NEW GROUP PUSHES OATH AND FULL FEE DISCLOSURE

If you’re rallying investment advisers behind an issue, take a number.

First, there was the Gang of 71, which seeks institutional-level pricing and service from mutual funds. Then regional chapters of the Institute of Certified Financial Planners formed the Big 7 to oppose a number of the Denver-based group’s initiatives and demand inclusion in its talks with the International Association for Financial Planning. Now, fee-only advisers from around the country have banded together to advocate that all advisers take a fiduciary oath and disclose to clients who they work for and how much they are paid for selling financial products.

New group plugs fiduciary oath

It bills itself as the Omega Group, but could just as well be Gang of Five — for the number of organizing members. The little group has a big job ahead of it.

In addition to the fiduciary oath, it wants the adviser profession to adopt as operating guidelines the Uniform Prudent Investor Act, model legislation toughening fiduciary standards for planners which has been adopted by 30 states.

While many other industry groups have no problem with Omega’s goals, others say they already accomplish the same objectives and that new requirements would be duplicative.

“It’s basically putting the client’s interests first with investment recommendations,” says one of the organizers, Ronald Roge. “If you’re an adviser and a commission salesperson, you have a conflict of interest you need to deal with as a fiduciary.

“The clients need to know that this conflict of interest exists,” adds Mr. Roge, whose Bohemia, N.Y., firm manages $100 million in assets.

Needless to say, registered representatives who work as investment advisers for brokerage companies disagree with that point of view. “The brokerage business has checks and balances if done right,” says Gary Battenberg, a director of the National Association of Investment Professionals, a two-year-old group in St. Paul, Minn., that represents registered reps.

“We as brokers have overhead and we have costs. I think the general public really and truly understands that. There aren’t any free lunches out there,” adds Mr. Battenberg, managing executive of Royal Alliance Associates Inc.’s Kingwood, Tex., office, where he supervises $100 million in assets.

“Investing is about discipline. It’s about long-term horizons. It’s not about how you pay for it.”

Mr. Battenberg says he discloses to all his prospective clients a checklist of items suggested several years ago by Securities and Exchange Commission Chairman Arthur Levitt, including how his firm charges for services.

Regarding the fiduciary oath, he says, “I don’t think that I want to sign on personally to somebody who tells me what I must do exactly, unless I see it all first.”

Omega plans to speak out on the issue and seek the ICFP’s support. But that organization’s president, Bob Klosterman, responds that it already has “a code of ethics. It covers a wide range of issues.

“My personal opinion is (Omega’s initiative) would be a duplication and not really serve any additional purpose,” adds Mr. Klosterman, whose Minneapolis firm, White Oaks Wealth Advisors Inc., has $70 million under supervision.

The National Association of Personal Financial Advisors earlier this spring adopted its own fiduciary oath that all of its approximately 700 fee-only members must sign. Michael Chasnoff, president of the Buffalo Grove, Ill., group, supports the concept for all advisers and welcomes Omega’s initiative.

The NAPFA oath affects only a “very, very small segment of the advisory community,” says Mary Merrill, a Madison, Wis., adviser who belongs to both groups.

“For the public, not everybody can afford NAPFA members because we’re expensive. That doesn’t mean that other people shouldn’t have the right to have advisers who are fiduciaries,” adds Ms. Merrill, whose firm has $28 million under supervision.

The other Omega Group members are its leader, Donald Rembert of Falls Church, Va.; John Blankinship of Del Mar, Calif.; and Frank Castellon of Yardley, Pa.