The Five Best and Five Worst Moves in Financial Planning in 2010
BEST MOVE #1: The SEC Shifts Smaller Shops to State Regulation
Amid debates about whether independent advisors should come under regulation by the Financial Industry Regulatory Authority, this decision makes a lot of sense. If the SEC can focus on supervising a much smaller number of firms with bigger assets, it boosts the argument for keeping RIAs under SEC supervision.
BEST MOVE #2: LPLs IPO
After raising $445 million in its November IPO, LPL Financial became a more transparent company. The move also shored up the resurgence of the IPO market for 2010, and established a model for future similar deals.
BEST MOVE #3: Embracing Social Media
Advisors embraced social media to inform their clients and form communities. About 53% and 39% of advisors use LinkedIn and Facebook, respectively. They are likely to reach money-minded adults, since a recent study found that the average age of Facebook users is 37.
BEST MOVE #4: Raymond James Elevates Paul Reilly
Raymond James Financial Services formally handed the CEO reigns of the company over to Paul Reilly in May. Although the firm had to confront the same auction-rate securities class-action suit twice it is known for a more sound management style. Reilly will uphold that.
BEST MOVE #5: Congress Strikes Tax Deal
President Obama and Congressional leaders crafted legislation that retains $858 million in tax cuts for wealthy Americans, and extends unemployment benefits. Advisors can also deliver good news: the estate tax was set at 35% for estates $5 million and larger.
WORST MOVE #1: Failing to Act
The Dodd-Frank Wall Street Reform Act failed to require that all financial advisors practice under the fiduciary standard of care. Instead, it kicked the issue back to the SEC to study for six months. Many had hoped for decisive action.
WORST MOVE #2: The Bond Rush
With 10-year Treasuries undershoot 3%, market watchers have started to warn of an overheated market. Eventually, they argue, inflationary forces will threaten the safety investors are seeking.
WORST MOVE #3: Criticizing Modern Portfolio Theory
Too many financial planners criticize modern portfolio theory for using historical inputs, says Deena Katz, chairman and co-founder of Coral Gables, Fla.-based Evensky & Katz. Thats unfair because the man credited with modern portfolio theory, Harry Markowitz, never promoted that tactic.
WORST MOVE #5: Cutting Conference-Related Travel Budgets
Advisory firm principals decided to keep the travel budgets tight, but that is a mistake, said Bob Veres, a regular columnist at Financial Planning and editor/publisher of the Inside Information newsletter. Conferences offer some of the best chances to network, harvest new ideas and take the pulse of where the profession is headed.
The financial planning profession could be considered the more sensible, reserved and certainly nascent corner of the financial services industry, on a whole, but even youngsters need an occasional dose of introspection, especially after an eventful 2010. We took a look back at where the industry went right (and where it didnt), whether it involved wading deeper into social media or missing the mark on CRM systems.