clients located in 42 states and 26 countries, which demonstrates FII’s success as both a domestic financial consulting company and a trusted foreign investment firm.
Advisor "High Five!" s
“Giving back to the community has always been very important to us here,” says Kendall. “We are fortunate that our business continues to do well, and one of our stated missions here is for our employees and our company to really give back to the community, both in terms of service and monetary contributions.”
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For more information about Financial Investments, Inc., please visit www.Financialii.com or call Craig Kendall at 703 435 2777 ckendall@financialii.com www.transitions-mag.com
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ADVISOR ADVOCATE "HIGH FIVE"
SCHWAB
More than 500 Advisor Teams Have Made the Move
Advisor Advocate "High Five!" s
Confirming the growing appeal of the independent investment advisor industry, Schwab has helped more than 500 advisor teams convert to independence since the company began focusing on this segment in 2005. These teams manage $45.5 billion of the total $590 billion currently custodied at Schwab. In 2009, Schwab had a record year, supporting 172 new advisory teams as they either started or joined an independent firm, a 40 percent increase from 2008. In 2009, Schwab also held a record number of educational events for advisors considering starting or joining an independent firm, hosting 33 in-person events around the country for more than 200 prospective advisor teams representing more than $20 billion in assets under management. Educational webcasts on topics ranging from the economics of independence to legal implications were attended by more than 800 advisors representing more than $60 billion in assets under management. Enhanced Services for Advisors Considering Independence In 2009, Schwab continued to enhance its Business Start-up Solutions platform for advisors, which debuted in June 2008. This comprehensive platform for transitioning advisors includes a wide array of services from Schwab, such as strategic planning assistance and back office services, and from third parties, including office establishment resources and marketing support. Last year, more than 100 newly independent advisors used at least one resource on the Business Start-up Solutions platform. Specific services available to advisors through third-party providers include access to marketing tools and discounts on collateral, healthcare and benefits services through TriNet, premium pricing for Errors & Omissions insurance, and access to other vendors and discount programs. Enhancements in 2009 included the addition of eHealth, a leading online insurance provider. Services through TriNet are available to all advisors who custody assets with Schwab Advisor Services. In 2009, Schwab also made progress on deepening relationships with independent broker dealers to help serve advisors who have both fee-based and commission-based business. Approximately one-third of advisors who custody assets with Schwab have a relationship with an independent broker-dealer for commission business, and Schwab has established relationships with more than 100 broker-dealers to support these advisors. Other tools and services that Schwab introduced in 2009 to benefit new and transitioning advisors include: A proprietary financial simulator that allows advisors to model their start-up costs, their seven year profit and loss (P&L) predictions, and their estimates of the potential future value of their businesses. An Investment Proposal Center, which includes an in-depth research functionality that allows advisors to analyze money managers and investment products. A white paper entitled A Case for Starting or Joining a Registered Investment Advisory (RIA) Firm is available. Visit www.schwabadvisorcenter.com/public 28
March 2010
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Transitions Magazine
A Conversation with ..,
Kim Butler
Founder, Partners for Prosperity By Sydney LeBlanc
RIA or IAR: Which is the Best Route for You? This month I had the pleasure of speaking with Kim Butler, Founder and Prosperity Economics Advisor for Partners for Prosperity based in Mt. Enterprise, Texas. Kim began her career in 1988 in life insurance and banking, received her CFP® in 1990 and then began teaching Prosperity Economics ™ to clients nationwide in 1995. She teaches her 5-Step Prosperity Pathway ™ Process and has made her RIA available to others as well. Here are her thoughts on the pros and cons of becoming either an RIA or an IAR: LeBlanc: Could you explain the basic differences between an IAR and an RIA? Butler: I happen to be both IAR and RIA, but I am not an attorney who could give you a much more thorough definition. There are many excellent securities industry attorneys who could do this. But for purposes of our conversation today, the RIA is a corporate entity, like our firm, Partners for Prosperity, Inc. It has IARs underneath it, like myself, Todd Langford, Gina Wells and others I work with and who represent the RIA. LeBlanc: Why would an advisor choose to be an IAR instead of an RIA?
LeBlanc: What are major cost considerations? Butler: I believe it cost approximately $12,000 for us to get our RIA federally registered because we do business in more than 35 states (I believe that may be the cut off). It costs an IAR only $1,500 or so to get registered depending on how many states they want. Also, there can be an enormous technology cost as well. LeBlanc: Does an IAR have to learn how to run a business? Butler: Yes, they want to have a front-stage process that they take their clients through and a back-stage method so that the offering is consistent and reliable and systematized — though they can still be creative within each clients situation. LeBlanc: Kim can you expand more on the front-and back-stage processes? Butler: Oh, yes. Front-Stage is a term utilized by Dan Sullivan of The Strategic Coach (www.strategiccoach.com) to identify all of the things that happen WITH the end client. Dan’s trademarked term, “Unique Process™ ” illustrate the Front-Stage. Back-Stage is Sullivan’s term for all of the things that SUPPORT what happens with the client, but that the client doesn’t necessarily see. Strategic Coach has trademarked the term Unique Method to identify all of those items. For example, our Process has 5 stages and our Method has hundreds of steps that support those 5 stages. www.transitions-mag.com
March 2010
In the Spotlight
Butler: Because they wouldn’t want (or couldn’t afford) to spend the money to establish their own RIA and/or they wouldn’t want to have the extra compliance work required.
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LeBlanc: Thanks for the clarification, Kim. Now, are there any specific compliance or regulatory issues that an RIA may face that an IAR would not?
front. They could always “upgrade."
Butler: Yes, I believe one of the biggest is email oversight and storage and, of course, they must be ready for a Securities Examiner to show up at the doorstep unannounced. I don’t believe IARs would ever expect that but, again, it’s good to check with an attorney.
Butler: DEFINATELY! Largely because as an IAR one can still speak of all the various financial issues to the client without worrying about which work falls under what license. I’m very grateful to have my Series 65 so I can do that.
LeBlanc: Would it make any difference to a client whether or not their advisor was an IAR or an RIA? Butler: Probably not, as long as they were registered in some form, of course. I do believe clients are looking for some confidence that can be had from a registration. I recently was approved for an opportunity because I owned a firm that was an RIA, but if I was an IAR of that same firm (which technically I am) that would have been acceptable as well. LeBlanc: Would you recommend that an advisor become an IAR first, and then decide to become an RIA? Butler: That depends on how entrepreneurial they want to be. If they already had a process (that front stage I was speaking of earlier) and a method behind the scenes to support it, they’d want to form their own RIA. If they did not have that, and were just looking to use someone else’s process, an IAR would be the better way to go up
LeBlanc: If an RR wanted to leave the wirehouse environment, would you recommend going the IAR route?
LeBlanc: Where/how can our readers get more information on the subject? Butler: I highly recommend attorney Brian Hamburger, Founder and Managing Partner of Market Counsel. Their website is www.marketcounsel.com. Also RIA Incubator is a great service of theirs. Plus the various trade magazines like Investment Advisor and Financial Advisor magazines always have informative articles. LeBlanc: Thank you very much, Kim, for sharing your views and your perspective on this subject. If readers are interested in finding out more about you and your firm, I suggest they visit your website at www.partners4prosperity.com/IAR Note: Please seek the counsel of an experienced securities or compliance attorney or consultant for more information before making a final decision. uuu
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Grin and Bear It!
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