Advisers shouldn’t control clients’ LTC plans

It is a scary thought to have financial advisers control long-term-care plans.

As Allen Hamm, president of Superior LTC Planning Services Inc. of Pleasanton, Calif., pointed out in the Investment Strategies column, “It’s time for advisers to control LTC plans,” in the Feb. 18 issue, 75% of the advisers he surveyed gave themselves a mark of fair or poor.

That doesn’t exactly instill faith. If someone isn’t familiar with the costs for long-term care, either financially, physically or emotionally, why would a client consult with them?

Clients instead should speak with a specialist that deals only with long-term care. The ideal scenario is to have the estate-planning attorney, adviser — if the client is lucky enough to have the assets to warrant one — and LTC insurance agent all talk to each other about what is best.

An experienced LTC specialist isn’t going to ram the insurance down the throats of the adviser or the client; they are going to recommend it when it is appropriate and tell the client when it isn’t. They are also going to let the client know when they are ineligible for the insurance due to changes in health or lack of financial resources to pay for a policy.

These are things that they will communicate to the client’s attorney and adviser as well, so that other avenues for LTC planning can be explored. That is why Mr. Hamm stressed that the adviser should document the option that the client deliberately selects.

What if the adviser’s recommendation is wrong and the plan doesn’t adequately cover the LTC need? The possibility of a lawsuit by family members looms large. Until advisers want to specialize in LTC planning, they have no business being the person to devise a client’s plan.

Susan Lenihan
Partner
LTC Financial Partners
Northport, N.Y.

Kill 12(b)-1 fees

Sara Hansard’s article “SEC looks at ways to overhaul Rule 12(b)-1” in the Feb. 18 issue is an example of the confusion that reigns in our industry on the subject of 12(b)-1 fees.

In the article, she states: “Usually, 12(b)-1 fees are 1% of a fund’s assets.” Actually, Morningstar Principia, from Morningstar Inc. of Chicago, lists 11,249 “true no-load funds,” including a relative few with a maximum 12(b)-1 fee of 0.25% and several thousand that manage to operate with no 12(b)-1 fee at all.

Many of the mutual fund companies that do assess a full 1% fee do so primarily for their B shares and C shares, in which case the 12(b)-1 fees are substituted for the front-end loads carried by A shares.

But some funds that charge a full 5.75% front-end load still have a 0.25% 12(b)-1 fee tacked onto them. At the same time, there are some funds with similar investment attributes but without any loads or 12(b)-1 fees that are available to investors.

Full disclosure would make that availability known to every purchaser of mutual funds. But I am afraid that isn’t what either Securities and Exchange Commission associate director Robert Plaze or Michael Shore, a spokesman for the Investment Company Institute in Washington, have in mind.

Based on their statements, as quoted in the article, these two gentlemen would have a “disclosure” crafted that would explain all the good things that possibly might be done for investors with their 12(b)-1 money without revealing that most of it goes to pay additional commissions to the person who sells them the shares.

For the good of the millions of consumers who invest in mutual funds, 12(b)-1 fees have got to go.

Richard Almeida
Certified financial planner
Balliett Financial Services Inc. Winter Park, Fla.

Gramm Leach Bliley helped fuel equity prices

I found Dan Jamieson’s article “Bad times for stocks could last for many years,” which appeared in the Feb. 18 issue, very interesting.

I have yet to hear any “professional” analyst or money manager, anywhere, talk about the impact that the Gramm-Leach-Bliley Act, signed in 1999, has had on equity prices.

The ink was barely dry and bank customers’ phones were ringing, and the pitch was more or less “Mr. Blank, this is Bill from the bank, and you have $150,000 in certificates of deposit, and you are losing money by not owning XYZ mutual fund.” Then the bankster hung up the phone after receiving an order for $100,000 worth of a mutual fund.

This legislation, combined with the technological advances for the self-directed segment, created a tsunami of funds into equities.

There is no way over the next 10 years that general equity prices will do anywhere near what they have done over the past 10 years, for the reasons stated above, combined with the discovery by the masses that debt is usually a four-letter word.

The double-digit winners over the next decade will be those who manage small funds, cherry-picking authentic value in the small-capitalization segment.

Tom O’Rourke
Hedge fund manager
Thornwater Inc.
Fort Lee, N.J.

Finra disables itself from completing task

The article “State regulators defend arbitration study findings” in the Feb. 25 issue reported that the Financial Industry Regulatory Authority Inc. and the Securities Industry Financial Markets Association, both of New York and Washington, said the response rate of 13% for a state securities regulators’ study about the arbitration process was too low.

Finra consists, in part, of the arbitration facilities of the recently combined NASD and the New York Stock Exchange’s regulation unit. The study, conducted by the Securities Industry Conference on Arbitration, deals with the arbitration processes at NASD and the NYSE.

SICA’s primary members are NASD and the NYSE, which financed the “study.”

The “study” addressed the issue of a low response rate by stating: “The preferred method to test whether non-response bias exists in survey data is to conduct telephone interviews of a random sample of contacts who did not respond, to measure whether their answers to the survey questions are statistically significantly different from the survey participants’. While we recommended conducting such a follow-up study, due to time and resource constraints, SICA did not endorse that recommendation. As a result, we cannot state with certainty whether there is, in fact, any non-response bias in the survey data.”

The “study” didn’t explain the meaning of “time and resource constraints” or why SICA “did not endorse that recommendation.” The telephone interviews might have determined whether it was a mistake to rely upon NASD’s or the NYSE’s “logical assistance.” NASD and NYSE exercised much control over the survey mailing process.

“NASD and NYSE generated a combined database. Of those contacts, 4,710 surveys were either returned … or otherwise not deliverable due to insufficient address … We subsequently determined that at least 1,500 of those contacts were duplicates,” the study said. It appears that Finra voluntarily disabled itself from completing this important task and excuses undesired findings on the basis that the “study” is incomplete.

Les Greenberg
Attorney
Law Offices of Les Greenberg
Culver City, Calif.

Take a breather

In his letter to the editor in the March 10 issue of Investmentnews, Morris Armstrong was disillusioned with the Financial Planning Association’s stance that consumers should save, rather than spend, the checks they receive as part of recently enacted economic-stimulus package.

Rather than being so quickly critical of the Denver-based FPA, perhaps he should seek out the views of the vast majority of economists, who have noted that the continued negative personal-savings rate in America is a key long-term problem clouding our country’s economic future.

Also, many financial advisers render sound advice when suggesting that their clients use a cash infusion to pay off high-rate credit card debt, start an emergency fund or salt away money for retirement. While reasonable people can disagree over the proper use of the government’s check, perhaps Mr. Armstrong should be personally glad for the cash. He could use it to re-join FPA and take a basic educational course in personal financial planning, thereby donating positively to his own future rather than contributing negatively to the profession with such overly critical commentary.

Ron A. Rhoades, JD, CFP
Editor
FiduciaryNow.com