Don’t let clients take risks with life insurance policies

As a 25-year veteran of the financial business, I have always shown my clients term insurance for their immediate needs and whole-life insurance through a mutual company for their permanent needs.

I have always been called a “dinosaur” because I didn’t sell universal life, variable life, premium finance, etc.

Therefore, I was amused by the quote from Peter Kelly, chief operating officer at New York Long Term Care Brokers Ltd. in Clifton Park, N.J., in the May 4 article “Mutually owned insurers escape rating woes of public counterparts.” He said, “If you restrict to mutuals, the selection of products is so limited that the consumer might find themselves cutting off their nose to spite their face.”

The fact of the matter is that if consumers and financial advisers stuck to a good mutual-whole-life policy to begin with, at least their insurance contracts wouldn’t be in the same boat as their investments. There are plenty of ways to take risks with your money.

In my opinion, your life insurance policy shouldn’t be one of them.

Mark D. Lowe
Senior vice president
Red Bank, N.J.
International Planning Alliance

SEC, not Finra, should oversee RIA fiduciaries

I am deeply concerned about the comments made by Richard Ketchum, the chairman and chief executive of the Financial Industry Regulatory Authority Inc., in the article “Finra walks fiduciary/suitability tightrope,” which appeared in the May 18 issue.

His comments indicated that a significant and precipitous flip-flop in New York- and Washington-based Finra’s position is occurring. Faced with the very persuasive position of investment advisers that a fiduciary standard is best as a governing rubric for regulation, Mr. Ketchum apparently sees a need to migrate there, and away from the investment-by-investment suitability standard.

Otherwise, Finra’s bid to oversee registered investment advisers begins to fail in the face of valid criticism that the organization’s essential broker-dealer mission is worlds away from that of RIAs. When one adds the evident push at the Securities and Exchange Commission for added self-regulatory-organization regulation of RIAs, led by Chairman Mary Schapiro and member Elisse Walter (both of whom came from Finra), it becomes apparent that an ill-advised push for expansion of Finra is in motion, though Mr. Ketchum’s comments show a change of strategy in how to promote it.

Investors can be well protected by a strengthened and well-funded SEC, not by a confusing and disparate regulatory regime augmented by Finra. Another SEC member, Luis Aguilar, strongly enunciates this position, and it provides the best protection for investors without unduly burdening the 10,000 RIAs who are determined to serve the financial needs of their clients during these tough economic times.

Full disclosure: I am a member of the board of governors of the Washington-based Investment Adviser Association, but these comments are my own.

Michael C. Provine
Chief executive and chief compliance officer
Candor Wealth Advisors LLC
Summit, N.J.

States could regulate firms with $100 million in AUM

In reference to the article “FPA, NAPFA and IAA to fight SEC’s pop-quiz proposal,” which appeared in the May 25 issue, the International Association of Small Broker-Dealers and Advisors thinks that the costs assumed for these surprise audits may be unrealistic and unfair to small and medium-sized advisory firms.

The staff assumes an average cost of $8,128 for more than 9,000 advisers. Average numbers are always unrealistic for those at the far ends of the spectrum.

But more importantly, we don’t think that the number takes into account the potential liability for these surprise audits and how that must be factored into any cost estimate beyond the actual hours needed for the work. We note that the profits for investment advice rise slowly with the accumulation of assets.

Thus, the firm with $60 million in assets under management doesn’t make a significant amount more than one with $30 million. Yet the additional accounts resulting in that extra $30 million may add significantly to the cost of the audit, especially including the potential liability.

In other words, we think that the added cost is disproportionate to the added compensation, a fact often present in one-size-fits-all regulation. This proposal also comes at a time when the staff has begun sending client letters to individual investment advisory clients, which is certain to raise compliance costs.

The net effect here is the privatization of regulatory surveillance.

We have stated before that an alternative approach would be to raise the AUM ceiling for state regulation of investment advisers to $100 million, from $75 million. We were advised by a former senior official of the North American Securities Administrators Association Inc. of Washington that the states could handle regulation of firms with $100 million in assets under management.

We think they could do so especially if these advisers were charged a modest fee to avoid the costs of the private audit.

Although the SEC may learn more from the comments of auditors themselves, we think that the state alternative must be carefully examined.

Peter J. Chepucavage
Founder
IASBDA
Washington
General counsel
Plexus Consulting LLC
Washington

Market shake-up provides opportunity for RIAs

Last year served as a wake-up call to many wealthy investors and left them wondering just what is going on with their investment portfolios.

Sometimes it can take a major shake-up in the markets for investors to re-evaluate the financial adviser to whom they have en-trusted their financial future. From traditional brokers to independent advisers, where can high-net-worth investors turn for objective financial advice that meets their specific needs?

As banks and brokerage firms react to the policy changes enacted by Department of the Treasury officials, investors are concerned that their brokers might not even be around to manage their families’ savings. Even if still employed, the brokers will likely face their own challenges in these rough markets.

Brokers must manage the delicate balancing act of keeping their jobs by meeting revenue quotas and allocating enough time to focus on analyzing and re-balancing their clients’ portfolios.

This is one of those rare opportunities for independent registered investment advisers to really differentiate themselves versus the big brokerage firms. I came from the brokerage world to set up a fee-only RIA and know from personal experience the quality of advice you can give when commissions aren’t part of your business.

Sanjeev Sardana
President and chief investment officer
BluePointe Capital Management
San Mateo, Calif.

Stick to investments; stay away from politics

Unlike Andrew Simpson, president of First Insight LLC of Alexandria, Va., who wrote the letter “Poll on Obama deserves two thumbs down,” which appeared in the May 25 issue, I won’t ask you to cancel my subscription.

I did find the article “Obama’s first 100 days in office earn advisers’ thumbs down,” which appeared in the May 4 issue, interesting.

However, I sometimes have to read your publication while holding my nose.

You ought to stick to investments and keep politics out of it.

Do you think that your readers are really that naive? You said in your editor’s note that the poll results reported in the article reflected the view of readers, but you know darn well that the results were largely due to the questions and the way they were asked.

That is why Mr. Simpson referred to it as a “hack poll.”

Scott M. Culiner
Certified financial planner
Towson, Md.
Signator Advisory Group

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