Talents should guide practice management

Robert Foney, chief marketing officer of Investors Capital Corp., made a great point in the Practice Management column “Using print media to bolster your brand” (March 29).

He described his successful use of print media to increase business and outlined a helpful timeline for collecting topics, and writing, refining and presenting an article for publication.

On the other hand, I would like to caution financial professionals not to waste their time if they don’t have the creativity, writing skills or resources to perform the task. Instead of encouraging someone to pretend that he or she is back in college and writing a paper, as Mr. Foney suggested, I propose including article writing with other practice-management efforts that have the potential to create business.

In this way, it is possible to get a sense of what does or doesn’t help.

My greatest fear with spending so much time focusing on one business-building method — and this would be especially true for those new to the business — is that the end product may actually demonstrate how much someone doesn’t know or how poorly they can work through a problem from start to finish. Hard work with mediocre results can actually impede business.

Some can do it all — others of us can barely do one or two things.

In 15 years of practice, I have found that providing financial planning workshops for large corporations and teaching adult education classes at a local community college invariably have been the greatest long-term client resource for our business.

On the other hand, this is the seventh year that I have provided weekly financial planning columns to a local newspaper. We also have a good website, have seen our practice featured in a major financial planning journal to which I have also contributed more than 50 book reviews, and I have served as the public-relations chairman for a Midwest financial planning organization.

Other than teaching, I don’t view these activities as areas reflecting any particular talent, and as far as I know, none has resulted in referrals. Neither do I have any delusions that they are a marketing tool.

I keep them up because I am repaying a debt to the community where we raised our four children and to the financial planning profession that helped jump-start a new career.

My view is that financial professionals should begin with a list of all the activities that they enjoy, and assemble a shotgun practice-management approach that depends upon their skills, motives and available resources.

Knowing what works and why goes a long way toward building an enjoyable, productive and profitable practice.

Jon A. Ford

Financial adviser

Commission Free Financial

Planning Solutions Inc.

Mesa, Ariz.

Roth conversion strategies need greater clarity

Over the years, I have found InvestmentNews to be a great source of planning and industry news, and the webcast on Roth individual retirement account conversions, a transcript of which appeared in the April 5 issue (“The debate goes on”), is a great example of the value that you and your staff deliver routinely.

This is a planning opportunity that certainly needs more clarity, because the deeper I get into the options, the more complex the entire issue gets.

I hope that you have more articles planned to assist us all in developing the knowledge we need to guide clients through the complexity.

The strategy related to non-deductible traditional IRAs is one example of the potential pitfalls.

Ed Slott, certified public accountant and principal of Ed Slott & Co. LLC, is quoted as saying that this is a “no-brainer,” but looking at the details is critically important.

Here is how it supposedly works: Non-deductible traditional IRAs have no income limit. High-income clients who have been locked out of Roth IRAs, due to income, can fund a non-deductible traditional IRA with up to $5,000 a year. That IRA can then be converted to a Roth IRA, and conceivably, no tax liability will result — or will it?

The “8606 ratio” can actually subject the $5,000 to double taxation upon conversion.

The tax is triggered upon “partial conversions.”

If that high-income client has $100,000 in pretax traditional IRAs but converts only the non-deductible traditional IRA, up to 95% of the converted amount is considered taxable. The $5,000 is after-tax money when it goes into the non-deductible IRA, and is taxed again when the conversion is completed, all at ordinary income tax rates.

In this example, there is little or no tax benefit that accrues to the pretax IRA dollars left alone.

If a full conversion of all IRA assets is completed, the calculation shifts, but that is hardly a tax-neutral transaction.

Should the high-income client have all his or her retirement assets in a 401(k) or perhaps have no pretax IRA accounts, then conversion could actually be completed tax-free.

Complex enough for you? Keep the information coming, as this business isn’t getting easier.

Christopher P. Bruhl

Wealth adviser

Financial Dynamics LLC

Lakewood, Colo.

12(b)-1 fee discussions ignore parallel fee universe

It always amazes me that discussions of 12(b)-1 fees, including the letters that appeared in the April 12 issue in response to Jim Pavia’s Just Thinking column, nearly always ignore the parallel universe of no-load and no-12(b)-1-fee mutual funds.

Ironically, the letter that came closest to making a connection was the one written by L.R. Gutstadt, “Mulling 12(b)-1 fees, RIAs, compliance issues,” in which he referred to a time when the maximum sales charge was 8.5%.

I remember that time well, because 8.5% was the front-end load I paid in 1965 when I first invested in mutual funds.

The Securities and Exchange Commission didn’t approve 12(b)-1 fees until 15 years later. But long before that, I realized that the load had nothing at all to do with fund performance, and I haven’t bought a mutual fund with an embedded sales charge since.

More to the issue at hand, Mr. Gutstadt obviously regards the 12(b)-1 fees as replacing the income lost from the reduction in sales charges.

There is no mention of it paying for continuing services to investors, whether in Carolyn Linnard’s “middle America” or anywhere else. She wrote the letter “12(b)-1 fees allow advisers to serve Middle America,” which appeared in the same issue.

Although a few no-load fund companies do assess a 12(b)-1 fee, they rarely go as high as the 1% limit, and of course, there is no front-end load to stack them onto.

As far as SEC involvement in this issue, the commission’s stated mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” It looks like rationalizing 12(b)-1 fees would fit right in.

Richard Almeida

Financial planner

Balliett Financial Services Inc.

Winter Park, Fla.

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