2Schwab Soothes Fears of Small Rias 3Sec Fine-Tunes Its Regulation Bi Faq 14Privacy Reg Tweak Helps Advisers 18Finra Takes Aim A

SCHWAB SOOTHES SEC FINE-TUNES ITS PRIVACY REG TWEAK FINRA TAKES AIM AT 2 FEARS OF SMALL RIAS 3 REGULATION BI FAQ 14 HELPS ADVISERS 18 UNPAID ARB AWARDS

FEBRUARY 17-21, 2020

THE TRUSTED RESOURCE FOR FINANCIAL ADVISERS INVESTMENTNEWS.COM $5.00 / $89 YEAR

GREENWASHING PAINTS AN ECO-FRIENDLY FACE ON FUNDS OF DUBIOUS ENVIRONMENTAL BENEFIT PAGE 9

3 On Advice Numbers Game Fiduciary Corner 6 Editorial Experience is key in Who benefits from adviser M&A deals. the SECURE Act? INSIDE 14 On Retirement Page 12 Page 16

FEB. 17-21, 2020 Cover illustration: Brian Stauffer

EDITOR’S NOTE SEC calls out Introducing: By the ‘egregious’ acts Numbers of barred exec ’d like to draw your attention to our newest video BY BRUCE KELLY Ifeature – By the Numbers – which we launched earlier KIMBERLY Springsteen-Abbott, a se- this year. It’s a weekly fea- Schwab nior brokerage and private placement ture, hosted by yours truly, executive barred from the securities that provides a concise industry in 2015 by the Financial In- report on relevant items in dustry Regulatory Authority Inc., the news. pledges to displayed wide-ranging misconduct The goal of the series is involving tens of thousands of dollars to offer a short take (less of expenses charged to private place- than two minutes) on a ment funds, and Finra’s banning of current data play nice with her from the industry was in line with point. Thus industry standards, according to a re- far, I‘ve ad- view of her case released Feb. 7 by dressed what the Securities and Exchange Com- lays ahead smaller RIAs mission. for ETFs in Finra also ordered Ms. Spring- 2020, dived BY JEFF BENJAMIN steen-Abbott to pay almost $209,000 in into what the disgorgement and a fine of $100,000. SECURE Act AS CHARLES SCHWAB CORP. tries to GEORGE B. means for shed a reputation for focusing more on MORIARTY annuities, and, the big guys than the little guy, ahead of “SPRINGSTEEN in the latest video, I get into its $26 billion acquisition of TD Ameri- -ABBOTT’S ... ASSO- ESG investing (which you trade Holding Corp., the company has can read more about in Jeff published a five-point pledge to the inde- CIATION WITH Benjamin’s excellent cover pendent adviser community. story on page 8). Although bigger is usually seen as the RIA custody market under one roof FINRA WOULD This week’s video looks better, Schwab is boasting that more has been seen as a threat to the smaller at alternative assets, and we than half the advisory firms it serves RIAs on the TD platform, but not always POSE A RISK.” have something on non- have less than $100 million under man- seen as welcome at Schwab. SEC CASE REVIEW transparent ETFs coming agement. In addition to underscoring its com- soon. The pledge, which begins by stat- mitment to working with smaller RIAs, Ms. Springsteen-Abbott is the Please check out the ing that the custodian has no asset the Schwab pledge emphasized “best- CEO and chair of Commonwealth videos at investmentnews. minimums, no custody in-class technology Capital Corp., according to the com- com/playlist/by-the- fees and “no intention and open architecture,” pany website. She did not return a numbers and share your to raise them,” is like- KEY POINTS which harkens to TD’s call for comment last Friday. Her thoughts with me at gmori- ly designed to calm reputation for having attorney, Steven M. Felsenstein, de- • Schwab publishes pledge [email protected]. the nerves of regis- the better technology clined to comment. boasting no asset mini- I welcome any constructive tered investment ad- of the two. mums or custody fees. comments so that we may visers that are being “We built our busi- PRIVATE PLACEMENTS improve this product to aggressively solicited • Pledge is meant to calm ness on small advis- Commonwealth Capital packaged in- best deliver the information as Schwab and TD nerves of its advisers. ers,” said Bernie Clark, vestments in equipment leases into 13 you want and need, in a work toward bringing head of Schwab Advi- private placement funds that are sold variety of formats. together 12 million cli- sor Services, in an in- through independent broker-dealers. Just don’t critique the ent accounts and $1.3 trillion in total terview with InvestmentNews earlier In the past, Ms. Springsteen-Abbott hair — there’s nothing I can assets. this month. “Under $100 million is the was also head of the related bro- do about that. The deal is at least eight months fastest-growing space.” ker-dealer, Commonwealth Capital Se- from being official and a couple of curities Corp. That position is now held [email protected] years from full integration. [email protected] by her husband, Henry Abbott, accord- Twitter: @geomoriarty The idea of combining at least 50% of Twitter: @benjiwriter CONTINUED ON PAGE 22

Contents © Copyright 2020 by InvestmentNews LLC. All rights reserved. Vol. 24, No. 7, February 17, 2020. InvestmentNews (ISSN 1098-1837) is published weekly, except two weeks in July and August, the first week in September and the last week in December. by InvestmentNews LLC. The agent is Crain Communications Inc., 1155 Gratiot Avenue, Detroit, MI 48207-2912. Periodicals postage paid at Detroit, MI and additional mailing offices. POSTMASTER: Send address changes to InvestmentNews, Circulation Dept., 1155 Gratiot Avenue, Detroit, MI 48207-2912. U.S. subscription price: $89 a year. 2 | InvestmentNews February 17, 2020 InvestmentNews.com SEC FAQ says Reg BI applies to sophisticated investors

BY MARK SCHOEFF JR. Most of the FAQs about Reg BI are answered with language that is taken BROKERS MUST ADHERE to a high- straight out of the text of the final rule. er investment-advice standard that will But the answer on accreted investors is be implemented later this year, even fresh, according to Kurt Wolfe, a compli- when they’re selling private offerings ance attorney at Troutman Sanders. to wealthy individuals deemed sophisticated investors, the Securities and Ex- change Commission said last week. “IT MIGHT RAISE In an updated list of frequently asked questions about Regulation Best In- SOME EYEBROWS.” terest, the SEC said the rule applies to TODD CIPPERMAN, PRINCIPAL AT so-called accredited investors, who are allowed to buy unregistered securities CIPPERMAN COMPLIANCE SERVICES because they meet certain income and wealth thresholds. “It’s probably in response to spe- Brokers must comply with Reg BI “if cific questions from brokers-dealers that accredited investor is a ‘retail cus- in markets catering to high-net-worth tomer’ as defined in the rule,” the SEC individuals,” Mr. Wolfe said. “It’s a fair FAQ states. “The definition of ‘retail cus- question.” tomer’ does not exclude high-net worth The query comes at a time when the natural persons and natural persons SEC is trying to let more ordinary inves- that are accredited investors. Whether a tors buy often risky private placements. broker-dealer engages in limited activity The agency recently proposed a rule does not dictate whether or not Regula- last Tuesday to a list of frequently asked SEC’s answer because accredited in- to loosen the definition of accredited tion Best Interest applies.” questions about Reg BI that now totals vestors are assumed to be able to fend investor to include people with special 21. The FAQs about the customer rela- for themselves when it comes to invest- skills and expertise. 8 QUESTIONS ADDED tionship summary, known as Form CRS, ment decisions. “It might raise some eye- “The whole way the SEC is think- The question on accredited investors also were updated. brows,” said Todd Cipperman, principal ing about these high-net-worth or su- was one of eight new questions added Brokers might be surprised at the at Cipperman Compliance Services. CONTINUED ON PAGE 22 GPB fails to issue K-1 to investors

BY BRUCE KELLY “As a holding company with underlying operating companies, GPB Capital is dili- IN YET ANOTHER troubling development gently working to collect tax information for investors in GPB Capital Holdings’ from all of our various entities and invest- private placements, the company told in- ments to prepare accurate final Schedule vestors last month that it won’t be able to K-1s by the end of July,” said spokesperson provide important tax documents, at least Nancy Sterling. by April 15, to at least 6,353 investors or limited partners in one of its largest funds. BUSINESS STRATEGY The tax form, known as a Schedule GPB’s stated business strategy was to part- K-1, is issued annually to owners of ner with independent broker-dealers to sell limited partnerships. In a let- private partnerships to wealthy Adviser barred twice from ter to investors dated Jan. investors. In turn, GPB was to 23, GPB Capital said it use that capital to buy auto would not be able to dealerships and waste securities, clings to insurance issue Schedule K-1 management business- tax documents for es with the intent of t takes a lot of hard two different schemes. GPB Automotive generating high sin- work and effort for He is also a convicted Portfolio before gle-digit returns for a financial adviser felon in Kansas. I BRUCE tax day. GPB Au- clients. Such private who sells insurance to Despite his ques- KELLY tomotive was one placements usually lose a state’s permis- tionable background of the company’s generate steep com- sion to hawk products and an ongoing ef- two largest funds, missions of 7% to 8% that typically pay the fort by the Maryland ONADVICE with $622.1 million for brokers selling the adviser juicy commis- Insurance Adminis- raised and $52.2 mil- product, typically with sions. tration to take away lion paid in commis- additional fees and costs. Indeed, a broker really has to his license, Mr. Morley’s license is sions to brokers who The Schedule K-1 tax put their shoulder to the wheel of deemed “active” on the state web- sold the product, according form tells investors what they malfeasance to get a state insur- site that consumers can use to to filings with the Securities have made or lost during the report- ance commissioner to sit up, take check whether an insurance sales- and Exchange Commission. ing period, and it also informs them what notice and say, “Wait just a minute. man has the state’s approval to sell the private placement is worth. Investors This guy might not be on the up- products. AIMING FOR END OF JULY are required to file the form for their private and-up. Better take a look!” Mr. Morley promotes his insur- In the letter, GPB said it hopes to issue placement investments. If a Schedule K-1 is Take the case of Ronald D. Mor- ance experience and background the forms by the end of July. “Based on not delivered, investors can file an exten- ley, who has been barred from sell- on his LinkedIn profile page, even this information, we encourage our limit- sion on their taxes. ing securities twice: once in 2006 though Maryland is trying to re- ed partners to reach out to their own tax GPB Automotive is just one of a series by Maryland, where he is based, voke his license. His current firm is professionals for guidance,” according to of GPB private placements. In total, GPB and again in 2016 by the Securities called Client One Marketing. the letter. CONTINUED ON PAGE 22 and Exchange Commission, for CONTINUED ON PAGE 22

InvestmentNews.com February 17, 2020 InvestmentNews | 3 TopNews Rising concern over negative interest rates hitting US

BY JEFF BENJAMIN nomic growth, the result has been ap- proximately $13 trillion worth of nega- AS THE LONGEST economic expansion tive-yielding sovereign debt outside the in U.S. history continues to get older, it ’s United States. only natural that speculation is building Last month, in an interview with over when the next recession will hit. InvestmentNews, Allianz chief eco- But this economic cycle carries with nomic adviser Mohamed El-Erian said it the unprecedented potential for some- it is “very unlikely” the U.S. will employ thing known as a negative-interest-rate negative rates because “the Fed fully un- policy, and some now see that as inev- derstands the risks and costs. And sec- itable. ondly, it’s very unlikely because I do not “If the next recession is anything but believe we’re going into a recession.” mild, the Fed will go to negative rates, In an interview for this story, Mr. which will be a com- El-Erian said the chance that negative plete and utter disas- rates will spread to the U.S. is limited ter,” said Paul Schatz, by the effects the policies are having in president of Heritage Europe. <2% Capital. “It’s highly unlikely because of in- CURRENT Citing as a refer- creasing evidence that the experiment ence point the Federal of negative rates in Europe is failing,” “IF THE NEXT Michael Bazdarich, an economist at FEDERAL Reserve’s response to he said. “The right option is to employ Western Asset Management Co., pub- FUNDS the 2008 financial cri- a comprehensive policy approach that RECESSION IS lished a report Feb. 6 arguing that neg- INTEREST sis — driving interest doesn’t rely on central banks. If that’s ative rates are both inevitable and tech- rates down from 5.5% not possible, there is a scope for the Fed ANYTHING BUT nically manageable from a financial RATES to zero and then layer- for a lot of quantitative easing.” market perspective. ing on $4 trillion worth MILD, THE FED WILL Like Mr. Schatz, Mr. Bazdarich of quantitative easing — Mr. Schatz ex- CHANGE OF OPINION doesn’t believe the Fed has enough pects the Fed to embrace the kind of nega- Mr. El-Erian added that the European GO TO NEGATIVE.” cushion, with rates currently below tive-rate policy that has become common central bankers who initially embraced 2%, to avoid negative rates as a tool for in many parts of Asia and Europe. negative rates are now divided over the PAUL SCHATZ, PRESIDENT, HERITAGE CAPITAL fighting a recession. “They’re already floating the trial bal- policy’s effectiveness. Mr. Bazdarich was not available for loon of negative rates,” he said. “It’s not “Going negative has been shown to tors would have to pay for the privilege an interview for this story, but in his pa- going to work because it’s a vortex that encourage savings, it encourages exces- of owning a bond or storing money in a per he explained that in each recession destroys your bond market.” sive risk-taking, it allows zombie com- savings account. While that possibility since the 1970s, the Fed has respond- panies to stay alive and it increases the has been kicking around as a potential ed by cutting short-term rates by more DESPERATE ATTEMPT misallocation of resources across the threat to the U.S. for a half-dozen years, than five percentage points. As global central bankers have cut rates country,” he said. the voices citing the threat are getting In the wake of the financial cri- in a desperate attempt to stimulate eco- Negative yields could mean inves- louder. CONTINUED ON PAGE 21 BofA launches Financial Life Benefits Initiative

BY EMILE HALLEZ employees productive, he said. small and midmarket banking options, “Fifty-six percent of employees sur- Mr. Ulian said. BANK OF AMERICA launched a veyed are stressed when it comes to their Roughly 100 companies have signed full-service workplace benefits program financial situation, and 53% said that up for the packaged service since the in hopes of landing more business from stress interferes with their productivity soft launch, though Bank of America its corporate banking customers. at work,” Mr. Ulian said, citing survey now has many more opportunities to add The massive financial services com- figures from the company’s workplace clients, he said. About 40% of midsize to pany had soft-launched the initiative benefits report. large U.S. companies have a banking re- about a year-and-a-half ago, but it offi- Through the new service, the compa- lationship with Bank of America, includ- cially made the program available to em- ny is providing 401(k)s, defined-benefit ing 95% of Fortune 1,000 companies, ac- ployers on Feb. 5. plans, health savings accounts and non- cording to the bank. In addition, it works porate bankers, he said. The company That program, which the bank calls qualified deferred compensation plans with about 3 million small businesses. has also recently made related invest- Financial Life Benefits, is a response to alongside its banking services. Togeth- ments in technology, including a feature demand from employers and workers for er, the services address short-term and FIELD SPECIALISTS that allows clients to view their consum- comprehensive financial well-being and long-term financial planning, Mr. Ulian “We have all of these services in-house. er banking accounts alongside their em- health care benefits, said Steve Ulian, said. We aren’t a strict 401(k) provider that ployer-sponsored benefits and wealth managing director at Bank of America. has to go out and find a [health savings management accounts, he said. “Employees are basically crying out IN-PERSON GUIDANCE account] provider to partner with,” Mr. “We know that employees aren’t for help around their financial well-be- The service also includes in-person guid- Ulian said. “We are uniquely positioned looking at their financial lives in silos,” ing and are looking to the employer to ance from Merrill Lynch advisers. to bring this to [banking clients].” Mr. Ulian said. do something about it,” Mr. Ulian said. Bank of America’s corporate banking To help sell the benefits package, the Employers are also using full-service service is aimed at companies with at company is hiring between 100 and 140 [email protected] benefits to retain talent and help keep least 800 employees, though it also has field specialists who will work with cor- Twitter: @EmileHallez

4 | InvestmentNews February 17, 2020 InvestmentNews.com Our pledge to the independent advisor community

When it comes to independent advisors, we’re all in. Today, over half of the ﬁ rms we serve have under $100 million in AUM with us. You are the future of this industry. This is our commitment to you and to every client we serve.

• Industry-leading custody services, with no AUM minimums, no custody fees – and no intention to raise them

• Best-in-class technology and open architecture, including a rapidly growing network of third-party providers

• The best and the brightest service professionals in this industry

• In-depth practice management consulting and insights for every ﬁ rm on our platform

• An account opening process that is digital and streamlined

To the over 7,500 ﬁ rms who’ve been with us on this journey, thank you. If you’re considering independence, maybe now is a good time to get to know us.

Read our full pledge at advisorservices.schwab.com/pledge

Schwab Advisor ServicesTM serves independent investment advisors and includes the custody, trading, and support services of Schwab. Independent investment advisors are not owned by, afﬁ liated with, or supervised by Schwab. ©2020 Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC. (0220-0MKZ)

IN012218.indd 1 2/13/20 11:43 AM The Trusted Resource for Financial Advisers Opinion InvestmentNews.com Chief Executive Of cer EDITORIAL / LETTERS / OP-ED / GUEST BLOGS Christine Shaw, [email protected] EDITORIAL Chief Content Of cer: George B. Moriarty [email protected] Managing Editor: Paul Curcio Assistant Managing Editor: Susan Kelly Special Projects Editor: Liz Skinner accurately re ect the ETF’s components. But given that Copy Editor: Anne Marie D. Lee the nancial industry must always fend off allegations Contributing Editor: Mary Beth Franklin Senior Columnists: Jeff Benjamin, Bruce Kelly of impropriety, this imprecise labeling, purposeful or Senior Reporter: Mark Schoeff Jr. not, undermines the ef cacy of the ESG initiative. Reporters: Emile Hallez, Ryan W. Neal ESG’s unsustainable Director of Multimedia: Matt Ackermann Practitioners argue that the challenge grows Senior Multimedia Manager: Stephen Lamb Multimedia Project Manager: Audrey Rose Joseph because current ESG nomenclature is analogous to Special Projects Coordinator: Brittney Grimes the value versus growth situation. While the general ART DEPARTMENT concepts are clear, the underlying de nition varies Executive Art Director: Scott Valenzano from shop to shop. Associate Art Director: Pablo Turcios Senior Graphic Designer: Kyung Yoo-Pursell ‘GAPING HOLES’ DIGITAL, CUSTOM AND RESEARCH Senior Research Analyst: James Gallardo irony: A lack of There are “gaping holes” in the consistency of ESG Research Analyst: Devin McGinley data, Vanguard’s head of ETF product management, Senior Operations Manager: Gillian Albert Digital Operations Manager: Thomas Markley Rich Powers, told Jeff Benjamin. And that incon- Digital Operations Specialist: Carla Flores sistency yields accusations of greenwashing from Custom Content Producer: Jay Cooper groups that increasingly seek a standard de nition of ADVERTISING what ESG is. Chief Revenue Of cer: Scott Miller, [email protected] Because Europe has led the way on ESG for years, 212-210-0717 there might be hope for a breadcrumb trail to follow. Business Solutions Manager: Kevin Reardon, [email protected] But while the Europeans have forged a path, they, too, 212-210-0476 transparency Business Solutions Manager: have struggled to develop a coherent standard. The Lauren DeRiggi, [email protected] 212-210-0154 Business Solutions Manager: Judith Kelly, [email protected] 212-210-0167 Business Solutions Manager: John Shaughnessy, [email protected] F YOU ONLY TUNED IN to ESG in 2019, you WHILE EUROPEANS 212-210-0112 Business Solutions Manager: would think the strategy, which invests with Jason Anciulis, [email protected] environmental, social and governance matters HAVE FORGED 312-280-3115 Account Executive: Michelle Richard at the fore, represents the latest magic elixir for [email protected], 212-210-0238 the investment community. Every client wants it, Manager US Event Sales: A PATH, THEY, TOO, Dan Rubinetti, [email protected] every adviser touts access to it, and every asset 212-210-0432 manager swims in dollars allocated to it. Business Solutions Manager & U.S. Events: I HAVE STRUGGLED Sabrina Straub, [email protected] For reference, Morningstar reported net ows for 646-437-7956 2019 of $20.6 billion into sustainable funds, more Reprint Manager: Laura Picariello, [email protected] 732-723-0569 than three times the net ows of 2018. In the most re- TO DEVELOP Sales Operations Manager: Letitia Y. Buchan, cent evidence of the urgency now surrounding ESG, [email protected] 212-210-0451 BlackRock launched an exchange-traded fund dedi- A COHERENT ADVERTISING OPERATIONS cated to this strategy on Feb. 7. By last Wednesday, a Head of Digital Advertising Operations: Berta Franco, [email protected] Finnish pension insurer had invested $600 million in STANDARD. Sr. Digital Advertising Operations Manager: the new ETF. Valdimir Severe, [email protected] Digital Campaign Manager: This reads like the stuff of Pets.com — if you hav- Jess Friedman, [email protected] Digital Ad Operations Campaign Manager: en’t been paying attention for the past 20 years. Kimberly Hall, [email protected] However, ESG’s sudden in ux of relevance is European Union instituted a reporting directive, but AUDIENCE, MARKETING AND EVENTS the culmination of the work and dreams of many an expert at ESGClarity.com argues that the current Director of Audience and Analytics: altruistic investment professionals over the years. formulation of the EU’s reporting directive must lead George Ortiz, [email protected] Email Marketing Specialist: Nicole Chantharaj Yet, strikingly, given the years spent building this to comprehensive disclosure of non nancial infor- Audience Data Specialist: Julie Vanderperre business that has governance in its name, the sector mation. The author argues that under the current Marketing Director, Brand and Products: Katie Downey Vice President, Events: seems ill-prepared for its moment. And just as ardent directive, “Investors are unable to take suf cient Josh Brous, [email protected] believers see their dream become reality, they nd account of sustainability-related risks and the oppor- Marketing Director: Sasha Burgansky Senior Operations Manager: Tara Means themselves beset by challenges around the gover- tunities of their investments.” Events and Operations Manager: Natalie Taylor nance of the products they have built up for so long. Several rms, including Morningstar, MSCI and Marketing Manager: Kate Arends Social Media Manager: Scott Kleinberg In this week’s cover story, Jeff Benjamin exam- As You Sow, have started rating ESG investments, Content Producer: Letitia Bow ines “greenwashing,” the practice of making a fund but as with the funds, there’s no consistency, and it’s Executive Assistant to the CEO: appear ideologically purer than it really is. The most at the portfolio level. For the ESG sector to succeed, Irma Rodriguez, [email protected] salient anecdote appears to be a case of uninten- an organized effort must be launched to establish 212-210-0430 tional malfeasance, a situation created by a lack of clear rules of play. PRODUCTION standards. The industry must reach a state where clients and Prepress/Production Director: Simone Pryce Production Manager: Paul Vaccari advisers don’t need to perform deep-dive research to determine if the term “Reserve” must be included INVESTMENTNEWS OFFICES CAUSE OF CONSTERNATION Headquarters: 685 Third Avenue, New York, NY 10017-4024 An exchange-traded fund launched in 2016 touting it- in an investment vehicle. To do that, industry leaders Bureau of ce: Washington: 601 13th Street, N.W. Suite self as “Fossil Fuel-Free” — an attractive label to ESG need to set standards and grades for all types of ESG 900 South, Washington, DC 20005 purists. But astute observers discovered that the name investments so that the investing public, thirsty to Advertising main number: 212-210-0451

was inaccurate, causing consternation about the puri- support sustainability, can be con dent there is suf - BONHILL GROUP, PLC ty of the ETF, or lack thereof. cient governance of ESG portfolios. Chief Executive Of cer: Simon Stilwell The fund’s creators acknowledged the oversight and Now that it’s attracting real dollars, the ESG Chief Operating Of cer: James Robson world must act like a real industry. Head Of ce: Bonhill Group, Plc amended the name, adding the word “Reserve” to more 14 Bonhill Street, London EC2A 4BX

For subscription information and delivery concerns, please e-mail [email protected] or call 877-812-1589 (in the U.S. and Canada) or 313-446-0450 (all other locations).

WE WANT TO HEAR FROM YOU. Send a letter to the editor with your thoughts about a story we’ve published, and include your name, title, company, address and telephone number for veri cation. Keep your letter under 250 words, and email it to George B. Moriarty at gmoriarty@ Please recycle investmentnews.com. All letters will be edited. this newspaper

6 | InvestmentNews February 17, 2020 InvestmentNews.com Picking the perfect planning tool? Detail matters.

Introducing NaviPlan® Guided Retirement

LEAD GENERATION RECOMMENDATION & DISCOVERY

Client onboarding should take minutes, not hours. The illustrative NaviPlan Guided Retirement projection Simplify data gathering and account aggregation with takes client meetings to the next level. With one client fact the NaviPlan® client portal and its built-in eFact Finder. - income - NaviPlan illustrates three phases of retirement, broken out by living, leisure, and healthcare costs.

FINANCIAL IMPLEMENTATION ANALYSIS & MONITORING

The NaviPlan® Scenario Manager accommodates a limitless The always-accessible NaviPlan® client portal allows clients to range of intricate financial situations – from modeling Roth monitor and evaluate plan progress and adjustments with the “explore conversions to planning an out-of-state retirement. your options” feature. The vast client report library in NaviPlan® also accommodates clients who prefer traditional resources.

There are countless paths to every client goal. How you get there matters.

Visit advicent.com or call us today (855) 885-7526

IN012213.indd 1 2/5/20 5:19 PM THE ADVISORY INDUSTRY STRUGGLES TO DEFINE WHAT’S GREEN AS ESG GROWS GREEN IN POPULARITY SCREEN BY JEFF BENJAMIN 8 | InvestmentNews February 17, 2020 InvestmentNews.com ith the investing public expressing “It’s a problem because people invest based on the talking to managers and getting access to the data, a seemingly insatiable desire to put name of a fund, then it underperforms because it in- so it is dif cult to know what you own,” he said. “The their money behind various forms cludes fossil fuels,” Mr. Behar said. “It’s also a problem greenwashing problem is de nitely growing.” of environmental, social and cor- for the real fossil fuel-free funds out there that are Like State Street, Vanguard takes the position porate governance causes, it’s not doing it right.” that ESG is subjective, and when creating diversi ed surprising that the asset manage- In ESG parlance, the practice of making a fund products to appeal to a broad market, there needs to ment industry is virtually falling appear purer than it actually is, whether intentional be some exibility. over itself to launch products and or not, is often referred to as “greenwashing.” And like “I think the ESG nomenclature is very analogous strategies boasting various forms ESG investing itself, greenwashing is nuanced and to how we think about what constitutes value or of ESG and sustainable-investing labels. sometimes resides in the eye of the beholder. growth; there are lots of ways to categorize value and WTrouble is, aside from recognizing the growing “Ultimately, ESG investing is an extremely per- growth,” said Rich Powers, head of Vanguard’s ETF appeal of all things ESG, it turns out that investors, sonal investment decision,” said Matthew Bartolini, product management. nancial advisers, and asset managers are often head of America’s research for State Street Corp.’s “As we thought about what we’re bringing to the working from different playbooks when it comes to exchange-traded-fund business. marketplace we wanted it to re ect what we’re hearing de ning the space. “Seeing the proliferation of ESG products, they of- from advisers,” he added. “When it comes to the con- Consider, for example, the SPDR S&P 500 Fossil ten have similar names and objectives, but de nitions sistency of ESG data and availability, there are gaping Fuel Reserve-Free ETF (SPYX), which launched in vary across providers,” he added. “If we wanted a fund holes. We’re not trying to be all things to all people with 2016 without “Reserve” in the name but quickly added with no companies interacting with fossil fuels, it this suite of funds. And if you have a different view, it following criticism from investors that the fund would be a very concentrated portfolio appealing to a there are other products out there from different rms.” wasn’t ESG-pure enough. very narrow set of people who may not even invest in By adding the word “Reserve,” State Street Global it, because a selection of 20 stocks with no connection GREEN GROWTH Advisors isn’t saying the index fund is necessarily to fossil fuels could be potentially very volatile.” The reason some investors and nancial advisers free of fossil-fuel companies, but that it is free of The Vanguard Group found itself in a similar pick- believe the practice of greenwashing is growing and fossil-fuel companies represented by the so-called le when it was learned its suite of four ESG-labeled getting out of hand ties into the growing appeal of ESG Carbon Tracker 200, which tracks companies with the funds included exposure to some fossil fuel, tobacco investing. largest fossil-fuel reserves. and weapons companies. In 2019, 300 mutual funds and exchange-traded The distinction is no small thing to ESG purists “They’ve been caught holding gun stocks, alcohol, funds categorized by Morningstar as sustainable like Andrew Behar, chief executive of As You Sow, and a lot of things on human rights watch lists,” said attracted $20.6 billion in net ows, which is nearly a nonpro t shareholder advocacy organization that Max Mintz, junior partner and nancial adviser at four times the $5.5 billion in net ows the category screens and grades funds based on a variety of ESG Common Interest, an advisory rm. saw in 2018. criteria, including the overall carbon footprint of the “The problem is everyone is using the same lan- One recent high-pro le example of the asset- underlying holdings. guage and without digging through prospectuses and CONTINUED ON PAGE 10 InvestmentNews.com February 17, 2020 InvestmentNews | 9 CONTINUED FROM PAGE 9 management industry stepping up to acknowledge and address the rising demand for ESG products and How to spot greenwashing strategies is the January announcement by Black- Rock CEO Larry Fink that the world’s largest asset ntil the asset management industry can agree on ing proprietary ESG assessments. manager will be altering its investment policy to U some standard definitions and practices regarding • The ideal scenario would be for the firm to have focus on climate change and other ESG factors. sustainable investing, the onus will be on financial active engagement, collaborating dialogue with advisers to look behind the scenes and under the hood individual companies. FILLING THE GAPS of any strategy marketed as incorporating ESG factors. The news has drawn both praise for the general effort The following are due diligence best practices and Examples of resources for screening funds: and criticism for all the potential gaps the asset man- tips for avoiding “greenwashed” products: Morningstar.com: Using data from Sustainalytics, ager is leaving unfilled on the ESG front. • Request a meeting with the asset manager’s ESG Morningstar’s globe rating system provides a historical “I like seeing BlackRock enter the space in such a team to understand their process and where they sit sustainability score that includes metrics for carbon way, because in 10 years [ESG] won’t be a label any- within the company. risk and fossil-fuel involvement. The globe ratings more, it will just become industry best practices,” said • Find out if the firm has a formal commitment or are updated monthly based on the latest portfolio Martin Jarzebowski, director of responsible investing mission statement regarding ESG investing. reporting, and consider the trailing 12 months, while at Federated Investors. • Find out if the firm has dedicated ESG-investment weighting recent portfolios more heavily. Mr. Jarzebowski, representing a firm that also professionals, including portfolio managers and makes ESG investing a priority, acknowledges the chal- analysts. MSCI.com/ESG-ratings: MSCI is expanding its lenges for investors when it comes to matching ESG • Ask about the firm’s ability to leverage ESG data and universe of funds that are screened and graded with strategies with objectives. analytics in security analysis from a risk perspective. ESG scores. The grading is on a seven-point scale and “When you think about greenwashing and how to • Ask about the firm’s policy and track record when provides context as to specific ESG areas where the start rationalizing it, it’s an issue of whether actions it comes to shareholder proxy voting and engaging fund is strong, average and weak. speak louder than words,” he said. “The labels can directly with company management and directors. simply be cosmetic.” FossilFreeFunds.org: Part of AsYouSow.org, this Mr. Mintz of Common Interest is more in the Minding the data: screening tool provides detailed analysis of a fund’s strictly critical camp when it comes to a company • It’s important to know the asset manager’s source underlying holdings. In addition to a breakdown of with the size and swagger of BlackRock putting its of ESG data. fossil-fuel holdings, the site grades funds on factors in- stamp on the ESG space. • Single-source third-party data is limited and can be cluding deforestation, gender equality, civilian firearms, “When the big players start rebranding things as stale. military weapons and tobacco. sustainable, that’s when you have a problem, because • The next step would be an in-house team develop- —Jeff Benjamin ESG investing has become the most recent fad that the asset management industry is running on,” he said. “I still have a couple issues with BlackRock around proxy voting when they either don’t vote or are voting with management.” does confirm the need for greater consistency and same,” she said. “There are movements to formalize standards regarding ESG nomenclature. language, but that’s still pretty nascent.” “We want to make sustainable investing more Absent strict standards for what qualifies as an accessible to all investors and lower the hurdles for ESG investment, the space has become more reliant those who want to act. We have advocated for clear on research firms and data providers like Morning- “THE GREENWASHING and consistent naming conventions for ESG prod- star, MSCI and As You Sow, all of which offer portfo- ucts across the industry, so that investors can make lio-level analysis of ESG criteria. informed decisions when they invest in a sustainably In the Morningstar system, for example, a fund with labeled fund,” the shareholder letter states. a rating of four or five out of a possible five globes is PROBLEM IS DEFI- With such vague parameters and definitions in deemed as being managed in a sustainable manner. overall ESG space, it is sometimes difficult to distin- “It’s not a be-all, end-all, but if you’re looking at guish between intentional misperception and a more an intentional fund with ESG at its core, that fund honest mistake. should get four or five globes,” said Jon Hale, Morn- NITELY GROWING.” “It is still a fairly subjective concept because the ingstar’s global head of sustainability research. way a manger defines his ESG approach is going to “The ESG-labeled funds that don’t get four or five MAX MINTZ, JUNIOR PARTNER, be unique,” said Mamadou Sarr, head of sustainable globes suggests they’re not living up to their name,” he investing at Northern Trust Asset Management. “The added. “When I look at ESG funds in scoring average or COMMON INTEREST definition of ESG is broad in nature and it leaves lower globe ratings, I could see someone saying these room for interpretation.” are certainly not as comprehensive on sustainability The labeling challenge and confusion typically go as they hold themselves out to be. But that means you all the way down to the individual portfolio holdings. need to ask more questions about what they’re doing.” Last year, for example, the bond market saw $230 billion worth of bond issuance labeled as green. Of A MARKET SOLUTION that total, $190 billion worth of those bonds followed While gaps remain in the reporting and gathering the climate bond initiative that was established to of ESG data — which is not helped by the generally address the greenwashing issue in fixed income. subjective nature of sustainable investing — some be- But more extensive auditing found that only $41 lieve the resolution will come via market forces that billion worth of the green bonds issued were certified essentially fold ESG factors into all the other data as green. used to analyze investments. Victor Orozco, a partner at Bair Financial Planning, “It varies by issuance, but if you’re in a dirty “We feel there is a convergence of societal, also questions the motives behind any large asset man- industry and issuing a green bond, it is a question of regulatory and investor demands that make ESG a ager that suddenly finds religion in the ESG space. whether you are you assessing it independently from topic that has to be central in the investing process, “BlackRock, in doubling their solutions, they the sector,” Mr. Sarr said. and some people are already doing that,” said Remy might have the most ESG funds out there, but they As an impact investing consultant, Sonya Dreizler Briand, head of ESG at MSCI. still have so much in non-ESG funds,” he said. “It’s recognizes the confusion related to all the various In some ways, the market is already doing that, hard to be sure if they’re being truly genuine and in- ways of describing ESG investing. as illustrated by Morningstar’s globe ratings, which tentional, or are they just trying to do a money grab?” “I do think there are new ESG and sustainable occasionally uncover funds that are not even being From BlackRock’s perspective, according to the labels coming to market each year,” she said. “But gre- marketed as ESG but merit high globe ratings. These two long and detailed letters written to both corpo- enwashing is not a term I usually use because it’s a funds just happen to recognize, and manage for, cer- rate executives and shareholders in January, Black- vocabulary issue. ESG is data on a company and how tain ESG risk factors, such as potential liabilities as- Rock acknowledges supporting 12% of 40 sharehold- each fund or manager uses that data varies signifi- sociated with certain industries or business practices. er proposals, as well as voting against almost 5,000 cantly from manager to manager.” “We’ve seen hundreds of funds in the U.S. in the corporate directors last year. last year or two from mostly traditional asset manag- “Where we feel companies and boards are not COMMON LANGUAGE ers who claim they are integrating ESG as a consid- producing effective sustainability disclosures or But even as people like Ms. Dreizler can envision eration, but not making it a primary focus,” Mr. Hale implementing frameworks for managing these issues, a time when ESG data is viewed as just data that is said. “From a fiduciary standpoint, all asset managers we will hold board members accountable,” the letter incorporated alongside all the other data used to an- should be considering ESG risks, regardless of what to CEOs states. alyze investments, she believes the industry needs to investors think about ESG.” BlackRock also does not apologize for offering agree on some common language and definitions. non-ESG funds for investors who might not be in- “From what I’ve seen, most funds use the ESG ter- [email protected] terested in ESG strategies or causes. But BlackRock minology in a nuanced way, but we all view it as the Twitter: @benjiwriter 10 | InvestmentNews February 17, 2020 InvestmentNews.com “Our business is open to everyone, and we want to reach all of our diverse communities.”

— SALENE HITCHCOCK-GEAR President, Individual Life Insurance and Prudential Advisors

LEAD by example

Salene Hitchcock-Gear and Prudential Advisors have harnessed a vision to create a diverse, team-oriented environment that provides holistic financial guidance. The organization is committed to evolving this model by empowering their advisors to reflect the values of the communities they serve. Watch Salene’s story, and learn how Fidelity is the change agent helping innovative firms capitalize on today’s opportunities.

Visit go.fidelity.com/transformnow or call 877-262-5950.

Transform for the future with Fidelity.

Prudential Advisors is a client of Fidelity Clearing & Custody Solutions® and is an independent company unaffiliated with Fidelity Investments. Its business model’s needs and results may not reflect the experience of other Fidelity clients. Fidelity Clearing & Custody Solutions provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC. Both are Fidelity Investments companies and members of NYSE and SIPC. © 2018 FMR LLC. All rights reserved. 849239.1.0

IN012207.indd 1 2/5/20 4:05 PM NUMBER OF M&A DEALS AMONG RIA FIRMS IN 4Q 2019. Industry 127 SOURCE: FIDELITY QUARTERLY M&A REVIEW RIAs / INDEPENDENT BROKER-DEALERS / WIREHOUSES / M&A / CUSTODIANS / INDUSTRY GROUPS

acquisitions help rms avoid mistakes in Repeat acquirers were not only more considering buying a competitor re ects the kind of heated transaction market in prepared for the early phases of their the fact that acquisitions are increasingly which the advice industry now nds itself. deals, they also appeared to take a lon- a core industry strategy, rather than a le- Experience is According to data from Echelon Part- ger-term view of rm value. Unsurpris- ver to consider only after organic growth ners, which tracks wealth management ingly, more than three-quarters of all ac- becomes elusive. M&A activity, the annual number of in- quiring rms said they were motivated As the industry heads into what is ex- dustry transactions has grown at an aver- by revenue growth. Yet repeat acquirers pected to be another record M&A year, key to record age rate of 15.4% over the past ve years. drilled deeper into fundamental pro t economic and competitive pressures will Experience makes a difference from drivers when identifying the motivations encourage many rms to act on their plans. the earliest stages of transactions. Repeat behind their deals: They were 33% more acquirers, for example, were nearly twice likely to cite asset growth, 72% more like- The data in this article come from the industry M&A as likely as others to have obtained - ly to cite talent acquisition and 81% more 2019 InvestmentNews/Live Oak Bank/ nancing for their latest acquisition, possi- likely to cite scale. SkyView Partners study Maximizing the he nancial advice industry logged bly because they had established banking Firms in all stages of development M&A Opportunity: A Roadmap for Ad- another record year for mergers relationships from earlier deal-making. made acquisitions in recent years, but visory Firm Buyers and Sellers. To share T and acquisitions in 2019 and ap- In addition, 76% of repeat acquirers younger rms were more likely to say input or ideas for upcoming research, pears poised for further consolidation had recently obtained a formal valua- they were considering one over the next please email inresearch@investment- over the year ahead. According to In- tion, which likely expanded their options two years. That more younger rms are news.com. vestmentNews Research data, 70% of both by easing access to nancing and rms that acquired a competitor over enabling them to use equity in structur- the past two years are currently consid- ing the deal. For perspective, only 38% ering another purchase. of rms currently considering a sale — HOW WOULD YOU TRANSACTION They’re wise to think about it. Our arguably those most in need of an accu- RATE THE SUCCESS OF PAIN POINTS data, collected from a survey of industry rate accounting of their market worth — Single acquirers Repeat acquirers dealmakers, suggest that prior experience had received a third-party valuation over YOUR ACQUISITION? Low (1-3) with acquisitions can smooth the path to the past two years. Retaining acquired clients success in future transactions. 4% 27% BIGGEST HURDLES 10% Although all acquisitive rms in our GUESTBLOG study encountered challenges in their Client communication DEVIN MCGINLEY transactions, single and repeat acquirers 41% 27% 54% identi ed different sets of pain points. 21% Asked to name their biggest hurdles, Agreeing on valuation Overall, advisory rms that made mul- rms that made only one acquisition High (8-10) 17% tiple acquisitions over the past two years were more likely to cite early-stage is- Moderate (4-7) 10% — let’s call them repeat acquirers — felt sues such as agreeing on a valuation and more positive about their transactions retaining acquired clients. Single acquirers Marketing/branding than those that made only one purchase. In contrast, challenges that were 9% Moderate (4-7) In assessing the success of their most re- comparatively common among repeat 14% cent deal, 78% of repeat acquirers rated it acquirers tended to be longer-term op- Aligning pricing models highly (eight or above on a 10-point scale), erational issues less central to the deal’s 22% 11% compared with 54% of all other acquirers. immediate value. For example, they were 17% An acquisition-oriented strategy may more likely to cite technology integra- be suitable for nancial advisory rms as tion or branding as pain points. Realigning staff responsibilities they typically seek to build scale within Interestingly, repeat acquirers were 78% 21% an industry they already know well. about 40% more likely than others to 28% High (8-10) Academic research has shown that prefer a partial sale, in which they re- Technology integration prior acquisition experience general- tain a senior partner in some capacity 19% ly bene ts rms only when targets are following the transaction. That tactic Repeat acquirers 31% concentrated in their own or a similar in- could be an important reason that ini- dustry. In addition, scholarship indicates tial stages of an acquisition appear to Source: 2019 InvestmentNews Adviser Technology Study that processes established through prior run more smoothly for this cohort.

SAVE THE DATE: Boston New York COMING TO A CITY NEAR YOU IN 2020. Denver Chicago

For more information and to register go to www.inwomenadvisersummit.com PRESENTED BY

12 | InvestmentNews February 17, 2020 InvestmentNews.com and looking for investment opportunities, has for the past few years been Peter Mallouk on buying up large swaths of the nancial advisory space, which has been fueling merger activity and driving up Creative Planning’s valuations. But, unlike some RIA-PE partnerships that have handed over majority ownership stakes and management PE strategy control to the outside investors, Mr. Mallouk insists he is just taking ad- BY JEFF BENJAMIN vantage of what the market is offering. Ohio National, Kestra settle over “Valuations have been so high, THE MOVE BY Creative Planning to we’re at unprecedented levels in this join the party and sell a piece of the space, and there’s record private equi- VA commissions nancial advisory business to private ty money on the sidelines,” he said. equity investors is not about capitaliz- BY EMILE HALLEZ merous charges, alleging breach of ing a growth spurt, according to Chief ORGANIC GROWTH contract; breach of implied covenant Executive Peter Mallouk. Creative Planning, which has 700 em- KESTRA FINANCIAL recently settled of good faith and fair dealing; tortious “If I want to do this for a long time, ployees in 27 of ces serving about with Ohio National, ending the bro- interference with contracts; and unjust I want to have a big pile of money on 30,000 clients, has experienced pri- ker-dealer’s lawsuit over trail commis- enrichment. The broker-dealer sought the side so we can continue growing, marily organic growth since Mr. Mal- sions on certain annuity contracts. monetary damages, interest, punitive even in down markets,” he said of the louk took over. The RIA made its rst The companies led a notice Jan. 8 damages and attorneys’ fees. It also recent decision to sell a minority stake acquisition 11 months ago and has in the U.S. District Court of the West- asked the court for a declaration that in the $50 billion registered investment made an acquisition during each of the ern District of Texas that they had Kestra had rights to ongoing trail com- adviser to private equity rm General past four months, which is a pace Mr. reached a settlement, indicating that missions pursuant to its selling agree- Atlantic. Mallouk expects to maintain. they planned to le dismissal docu- ment with Ohio National. Mr. Mallouk, 50, who has been lead- “About one acquisition a month ments within 45 days. The court has The insurer began making attempts ing Creative Planning since 2004, said seems like the pace that makes sense since stayed the case pending the to of oad some of its GMIB contracts General Atlantic’s ownership stake is for us,” he said. “None of the [PE] mon- submission of the request to dismiss, in 2017 and offering buyouts, as that “in the teens,” and he still owns “well ey is for acquisitions; that’s just re- which is due Feb. 24. business was reportedly unpro table, over 80%” of the business. served for the rm.” The broker-dealer’s Kestra Invest- Kestra wrote in the complaint. “I still retain control and we’re not Daniel Seivert, chief executive of ment Services subsidiary led the law- However, Ohio National was unsuc- doing anything different than before,” the investment bank Echelon Partners, suit in July, one of many led against cessful in its bids to get clients to sur- he added, emphasizing Creative Plan- said he is not surprised private equity Ohio National in the wake of its high- render their contracts, which led the ning’s recent push would end up with a piece of Creative ly controversial decision to end trail insurer to take the drastic step of ter- into acquisitions Planning, even if it’s a minority stake. commissions for advisers who sold minating its selling agreements with will not suddenly “Creative Planning is one of the variable annuities with guaranteed broker-dealers, according to Kestra. shift into a high- most attractive growth plays in the minimum income bene t riders. The “Ohio National sought to make it er gear with the wealth management space that to this decision, which was unprecedented in harder and more expensive for Kestra new capital. point was not available to invest in,” the industry, affected most brokerages to service the GMIB Contracts,” the Private eq- he said. “They have a highly replicable that sold the insurer’s annuities. complaint stated. “This, defendants uity, a category business model; they have an amazing hoped, would encourage Kestra to ush with cash track record of organic growth, with a ’MUTUAL SATISFACTION’ recommend that its customers accept repeatable process.” Other rms, including UBS, RBC and the buyout offer and move into anoth- Mr. Seivert also likes the fact Veritas, also sued Ohio National. Terms er product for which Kestra could be that Creative Planning didn’t of the settlement weren’t disclosed in compensated.” give up majority ownership or court records. A Kestra representative In 2018, Ohio National stopped management control as part of could not be reached by press time. writing new annuities and laid off 300 its deal with PE investors. “There “We have reached a resolution employees. is a huge advantage to minority, with this broker-dealer regarding There are still several high-pro le noncontrolling, long-term capi- trail commissions,” an Ohio Nation- lawsuits pending, including a class tal in that Peter Mallouk stays in al spokeswoman said in a statement. action brought by Veritas Independent control but gets help with some “The terms are con dential, but the Partners and Avantax Investment Se- of the larger strategic develop- matter was resolved to the mutual sat- curities. The plaintiffs in that suit led ment issues,” he said. isfaction of all parties.” an amended complaint on Dec. 20. PETER The insurer declined to comment MALLOUK [email protected] on other active litigation against it. [email protected] Twitter: @benjiwriter In its complaint, Kestra leveled nu- Twitter: @EmileHallez

SAVE THE DATE: Boston New York COMING TO A CITY NEAR YOU IN 2020. Denver Chicago

For more information and to register go to www.inwomenadvisersummit.com PRESENTED BY

InvestmentNews.com February 17, 2020 InvestmentNews | 13 AMOUNT RETIREES WILL LOSE IN POTENTIAL INCOME THEY COULD SPEND DURING THEIR RE- TIREMENT BECAUSE THEY CLAIMED SOCIAL SECURITY AT A SUBOPTIMAL TIME. Planning $3.4T SOURCE: UNITED INCOME STUDY ON SOCIAL SECURITY DECISIONS RETIREMENT / SOCIAL SECURITY / INSURANCE / TAX / MEDICARE / COLLEGE / TRUST & ESTATE / PHILANTHROPY

Planning for retirement in the 21st century lder workers face a out a reverse mortgage, Mr. series of critical de- Vernon said during a recent O cisions as they tran- webinar. sition from the workforce MARY BETH Mr. Vernon says retirees into retirement. Financial FRANKLIN should build a retirement advisers are ideally posi- income portfolio that’s rem- tioned to help their clients iniscent of their income navigate these decisions, ONRETIREMENT during their working days, wealth changes the picture dramatically.” terest, which could leave them with inad- including when to retire, divided into paychecks and The researchers noted that when So- equate resources at a vulnerable time in whether to work part-time, when to bonuses. In retirement, the paychecks cial Security bene ts are added to the life,” the report said. claim Social Se- that provide guaranteed income might more traditional wealth measurements “Retirees might be more likely to tap KEY POINTS curity and how to consist of Social Security bene ts, pen- of pensions, de ned-contribution plans, their home equity if they felt that they draw down their sions, annuities and tax-free payments other investible assets and home equity, had adequate public or private insur- • Working longer retirement savings. from a reverse mortgage to cover xed “retirement wealth for white households ance protection against the risk of need- and delaying Steve Vernon, a costs in retirement. The bonuses — fund- drops to about 2.5 times that of minori- ing long-term services and support,” the Social Security research scholar at ed by withdrawals from invested assets, ty households.” They noted that “Social paper concluded. bene ts can the Stanford Cen- wages and other sources, such as rent- Security has such a powerful effect be- Finally, a new analysis of Bureau of signi cantly ter on Longevity al income — can pay for discretionary cause the program is nearly universal Labor Statistics data by SimplyWise.com, boost retirees’ and president of spending, such as travel. and its bene t formula is progressive,” a website focused on Social Security ben- income. Rest-of-Life Com- meaning the bene t formula provides e ts and other retirement income topics, • Nurturing a munications, calls SMART DECISIONS much higher bene ts relative to earn- found that the portion of seniors enter- social portfolio the age span from Using the example of a married couple, ings for lower-wage workers than for ing or remaining in the job market has can be critical 62 to 70 the “retire- both age 60, Mr. Vernon demonstrated their high-wage counterparts. reached near-record levels. to well-being. ment opportunity how using a variety of levers, such as The labor participation rate among zone,” a window of working longer, delaying their Social Se- ADDED SOURCES OF INCOME workers 65 and older hit 20.6% in De- time when retirees curity bene ts and making smart nan- Two other recent pieces of research cember 2019, the highest level in nearly and their advisers can create a game cial decisions, could nearly double their highlighted the availability of additional 60 years; and the BLS expects that rate plan for a 21st century retirement that is retirement income, from about $62,000 if sources of income for retirees: home eq- to keep growing, to an estimated 23.3% likely to last longer than those of previ- they retire at age 62 to nearly $120,000 per uity and employment. by 2028. In addition, the 2.6% unemploy- ous generations. year by postponing retirement until 70. A newly released working paper ment rate for seniors in December 2019 For many retirees, their new job in Separately, a new report from the from CRR posed the question: Are remains below the 3.5% national unem- retirement is to tackle this big planning Center for Retirement Research at Bos- homeownership patterns stable enough ployment rate. Sixty-two percent of em- challenge, which includes important de- ton College dubs Social Security “a great to tap home equity? Yes. Most homeown- ployed seniors are working full-time. cisions about medical insurance to aug- equalizer” of retirement wealth across ers age 50 and older stay in their homes (Questions about new Social Securi- ment Medicare, protecting against long- various racial and ethnic groups. for decades and are well-suited to tap- ty rules? Find the answers in my ebook term care risk, enhancing health and “The non-Social Security retirement ping some of their home equity through at InvestmentNews.com/mbfebook.) longevity, and nurturing a social portfo- wealth held by white households aver- a reverse mortgage or property tax de- lio that can be critical to well-being. ages about seven times that of blacks ferrals. However, few households do. Mary Beth Franklin, a certi ed In addition, some retirees may want and about ve times that of Hispanics,” “A potential reason that homeown- nancial planner, is a contributing to consider how to deploy their home according to the recent issue brief au- ers are reluctant to borrow against their editor for InvestmentNews. equity, whether that’s by downsizing to thored by Wenliang Hou and Geoffrey house is that, if they do decide to move, [email protected] a smaller, less expensive home or taking Sazenbacher. “Adding in Social Security they have to pay back the loan with in- Twitter: @mbfretirepro

sure that the information is secure. Parts of CCPA went into effect Jan. 1, Advisers get some relief on proposed California privacy regs but most businesses that are affected by it were given an extra year to prepare for BY EMILE HALLEZ service providers is whether they would closure from an employer about the data the full list of requirements. be exempt from some of those require- gathered for bene ts plans is suf cient, One reason why plan service pro- CALIFORNIA ISSUED a range of pro- ments, much as employers are. meaning that not every service provid- viders want to avoid making multiple posed revisions to its sweeping Consum- “It was a positive step forward,” said er or adviser serving a plan would have disclosures is the paper trail showing er Privacy Act, including changes that David Levine, principal at Groom Law to make subsequent disclosures, Mr. that they use participant data to cross- speci cally affect employer-sponsored Group. “There was really nothing [previ- Levine said. sell services, said Jason Roberts, CEO of retirement plans. ously] about bene ts plans in the CCPA That is particularly relevant given the the Pension Resource Institute. Whether The consumer-friendly act requires regulations.” The revisions clarify that expansion of services that advisers pro- participant data is a plan asset is still a many businesses to disclose, upon re- disclosures for bene ts plans fall into vide, which often span retirement, health question, and class-action litigation is a quest, what information they keep on their own category and are not the same and wealth management, he said. danger to record keepers, Mr. Roberts customers and allow people to opt out of as those that must be made by compa- The new law tasks employers with said. having their data sold. In many cases, cus- nies like Facebook, Mr. Levine said. notifying employees and job candidates tomers can also have their data deleted. Importantly, the proposed changes to about what data the company keeps. [email protected] A big question for retirement plan the law arguably show that a single dis- Employers must also take steps to en- Twitter: @EmileHallez

14 | InvestmentNews February 17, 2020 InvestmentNews.com Connecting, Recognizing & Supporting the Philanthropic Passions of Financial Advisors & Firms

SPONSOR NOMINATE DONATE Magnify your firm’s commitment to Nominate a financial advisor that Make a donation to help the philanthropy and become an IiO deserves recognition for their financial advisors and charities we sponsor today. impact on their community. partner with.

2020 Board of Directors

Guy Adami Adam Antoniades Wendy Benson David Canter Peter Cieszko Eric Clarke Jennifer Connelly Robert DeChellis Maureen Duff CNBC Cetera Financial Group MassMutual Fidelity Clearing & American Century Orion Advisor Solutions JConnelly Bonsai Personal BNY Mellon Custody Solutions Investments Pensions

Tash Elwyn Mark Goldberg Brian Hamburger Kate Healy Ben Huneke John Hyland Jim Jessee Michael Kelly Michael Kim Raymond James & Griffin Capital Securities MarketCounsel TD Ameritrade Morgan Stanley Private Advisor Group FS Investments AssetMark Associates Institutional

Aaron Klein Trap Kloman Adam Malamed Megan McAuley Bob Oros John Pavese Meghan Peachey Steve Plump Jamie Price Riskalyze Commonwealth Ladenburg Thalmann Invest in Others HighTower Advisors Merrill Natixis Investment PIMCO Advisor Group

Financial Network Financial Services, Inc. Charitable Foundation Managers

The greatest part about Invest in Others is that it’s representative of all different channels, as demonstrated by our Board “ Paul Santucci Christine Shaw Sterling Shea Suzanne Siracuse Andrew Stavaridis UBS Wealth InvestmentNews Dow Jones Suzanne Siracuse Envestnet Management Consulting Services, LLC of Directors. It’s really an opportunity for us “to come together as an industry, no matter what firm we represent, for a common interest. -Bob Oros

Rich Steinmeier Kate Thompson Jeff Vivacqua Matt Witkos LPL Financial Allianz Global Investors Cambridge Investment Eaton Vance Research, Inc. Distributors, Inc.

www.investinothers.org

IN012217.indd 1 2/13/20 11:42 AM Regulation/Legislation SEC / FINRA / STATE REGULATORS / CONGRESS / FIDUCIARY / COMPLIANCE

Brokerage groups spend more on lobbying than adviser groups

BY MARK SCHOEFF JR. In 2019, the SECURE Act topped the list for most groups. Congress approved TRADE ASSOCIATIONS representing the legislation, which made signi cant brokerages and investment funds spent changes to retirement savings policy, in more lobbying lawmakers last year than December after the nancial industry groups representing investment advisers. had been struggling for years to get it Data compiled by the Center for Re- over the nish line. sponsive Politics and lings with the House Clerk’s Of ce show the usual EXCISE TAX heavy investment by industry groups in Another bill that appeared frequently trying to in uence legislation. on lobbying disclosure forms of industry For instance, the Securities Industry groups was one that would impose a 0.1% and Financial Markets Association spent excise tax on nancial transactions. $6.6 million on lobbying in 2019, while Proponents say the tax would most the Investment Company Institute spent impact high-frequency trading and $4.9 million. Both gures were about the would be a relatively painless way to same as the amount each group spent fund important government programs. in 2018. The Financial Services Institute Critics of the measure say it would set spent $480,000 in 2019, hitting the same back ordinary investors, who would pay spending level as in 2018. the levy when purchasing stocks, bonds The insurance industry also weighed The Investment Adviser Association less than $5,000 on FPA as a client but and other products. in heavily on Capitol Hill. The American spent $220,000 in 2019, the same as in didn’t specify an amount. “A nancial transaction tax harms Council of Life Insurers spent $4 million 2018. The Financial Planning Association The Financial Industry Regulatory Main Street America, who uses nancial on lobbying last year, compared to $3.6 spent between $40,000 and $50,000 in Authority Inc., the brokerage industry markets to achieve their dreams, includ- million in 2018. The National Association 2019, roughly the same as it did in 2018. self-regulator, also lobbies Congress. It ing a secure and digni ed retirement,” of Insurance and Financial Advisors spent spent $400,000 in 2019 and $440,000 in David Bellaire, FSI executive vice pres- $2.4 million in both 2019 and 2018. The In- HIRED LOBBYISTS 2018. Finra does not contribute to law- ident and general counsel, said in a re- sured Retirement Institute spent $440,000 The FPA hired a government relations makers' political campaigns. cent interview. in 2019, up from $290,000 in 2018. rm, The Raben Group, to help it lobby When trade associations le their lob- Investment adviser groups were much lawmakers. For some quarters, the Ra- bying reports, they indicate the legisla- [email protected] more modest in their lobbying outlays. ben Group ling showed that it spent tion — or issues areas — that they target. Twitter: @markschoeff

ket looks enticing for nancial profes- options for these small businesses to sionals. But there are more numbers consider. Consequently, advisers seek- Who bene ts from the SECURE Act? for advisers to consider in the process ing to provide retirement plan advice to of developing a strategy to provide re- small-business owners will need to get he SECURE Act signed into law on Financial service companies will tirement advice in this market. Here are up to speed on the features and bene- Dec. 20 is being hailed as the most serve as pooled plan providers and will some important statistics from a recent ts of PEPs relative to other available T signi cant retirement legislation undoubtedly market their PEPs directly Small Business Association blog post: options. enacted in the past decade. It provides to business owners. But owners are un- Percentage of businesses that already incentives to get more small businesses likely to act without the involvement of have retirement plans: THE REAL QUESTION to offer retirement plans for their em- a nancial adviser in the decision-making • 45% of rms with 1 to 49 employees. The question is, can a retirement plan ployees and to boost retirement savings process. • 76% of rms with 50 to 99 employees. specialist have a viable business con- generally. • 90% of rms with over 100 employees. centrating on this market? While the an- For the act to meet expectations, more DEEP DIVE • 89% of all employers have fewer than swer is uncertain, focusing exclusively small businesses need to be inspired to Retirement advisers should take a deep 20 workers. on retirement advice in the micro-mar- offer retirement plans. Recognizing this, dive into the data about small businesses • 35% of employees consider retirement ket would be challenging because re- lawmakers created a new form of multiple (de ned as independent business having bene ts a key reason to take a job. tirement plans compete with other pri- employer plan, known as a “pooled” MEP fewer than 500 employees) to understand • 47% say retirement bene ts are an orities for the scarce resources of small the PEP market before deciding whether important reason to stay with the businesses. and how to serve it. According to the U.S. employer. A better approach may be to provide FIDUCIARYCORNER Small Business Administration: These statistics tell us that the mar- holistic advice and help with prioriti- BLAINE AIKIN • There are 5.9 million small businesses ket for retirement advice is biggest zation of nancial objectives. Business with paid employees, ac- among very small em- owners must balance saving and invest- counting for 99.7% of all ployers and that having with managing liquidity, credit, in- or PEP. A PEP allows unrelated small em- rms with paid employees. ing a quality retirement surance and tax issues. ployers to engage a “pooled plan provider” • Small businesses account plan helps to attract and Bluntly, what a small-business own- to serve as the ERISA 3(16) administrator for 47.3% of all private retain talent. These are er typically needs is a nancial planner and the named duciary for their shared sector employees and, the right conditions for who understands small businesses and plan. PEPs are designed to help participat- from 2000 to 2018, small PEPs; however, as the can deliver solutions in concert with ing employers reduce costs, administra- businesses accounted for 35% IRS website that pro- product and service specialists operating tive duties and duciary liability (though 64.9% of net new jobs cre- EMPLOYEES WHO SAY vides resources for small as a team or arranged through referrals. employers retain duciary responsibility ated in the U.S. RETIREMENT BENEFITS ARE businesses points out, for their selection and monitoring of the At a high level, the size there are at least eight Blaine F. Aikin is executive chairman of pooled plan provider). of the small business mar- A KEY JOB REQUIREMENT other retirement plan Fi360 Inc. and Cefex.

16 | InvestmentNews February 17, 2020 InvestmentNews.com 2020 ADVISER TECHNOLOGY STUDY SURVEY NOW OPEN! DEADLINE: FEBRUARY

LEARN HOW YOUR TECH STACKS UP. Participate now to receive a free copy of the study and complimentary access to the Adviser Research Dashboard.

This seventh annual study is the most in-depth independent industry research report measuring advisory firm technology usage, spending and trends. This year’s iteration digs deeper into the best practices for building a better client experience through improved digital touch points and a sound technology strategy.

Go to www.investmentnews.com/TechStudy to get started.

SPONSORED BY PRODUCED BY Research

IN012220.indd 1 2/13/20 4:46 PM Regulation/Legislation Finra proposal to clamp down on unpaid arb awards moves foward

BY MARK SCHOEFF JR. help harmed investors collect after A FINRA PROPOSAL that would winning arbitration cases. restrict registered representatives Andrew Stoltmann, a Chica- from moving to a new firm and bro- go securities attorney and PIABA kerages from transferring assets to member, said addressing the prob- avoid paying arbitration awards lem through the Finra member- has moved a step closer to enact- ship application process is another ment. of Finra’s “piecemeal steps.”

KEY POINTS ’BAND-AID’ ON A PROBLEM “Instead of performing surgery, • Movement of assets would they want to cure the problem be restricted if arbitration with Band-Aids,” Mr. Stoltmann claims are pending. said. “It barely nibbles at the edge • Firms would face of the problem. It appears to be heightened Finra scrutiny. more of an attempt to pacify Congress so Finra can say, ‘Look, we’re addressing the issue.’” He The Financial Industry Regu- added: “Net-net, it’s a good thing, latory Authority Inc. filed the pro- but it’s nothing we’re all getting posal with the Securities and Exchange The proposal also would force firms ment agreements related to arbitrations excited about.” Commission in December. The SEC with substantial unpaid arbitration that have not been paid in full in ... con- Finra defended its efforts to address published it in the Federal Register on awards to submit an application for nection with the application review pro- unpaid arbitration. Dec. 30 and asked for public comments. continuing membership and undergo cess,” Finra said in the proposal. “In ad- "FINRA has taken many steps — Earlier this month, Finra responded heightened Finra scrutiny if they at- dition, the proposed amendments would including the [Member Application to the comments and made a technical tempt to shift assets, management or enable Finra to consider the adequacy Process] proposal — to use the tools correction to the proposal. The SEC owners to another firm and close down. of the supervision of individuals with within our power to help customers re- oversees Finra and must approve the pending arbitration claims.” cover the awards they are owed," Finra rule before it can go into effect. ’STRONGER APPROACH’ In a 2018 study, Finra said more than spokeswoman Michelle Ong wrote in Under the proposal, Finra would “Finra believes that these proposed a quarter of arbitration awards went an email. "This issue is not unique to deny a new membership application if amendments to select portions of the unpaid between 2012 and 2016. The bro- FINRA's forum or the broker-dealer in- a brokerage or its representatives have [application] rules would enable Finra to kerage industry self-regulator has come dustry." pending arbitration claims where there take a stronger approach to addressing under pressure from Congress and in- is a concern about payment of potential the issue of pending arbitration claims, vestor advocates, such as the Public In- [email protected] awards or settlements. as well as arbitration awards and settle- vestors Arbitration Bar Association, to Twitter: @markschoeff

definitions of a “breach” and “personal Wicker, R-Miss., in December. While still information” vary by state. For firms and in its early stages, this bill would estab- advisers — most of which work with cli- lish national rules for handling person- ents across multiple states — this cre- al information online, creating uniform ates unnecessary complications in de- federal standards. veloping protocols in case of a breach. We intend to work with Mr. Wicker and other members of Congress to se- VARIOUS PROTECTIONS cure national data breach notification re- We are working with lawmakers and reg- quirements — instead of a patchwork of ulators to emphasize a common-sense unique approaches — that ensure prompt approach to cybersecurity that harmoniz- and effective notice to consumers if their es various protections and guards against personal information is compromised. cyberthreats, while also maintaining op- Second, we are working to address erating efficiency and flexibility. our members’ concerns surrounding the In general, we believe that: confidential client information they are required to provide to Finra for the regu- • National standards are preferable to a lator’s Consolidated Audit Trail initiative. patchwork of state-by-state rule. As currently envisioned, the CAT da- Cybersecurity rules can create • Where possible, uniform approach- tabase will be an enormous repository of es to cyberthreats should be pur- highly sensitive information, including sued, while also incorporating personal and financial information on compliance challenges enough flexibility to allow firms to advisers’ clients. develop effective solutions for dif- We are working with regulators to en- t is no secret that cybersecurity threats ferent business models. sure that this vast trove of information is are evolving far more rapidly than the GUESTBLOG • Cybersecurity standards should not either properly secured — or simply not I ability of governments and regulators DALE BROWN place undue burdens on small busi- collected at all, as proposed in the recent to counter them. nesses. request for exemptive relief filed by the Legislators and regulators in the • All entities, whether private or public, CAT NMS Plan Participants. states understand the urgency of this ance challenges for advisers. What we should be held to a common, consum- We also continue to educate regula- problem and have made admirable ef- need now is greater coordination to help er-friendly, data-security standard. tors on the challenges our members face forts to develop protections for consum- these various authorities come together each day in complying with rules that ers and investors. behind a principles-based approach to We are also taking practical steps to bear directly on cybersecurity, such as Unfortunately, in our industry, a side combating cyberthreats. put these principles into action. books and records requirements. effect of these individual state efforts As one illustration, all 50 states have First, we support the draft privacy to strengthen cybersecurity protections laws requiring companies to notify con- legislation introduced by Senate Com- Dale Brown is president and CEO of the has been to create significant compli- sumers about data breaches, but the merce Committee Chairman Roger Financial Services Institute.

18 | InvestmentNews February 17, 2020 InvestmentNews.com HEAR IN PURSUIT OF EXCELLENCE FROM WOMEN WHO Keynote Speaker SHANNON ROBYN EUSEY CRANE EMPOWER Beacon Pointe Advisors CFP OTHER WOMEN

CHRISTINE A. LAURA SJOLIN GREGG FP Transitions FlexShares Exchange Traded Funds

Use code PRINT Reserve your spot today at inwomenadvisersummit.com and save $50 For sponsorship opportunities please contact: Dan Rubinetti, Manager US Event Sales | [email protected] | (o) 212-210-0432 | (c) 917-294-9517 Sabrina Straub, Business Solutions Manager/U.S. Event Sales | [email protected] | 646-437-7946

PRESENTED BY Huntington Beach, CA | March 18, 2020

IN012221.indd 1 2/13/20 4:33 PM “THE QUALITY OF YOUR EMPLOYEES DETERMINES THE STRENGTH OF YOUR BUSINESS.” — KYLE BROWNLEE, CEO OF WYMER YourPractice BROWNLEE WEALTH STRATEGIES TECHNOLOGY / BUSINESS DEVELOPMENT / MARKETING / NEXT GEN / CLIENTS / EMPLOYEES

Stop. Being. So. Digital.

n order to build a deeper bond with your clients, try being less digital. GUESTBLOG I Many advisers have spent the past SCOTT HANSON decade improving communications with clients via digital platforms. We provide email newsletters, quarterly video up- The clients who have hired you have dates on the markets and tweets on the done so because they want a personal re- latest news. lationship. If they wanted a purely digital experience, they could certainly nd a variety of offerings online for much less KEY POINTS than they pay you. • Make your clients feel as if I’ve been an adviser for almost 30 they’re working with people, years. While I nd myself learning some- not machines. thing new almost every day, here are a handful of things we employ in our of c- • Personal interaction costs es to make sure that our clients feel as if to your rm if they interact with a new Yes, our rm was an early adapter of less than nding new clients. they are working with an organization person each time they call. To counteract digital marketing and communication. comprised of actual human beings. this, we organize our CSRs and adviser But we have a client care team whose 1. A person always answers the phone. support staffs into small, dedicated teams sole purpose is to monitor and improve Now, of course, the large discount We could certainly cut our costs by using that serve a speci c group of clients. the experience clients have when inter- rms use bots and automated voice sys- technology to answer our phones, but we 4. “Because we care gifts.” We love acting with our company. tems to deliver virtually all their services. have always believed it’s a critical compo- sending our clients small gifts, so much Remember, it costs a lot less to person- While the power of technology can be nent of providing service to have a caring so that we have all our associates track ally communicate with an existing client awesome, and it helps us reach a larger person answer the telephone. how many gifts they send each quarter. than it does to nd a new one. Not being audience, here’s one piece of advice you 2. Personalized note cards. How often The goal is to illustrate to the client that, exclusively digital helps your rm look don’t get often: Stop. Being. So. Digital. do you receive a handwritten note these rst, we are listening to them, and, sec- better, and it helps your clients feel better If you’re a nancial adviser, that is, a days? How do you feel when you get one? ond, that we care about them. in the end. human being providing nancial advice We encourage everyone in our organiza- As an example, a client might mention and guidance to other human beings, tion to send out note cards each week. they are going on a cruise to the Pana- Scott Hanson is co-founder of Allworth take steps to ensure that you are offering 3. Small, dedicated client service ma Canal. We’ll arrange to have a book Financial, formerly Hanson McClain human interactions rather than merely teams. As your organization grows, it’s about the Panama Canal sent to the cli- Advisors, a fee-based RIA with $8 digital ones. easy for clients to lose their connection ent’s home. billion in AUM. Financial wellness is a journey that we’re all taking together

ention “ nancial wellness” to 10 the goal of wellness. population cohorts — they’re us. attendees at a ntech conference When we combine these perspectives, So, the key to “ nancial wellness” is the Mand you might get 15 de nitions. nancial wellness is easier to de ne, but entirely subjective de nition of “personal Ask 10 clients and you might have the harder to accomplish. Money is relevant peace of mind,” as well as the recognition same result. to all seven of the dimensions listed above. that it’s also a process that will evolve as Having money can help fund solutions the different dimensions listed above pres- and opportunities to improve most as- ent themselves at different times. A more GUESTBLOG pects of wellness. In addition, wellness broadly aging society led by the massive STEVE GRESHAM is dynamic — changing as we age, rising baby boomer cohort is discovering the im- and falling in importance. What jumps portance of life balance as the median hits out to me is the complexity of achieving 64 this year — and the oldest are 74. The label is intriguing and appealing, “wellness” — and the opportunity to em- At those ages, our clients (and some challenging us to align in support of the but there’s an onion here that needs peel- ploy both digital and human support to advisers) have awareness and apprecia- clients’ peace of mind and the shifting as- ing. Leave out the “ nancial” angle for a nance wellness. tion for the value of emotional, spiritual pects of wellness as they discover more moment and consider that wellness can and intellectual wellness. Their need for perspective. It’s the moment of truth for - be evaluated through the dimensions of: PEACE OF MIND mobility supports physical wellness. Be- nancial advisers, many of whom are chal- • Physical wellness Many top advisers — and clients — char- ing relevant and engaged keeps many lenged to muster the empathy and insight • Emotional wellness acterize nancial wellness as “peace of working for occupational wellness. needed to fully support clients, as well as • Social wellness mind.” At minimum, the industry needs the exibility and interest to engage effec- • Intellectual wellness to support a holistic approach to clients’ EMPATHY AND INSIGHT tive technology to help them deliver more • Spiritual wellness newfound longevity to help them address Perhaps most important in later ages is effectively across their entire clientele. • Environmental wellness their growing and changing needs for social and environmental wellness — to Financial wellness is the True North of • Occupational wellness “peace of mind.” It’s critical to appreciate be with others and to live safely and in- the wealth management industry, and it’s “Wellness” is a noun — but also a verb. that we’re traveling together on a jour- dependently. That’s the real point of nan- a journey we’re all taking. Together. Webster’s says that wellness is “the state ney none of us have completed before — cial wellness. Financial industry leaders of being in good health, especially as an growing awareness of our own longevity are declaring the path forward for the Steve Gresham is a wealth management actively pursued goal” (emphasis mine). and how our world view is changing. Ag- industry: the objective of the adviser/cli- industry consultant and former head of So, wellness is also a process in pursuit of ing clients and advisers are not abstract ent/digital working relationship. They are the Fidelity Private Client Group.

20 | InvestmentNews February 17, 2020 InvestmentNews.com TopNews

Michael Hennessy, founder and NEGATIVE RATES chief executive of Harbor Crest Wealth CONTINUED FROM PAGE 4 Advisors, agreed that turning to nega- NASAA says model law is working sis, the Fed funds rate peaked at 2.4% tive rates to battle a recession could be in late 2018 and is currently hovering crushing to anyone in or near retire- around 1.5%. ment. to fight senior financial abuse “Short-term rates are likely to stand “The issuance of negative-yielding below 2% when the next recession debt would hit the baby boomers the emerges,” Mr. Bazdarich wrote. “If the hardest, just as that cohort moves out of INVESTMENTNEWS Fed is to pursue rate cuts on anything the workforce and into retirement,” he approaching the scale seen in previous said. “Additionally, banks would need to THE 25 STATES that have enacted recessions, a move to the negative is in- find creative ways to replace the income model legislation designed to protect evitable.” they need to generate from their depos- seniors from financial abuse have re- The report says the Fed can either its at the Fed. This would likely mean ceived 426 reports from broker-deal- respond to slower growth by “doing increased fees to consumers, and poten- ers and investment advisers, accord- nothing to help the economy weather tially even negative deposit rates to the ing to the North American Securities the next recession or embark on a neg- average saver.” Administrators Association. ative-rate policy.” Mr. Bazdarich cites The reports shed light on vic- Asia and Europe as proof that “there is WORST-CASE SCENARIOS tims of securities fraud and elder nothing in bond math requiring positive But, worst-case scenarios aside, Mr. exploitation, and other seniors who yields.” Hennessy believes a recession that need some form of assistance, NA- As illogical as it might seem, a neg- would lead to negative rates is not yet SAA said in a release. ative Fed funds rate would mean com- a real threat. The group’s Model Act to Protect mercial banks would pay other banks “There is increased talk, but right Vulnerable Adults from Financial to borrow cash reserves from them. Mr. now I don’t see a likelihood of a reces- Exploitation was adopted by the or- Bazdarich said banks will do it because sion,” he said. “The unemployment rate ganization of state securities regula- it will cost them even more to hold the is 3.5%, the stock market is at all-time tors in 2016. formal enforcement actions. Report- reserves. highs. There’s no reason at all to go to “The model act is on a course to ing firms also delayed the disburse- negative rates right now.” become operative in a majority of ments of funds 57 times. RIPPLE EFFECT Mr. Bazdarich writes that Fed offi- states this year, and, as more states The model act gives industry The ripple effect could be punishing to cials are also “confident they will not enact legislation based on this mod- participants and state regulators anyone relying on fixed-income invest- need to resort to negative interest rates. el, we expect to see additional re- tools to detect and contain financial ments. However, as Mike Tyson once said, ev- porting leading to more enforcement exploitation of vulnerable adults, “Negative rates become a black hole eryone has a plan until they get punched actions and greater protections for NASAA said. The law gives bro- that sucks you in and you can’t get out,” in the face. It is hard to imagine that seniors and other vulnerable adults,” ker-dealers and advisory firms quali- Mr. Schatz said. “Many bond mutual Fed officials will not resort to any tactic said Christopher W. Gerold, NASAA fied immunity if they delay disburse- funds and pension funds have strict available or conceivable when the econ- president and chief of the New Jer- ments because they suspect financial rules on what they must invest in. Why omy appears to be in need of it, and it’s sey Bureau of Securities. exploitation. It also requires them to on Earth would anyone buy a $100 CD hard to see Congress standing in the report to the state securities regu- only to get $99 back a year later? But w a y.” INVESTIGATIONS UNDERWAY lator and state adult protective ser- that’s what happens when funds have Based on the 426 received reports, vices agency if someone at the firm to own Treasuries and those Treasuries [email protected] state securities regulators opened believes they've spotted financial ex- pay negative rates.” Twitter: @benjiwriter 81 investigations, and initiated 32 ploitation of an eligible adult.

Give your business a boost We’ve got the brand, technology and people to help you stand out

Become a Voya Financial Advisor 855.698.4900 | JoinVoyaFA.com

Call: 888-868-4809 Email: [email protected] CN0922-37305-1019D Web: investmentctr.com/inc

InvestmentNews.com February 17, 2020 InvestmentNews | 21 TopNews

must be implemented by June 30. tice charged the former chief compli- REG BI “They’re going to give the custody GPB FAILURE ance officer of GPB Capital Holdings, CONTINUED FROM PAGE 3 rule a run for its money in terms of CONTINUED FROM PAGE 3 who is also a former SEC examiner, per-sophisticated investors seems to FAQs,” Mr. Cipperman said. “Best in- has raised $1.5 billion; broker-dealers with obstruction of justice relating to be changing,” Mr. Wolfe said. terest is this sort of creation of regu- sold the securities to wealthy clients in an SEC investigation of GPB. The agency appears to be empha- latory compromise. It doesn’t have a chunks of $50,000 to $100,000. “A business that stops distributions, sizing that as the number of people common law background to it. There- It is not clear whether the company can’t get accountants to audit its finan- deemed accredited increases, they still fore, the commission staff has to de- is delaying sending tax forms to inves- cials, misses mandatory reporting, has deserve the protection of Reg BI. fine what the standard means.” tors in its other private placements. former employees indicted and now The SEC is likely to continue to GPB has a history of not providing can’t get investors basic tax informa- make other clarifications in future it- [email protected] investors with timely information. tion has more red flags than Tianan- erations of FAQs about the rule, which Twitter: @EmileHallez The company is under investigation men Square,” said Joe Peiffer, an at- by the FBI and SEC and has failed to torney who has sued GPB on behalf of produce audited financial statements investors. “It’s hard to see how this gets for its funds. Investors don’t know the better for investors.” value of the GPB funds, and thus, their charges, the SEC review found that investments. [email protected] ABBOTT Finra’s fine was excessive. In October, the Department of Jus- Twitter: @bdnewsguy CONTINUED FROM PAGE 2 The SEC found Ms. Springsteen-Ab- ing to the firm’s BrokerCheck profile. bott’s misconduct to be “egregious,” In 2013, Finra charged Ms. Spring- misusing funds for over three years to steen-Abbott with persistent misuse of unjustifiably enrich herself by misal- investor money over a three-year peri- locating money from the funds “to the As part of the matter, Mr. Morley od to pay for personal expenses includ- harm of investors.” BARRED ADVISER agreed to pay more than $3.5 million in ing home remodeling, trips, meals and “Once Finra began investigating, CONTINUED FROM PAGE 3 disgorgement, interest and penalties. Christmas decorations. Springsteen-Abbott continued to con- “Having been in the insurance busi- He was also criminally convicted She then reached a $1.5 million set- ceal her misconduct by providing false ness for well over two decades, we real- in Kansas in 2018 for securities fraud tlement with the SEC after the agency information ... in an attempt to justify ize the importance of your hard-earned and related issues but served no jail alleged that related private placement the expenses,” according to the SEC. savings when you retire,” Mr. Morley time. He was given 36 months of pro- funds misled investors regarding com- “Springsteen-Abbott’s continued as- writes. “Now more than ever it is import- bation and ordered to pay back almost pensation practices at the funds. sociation with a Finra member firm ant to plan for 30 years in retirement $850,000 to clients. Ms. Springsteen-Abbott eventually would present a risk to the integrity of with income you cannot ever outlive.” “I do not hold myself out as a reg- appealed Finra’s decision to bar her the markets and to investors.” He also markets himself as having istered investment adviser and I have from the brokerage industry to the some connection to financial planning: never been one,” Mr. Morley said last SEC. While the SEC’s decision upholds [email protected] “Allow us to provide a written plan to Thursday. When asked whether his Finra’s barring over misuse of expense Twitter: @bdnewsguy show you how to accomplish this plan, business refers clients to financial and we will provide you with a candid planners, he declined to comment. second opinion as to whether or not you can lesson [sic] your risks in retire- LICENSE REVOKED ment income planning.” In October, Maryland revoked Mr. Mor- UPCOMING CE He goes so far as to assert a connec- ley’s insurance license, but he has ap- CREDIT tion to Ed Slott, one of the most prom- pealed that order, with another hearing Webcasts inent and respected financial advisers to be held at the end of March. That’s in the industry. Mr. Morley’s LinkedIn why he appears to be an insurance pro- profile says he’s a member of Mr. Slott’s ducer in good standing. Elite IRA Advisor Group, a private study In the past, this column has focused group for advisers who work with cli- on the confusing nature of the various Tax planning 2020: How does the ents’ individual retirement accounts. regulatory regimes under which finan- Making matters even more confusing cial advisers work. Among the most new legislation affect your clients? for consumers, Mr. Slott’s organization vexing issues is that of advisers who are Tuesday, February 18, 2020 | 4:00pm-5:00pm ET had problems with Mr. Morley’s claim. restricted or barred from selling securi- “We take great pride in only working ties, but continue to hold a license to sell with ethical advisers and financial pro- insurance. Register today at investmentnews.com/tax2020print fessionals,” said a spokesperson for Mr. Mr. Morley’s long, troubled history Slott. “Mr. Morley is not a member of Ed and background in the financial ad- Slott’s Elite IRA Advisor Group, and we vice business begs the question: What Join InvestmentNews’ Chief Content Officer George Moriarty, have contacted him to remove this inac- on earth does it take for an adviser or several tax experts and financial advisers to discuss the curate information from his social media salesman to lose his license to sell in- implications of new federal legislation on tax planning. profile.” surance products to consumers? According to Maryland’s insurance This exclusive webcast will explore: FALSE REPRESENTATION department, Mr. Morley should lose Nowhere on LinkedIn does Mr. Morley his license. He “has demonstrated on • How the recently approved Secure Act will change tax mention that in 2006, Maryland barred numerous occasions that he does not planning for clients with large IRAs, including a focus him from the securities business for meet the standard of trustworthiness on the popular stretch features of the law. falsely representing to investors that and competence required in an insur- certain investments were safe and se- ance producer,” the order from October • Tax changes in contribution limits for retirement plans cure, even though a few state securities reads. He “owes millions of dollars to regulators had prohibited the sale of other regulatory authorities and to the and HSAs, and increased income limits for Roth IRAs. those securities. According to Mary- victims of his fraudulent conduct, but land, he caused financial harm to con- has failed or refused to pay the money sumers and agreed to pay restitution. he owes.” Sponsored by A decade later, the SEC barred Mr. The insurance industry’s failure to Morley from working at a broker-dealer act appropriately is a stain on the fi- or RIA, which means he can’t sell secu- nancial advice industry. Why won’t the rities. According to the commission, he insurance industry move more quickly sold a fraudulent stock offering, Summit and effectively against sales agents like Trust Co., to 130 clients. He held the ti- Mr. Morley? View upcoming and archived webcasts at investmentnews.com/webcasts tle of independent trust consultant from Summit and earned more than $3 mil- [email protected] PRESENTED BY lion in commissions from 2008 to 2014. Twitter: @bdnewsguy

22 | InvestmentNews February 17, 2020 InvestmentNews.com March 12, 2020 | Ziegfeld Ballroom | New York City

JOIN US AS WE RECOGNIZE AND CELEBRATE WOMEN TO WATCH CLASS OF 2019

Demonstrate your commitment to support female advisers and align your brand with the issues they find most meaningful. For sponsorship opportunities or to buy a table, contact Dan Rubinetti at [email protected] | 917-294-9517 or Sabrina Straub at [email protected] | 646-437-7946.

PRESENTED BY womentowatchaward.com

IN012222.indd 1 2/14/20 5:01 PM WE’RE AS DEDICATED TO YOU AS YOU ARE TO YOUR BUSINESS. And we’re dedicated to offering you the best experience you can get. Our Relationship Managers take the time to learn your business inside and out, meaning you can spend more time doing your work and less time dealing with the back of the house. Plus, they work tirelessly to find customized solutions for your business, helping you achieve your full potential on your own terms.

To learn more, call 800-955-7808 or visit etrade.com/advisorservices.

© 2020 E*TRADE Savings Bank, doing business as “E*TRADE Advisor Services.” Member FDIC. All rights reserved. Investment Products: Not FDIC Insured — No Bank Guarantee — May Lose Value. E*TRADE, E*TRADE Advisor Services, and Liberty are registered trademarks or trademarks of E*TRADE Financial Corporation. All other trademarks mentioned herein are the property of their respective owners. Product and service offerings are subject to change without notice. E*TRADE Savings Bank and its affiliates (“E*TRADE”) do not warrant these products, services, and publications against different interpretations or subsequent changes of laws, regulations, and rulings. E*TRADE does not provide legal, accounting, or tax advice. Always consult your own legal, accounting, and tax advisors.

IN012215.indd 1 2/10/20 11:06 AM