Sept 12 (Reuters) - The U.S. organization that first raised questions about how financial advisers should be paid and regulated is shifting its priorities at a time when those issues are reaching a new level of national prominence.
Linda Leitz, the newly installed chairwoman of the National Association of Personal Financial Advisors said her organization would focus more on continuing education for its 2,400 mostly fee-only existing members and boost its outreach to advisers who want to join.
NAPFA was launched in 1983 as an advocate of fee-only, commission fee financial planning - a novel concept at the time. Now it is placing a greater focus on its membership at a time when other organizations for financial professionals are promoting similar messages. The proliferation of groups gives financial advisers more choices to turn to for continuing education, networking and advocacy in Washington.
NAPFA’s enhancements to its offerings are not aimed at competing with those groups, but rather “trying to raise the bar” for the profession, Leitz said.
“Some of our focus may seem more inward, but it doesn’t mean we are ignoring what’s going on in the regulatory environment,” she said. Leitz stressed that the organization would continue to support federal efforts to regulate the financial advice industry.
The practice of charging clients flat fees instead of commissions for advice, she says, eliminates a conflict of interest prevalent among commission-based advisers: the temptation to steer clients to a financial product that may not be in their best interest but is rewarding to the adviser.
Oversight of investment advisers has been the subject of a long-running discussion in Washington. Registered investment advisers are regulated by the U.S. Securities and Exchange Commission or states and act as fiduciaries, or in clients’ best interests. Securities brokers are regulated by Wall Street’s self-watchdog, the Financial Industry Regulatory Authority, and must sell investments that are “suitable” - not best - based on factors such as a client’s age and risk tolerance.
The SEC, for years, has been mulling over a plan to require brokers to act as fiduciaries. The brokerage industry says regulators should level the playing field if such a plan is enacted by more frequently examining investment advisers. SEC examiners visit investment advisers roughly once every 11 years.
Leitz co-owns It’s Not Just Money Inc, a registered investment adviser in Colorado Springs, Colorado, and became national chairwoman of NAPFA on Sept. 1.
She spoke to Reuters on Tuesday. Edited excerpts of the interview follow.
Q: What do you see as the biggest regulatory concern in your term?
A: The biggest regulatory concern is who will monitor investment advisers. We will be compliant and step in line with whomever monitors us, but FINRA won’t be a good fit. It self-regulates broker-dealers. To throw financial planners in with people who are largely in the sales arena is a mismatch of regulation.
Q: FINRA’s chief executive, Richard Ketchum, said earlier this year that the regulator is backing off from its push to oversee investment advisers. Does that ease your concerns?
A: It does to a certain extent, until it becomes a big issue again. We’ve been playing defense on this issue for a while. We’d like to get more on the offense and say: “Here is our role in the financial services industry. Regulate us accordingly.”
We all agree that financial planners need to be properly regulated. They serve a very important role for consumers. The SEC understands financial planning and investment advice. Let’s give them the funds, backing and teeth they need to do more examinations.
Q: You were a securities broker before you became a financial planner in 1997. Why the change?
A: I started out in banking, where if you’re going to lend people money, you find out a whole lot about them and their business. When I became a broker, people would come in and say they wanted to invest money on a monthly basis. I would ask a few questions about their financial life and often send them away to work on things like paying down debt or building up their savings first. You really can’t make a living if you’re working on commission and sending people away from buying things from you.
Q: How is your business different now?
We charge flat retainer fees. Most of our clients are full-service. We do everything from look at their investments, help fund them for retirement, advise them about new mortgages, and tax and estate planning. Flat fees run between $2,500 and $25,000 a year.
Q: What financial products concern you now?
A: I don’t know that I have a specific financial product that I would warn people off of. But in general, consumers are well served to be aware of fees that are involved any time an adviser says, “Don’t worry, it’s all rolled in.” Just ask for disclosure about the fees rolled into the investment and what they cost in dollars.
Investors also need an explanation of why the product is suitable for them. If they’re not in a high tax bracket, do they need to pay those extra fees to have an annuity instead of just putting money into mutual funds?
Q: Comprehensive financial planning has always been at the core of NAPFA’s mission. Now many of your members are registered investment advisers who can be more focused on investment management instead of the client’s entire financial picture. Does this marginalize NAPFA in any way?
A: No, some of what is involved here is the practice model. Flat-fee retainers work for me and my business partner. I also respect people who charge annually - based on a percentage of their clients’ assets under management. It doesn’t mean they’re only looking at investments. It just means that it’s the pricing model that makes the most sense for their clients.