Transitions Magazine - August 2010

The Man Man The With With TWO BRAINS BRAINS TWO

TABLE OF CONTENTS Letter from the Editor ..................... 1 In the News .................................... 2 Calendar of Events ........................ 5 The Man with Two Brains .................. 9

by Dave Williams, CFP® VII. How to Set Up Your Business: Your Fictitious Name Statement ... 13

by Sydney LeBlanc Going Independent: ......................... 17

by Nancy Lininger Beyond Reproach: Fake

Page 21

by David Loeper, CIMA®,CIMC®

Page 9

Advisors: Increase the Value of Your Practice ................................ 25

DIVERSIFICATION

?

FAKE

Diversification .............................. 21

Compliance Guru

by Scott Winters and William R. Nelson, Ph.D.

Nancy Lininger

A Conversation with Mark Schlafly,

Page 17

Book Review: A Complete Library

President & CEO, FSC Securities ... 29

of Essential Financial Concepts ... 34 Compiled by Cannon Financial Inst.

Page 25

Resource Directory ........................ 35 Grin & Bear It! ................................ 37

Increase the Value of Your Practice

SUBSCRIBE TODAY and receive a FREE eBook: "Valuing and Selling Your Business"

DISTRIBUTION PARTNERS Meridian-IQ™ and StarPoint Consulting Group

AUGUST 2010

Business Management for Independent Financial Advisors

What Every Affluent Financial Advisor Needs

• Learn new practice management strategies and current regulatory updates on new accreditation rules and potential fiduciary rules • Discover new products in over 30 sessions on REITs, TICs, DSTs, oil and gas, alternative energy, debt and equity funds and notes • Gain exclusive knowledge on how to generate additional revenue and effectively sell to your target market

REISA 2010 Annual Conference

October 17-19, 2010 Paris Resort Las Vegas

• Earn continuing education credits (CEs) Attend REISA’s Conference…find your next opportunity, build your professional network and expand your career!

N’Tis! O D th s s i m Register online at www.reisa.org! 866.353.8422

Transitions Magazine

From the Editor How Important is Brand X? Consider Your Own Brand!

Dear Readers,

Worrying about “brand” and leaving a well-known, traditional house may be a thing of the past.

These days, an increasing number of investors prefer (and are actually demanding, in many cases) a smaller, more personal arrangement with their financial advisors. Some “large” brands may evoke a negative feeling, even though unwarranted. The brand name, however, must speak for itself in terms of credibility, integrity, personalization, ethics, and honesty.

Some financial advisors admit that while there are some clients who still like the brand name of a large house to feel comfortable, more often than not, clients who enjoy a satisfying relationship with their financial advisor will likely follow them after the transition is complete.

Recently, I had the pleasure of speaking with Mark Schlafly, President and CEO, FSC Securities Corporation. He had definite opinions about “branding” and what advisors are looking for in an independent B/D. Mark said, “… advisors want their own name on the door.” We talked about the basic things you should look for in a new firm — Gross x Payout - Charges = Net; Working conditions — do you control them? Clearing firm — platform, reputation, service; Business reputation, products offered, marketing support and materials — are they available on demand?

Remember, the B/Ds overall management talent, depth and organization will also shape your future. Obtain and read the firm’s compliance and supervisory materials. You will learn the level of compliance mentality and whether it will nurture your practice or cause you problems.

Going independent and actually owning and running your own business offers you the potential to elevate your career to unforeseen levels of success and personal satisfaction. Learn from those who have gone before you because it offers a great advantage as you begin your transition journey. While it has often been said there is no place like home, you need to determine where that “home” is, and many have said that “home is where the heart is.” Sometimes you just listen to your heart, while you are doing your due diligence and studying the various rewards and pitfalls of launching your own business. Having the courage to strike out on your own opens the door to unlimited possibilities, putting rewards within your reach that can not only last a lifetime, but redefine where your true home is, as well.

From the Editor s

Mark zeroed in on the B/Ds financial situation and available capital. He mentioned that the firm’s financial condition will determine whether or not it will survive adverse economic conditions. Risk management policies will determine its exposure level. What is the firm’s commitment to technology and innovation? It will shape your future. All this and more is included in our interview on page 29. I think you will enjoy it.

Have a safe trip, and see you next time!

www.transitions-mag.com

August 2010

1

Transitions Magazine

Industry News Publishers Lyn Fisher & Sydney LeBlanc Editor-in-Chief Sydney LeBlanc sydney@transitions-mag.com Managing Editor Cami Miller cami@transitions-mag.com Contributors Nancy Lininger David B. Loeper, CIMA®, CIMC® William R. Nelson, Ph.D. Dave Williams, CFP® Scott Winters

ADVERTISERS INDEX

REISA ....................inside front cover Truth Concepts™ ............................ 6

Financial Life Planning Guru George Kinder Moving to London Will promote new planning approach and Registered Life Planner designation in UK and Europe

Meridian -IQ™ .................................. 8 Certified Wealth Strategist® .......... 16 Gregg Financial Network ................ 19 Financial Forum Bookstore ............ 20

IT Directors John Weeks Shane Hansen

In the News

Advertising Sales • Stephanie Kunz stephanie@ffpublish.com 435.750.0062 x3 • Lyn Fisher lyn@ffpublish.com 435.750.0062 x1 Director of Business Development & Strategic Alliances Marty Jensen martyjensen@yahoo.com 949.929.7140

Financial Forum Inc. 550 North Main, Ste. 221 Logan, UT 84321 435.750.0062 • info@ffpublish.com 2

George Kinder

Advisors in Philanthropy™ ............. 24 EqisCapital .................................. 28 RIABiz.com ................................... 33 FinancialAdvisor.org ..................... 35 Resource Directory ................... 35-36 StarPoint Consulting ......... back cover

For Advertising information, email info@transitions-mag.com or call 435.750.0062 ext. 1.

August 2010

Financial Life Planning pioneer George Kinder will be moving from America to London for an extended stay beginning August 1, 2010. Mr. Kinder is founder and President of the Kinder Institute of Life Planning (www.KinderInstitute. com). The Institute offers a series of Financial Life Planning programs. Additionally, the Institute confers the Registered Life Planner® designation to graduates who successfully complete its curriculum.

The Institute’s programs have generated considerable interest amongst the UK financial community. Mr. Kinder’s move to the UK is a direct response to the increased demand for financial Life Planning information and training in the UK and www.transitions-mag.com

Transitions Magazine

Industry News

“I think the UK is among the world’s leaders in responding to the global financial crisis by forging ahead with initiatives to bring greater fairness and transparency to the financial industry,” Kinder said. “In my view, the Financial Life Planning approach is key to a renaissance of trust in the profession, and UK advisers seem to agree. They are showing considerable interest in financial Life Planning methods which fit so well with the new RDR regime. London is emerging as a leader of the Life Planning movement, and I’m very excited to be able to spend more concentrated time helping to make that happen.”

Clinton Askew, Director at Citywide Financial Partners, attended Kinder’s advanced workshop in May and returned with glowing reviews. “For advisors used to dealing with the very best investment ideas, George Kinder’s EVOKE® course takes the client conversation to a whole new level,” Mr. Askew said. “In the weeks since completing the course the quality of conversations I have been having with cliwww.transitions-mag.com

ents has changed fundamentally. Clients I thought I knew well have opened about their thoughts and feelings in ways that have been astounding and inspirational. I am totally enthusiastic about this course and the benefits it will have for me and my clients.”

Tina Weeks, UK representative of the Kinder Institute and founder of Serenity Financial Planning said today, “The training I received through the Kinder programs has nothing less than completely transformed my business. I can honestly say that it was the best investment I ever made.

My business and my clients have benefited massively. I get enquiries every single day from other If’s who can see the benefit in acquiring the client relationship skills needed to take their business forward.

The interest in the UK right now is huge and I am delighted that George will be spending so much time here with us so that many more advisers are able to benefit from his superb training and expertise.”

“The Kinder Institute is seeing a growing number of advisers pass through it’s programs in the UK,” said Roger Wellington, Executive Director for the Kinder Institute. “Advisers are finding that the essenAugust 2010

tial skills obtained through the training offered by the Kinder Institute is putting them in the best possible position to see their businesses through RDR and beyond.”

Mr. Kinder was a tax and financial adviser for over 30 years, eventually developing his signature EVOKE® structured interview process that is used to broaden and deepen the discovery and goal-setting process with financial advisory clients. Graduates of his programs report significant changes in their style of practice and results with clients.

Mr. Kinder will be joined in London by his wife, Kathy Lubar, and his twin daughters. Ms. Lubar is herself the founder of a successful training organization, The Ariel Group, that offers leadership training to business executives worldwide. Kinder and family will be residing in Hampstead. Mr. Wellington and other Kinder Institute staff members will remain in the United States to meet the needs of US constituents.

Matthew Kessler CIMA® Joins Rydex/SGI as Senior Director

In the News

Europe. When contacted at his US home outside of Boston, Massachusetts, Kinder sounded most enthusiastic about his upcoming move.

Matthew J. Kessler, CIMA® has joined Rydex/SGI as senior director serving Registered Investment Advisors (RIAs) for their West Coast Region.

3

Transitions Magazine

Industry News In his current role as senior director for the RIA channel for the West coast region of the U.S., he is responsible for building and managing relationships with new accounts and existing clients. Matthew has worked in the financial services industry since 1984, holding a number of key executive roles at a variety of top-level global wealth management investment companies.

fixed income. In 2003 Matthew joined BlackRock as vice president of marketing. Prior to BlackRock he held a number of senior positions in the industry, including vice president of UBS Alternative Investments Group and vice president at Alliance Capital.

Matthew holds a CIMA® designation as well as a bachelors degree from the American University Kogod School of Business. He has also earned FINRA Series 7, 63, and 65 licenses.

More than 200 African-American Financial Professionals Attend Dynamic Event

In the News

Matthew J. Kessler, CIMA®

4

Before joining the firm, Matthew managed distribution channels for alternative investments such as private equity, fund of funds, hedge funds and exchange-traded funds exclusively for family offices, accredited investors and institutions. He has been responsible for leading distribution efforts across the full spectrum of wealth management services and capabilities include structured products, managed accounts, financial planning, mutual funds, equities and

Financial services industry leaders recently joined forces to help promote the education and advancement of AfricanAmerican financial professionals. Led by The American College and MetLife, the Fifth Annual Conference for African-American Financial Professionals was held on June 3-4, 2010 at Clark Atlanta University in Atlanta, GA. The conference, themed “Empower Yourself: Commit to Your Education, Connect to Your Future,” was hosted by The American College and MetLife “The American College was delighted to host this groundAugust 2010

breaking event for the fifth year,” said Larry Barton, Ph.D., President and CEO of The American College.

“The support The American College and MetLife have received from leading organizations throughout the industry speaks volumes about the importance our profession places on education and its ability to empower AfricanAmerican financial services professionals.”

This was the first time that so many leading companies came together to promote continuing education and diversity. Gold sponsors of the event included the Northwestern Mutual Financial Network and Prudential. Nationwide, New York Life, Penn Mutual, State Farm and Western & Southern Life, a member of Western & Southern Financial Group, were Silver-level sponsors.

“As the founding and presenting sponsor of this progressive initiative, MetLife is proud that the industry is coming together to promote this important educational event,” said Michael Vietri, CLU®, Executive Vice President of MetLife. “Financial services organizations are increasingly aware that their workforce needs to reflect the diversity of their customer base. The companies that took part in this year’s event www.transitions-mag.com

Transitions Magazine

Industry News

cial services companies including (left to right), Marquis Miller from SBLI USA Life Insurance, Roderick Liptrot from Prudential, Samuel Bridgeman from New York Life and Adrian O’Dell from Western & Southern.

clearly recognize the importance of providing an opportunity for African-American professionals to share best practices and network with their peers.”

During the two-day event, participants had the opportunity to network and learn from other successful AfricanAmerican professionals and attend workshops led by powerful leaders throughout the industry. Thomas McLeary, CLU®, President of Endow, Incorporated and Trustee at The American College, delivered the opening remarks. For more information, visit www.

TheAmericanCollege.edu WESTPORT RESOURCES RECRUITS TOP TALENT, HIRES SENIOR PORTFOLIO MANAGER Westport Resources Management, Inc., a leading financial advisor serving individuals, families, municipalities and www.transitions-mag.com

Mr. Webster, 67, is an industry veteran with over three decades of experience in portfolio management. During his professional career, he has held high-profile positions at some of the premier global U.S. and international financial services companies. He joins Westport Resources from Morgan Stanley-Smith Barney where, as Senior Portfolio Manager & Senior Vice President Sales, he was responsible for active management of client assets and financial planning.

“As Westport Resources enters its 25th year in business, it continues to enjoy significant growth and attract top talent,” stated Mr. Keith. “We keep on adding to our outstanding team of professionals who are recognized in the industry for being both creative thinkers and astute money managers. Their profound expertise will enable us to further build upon and enhance Westport Resources’ exceptional quality of wealth management and high-touch client service.”

August 2010

— 2010 —

CALENDAR OF EVENTS SEPTEMBER Sept 11-14 NAIFA Career Conference & Annual Meeting Seattle, WA Sept. 22-24 NAPFA Practice Management and Investments San Diego, CA

OCTOBER Oct. 9-12 FPA Annual Conference Denver, CO Oct 17-19 REISA National Conference Las Vegas, NV Oct. 26-29 Charles Schwab's Impact 2010 Conference Boston, MA

NOVEMBER Nov. 7-10 AFP Annual Conference San Antonio, TX

In the News

Representatives from a variety of finan-

institutions around the world, announced today the appointment of William O. Webster, Jr., CFP, as Senior Vice President- Investment & Portfolio Manager. He will report directly to George Keith, Westport Resources’ President.

To include your upcoming events, please email the info to: info@transitions-mag.com

5

Todd Langford

vFREE 10 Day Trial ... To access, click here. www.truthconcepts.com

Includes free tutorials and Hwy. a blog FAQs to show you how to 22790 259 South Enterprise, TX 75681 use the calculators toMt.educate clients.

More Info ....

CALL 903.822.4133Phone: 903.822.4133 tlangford@TruthConcepts.com EMAIL tlangford@TruthConcepts.com

Strategic Solutions

Total Transparency

Rapid Results

Communicate, educate and motivate with Truth Concepts™ software.

Now advisors can provide highly informative and interactive discussions for clients utilizing a comprehensive set of calculators designed to maximize prosperity economics strategies and improve understanding.

Software designed to do one thing: Maximize client education.

Truth Concepts™ provides functional, user friendly programming to enhance communication between you, the advisor, and your clients. The solution is built around a growing suite of calculators that act as a “Visual Storyboard” to enable a transparent understanding about how money and wealth accumulation really work.

Truth Concepts™ explores the effects of the costs as well as the gains in building wealth.

Truth Concepts™ enable you to take clients through a range of discussions that include but are not limited to the effectiveness of qualified plans, buy term and invest the difference, the most efficient way to take income from an asset and how opportunity cost affects building wealth. The calculators offer your clients a point of view that enables them to get to the TRUTH so they can make good decisions about their money. The Truth Concepts™ solution currently includes the following calculators: • • • •

Financial Calculators Internal Rate of Return Loan Analysis Borrowing Strategy

• Achieving Maximum Potential • Automobile Purchases • Funding Illustration • Real Estate Analysis

• • • •

Investment Strategy Cash Flow Accumulation Distribution

With Truth Training we provide the educational support you’ll want to enhance your understanding, better employ the software for client presentations, and deepen your knowledge of the basic principles. We offer training classes on a regular basis. Check the website for dates and to register. www.truthconcepts.com

Truth Concepts™ Calculators:

6

August 2010

Real Estate Analysis

Borrowing Strategy

www.transitions-mag.com

Achieving Maximum Potential

Transitions Magazine

Industry News

“Bill is a high-caliber professional with an impressive wealth and high-net-worth client management experience. He brings to Westport Resources a remarkable long-term track record and a proven ability to attract and retain assets,” Mr. Keith continued. “Unquestionably, he will play an instrumental role in driving the performance of our firm to its full potential.”

Mr. Webster began his career in 1972 at Blyth Eastman Dillon Union Securities, which was acquired in 1979 by Paine Webber. Shortly after the merge, Mr. Webster was appointed Senior Vice President of Sales and earned the designation of Senior Retirement Specialist and Senior Portfolio Manger. During his tenure, he served on a number of best producers’ advisory boards to the firm’s top management.

From 1985 to 1991, he served as branch manager of Paine Webber’s Bridgeport, CT office– at the time, www.transitions-mag.com

Mr. Webster earned a Bachelor of Arts from Dartmouth College and a Master in Business Administration from New York University Stern School of Business. He and his wife Sue and two children reside both in Wilton and Old Saybrook, CT. Headquartered in Westport, CT, Westport Resources Management, Inc. was founded in 1986

by Chief Executive Officer John Adams Vaccaro. Maintaining stable growth over its 24-year history, Westport Resources provides wealth management services to individuals, families, institutions and manage risk through its customized innovative solutions, independent research, dynamic planning, meaningful reporting and passionate client service. More information is available at www. westportresources.com

Michael C. Davidson, CLU®, Elected Chairman of the American College Board of Trustees The American College announced today the election of Michael C. Davidson, CLU®, as Chairman of the institution’s Board of Trustees. Davidson is the Vice Chairman and Chief Agency and Marketing Officer at State Farm Mutual Automobile Insurance Company®.

Michael C. Davidson, CLU®

As Chairman, Davidson will preside at all the meetings of The American College’s Board of Trustees. The Board has oversight responsibility for affairs of The College, including the institution’s management and the formulation and determination of institutional policies.

In addition to being a member of The American College’s Board of Trustees and The College’s Executive Committee, Davidson is a past member of the Board of Directors of the Illinois Chamber of Commerce and the Illinois Life Insurance Council.

In the News

William O. Webster, CFP®

New England’s largest producing branch managed by a producing manager. During that time, he was named one of the top 10 managers of the year. From 1991 until 2008, (in 2000 UBS acquired Paine Webber) Mr. Webster concentrated on serving the financial, retirement and estate planning needs of highnet-worth individuals, families with multi-generational wealth transfer issues, small foundations and endowments

uuu August 2010

7

8

August 2010

www.transitions-mag.com

Transitions Magazine

The Man With

Two Brains Economics would tell us that, all things being equal, all things are equal. As long as there is a rational buyer and a rational seller, both working off the same information, then any free market will be a zero sum game. There are no big winners or losers, there is just an exchange of value for value, and an investor receives a calculable premium over a safe rate as he puts his capital at risk — the higher the risk, the higher the anticipated reward. www.transitions-mag.com

August 2010

Cover Story

By Dave Williams, CFPÂŽ

9

Transitions Magazine

T

Cover Story

he problem is that the world is not populated by buyers and sellers who are always rational. This is why any market is subject to price swings and the average investor, if left to his own devices, ends up buying high and selling low. These investors do not intentionally repeat these mistakes; they just don’t realize that our brains trick us in how it processes information. Psychologists have formed a new branch of study called Behavioral Finance to understand why otherwise rational people act irrationally. Neurologists, Psychologists, and Economists have joined together to take the science down to the neuron level in the study of neuro-economics. These two fields of study are continually making breakthroughs in understanding how our brains process or mis-process information.

brain handles the rational, comparative, and memory recall functions — sometimes referred to as the higher functions. As Ambrose Bierce puts it, the reflective brain is where “we think that we think.” The reflexive brain captures input first, rapidly discards what it considers irrelevant, and acts on the rest with intuition and emotion.

It is the part of our brain that keeps us alive while we are thinking those impossible thoughts.

How the Brains Work Together

Here is an example of how the reflexive and reflective brains work together—in a grossly over-simplified explanation (because I don’t know any better). Picture this.

You are at an outside café, sitting on a wire chair with a fresh cup of coffee and a good book you are reading. The reflexive brain receives the scent of To live and be sentient, coffee, the warmth of sun, the breeze, we must have two brains.

The reflexive brain both captures the birds chirping. It doesn’t necesWe are capable of receivdata before passing it to the re- sarily pass these on, but gives you a ing more data through our feeling of happiness. It receives the flective brain and reacts to the senses than we can process.

Our brains can process and reflective brain’s activity. It intui- feeling of cool metal from the chair, and notices that the chair pinches analyze data at tremendous tively acts or influences the reyou if you shift your weight. The depth and breadth, includ- flective brain before the reflective reflexive brain may pass these on if ing processing it outside brain has a chance to react. they escalate, but generally it disrational boundaries — cards these data. The reflexive brain thinking “outside the box.” passes the variances of black and white on the page to This process is energy intensive. your reflective brain.

We can and do multi-task, but each task has a logarithYour reflective brain translates the patterns into words, mic effect on energy used. For example, Lewis Carassigns them meaning, compares them to what you knew roll said, “Sometimes I’ve believed as many as six imbefore, and recognizes that you had heard this poem by possible things before breakfast.” If one thought takes Edgar Allen Poe read before. You hear Vincent Price say, 20 or 1 measure of energy, then 6 thoughts take 25 or “Once upon a midnight dreary, while I pondered, weak 32 times the energy. (This is one of your impossible and weary…” You even envision Bart Simpson as a rathoughts for today.) ven perched upon Pallas’ bust, above the chamber door.

To handle the complexities of life and being, our brains “For the rare and radiant maiden whom the angels name react at two levels: reflex and reflective. The reflective Lenore.” Wasn’t there a girl in college named Lenore?

10

August 2010

www.transitions-mag.com

Transitions Magazine

Cover Story The reflexive brain monitors the activity of the reflective brain and notices that it has accessed a number of memories with happy or pleasant connotations and generates the emotion of wistfulness. It still ignores the seat pinching, but reminds the reflective brain that it craves the taste of coffee.

The reflexive brain notices a sound different than birds chirping. It’s a sound of danger — the squealing of tires and horn blowing. Immediately, the reflexive brain interrupts all activities, sends out the emotion of surprise and intuitively tenses the body in order to make it a smaller target and ready to leap. It passes the data to the reflective brain, which has shifted attention away from the book and memories. The reflective brain references the sound from both ears and determines that the sound is to your right, and not distant. It causes your head to whip around so that it can collect data Magazine from your eyes. The reflective brain also compares the sound of the horn to its memories of car horns and recognizes that its timbre belongs to a big car. The reflexive brain intuitively sends fear throughout the body.

In the foregoing example the reflexive brain both captures data before passing it to the reflective brain and reacts to the reflective brain’s activity. It intuitively acts or influences the reflective brain before the reflective brain has a chance to react.

The reflexive brain is on all of the time. It watches for “patterns,” and knows that gains feel good. It assumes that things aren’t going to change, and if they do it is probably a bad thing. The reflexive brain knows that the pain of loss is greater than the joy of gain, and it acts as if “once burned, twice shy.”

In order to operate so quickly, the reflexive brain has to use shortcuts and rules of thumb. It measures the magnitude of events and remembers losses or dangers better than rewards. It simplifies many things into outlines or patterns. In so doing, it sees patterns that do not really exist. It develops biases.

The Reflective Brain and Intuition The Reflective brain compares memories, calculates, and processes thought. The Reflexive brain samples sensory and cognitive input and reacts with intuition and emotion. The Reflexive brain keeps us alive while the Reflective brain thinks (or thinks it thinks).

The reflective brain recognizes a small car in the intersection and a big car barreling toward it. It calculates that the big car will not miss the small car, but neither car should threaten you. The reflexive brain senses that you The entire brain is plastic—it conare in less danger, but instinctinually becomes either more or The length of time necessary tively knows that there may be less complex, depending on how for an older person to learn debris and that the sight of the we use it. Knowledge and expecollision will be unpleasant. something new is dependent on rience affects it. Psychologists how long ago they learned their and neurologists have found, for It turns your head and closes last “new trick.” your eyes, and tenses your example, that “you CAN teach body, less to leap and more to an old dog new tricks.” The make you smaller (you shrug length of time necessary for an your shoulders, for instance). The reflexive brain is wait- older person to learn something new is dependent on ing for the sound of metal crunching, glass breaking, how long ago they learned their last “new trick.” steam escaping, and rubber squealing.

This ease of learning being dependent on the recentwww.transitions-mag.com

August 2010

11

Transitions Magazine

Cover Story

ness and depth of previous learning is why employers look for college degrees. (Or, the employer is looking for someone who has mastered over-drinking and lasciviousness.) It is less the subject matter and more the ability that is important. The 19th Century educator and philosopher Michel Montaigne, for example, put emphasis on a well-formed brain over a well-filled one. An exercised reflective brain can make broader connections of ideas and events, and may take into consideration more data.

Depending on the depth of thinking, then, the reflective brain views the world as:

Or:

In any event, the Reflexive brain needs these thoughts and experiences reduced to an intuitive:

Interestingly, all three equations are congruent—they just take increasingly more data into consideration.

It seems then, that during periods of meditation (thinking about something carefully, calmly, seriously, and for some time; not, the emptying of the mind of thoughts, or the concentration of the mind on one thing), daydreaming (thinking about something, although not usually carefully and seriously), and perhaps during dreams, that our Reflective brain cogitates on some instance to distill it to its instinctive belief. This instinctive belief must then be communicated to the Reflexive brain so that it may act on it. Hence, our Reflexive brain may change how it reacts to a certain set of stimuli as our experiences expand.1 In future articles we will discuss how the interaction of these two brains can sabotage our decision making. uuu

David Williams, CFP®, Partner of Business Enhancement Associates, LLC, helps business owners and corporations grow, protect, and transfer wealth. Dave is also a Registered Investment Advisory Associate with Wealth Strategies Advisory Group, Inc. Prior to establishing his business consultancy, he was Director of Financial Planning for Regions Morgan Keegan Trust. As a CFP® since 1985, and with more than 25 years of financial planning experience working with business owners, Dave also has expertise in advanced estate and charitable planning, employer stock option planning, and qualified plans. He is a Past President of the Financial Planning Association of the Mid-South. Dave can be reached at: Dave@WSG-TN.com.

1 Formula and inspiration from Robert I. Mehr, author of “Fundamentals of Insurance,” ©Richard D. Irwin, Inc. 1983.

12

August 2010

www.transitions-mag.com

Transitions Magazine

How to Set Up Your Independent Business: Part 7 Your Fictitious Name Statement

Editor’s note: This is a great article that originally was published in a book Lyn Fisher and I wrote for John Peluso, President, Wachovia’s FiNET division (now WellsFargo Advisors Financial Network). The book is called “Independent Business Ownership: Navigating to Your New Destination.” We think you will find it very helpful when starting up your new business.

H

ere’s the law: Fictitious Name Law — Doing Business As (DBA) Fictitious Business Name Statement (FBN). State law requires that every person, partnership, corporation, or other association, who transacts business under a Fictitious Business Name, file a statement. The statement must be published in a newspaper of general circulation. You know by now that you will also need these documents to open a bank account. (Or your corporate/LLC certificate if you incorporate.) You may as well obtain your federal tax ID number now too. Also, if you will have at least one employee, you need the state and federal employer tax number (EIN) to set-up your payroll system so you can pay the government weekly or in other intervals necessary.

Benefits of filing a fictitious business statement (or corporate certificate) • You can open a merchant or business bank account.

• It discourages competitors from using your business name.

• It enforces contracts you entered into under the business name.

Business Licenses By law, in most cases, all businesses must be licensed before they can begin to operate. If an individual or company is found either operating a business or conducting business without a business license, that person will be subject to significant fines and/or penalties. Note: you need a fictitious business name to open a bank account - not a business license.

Setting Up Your Business

By Sydney LeBlanc

Staking Your Ground Okay, you have decided on the right legal structure for your company and you have selected the best local consultants to suit your needs. In order to continue on your evolutionary path to independence, you must www.transitions-mag.com

August 2010

13

Transitions Magazine

Setting Up Your Business understand your responsibilities as well as those of your landlord/lessor.

RED FLAG A few words about publishing your fictitious name statement — Local newspapers are another major cause for concern when planning your exit from your current firm, so says Keiter Stephens’ managing director, Bill Beattie. “Typically they publish the names of those who have applied for new business licenses once a week. Since anywhere from five to ten days can pass from the time a business license is issued to when a paper publishes the names, checking with the paper beforehand to determine when these statistics are published locally can go a long way in preserving your exit strategy. You certainly don’t want anyone is your office reading about your plans in the local paper BEFORE you make your own announcement to them.”

now obtain office space. You have four options — a traditional lease, an executive suite, purchase, or build.

Traditional lease. Leasing the right office space starts with a homework assignment to determine what the office market looks like in your town. Be aware that leasing rates vary from areas to area, and can be negotiable.

While several kinds of leases are available, the two you will likely come across for office space to meet your needs are full-service leases and gross leases. Typically, full-service leases include water, utilities, janitorial services, real estate taxes, common space usage and rent in a single convenient monthly payment.

Gross leases, on the other hand, usually only include real estate taxes and the monthly cost of your rent.

Whichever lease you find most attractive, be sure to go over the lease with a fine-toothed comb to thoroughly 14

Don’t be alarmed if the physical layout of the office space you are considering fails to precisely match your needs. Lessors are accustomed to making modifications to satisfy your business requirements. Again, this is something that you can negotiate on the front end.

In order to save costs, you might also want to consider sharing office space with another independent financial advisor like yourself as long as each of you maintains separate legal entities. Within this environment, expenses can be shared while both of you realize the autonomy of owning a separate company. This kind of sharing opens the door to minimizing fixed costs, making the most of rent, utilities, and administrative personnel. If you do decide to share your office with another independent financial advisor, make certain to have the particulars of the arrangement drawn up by your attorney.

Before You Sign on the Dotted Line Here are a few questions you should ask before signing a lease: • Is the lease a net or gross lease?

• Does the lease specifically state the square footage of the premises? The total rentable square footage of the building?

• Is the tenant’s share of expenses based on total square footage of the building or the square footage leased by the landlord? Your share may be lower if it’s based on the total square footage.

• Do the base year expenses reflect full occupancy or are they adjusted to full occupancy (i.e., base year real estate taxes on an unfinished building are lower than in subsequent years)?

• Will the landlord provide a detailed list of expenses,

August 2010

www.transitions-mag.com

Transitions Magazine

Setting Up Your Business prepared by a CPA, to support increases?

• Does the lease clearly give the tenant the right to audit the landlord’s books or records?

• If use of the building is interrupted, does the lease define the remedies available to the tenant, such as rent abatement or lease cancellation?

• If the landlord does not meet repair responsibilities, can the tenant make the repairs, after notice to the landlord, and deduct the cost from the rent?

• Is the landlord required to obtain non-disturbance agreements from current and future lenders?

• Does the lease clearly define how disputes will be decided and resolved?

Executive Suite. Executive office space can be an attractive option to consider for a variety of reasons, not the least of which are the substantial extras usually included in the package. Going the executive office space route can get you a furnished office, access to conference rooms, phone and reception options, plus the use of a receptionist or assistant at considerable savings. Closer examination of this arrangement vs. leasing traditional office space may uncover the flexibility to secure your lease on month-to-month terms.

Purchase. If you can afford it, buying your office building is something you might want to consider. Advantages of going this route include having a fixed-month mortgage that can be less expensive that a lease rate.

Other perks include a potential appreciation in real estate value, rental income from potential tenants, and the perks of being your own landlord.

The biggest negative in pursuing the purchase of an office building is the substantial outlay of initial capital it takes for the required down payment. Considering all of the other costs you will incur launching your new business, purchasing your building might not be for www.transitions-mag.com

you. Once you own your building you are married to it.

All maintenance on the property will be your responsibility, plus you may be hampered if you ever decide to relocate.

Build. Opting to build the office your company will occupy presents its own challenges when it comes to maintaining confidentiality for the new business. Naturally, the amount of time required to complete construction necessitates a longer planning process for your timeline to go independent.

While building your own office affords you the flexibility to precisely create the exact work space environment you desire, coupled with the added bonus of getting to choose where your company will be located, the pluses and minuses of moving in this direction are compatible with those shared with the purchase option. A building permit is required before construction and/or any renovations can be made to any property that you own.

Next Time Now that we’ve covered your options for office space, and the details of licenses and naming your firm, let’s move on to some very important “inside” information you’ll need next … including pension plans, health and business insurance, worker’s comp, and other benefit programs vital to your business. We’ll cover this in the next exciting episode! uuu

Resources: Keiter Stephens www.kshgs.com XKR Essex, Inc. www.businessnameusa.com; A Hundred Monkeys, Inc., www.ahundredmonkeys.com; Adapted from “Top 8 Mistakes in Choosing a Name for Your Business,” Phil Davis, Entrepreneur magazine and Tungsten Marketing, www.puretungsten.com; www.sba.gov , 327 Questions to Ask Before You Sign a Lease, by B. Alan Whitson, B. Alan Whitson Co.

August 2010

15

16

August 2010

www.transitions-mag.com

Transitions Magazine

Going Independent

D

Avoiding Regulatory Bumps and Making a Smooth Transition

By Nancy Lininger

o you plan on leaving the fold of your broker/dealer or from under the wings of someone else’s investment advisory firm to your own RIA? From a compliance perspective, there can be dire consequences if you take one step before the proper step.

Your very first step is to develop your marketing and business plan. Is the investment advisory business going to be a viable enterprise? Make sure you plan well in advance of making a move — 6 months or a year is ideal. (Although some advisors have made very quick moves in adverse conditions.) Get your regulatory ducks in a row before you jump into the water. ness to go fee-only, or leaving any job to go independent in financial services, you want to have your timing precise. The assumption is that your old firm does not know you will be starting a new firm and that you want to be in control of when you give notice.

If you leave the old company before your new firm is established, you suffer loss of income.

If you start soliciting business and engaging in an outside business activity while still employed by another financial services firm, you could be in contravention of your firm’s policies and/or securities laws. This may result in legal disciplinary actions and legal fines.

If

you work for an independent broker/dealer, and they approve your outside business activity as an independent RIA, then you will have more flexibility to make the transition. You will not be leaving one firm; you will not be operating in secrecy, you can continue with business as usual until your new firm is established.

If you are already self-employed or between careers, the tendency is to find a client or two first, and then

decide to get into the business and get registered. Warning! Securities laws require registration before solicitation or business activation. Some states require that you submit an affidavit of no prior activity when you submit your application. You don’t want to be caught lying under oath, but a truthful response could cause disciplinary action and/or a denial of your registration before you even enter the business.

Compliance Savvy

If you will be leaving the nest of an existing RIA, leaving the broker/dealer commission side of the busi-

Privacy Rules (under Regulation S-P) have created a Catch-22 for making a smooth transition from one firm to another. Although the independent contractor nature of a portion of the financial services industry has many industry participants believing that the client belongs to the individual financial advisor (or registered rep), for purposes of Regulation S-P, the regulators are of the staunch belief that the client belongs www.transitions-mag.com

August 2010

17

Transitions Magazine

Compliance Savvy

to the firm.

call your clients before the old firm has a chance to contact your clients.

Therefore, when a financial advisor changes firms • Send a letter to clients on Day 1 announcing your (transfers to a new broker/dealer or RIA), the advisor new business venture. This Anand the new firm can find that they nouncement Letter should express may have inadvertently violated Regulation S-P by sharing non- Make sure you plan well in how you will be able to better serve public personal information for advance of making a move your clients with your new structure. It will also contain your Form account transfer purposes, if done — 6 months or a year is ADV II full disclosure document so prior to obtaining client consent ideal. Get your regulatory and the Advisory Agreement for clifor the transfer. ents to sign.

The assumption of this article is ducks in a row before you • While the Announcement Letthat you will be starting your own jump into the water. ter is in the mail, start calling all firm, and therefore not sharing the your clients so that they hear the private information with anyone good news from you before they get other than yourself. But you are your letter. still cautioned about sharing this information with your • Invite them to your office to answer any questions partners or staff before obtaining customer consent. And they may have about the change and to complete the the carrying of the information with you to the new firm new account paperwork. needs client consent.

• Send a press release to your local newspaper and to Another concern is taking old client data under any nonyour association/networking publications. Include your photo with the press release. compete or confidentiality agreements with your old firm.

Here are some steps to smooth out your transition: • Have business cards, letterhead, and PR brochure (and your Announcement Letter described below) ready to go for Day 1. But do not hand these out before your registration is approved and before resigning from your old firm.

• Resign from your old firm.

• Do it in writing and do it professionally. Just a short letter stating your resignation and thanking the firm for the opportunity to work with them.

• Tickler your calendar to follow up with the firm to get a copy of your Form U5 (termination notice). You have a right to get your personal copy (and confirm the reason the firm wrote for your termination).

• Consider resigning late on Friday to give you the opportunity to mail your Announcement Letter and 18

• Follow up with clients timely to get them to mail back new account forms and the Agreement, or to visit your office to take care of the paperwork. You will not be able to manage their portfolio until the paperwork is in place. uuu

Nancy Lininger (www.liftburden. com) is founder/consultant of The Consortium®, Camarillo, CA, providing compliance and marketing consulting to Investment Advisors and Broker/Dealers, and publisher of the CompliancE-News. “Go to CEO! How to Start Your Independent Investment Advisory Firm” by Nancy Lininger is available in e-book. Order online.

August 2010

www.transitions-mag.com

Membership has its Privileges You are cordially invited to become a member of a vibrant, actively growing, collaborative network of like-minded professionals.

Gregg Financial Network, LLC is one of the nation’s fastest growing financial services companies comprised of independent and objective member firms throughout the U.S. We leverage the collective strength, experience, skills, knowledge and collaboration to best serve our clients.

Are You A Team Candidate?

A team is a group of people with a high degree of interdependence geared towards the achievement of a common goal. A team has a synergistic effect - one plus one equals a lot more than two!

If this sounds like you, join our network and become a member of a winning team!

Together Everyone Achieves More

Membership Benefits Include: •

Access and collaboration with some of the best and brightest minds in our business

•

Strength in numbers ~ Economies of scale

•

Potential for higher income and equity

•

Group Health Benefits

•

Insurance MGA, RIA, and Broker-Dealer affiliation

•

Shared resources and shared gains

To request your membership kit go to www.greggfinancialnetwork.com or you may contact us at (760) 658-5311 or info@greggfinancialnetwork.com

“While there is great value in Independence, there is even greater value in collective strength, expertise, collaboration and shared experiences.”

– Keith Gregg

1613 So. Escondido Blvd • Escondido, CA 92025 • (760) 658-5311 • www.greggfinancialnetwork.com 19

August 2010

www.transitions-mag.com

END OF SUMMER BOOK SALE Top-Selling Books for 30% Off Cover Price Go to www.ffbookstore.com to order.

Enter Discount Code: SUMMER2010 (case sensitive).

Seven Stages of Money Maturity

by George D. Kinder Hard Cover, 369 Pages Cover Price: $23.95 Discounted Price: $16.76

The Future for Investors

by Jeremy J. Siegel Hard Cover, 319 Pages Cover Price: $27.50 Discounted Price: $19.25

econAmerica: Why the American Econmy is Alive and Well

by Jeff Thredgold Hard Cover, 212 Pages Cover Price: $24.95 Discounted Price: $17.46

Questions Great Financial Advisors Ask

by Alan Parisse & David Richman Hard Cover, 162 Pages Cover Price: $22.00 Discounted Price: $15.40

Explode Production with Sound Business Practices

by Gloria Willis Soft Cover, 102 Pages Cover Price: $16.95 Discounted Price: $11.86

PowerSelling

by George Ludwig Soft Cover, 229 Pages Cover Price: $19.95 Discounted Price: $13.96

Stop the Retirement Rip-Off

by David B. Loeper Soft Cover, 222 Pages Cover Price: $19.95 Discounted Price: $13.96

Practice Power

by Joe Lukacs Soft Cover, 198 Pages Cover Price: $22.95 Discounted Price: $16.06

Transitions Magazine

Beyond Reproach Ethics, Integrity and Trust

by David B. Loeper, CIMA®. CIMC®

Let’s look at how that is working out. The table below shows the price only return (excludes dividends and interest) from the April 23, 2010 market high through yesterday’s market close for a variety of ETFs and funds that represent these supposed diversifiers. [See Chart #1 on page 22] Hmmm, funny that the only things you could add to your portfolio to materially dampen the recent market’s decline was 7-10 Year Treasuries. Or gold...but gold doesn’t pay any interest, costs you money just to hold it and has a 200 year real return of 0% according to Jeremy Siegel in his book Stocks for the Long Run. Last fall when I took over the management of a $25 million portfolio for a non-profit, they were very concerned about our 50% allocation to IEF, the 7-10 Year Treasury ETF. After all, “everyone knew” that interest rates were going to rise (the 10 year treasury was yielding around 3.5% at the time). Indeed, when the market rallied earlier this year, the 10 Year yield rose to almost 4%. That hurt Treasuries but stocks were rallying. But, despite “everyone knowing” interest rates going to rise, here we sit today with the 10 Year yielding 2.97%, and its appreciation buffering about half of the market’s decline. Not a bad diversifier for the 15 basis points it costs. The committee got more comfortable with owning Treasuries of this maturity when I showed them the worst twelve month return for them going back to 1926 was a decline of less than 10%. Contrast this to the other diversifiers. www.transitions-mag.com

August 2010

sEthics,

D

omestic equities closed down 14.5% on June 29, 2010 from their April 23rd high. That’s a significant decline. Of course, advisors tout sophisticated (and very expensive) asset allocation and diversification strategies, supposedly to protect their clients. So, with this recent decline, all of these supposed diversifiers like foreign and emerging market stocks, real estate, corporate and high yield bonds (junk), foreign bonds, inflation protected bonds, commodities, etc. should all be protecting portfolios, correct?

Integrity and Trust s

Fake Diversification: Does Asset Allocation Work?

21

Transitions Magazine

Ethics, Integrity and Trust

Chart #1 PRICE RETURN (excludes dividends and interest) 4/23/10 6/29/10 IShares Barclays 7-10 Year Treasuries (IEF) Vanguard Total Domestic Equity (VTI) Vanguard World Equity Ex-US (VEU)

7.26% -14.52% -14.28%

IShares Treasury Inflation Protected ETF (TIP)

2.97%

IShares iBoxx $ Investment Grade Corp. Bond Index Fund (LQD)

2.49%

IShares iBoxx High Yield Corp. Bond Index Fund (HYG)

-3.65%

IShares S&P/Citigroup Int’l Treasury Bond Index Fund (IGOV) VALIC Company I Intl Govt Bond (VCIFX)

-3.30% 0.00%

IShares JP Morgan USD Emerging Mkt. Bond Index Fund (EMB) IShares MSCI EAFE Index Fund (EFA)

-0.02% -17.06%

IShares MSCI Emerging Markets Index Fund (EEM)

-12.75%

IShares Dow Jones U.S. Real Estate Index Fund (IYR)

-10.41%

IShares FTSE EPRA/REIT Developed Real Estate ex U.S. (IFGL)

-12.90%

IShares S&P GSCI Commodity-Indexed Trust (GSG) IShares COMEX Gold Trust (IAU)

-13.34% 7.24%

YOU WOULD THINK PEOPLE WOULD LEARN What about the really devastating markets of 2008? The differences were even more extreme. (IGOV wasn’t available in 2008 which is why I included the Valic International Government Fund.) [See Chart #2 on page 23] Unlike the recent decline where some of the expensive “diversifiers” actually did help a tiny bit, most of them made the performance even worse... the exact opposite of what they were supposed to do. Yet, those inexpensive Treasuries protected capital as they should, even tripling the return of gold.

Here’s the scam. The basic asset allocation theory that caught on was based on some long term data and showed the value of blending stocks, bonds and cash. In fact, the Brinson, Hood and Beebower study a lot of advisors 22

August 2010

www.transitions-mag.com

Transitions Magazine

Ethics, Integrity and Trust Chart #2 PRICE RETURN (excludes dividends/interest) Price Return (excludes dividends/interest)

IShares Barclays 7-10 Year Treasuries Vanguard Total Domestic Equity (VTI) Vanguard World Equity Ex-US (VEU) IShares Treasury Inflation Protected ETF IShares iBoxx $ Investment Grade Corp. Bond Index Fund IShares iBoxx High Yield Corp. Bond Index Fund (HYG) IShares S&P/Citigroup Int’l Treasury Bond Index Fund VALIC Company I Intl Govt Bond (VCIFX) IShares JP Morgan USD Emerging Mkt. Bond Index IShares MSCI EAFE Index Fund (EFA) IShares MSCI Emerging Markets Index IShares Dow Jones U.S. Real Estate Index Fund (IYR) IShares FTSE EPRA/REIT Developed Real Estate ex U.S. IShares S&P GSCI Commodity-Indexed IShares COMEX Gold Trust (IAU)

2008 15.99% -36.99% -43.43% -2.05% 0.11% -17.56% N/A N/A -0.55% -4.30% -42.13% -49.47% -40.54% -52.10% -45.75% 5.22%

chant about demonstrated that 90% or more of the variance in returns among large pension plans was explained merely by their allocation to stocks, bonds and cash. Therefore, less than 10% is explained by all these expensive sub-classes. But advisors can charge more if their pie charts look more complicated touting the supposed value of “non-correlating assets” that tend to correlate a lot when you need them not to the most.

So, advisors have a conflict of interest in this game by making things far more complicated than needed to justify higher fees. And, their friends that manage the expensive products they use to fill all these pie slices have a conflict of interest because they get to charge a lot more in management fees. Even low fee Vanguard charges more than three times the management fee for their World Equity Ex-US ETF (VEU, 25 basis points) versus their Total Domestic Equity ETF (VTI, 7 basis points). Or, check out the HUGE weighting semi-passive fund company DFA suggests to their expensive real estate and foreign funds where they earn double the fees (or more) of other funds they manage. The product vendors and research departments fool advisors to get more product fees and advisors often un-wittingly end up fooling their clients.

To achieve diversification, you don’t need to spend a lot of money. I’m in no way implying that I know where markets are going. They ARE ALWAYS uncertain and if anyone tells you otherwise he is either lying to you, lying to himself, and in reality it is probably both. I’m also not even remotely inferring that past performance is indicative of future results. If the economy gets stronger, it is likely that interest rates will rise and bonds will be hurt, but odds are stocks would take that as pretty good news.

You need diversification to protect your portfolio from market shocks, recessions and depressions. Treasuries www.transitions-mag.com

August 2010

23

Transitions Magazine

Ethics, Integrity and Trust

tend to do well in such environments like this quarter’s decline, the decline of 2008, the ‘87 Crash and even the Great Depression. I don’t know if they will do it again but when the markets get scared there does seem to be a flight to safety. uuu

David B. Loeper is the CEO of Financeware, Inc. which does business as Wealthcare Capital Management. An SEC Registered Investment Adviser with nearly 25 years experience, Loeper has appeared on CNBC and has been a featured contributor on Bloomberg TV and CNN. Loeper joined Wheat First Securities as vice president of investment consulting in 1988, where he served for 10 years. He was promoted to managing director of investment consulting, and then eventually to managing director of strategic planning for the retail brokerage division. He left his position at Wheat First Securities in 1999 to found Financeware. Active in industry associations throughout his career, Loeper has been a member of the Investment Management Consultants Association (IMCA) for over 20 years, serving on the advisory council for more than 5 years, most recently as chairman. Loeper was also appointed by the governor of Virginia to serve on the Investment Advisory Committee of the nearly $30 billion Virginia Retirement System.

He received his CIMA® designation in 1990 by completing a program offered through Wharton Business School, in conjunction with IMCA. Drawing on years of experience in financial services including serving as a fiduciary for all types of ERISA plans, Loeper has authored numerous whitepapers and books including the top selling book, Stop the 401k Rip-off! as well as The Four Pillars of Retirement Plans, Stop the Retirement Rip-off and Stop the Investing Rip-off

24

August 2010

www.transitions-mag.com

Transitions Magazine

ADVISORS:

Increase the Value of Your Practice

By Scott Winters and William R. Nelson, Ph.D.

Your clients depend on you and, as such, you want to maximize the attachment clients have to you personally and the services you provide while minimizing the extent to which these services require of you for their operational provision. A defining characteristic of an advisory practice is whether the advisor manages and administers clients’ accounts in house or offloads this burden to a specialized firm. The implications of each are discussed below.

Practice Management s

Y

ou rely on your practice and home for food, clothing, shelter and many of your family’s additional desires. If you suddenly pass away or need to retire, the house will still be there, but will your practice still be? You are a key component to your practice meaning that if you stop working the practice loses much of its profitability. In addition, because the value of your practice is tied almost exclusively to your efforts alone, the price at which you can sell your practice is limited. In other words, without you, there is not much intrinsic value in your practice. So, how can you make yourself less critical to the practice thereby increasing its potential sale value and increasing your family’s security and your retirement lifestyle? You want clients to depend on you but you do not want the operation of business to depend on you.

In-House Money Management and Outsourced Money Management: A Comparison 1. In-house money management: In this type of practice, the relationship with the client is developed and maintained directly by the advisor and is solidified by the implementation of a financial plan. The minutiae of investment decisions and administration of accounts are also performed by the advisor and his assistants. The benefits of this approach include maximizing the extent to which the client depends on the advisor because the advisor is providing emotional support, financial planning, investment managewww.transitions-mag.com

August 2010

25

Transitions Magazine

Practice Management

ment, and account administration.

2. Outsourced money management: In this type of practice, as in type 1, the relationship with the client is developed and maintained directly by the advisor and is solidified by the implementation of a financial plan. But, the minutiae of investment decisions and account administration are offloaded to a thirdparty provider. The most comon objection to this approach is, "What does the client need me for?"

Answer: Plenty! In this scenario, you still provide financial planning and, more importantly, emotional support. By offloading asset management you will have more time to invest directly in relationships providing for deeper connections with clients. From your clients’ perspective, you are still in charge of their finances, because you are choosing the asset management solution, the asset allocation, and the money managers within the asset allocation. But, by offloading much of the operational work, you do not have to exert time and effort into portfolio management, monitoring, and re-balancing, let alone account transfers and distributions. Instead, these details have been offloaded to firms with economies of scale in research and specialized systems facilitating efficient due diligence and account administration, often including billing and reporting. (The more comprehensive solutions offer a broad range of support from marketing materials to book conversion services.)

Benefits of Outsourced Money Management The benefits of outsourced money management are significant. Primarily, you will have more time for deepening existing relationships and building new ones to expand your business. In addition, when you eventually explain to clients that life circumstances are making you leave the business, more clients will accept their new advisor. Because you have consistently shown 26

how much you care for them, clients will believe that you are leaving them in good hands. The transition of clients is further simplified because the successor can continue the same money management methods you were using by employing the same provider. The primary benefit of this continuity is greater client retention because they are facing no change in investments and only have to sign a one-page form indicating a change of financial advisor. The sale value of your practice increases because it depends not on the amount of money you manage but on the amount of money you can transition to your successor.

Secondarily, the time required to transition the practice to your successor is reduced if there is no change in investments and only a one-page form for clients to sign. The value of the practice to your successor is the expected value of profits minus the cost of integrating the new clients into the buyer’s operations. The easier you make this integration, the more you get when selling your practice. In summary, outsourcing money management and account administration saves you time and increases the value of your practice. It sounds too good to be true, but, in reality, you increase the value of your practice by doing less.

Common Objections to Outsourcing Money Management Advisors’ other common objections to outsourcing money management and administration are returns for and costs to the investor. The worry regarding returns is often based on the assumption that the advisor will earn higher returns by managing money directly rather than allowing others to do it for him. Thinking that one can beat the indexes while running a business and managing client relationships is ambitious and rarely an obtainable feat. The fact is, even the big Wall Street firms often underperform the indexes. Keeping your clients does not depend on a percentage point here or there. Investors value advisors they trust. Returns must be sufficient to

August 2010

www.transitions-mag.com

Transitions Magazine

Practice Management meet the investors’ goals but beating the index is not the measure of an advisor’s success.

There is a reason that advisors are called “advisors” rather than “portfolio managers.” These are different jobs for which success is measured differently: advisors are evaluated based on client satisfaction whereas portfolio managers are measured based on returns. Returns are only one component of investor satisfaction. In addition, the largest determinants of returns is the percentage of assets invested in stock versus fixed income and timing.

Whether investors detrimentally bail out of stocks during panics, only to buy back in near the top or whether they stay invested through the inevitable cyclical market downturns is a matter of emotional control and advisory guidance, not portfolio management, so the advisor still has the greatest influence over the most important decision of investors.

significant amount of time and money into software development, money manager due diligence, and account administration. It is certainly more expensive for an individual advisor to replicate the value adds of an outsourced solution than to use an outsourced solution, because the outsourced solution has many advisors over which can be spread the costs of technology development and money manager due diligence. Some advisors think they can do better by directly purchasing mutual funds for investors, but the expense ratio of many mutual funds is higher than the cost of a full-blown solution that has the power to directly negotiate rates with money mangers. Advisors can get professional money management, software, and support allowing more time to be spent building relationships with clients for less than the cost of a typical actively managed mutual fund.

Another legitimate concern of advisors is, “If I outsource The cost to investors of outmoney management, will that sourcing money management Advisors should use the best firm steal my client?” To this is a legitimate concern. Exsolution they can find for their concern I can only speak deploitative, expensive solutions finitively for my own firm, Eqis clients which, in this case, are prevalent, but whether Capital Management, Inc. To some solutions are overpriced should be a reasonably-priced, begin with, we do not accept acis not the issue. Advisors prudent outsourced asset counts directly from investors. should use the best solution We develop software, manage management program. they can find for their clients money, and support advisors. which, in this case, should The implications for “stealbe a reasonably-priced, pruing clients” would quickly indent outsourced asset management program. The benefits of outsourced money management to advisors and sure the demise of any third-party service. Instead, their clients are significant, but of course advisors can we concentrate on developing intellectual property choose cheaper solutions such as managing individual and relationships with advisors. In addition, taking ETF portfolios for clients at a custodian of your choice. EVEN ONE account from an advisor would destroy However, “cheaper” solutions do not provide attentive the trust we have worked very hard to establish. service, sophisticated investment proposals, multiple active managers per portfolio, and any number of other value-added services.

Outsourced money management solutions invest a www.transitions-mag.com

A common concern with outsourcing is that it all sounds good but making the transition looks like a ton of work.

Proficient asset management outsourcing firms have book conversion automation processes in place that support advisors during the transition of assets by sending

August 2010

27

Transitions Magazine

Practice Management

letters, producing investment proposals, emailing/snail mailing paperwork to your clients, follow-up to get signatures, etc. You are freed from the administrative work so you can concentrate on solidifying relationships. Eqis, for example, can complete a 400-client book conversion in weeks for a cooperative advisor.

The bottom line is that advisors make money by building trusting relationships with investors. And, building trusting relationships involves investing the time to know each investor’s goals, convincing the investor that you understand his/her goals, assuring the investor that you are working in his/her best interest to accomplish those goals, and demonstrating on a consistent basis that you are making progress toward those goals.

Investors care about the confidence they have in reaching their objectives, a far more personal endeavor than beating an index. So organize your life and practice in a way that frees your time to build relationships by offloading everything else to others who have built the technology and performed the research necessary to help you guide investors toward their goals. You can increase the value and flexibility of your practice, thereby ensuring you and your family’s comfort in the case you are no longer able to work as hard as you have while building your practice. Maximize your focus and effectiveness by outsourcing money management and account administration.

Markets, among many others. Eqis Capital provides a turnkey asset management platform that delivers enhanced power, flexibility and efficiency. Based in San Rafael, California, the company enables Registered Independent Advisors (RIAs) and Registered Representatives (RRs) Dr. William R. Nelson to engineer portfolios that combine diversification, sophistication and world-class insight. Eqis provides pioneering technology with a global reach. For more information, visit them at www.eqiscapital.com

uuu Scott Winters is National Sales Director of Eqis Institutional, and Dr. William R. Nelson is the Chief Financial Strategist of Eqis Capital. Dr. Nelson’s acclaimed original research has been published in the American Economic Review, The International Scott Winters Conference on Information Technology ITCC 2004 Proceedings, the Journal of Economic Behavior and Organization, Latin American Finance and Capital 28

August 2010

www.transitions-mag.com

Transitions Magazine

A Conversation with .., Mark Schlafly President and CEO

FSC Securities Corporation Recently, I had the pleasure of speaking with Mark Schlafly, President and CEO of FSC Securities Corporation, about his thoughts on the challenges wirehouse advisors face during the transition process, and his advice for other independent advisors looking to make a move. Mark explained more about his firm’s new technology and their philosophy and shared his perspective on a few of the important issues of the day. Following is our conversation.

Mark Schlafly

I hope you enjoy it as much as I did.

LeBlanc: Mark, it’s been my experience when talking with advisors who want to make a move, that many of them simply don’t know where to start. Could you give our readers, many of whom are wirehouse advisors, your perspective on making the transition? Then, for those who are already independent, but are looking for another B/D, what they should consider before switching?

Schlafly: Well, it always comes down to the relationship, of course. And every firm has its own personality. There are different fits for different advisors, so if an advisor with a wirehouse wants to make a move to the independent channel, he or she will want to be with a firm that will still be in business 50 years from today. We’ve been in business for more than 50 years. Not many independent broker dealers can say that.

It is also important to join a firm that has a lot of excess capital because it will have the financial wherewithal and the firepower to stay around. It’s truly amazing to hear about the number of smaller B/Ds that have shut down recently. I would always emphasize the staying power of the firm an advisor is looking at affiliating with. www.transitions-mag.com

August 2010

In the Spotlight

By Sydney LeBlanc

29

Transitions Magazine

In the Spotlight

I would also advise that the prospective firm should be very competitive on the technology front. A wirehouse advisor is used to good, solid technology and their impression is if they go independent, they will lose the use of a lot of technology. That may have been true a decade ago, but today that is not true. For example, the technology we offer, which is web-based, is phenomenal and stands up very nicely against wirehouse technology. That’s a major change in the independent broker dealer industry and one that we need to get the word out on. It’s important for advisors to know that our independent broker-dealer offers cutting-edge technology that simplifies their life and lets them focus on their work with clients.

Of course, a firm must be competitive on their product payouts and product offerings and we’re definitely near the top on both of those issues.

LeBlanc: What about the brand? Is this important to a transitioning advisor?

Schlafly: The wirehouse advisors who have joined us were very interested in their brand, not our brand. A lot of them are saying they don’t want to be with a major, they want their own name on the door. Let me say that it is more important for us to promote our advisors— “partners”—than to simply promote FSC. Their clients are not buying FSC, they are buying their own advisor and his or her brand. Our ad budget is relatively small compared to our competitors. Instead, we put our money in the branding of the advisor or to help them recruit.

We’ll share recruiting dollars with our recruiting OSJs to help them build their business.

LeBlanc: What kind of transition support do you offer wirehouse advisors?

Schlafly: We have several levels of help. If an advisor or team has more than a million dollars in production, we typically go to the branch and help them. If they’re doing more than $350,000, we’ll work with them and their staff on an assignment basis. We have online tools to help , but we will assign a home office person to them 30

as well. They can always call that same person and not feel like they’re starting over each and every time if they have a few new questions — their contact knows them, their practice and is always willing and able to help.

So we have what I call the “people” side and the “financial side.” We help the new advisor set up their office and provide a stipend or a “forgivable note” if their numbers are up (and we are reasonable on the requirements for that). Many times we find that the wirehouse advisor really doesn’t want to set up their own office — finding office space, buying a copy machine or a postage meter, those sorts of basic things. So, some wirehouse advisors may want to join one of our existing OSJs. That way they don’t have to deal with the overhead, and their payout goes from 50% to 75-80% depending upon their level of production. It’s usually a huge jump in payout for them and then they realize that they have all the support they need. It’s an ideal situation, and we’re happy we can offer many different options for affiliation. If they want to start their own branch, their own OSJ, they certainly are welcome to do that. I would say the majority will join an existing one, learn what it entails, how to do it and either after the year is up, they will say, for the small difference in payouts, “I’m going to stay right here and keep doing what I’m doing” or they might say, “I know what it takes to have my own branch,” and set up their own. Either way is fine. We can provide all the support an advisor needs, regardless of their set up.

Also, I would add that since we work with Pershing — we are their largest client — many of our advisors find it an easy transition since they don’t have to learn a whole new system. It’s something many are already comfortable with and they seem to really trust Pershing, too. Pershing does a great job for us. We’re really pleased with that.

LeBlanc: What would be your advice for those who are already independent, then?

Schlafly: When an independent advisor makes a move to another independent, well, the longevity issue applies.

August 2010

www.transitions-mag.com

In the Spotlight

Transitions Magazine

In the Spotlight Also, it’s very important to have a great research staff on products because if advisors get into the wrong product set, it can really damage their businesses. We’ll do the research and review the products and after that, we may not approve a product that an advisor really wants. But, let me tell you, there is no better feeling in the world, than to have an advisor call you later to say, “You know what? Remember when I wanted you to do X and you didn’t? Thank you.” That is a great feeling. It is important to have a group that has the skill to review products, a product review committee that has a real process in place for the independent B/D. We want to offer diverse, strong products to advisors and to clients, but we also want to protect them as best we can.

LeBlanc: Tell us more about having scale in order to remain competitive.

Schlafly: When I talk about scale, I mean having the ability to spend several million dollars a year on technology, for example. An independent B/D must have it.

Also having the ability to spend several million dollars a year on training is important. We do numerous training programs around the country, and I’m talking about everything from our national meetings to our top producer meeting, to our regional meetings where we bring portfolio managers in from the biggest asset firms in the world. We really give advisors some great training so they can bring value to their clients.

provide this material to their clients is really a wonderful tool for them. Another example of support is our new Advisor Portal . We want to make our advisors’ lives simple and let me tell you what I mean by that. Right now we give our advisors one sign-on, one password.

Previously, advisors had to go to different places on the site, have different passwords, and piece materials together — so it wasn’t exactly entirely efficient. Now, it’s a single sign-on website for home office information, client information, alerts, and personalized news. This is something they’re very excited about. We rolled it out earlier this year and we’ve had really nice feedback.

Importantly, we had advice from our advisors before we rolled it out. They were actually part of the process; we didn’t build it and roll it out and say, “Here you go.”

Believe me, they fine-tuned it every step of the way. It was a fascinating process. Let’s face it, advisors come at technology from a different angle. They are our “clients” so it is great to build all these wonderful tools, but if they aren’t going to use them, the tools are worthless.

The help from our advisor steering committee and pilot group resulted in an advisor-friendly end product.

LeBlanc: When you mention investing in the advisor’s business, I’m assuming that would include marketing support, transition help if they need it, business planning help, coaching and mentoring?

Advisors can customize the Advisor Portal as well. You know how everyone runs their business a little differently, so our web portal was designed with that in mind.

The alerts and notifications one advisor decides to receive may be totally different from the next advisor’s. It is so flexible. Advisors don’t get inundated with material that doesn’t really apply to their business. We felt it was very important for them to not only customize what they see, but also to change it as their business changes.

Schlafly: It would be all of that and more. For example, we just rolled out the Forefield Advisor marketing library whose marketing materials are all complianceapproved and FINRA-reviewed. There are more than 3,000 customizable marketing pieces on the website that we’ve put up for advisors to pick and choose from as they see fit. To be able to go in there, download, and

Schlafly: We know from a demographic point of view we’re in a sweet spot to help advisors today. The challenge of our business, though, is there are fewer and fewer advisors being brought up and trained in the busi-

www.transitions-mag.com

LeBlanc What a relief for them, as well as being a beautiful time management solution. How else can you make their lives easier?

August 2010

31

Transitions Magazine

In the Spotlight

ness today. A lot of the firms that had training programs no longer do. I believe there is going to be a shortage of advisors and there will be a premium on getting what I would call that “top-tier advisor.” That is going to be a challenge in the next five to 10 years. We’re trying to make their lives easier and help them, grow their businesses. Anything we can automate or streamline for them so they can spend more time in front of their clients, instead of in front of their computer, is a priority for us.

LeBlanc: Tell us more about the more personal side of FSC. Schlafly: I don’t want to sound like a broken record, but it is all about the relationship we have with our partners.

For example, we had a wonderful top producer meeting last week where I had the chance to spend time with our top 100 business owners. Another example would be our Women’s Conference—we’ve been doing them for five years and we had more than 150 female advisors in attendance at our 2010 meeting. The Women’s Conference is special — our female advisors get the unique opportunity to network with each other, mentor one another and build very personal relationships they might not have the opportunity to forge at our larger educational conferences. We also have what we call our Advisor Business Academy. We just had our event in New York, and in October we will have our National Education and Business Conference with all of our advisors in Orlando. We want our advisors to be the most successful business owners in order to really compete in the marketplace, and continuing education and training are keys to success.

LeBlanc: I’ve heard that your best recruiters are your own advisors? True?

Schlafly: Our recruiters do a great job, but nothing is as powerful as an advisor hearing great things about a firm from a peer. That’s a big deal. And we are proud to have huge fans of our firm who already work with us!

LeBlanc: What do you tell advisors who feel trapped at another firm?

32

Schlafly: I can understand why an advisor would feel trapped — an advisor is an extremely busy business owner. He or she has a book of clients to attend to, back office work that needs to be handled, oftentimes a number of staff they need to manage. Moving to another broker-dealer, no matter how badly an advisor might want to make the switch, can be daunting. But let me say this: don’t feel trapped. At FSC, at least, we do everything we can to make the transition process as smooth and easy as possible. The vast majority of our forms are now online, so advisors can complete the necessary paperwork to transition over to us at their leisure. And our home office staff is here to answer questions, to provide support and to make the transition painless for advisors, their staff and their clients. And there’s always the option to join an existing OSJ, making the switch even easier. You shouldn’t feel trapped. You should feel valued, cared for and excited to be partnered with your broker-dealer.

LeBlanc: What are your thoughts on consolidation in our industry and how will it affect advisors?

Schlafly: I do believe we are going to see more consolidation in the independent broker-dealer world. The wirehouse world is fairly mature and there is a key set of players that dominate that marketplace. The independent broker-dealer world is still pretty open. I think we will see more firms being purchased, merged into other firms and so forth. An advisor wants to be with a firm that will remain standing. So, looking at an independent B/D, scale, sound technology, ability to invest in the advisor’s business, and of course, the financial wherewithal to weather any storm that may come their way are key components to consider for affiliation.

LeBlanc: Do you have any closing thoughts, Mark, or additional comments for our readers?

Schlafly: Let me just say that I absolutely love this business: the independent broker dealer model and the independent financial advisor. I truly believe that advisors provide an incredible service to people. It may sound

August 2010

www.transitions-mag.com

Transitions Magazine

In the Spotlight strange, but I know advisors understand what I’m talking about. Financial advisors help people manage their wealth, they help people carve out and achieve their retirement goals, they help people care for their families and loved ones. I understand that. I value that. And I am so happy to be at a firm that shares my philosophy about the importance of the independent financial advisor.

LeBlanc: Thank you for, Mark, for sharing your thoughts and insight with our readers. It’s been delightful speaking with you. uuu

Mark Schlafly joined Advisor Group from LPL Financial where he was Senior Vice President of Brokerage Products and Services. In this position he was responsible for business development, planning and coordination of sponsor relationships. Prior to that, Schlafly was Vice President and Manager of Managed Products at A.G. Edwards. Magazine He was responsible for overseeing the firm’s mutual fund sales and marketing, including the mutual fund exchange-traded funds and defined portfolios’ sales desk. Schlafly received his B.S.

www.transitions-mag.com

in Finance from St. Louis University and is a graduate of the Securities Institute from the Wharton Business School at the University of Pennsylvania. He has his life insurance and Series 7 licenses and is a Certified Financial Planner.

About FSC Securities Corporation An eight-time Broker-Dealer of the Year winner, FSC Securities Corporation has assembled a vast platform of resources, supported by an extraordinary home office team that brings 50 years of experience to serving their financial advisors.

FSC shares the entrepreneurial spirit of independent financial advisors with a culture focused on home office/advisor collaboration to deliver solutions for their individual needs as both financial planners and business owners.

Advisor Group, Inc. is one of the largest independent brokerdealer networks in the United States and consists of FSC Securities Corporation, SagePoint Financial, Inc. and Royal Alliance. These independent broker-dealers, with more than 5,300 independent financial professionals, are all whollyowned subsidiaries of Advisor Group, Inc. For more information, please view their featured video at http://joinfsc.com/ or call 800-372-5646.

August 2010

33

Transitions Magazine

Book Review

BOOK TITLE: A Complete Library of Essential Financial Concepts COMPILED BY: Cannon Financial Institute DESCRIPTION: 1064 pages plus an extensive index COVER PRICE: $55

SPECIAL 20% DISCOUNTED PRICE: $44 To order the book and to receive a 20% discount, go to www.ffbookstore.com and enter CF5544CF (case sensitive) in the Discount Code box.

Offer expires September 15, 2010.

Book Review

About the Book: A Complete Library of Essential Financial Concepts contains more than 1,000 pages of essential concepts and strategies used daily by financial professionals serving wealthy clients. What's more, the information in this book meets current FINRA compliance guidelines so professionals are able to use the diagrams contained within the pages when explaining difficult financial concepts to clients and prospects.

Topics covered include: • Financial Planning Issues • Social Security and Other Government Programs • Cash Flow and Debt • Health, Disability and Long-Term Care • Accumulation and Investments • Current Income Tax • Property and Casualty • Life Insurance and Annuities • Employee Benefits • The Retirement Planning Problem • Individual Retirement Accounts (IRAs) • Employer Sponsored Retirement Accounts • Distribution from IRAs and Qualified Plans • Business Planning Generally • Business Uses of Life Insurance • Business Continuation • The Estate Planning Problem • Basic Estate Planning • Life Insurance and Estate Taxation • Advanced Estate Planning • Estate Freezing Techniques • Charitable Alternatives • Planner Support Reports Financial professionals should have a copy of this book on their desk as a reference and educational guide for themselves and their clients.

34

August 2010

www.transitions-mag.com

Transitions Magazine

Resource Directory

Click on ads for more information and to visit websites.

Associations

REISA currently has over 700 members from across the country in various real estate professions including attorneys, CPAs, broker-dealers, sponsors, lenders, mortgage brokers, qualified intermediaries, real estate agents, registered investment advisors and registered representatives.

Consulting/Coaching/Placement

www.transitions-mag.com

August 2010

35

Transitions Magazine

Resource Directory Money Management

Database - RIAs

Education

Resource Directory s

PR/Marketing Services

36

Financial Forum Inc. Book Publishing for Financial Professionals For more information: info@ffpublish.com tel: 435.750.0062 x1

Technology

Independent Broker Dealers

August 2010

www.transitions-mag.com

Transitions Magazine

A Touch of Humor s

Sitting Pretty!

Grin and Bear It!

Something got your funny bone? Submit your jokes and cartoons to info@transitions-mag.com. Entries selected for "Grin & Bear It!" will receive a $10 gift card. www.transitions-mag.com

August 2010

37