How to resolve issue of charging double

Has anyone addressed a situation in which a client who has recently been charged fees by advisers who…

Has anyone addressed a situation in which a client who has recently been charged fees by advisers who do not have the appropriate licenses chooses not to keep their money in fee-based accounts once such licenses have been obtained? Does to begin charging the client commissions and transaction charges on securities that may be of a class or nature where that would be questionable raise an ethical or legal issue?
In other words, a lot of clients in fee-based accounts who have been paying a fee for a bond portfolio being managed inside the fee-based account may now get charged a commission on those very same securities now that they are not inside such an account. In essence, such clients could end up being charged twice.
I have seen many clients who had been assessed transaction-related charges (commissions) on commissionable products be switched over to fee-based accounts and be charged a fee on top of the commissions.
There is an appropriate solution: to hold certain securities within a fee based account “above the line,” where those designated securities are not charged a fee, yet have all of the client’s securities at the broker-dealer come on a single consolidated statement.
Bruce W. Winsborough
Financial adviser
Old Monroe Investment Services
Old Monroe, Mo.

ACLI would welcome an LTC probe by GAO
Regarding the April 24 editorial “LTC industry needs to be investigated,” the American Council of Life Insurers agrees that an investigation by the Government Accountability Office would provide needed clarity to recent allegations that may cloud public opinion of long-term-care insurers. ACLI member companies, who account for the vast majority of long-term-care coverage in the United States, take their commitment to policyholders seriously and endeavor to pay claims promptly.
The benefits policyholders receive — some $3.3 billion in 2006 — allow them to make choices regarding their care, and maintain their independence, without being a burden on their families. These benefits also help alleviate costs to taxpayers by incurring expenses that would potentially be covered by Medicaid.
The ACLI strongly supports enactment and enforcement of National Association of Insurance Commissioners models that provide guidelines for the payment of claims and include strong consumer protections. In addition, the [Kansas City, Mo.-based] NAIC’s Long-Term Care Model Regulation requires an annual reporting of denied claims. We encourage the states to monitor these reports, and if the reports show unfair trade practices, regulators should take appropriate action.
The cost of long-term-care services is rising, forcing many consumers to deplete their hard-earned savings to pay for care and threatening their financial and retirement security. For millions of Americans, long-term-care insurance plays a vital role in their retirement security plans — a role that companies take very seriously. That is the story the GAO should bring to light.
Frank Keating
President and chief executive
American Council of Life Insurers
Washington

Equal treatment needed to inform client choice
As an investment adviser, I’m puzzled by Marc Lackritz’s critique [Other Views, April 16] of the recent court decision to require brokers offering fee-based accounts to register under the Investment Advisers Act.
Fee-based accounts gained prominence, he notes, after the Tully Commission expressed concern [that] “some brokers” (Mr. Lackritz’s words) had an incentive to churn the commission-based accounts. In reality, all brokers have an incentive to churn. Most overcome the temptation, but the inherent conflict of interest is not limited to “some.”
Brokers are regulated differently than advisers, Mr. Lackritz claims, but “it is misleading to suggest that they are regulated less stringently.” Really? Let’s see. Every brokerage trade, he notes, is subject to a suitability requirement. But if one suitable security pays the broker a 2% commission, and the second pays 5% or qualifies the broker for a luxury cruise, does the broker have an obligation to disclose this conflict of interest? No. An investment adviser is obligated to disclose all real and potential conflicts of interest.
Brokers are required to give “a raft of … disclosures to customers” when an account is opened. But are they required, as are investment advisers, to disclose all costs? No. This is why it is not uncommon for our clients to be wooed by brokers offering to manage their bonds “for free” — free except for undisclosed markups to the broker and the broker’s fixed-income-trading desk.
Finally, Mr. Lackritz laments that the court overturned provisions clarifying that a broker-dealer has a fiduciary duty when providing planning services to a client. He omits the key point that unlike investment advisers, a broker has no fiduciary duty in providing investment advice.
I’m all for customers’ having a choice in how they pay for investment advice. But how can they make an informed choice when the rules applying to one provider don’t apply to the other?
Paul H. Kuhn Jr.
Principal
Woodmont Investment Counsel LLC
Nashville, Tenn.