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Mentor RIA Consulting

Allowing you to focus on what you do best

My Blog


Form CRS: Prop or Flop?

Posted on August 22, 2020 at 4:15 PM Comments comments (47)
After all the hype and noise about Form CRS, which was first required to be issued this summer, it appears that the intended audience – investment clients – are generally uninterested in the new disclosures and not engaged in the process of asking questions of their advisers. Research shows that almost no-one who received the new form, among the tens of thousands of clients who did, raised any issue or question with their advisor regarding Form CRS and its use.
Not surprisingly, this logically fits in with the response of clients to required disclosures generally: adding a few new pages with a somewhat different approach to the pile does not engender interest in persons already overwhelmed with information and fine print (much of it irrelevant and/or confusing). It probably provided employment to the rule drafters at the SEC and to a variety of attorneys and compliance persons who were well paid to help firms generate the documents newly required. The actual benefit to those most directly impacted – clients and their advisors – not so much.

Whether you are an advisor or investor, it would be interesting (and helpful) if you would share your thoughts and experiences on this latest venture of the regulators to ostensibly help investors. As an investor, have you asked your advisor(s) any questions based on what Form CRS addresses and suggests you ask? If you are an advisor, have your clients acknowledged and made use of the disclosures in any meaningful way? 

Increasing Regulatory Burdens

Posted on October 30, 2019 at 11:42 AM Comments comments (24)
When we speak of the costs of government, the first topic usually is taxes, fees, and charges that appear in a myriad of forms and circumstances. We often don’t get past this aspect of governmental burdens and that means some other direct costs are not fully exposed or understood. One that is often mentioned but rarely discussed in detail is the cost to us all of regulations.
Examples of how regulations can cost a great deal can easily be found – here’s one I ran into recently. As almost everyone knows, the pervasive use of the internet, the cloud and their extended family has resulted (naturally) in some folks using the technology in nefarious ways. This in turn has raised substantial interest in what is often called cybersecurity and that of course means regulations to ensure that folks are not harmed. In the financial industry, for example, firms are required to implement measures and processes to provide cybersecurity to their customers. That makes sense.
However, it is easy for regulators to get carried away. The example we will note here is the recent release by a national association which identifies no fewer than 89 assessment areas for member firms to examine for purposes of addressing cybersecurity needs. I haven’t had either the time or the heart to plow my way through all of them yet, but I can assure you that simply reading them all, let alone comparing them to the programs a firm may already have in place, takes time which costs money which in turn will be a charge passed on customers who may or may not benefit from this level of detail. It almost seems like the regulators had a contest to see who could come up with the most items with the most minor distinctions or lack of real life application.
A straightforward, plain language regulation covering the topic would make more sense and be understandable and usable by firms and their customers. Given that all the regulation in the world will not guarantee protection for customers makes it even more problematic that firms will be burdened by the excessive detail and overlap. Of course, this does ensure paying jobs for additional regulators and the lawyers. 

Is Best Interest Really Best?

Posted on June 27, 2019 at 11:51 AM Comments comments (0)
Much of the discussion surrounding the best interest rule has referenced the requirement that investment advisers are fiduciaries to their clients while brokers are not held to that fiduciary standard. Regulation Best Interest and the new customer relationship summary are intended to provide investors with a clear description of the duties and obligations of investment advisers, broker-dealers and dually registered persons and firms. Not surprisingly, this new approach is not meeting with universal approval and acclaim. In fact, Congress may take steps to change or remove the SEC’s new rule and this discussion will be moot.
However, returning to the SEC rule, the SEC interestingly has stated that investment advisers are no longer required to describe their duty to clients as fiduciary and must instead disclose that their duty is to serve the best interests of their clients! This obviously is not identical with what most registered investment advisers do – act as fiduciaries – and how they currently describe and market their services to clients. 
So what apparently happens is that the SEC effort to clarify the differences between different roles ends up potentially providing clients with less assurance respecting their investment adviser and no less confusion about how the roles of broker-dealer and investment adviser differ. In addition it instead appears to create confusion and require a great deal of time and energy for investment advisers to once again change all their documentation to meet this new requirement. Not sure how this serves anyone on the investment adviser side of the industry, whether adviser or client.
Not surprisingly, insurance sellers have no fiduciary or best interest obligation.  Maybe that should be a consideration when we are thinking about how to best serve and protect investors.

Why Percentage Fees?

Posted on June 14, 2019 at 9:23 AM Comments comments (0)
In the financial industry, as with many other businesses, how clients pay is constantly under discussion and often changing. In recent years, some advisers have touted their focus on having a fee based business as being superior to other forms of payment, particularly including commissions. Charging a fee based on assets under management is a very common practice and has the benefit of being relatively simple to implement and certainly free of the conflict of interest for advisers who make their money through commissions.
Interestingly, there are a few voices now questioning the percentage fee on the basis of how such a fee does not tie directly to the value of the services provided. Pure investment advice, without any added service, is becoming much less expensive and although percentage fees have come down in terms of the percentage charged, they remain well above the reasonable and actual cost of investment selection alone. This places advisers in the position of supporting their percentage fee on the value of other services they provide, with planning leading the way.
An accepted alternative to the percentage fee is the practice of charging hourly fees, flat fees or retainer fees – an approach akin to what many attorneys choose to employ. This approach ties the adviser’s fees more closely to the services rendered to the client. However, the downside to this approach is that it requires billing the client varying amounts at varying times, depending on the work done. Advisers much prefer the automatic transfer of fees on a periodic basis where fees are listed as a line item on the comprehensive report of account balances and performance. This approach does little to attract clients’ attention unlike an hourly billing statement which would require action on the part of the client to pay.
Bottom line: What is preferred by and arguably best for the adviser is not necessarily what is best for the client and who knows what the regulators will eventually require or oppose.

Considering Schwab’s New Advisory Subscription

Posted on April 24, 2019 at 8:54 AM Comments comments (0)
Schwab recently announced a new offering for investors – a subscription plan which includes both investment management and financial planning. After an initial setup fee of $300, the charge is a fixed $30 monthly. The fee includes “unlimited” access to certified financial planners. When compared to the fee structure used by most investment advisers, this is an offering that could cost investors much, much less than they pay to an adviser who charges a percentage of assets under management.
Much has been said about how this may affect the financial industry and, in particular, investment advisory firms. Investors who are not interested in building a deep relationship with one adviser but wish to have access to services on demand will find this approach attractive. Those who are price conscious will also see a lot to like with the subscription service. However, these are almost certainly the very same clients that serious investment advisers would not be seeking to serve with their businesses. The mass affluent as a group can generate substantial fees for their service providers but the business model used by many investment advisers render these investors unattractive on the basis of fee versus time and effort spent on services.
The consensus among advisers seems to be that to differentiate themselves – and their fees – from the Schwab offering, the best course is to clearly communicate their value to their clients. Certainly, the personal relationship most advisers establish with their clients differs from the availability of a remote planner who may not be the same person each time a client seeks an update or advice.  What do you think – and what might your approach to this be?

Making Your Business Stand Out

Posted on March 7, 2019 at 11:15 AM Comments comments (0)
A common theme in the endless flow of material on the internet and in more traditional print format is the importance of showing potential clients or customers why your business is different and they should choose you as a resource. Many different suggestions are made regarding how you might better market yourself or attract certain types of clients. However, given constant exposure to a variety of businesses and their practices, the most obvious way to stand out is to do what you say you are going to do.
How to annoy your customers is equally obvious – don’t do what you say you are going to do. Thus, a business offering a particular sale failing to honor its offer when you accept the offer by purchasing the required items or a business failing to notify a subscriber of a substantial and seemingly baseless price increase or a business changing your personal information incorrectly and again without notification. In each such case, a customer must contact the business and attempt to straighten things out. Every time this happens, it increases customer dissatisfaction and the chance the customer will move on.
It may just be me, but these types of issues seem to be happening with increasing frequency and are often coupled with other signs of a bad business, including failures to communicate, trying to rush the customer, overcharging for services and the like. So from the standpoint of a business – don’t do these things to your customers. They know when you are not paying attention to them and appear disinterested in their needs and the likely reason they have worked with you. In this day and age, your business absolutely will stand out if you are clear about what you are going to do and actually go ahead and do it. Putting the customer first is not that hard if you want to succeed.

State Specific Fiduciary Rules: How Far May They Go?

Posted on February 14, 2019 at 12:48 PM Comments comments (0)
With the failure of the DOL Fiduciary Rule and the sluggish pace of the SEC Best Interest proposal, many states are looking at taking their own steps towards strengthening the rules for investment professionals so as to provide more protection for consumers of investment advice and related activity. This state action is receiving mixed reviews for a variety of reasons.
Apart from the polar opposites of the rules are not strong enough and the rules are too limiting for investment professionals, there are other important concerns. One of the criticisms which seems appropriate is the likelihood if not certainty that investment professionals working in more than one state will be subjected to different standards and outcomes. This would not only impose additional costs in time and effort in keeping up with the varying requirements, but additional review to ensure that the right standard is being applied in each case. It would also have the rather interesting and possibly unfortunate outcome that consumers would be treated differently depending on their state of residence.
Another important consideration may be the potential for conflict between federal and state law in some cases. For example, the National Securities Markets Improvement Act applies federal pre-emption to state rules affecting SEC registered investment advisers. This means that a state applying a different standard from that the SEC applies with regard to investment advisers may find its legislation unenforceable. Currently, the state of Maryland is in the process of changing rules for a variety of financial professionals, including investment advisers. Though the changes likely will affect state-registered investment advisers it seems that those changes will not apply to SEC-registered advisers. This creates another mismatch and is not a strong selling point for state initiated changes.

Take a Break Yourself

Posted on December 24, 2018 at 4:03 PM Comments comments (0)
It is easy at this time of year to be caught up in all the hustle and bustle of the year end – holidays, implementing end of year financial planning and tax related tasks, meeting numerous demands on your time and energy from all too many directions. And if that is not enough, then there are always the extra pressures from weather, the stock market, dysfunction at every turn.
So this year, consider doing yourself (and your family, business associates, clients and friends) a favor and take a break from some of those pressures. This is not to say that you avoid the essential items of daily life or some of the special aspects of the holidays that are important to you. Instead, it is to remind you to carefully look at how you are defining what is really essential and rein that list into what is both manageable and reasonable.
True balance starts with you and not with what others seemingly want or claim to want from you. Anyone who truly cares about you, your business and your family is going to want the best for you and expect you to take some time for yourself – just as they will for themselves. This approach allows you to better use the time you devote to each of those essential tasks and items and not to spin your wheels or get lost in details that will not be resolved now or important later.
Another powerful result of taking a break is the new energy and added clarity with which you will approach your life after getting a real break from the usual pace of business.  So, let’s take a break!

What's In Your Advisor's Toolkit?

Posted on October 26, 2018 at 2:02 PM Comments comments (0)
The financial industry is broad and deep with respect to the approaches, tools, products and techniques that are available. Some are well tested and known while others are brand squeaky new. It is almost impossible for an advisor to be familiar with and use all of these various items and so it becomes important for you as an investor to understand what your advisor does.
We all know the saying about how to a hammer everything appears to be a nail. In the context of your finances, it is probably a good idea to avoid an advisor who always gives the same advice and recommendations for every client. While consistency in the process is important you would be better served by an advisor who actually tailors the advice to your particular situation and needs. An advisor with no more than just a hammer – such as one who always recommends life insurance and/or annuities for every client – is to be avoided so you don’t miss other useful tools.
At the other end of the spectrum, we find the advisor with a plethora of tools and techniques and every financial gadget known to man. Here, too, we need to be wary since this advisor may not be experienced with the use of many of these tools and may not employ them to your full advantage. It usually is not good to be the first client an advisor has experimented with using a “cutting edge” approach or product.
The sweet spot is often the advisor who has a range of tools and techniques and products and understands how and when they should be applied to a particular client’s situation. This requires that the advisor not only has experience with what is recommended for you but also knows how it applies to your situation. Understanding what is in an advisor’s toolkit will help you to know whether that advisor is one you should consider working with on your plan.

The Importance of Formal Work Place Processes

Posted on September 28, 2018 at 5:17 PM Comments comments (0)
An established work flow and process is critical to the smooth functioning of almost any business and the financial advice business is no exception. All too often, a business gets started and the founders do not take the time to fully work through how the recurring tasks should be planned out to ensure both consistency and thoroughness. When it becomes apparent that one needs to get a solid process in place, it is often too late to get it done easily and without interfering with the necessary day to day tasks.
Some advisers say that this is OK as each of them in the business has their own approach and clients and everyone is happy. But what about the times a client has a need and the specific adviser is unavailable – on vacation, at a conference, ill, etc. – and the available adviser does not know where all the necessary information is located to effectively service that client? If an adviser does not have comprehensive notes regarding the client, the plan, the investments and how all tie together?
When you have a usual process in place, this information is readily available to all (who are allowed and need access) and in a format understandable to all. This makes servicing clients easier, allows for others to step in as needed and also allows for compliance and firm-wide metrics allowing better understanding of the business and how it is working.
The good news is that there are firms and consultants available who can help you develop, memorialize, test and implement firm-wide processes to address the potential problems and their associated risks. It also helps to satisfy some real compliance needs and improves the firm’s results on audit. Without a process – written (whether digital or paper) – a firm’s ability to successfully grow and maintain a high level of service is severely compromised. Do you have that process in place?