A Different Way to Look at Pricing Your Advisory Business

January/February 2014

CBRCOMMONWEALTH BUSINESS REVIEW

If you’re still using the same breakpoint fee schedule you were using 10 or 15 years ago, perhaps it’s time to look at things from a new perspective.

Peer Learning: Developing a Niche with Divorcing Clients • Advisor Impact: Lifting the Ban on the General Solicitation of Reg D Offerings Where the Real Magic Happens: Integrating Traditional and New Media Marketing From the Editor

Moving from Ideas to Action

KATE FLOOD

There are educational conferences and training programs everywhere you turn these days. You’re lucky—you find yourself at a truly valuable event featuring engaging keynote speakers and robust content.

You take reams of notes, excited about the fresh ideas and perspectives you hear about, and you leave the conference with the expectation that you’ll return home and immediately start implementing everything you learned. But when you arrive at the office, the real world sets in. Your staff and your clients need you, and your day-to-day responsibilities monopolize your time. Before you know it, you’re back in the routine, and all those great ideas you had sit neglected in your notebook or on your iPad. You tell yourself you’ll get to them someday, but someday never seems to come. Sound familiar? We’ve all been there, and we know how challenging Be sure to check out our online it can be to move from an idea of something to a full-fledged action exclusives (highlighted on p. 4) plan. That’s why we put together this issue of the Commonwealth for additional valuable content Business Review. Our 2013 National Conference last November was from our subject matter experts. one of those events we think was truly valuable. The agenda was chock-full of content designed to educate, inspire, and challenge advisors to take their businesses to new heights. Now, with the event in the rearview mirror, we want to highlight some of the topics you may want to focus on in this new year and provide some tips to help you ease into implementation, starting with the following three feature articles: Commonwealth’s Advanced Planning department has noticed that divorce planning is creeping up the list of hot topics with advisors, closely behind social security benefits planning. At the 2013 National Conference, advisors Nichole Raftopoulos and Carl Watkins shared some of the successes and challenges they’ve experienced in building their own divorce practices. We couldn’t pass up the opportunity to summarize their insights for you in “Peer Learning: Developing a Niche with Divorcing Clients” (p. 10). The JOBS Act directed the SEC to issue rules eliminating the prohibition on the general solicitation and advertising of private placements that exist under Rule 506 of Regulation D. Final amendments to the rule were released in July 2013, with an effective date of September 23, 2013. “Advisor Impact: Lifting the Ban on the General Solicitation of Reg D Offerings” (p. 28) looks at what the amendments entail and how they will affect advisors moving forward. When it comes to marketing, many advisors are looking for the “one thing” that will really work and bring clients en masse to the office door. In reality, everything works . . . and nothing works. There’s no one action that works in isolation. No, as “Where the Real Magic Happens: Integrating Traditional and New Media Marketing” (p. 32) explains, it’s when you take a diversified and integrated approach, combining tried-and-true methods like direct mail with new media methods like social media, that you are more likely to see real results. Our overriding goal is to ensure that you have the support and guidance you need to help you move your business forward and fulfill your greatest potential. If you have questions, comments, or ideas for future stories, I’d love to hear from you. Please e-mail me your thoughts at [email protected].

Kate Flood is the editor of the CBR. She is available at x9606 or at [email protected]. January/February 2014

CBRCOMMONWEALTH BUSINESS REVIEW

Contents

On the cover:

A Fresh Look at Pricing Your Advisory Business: Blended Vs. Breakpoint Schedules (p. 23)

Many financial advisors transitioned their practices to the fee-based model 10, 15, or even 20 years ago. Since then, as our industry has evolved, advisors have been asked to provide more value and services for the fees they charge, all while the costs of running their small businesses have continued to rise. Despite these increases, most independent advisors haven’t revisited their pricing schedules. Maybe it’s time.

Editorial Compliance & Regulation 5 Perspectives from the Chairman: Exploring Purpose 28 Advisor Impact: Lifting the Ban on the General and Passion Solicitation of Reg D Offerings

Wealth Management Four-Corner Marketing Insurance 32 Where the Real Magic Happens: Integrating 7 Overcoming Commitment Issues: A Four-Step Traditional and New Media Marketing Process for Eliminating the LTC Wild Card in Clients’ Retirement Plans Practice Management Planning 35 Hiring and Mentoring: By Advisors, for Advisors 10 Peer Learning: Developing a Niche with Divorcing Clients The Bulletin Board

13 Does Your Client Have a Pension? His or Her Social 39 Commonwealth Cares: Spreading Messages of Hope Security Benefit May Not Be What You Expect 40 2014 Top Producer Meeting Qualifiers Investments & Research 48 A Welcome to New Advisors 16 Socially Responsible Investing: A Growing Trend 49 Looking Forward to These Events . . . 20 E Pluribus Unum: How the PPS Select Team 50 Top 10 Clubs Forms Consensus Decisions 23 A Fresh Look at Pricing Your Advisory Business: Blended Vs. Breakpoint Schedules 26 Seller’s Remorse: What Annuity Companies Are Doing to Mitigate Their Risk eCBR

There’s More Online! Looking for additional ideas and strategies for your business? Check out our online exclusives in the eCBR. (From the homepage of COMMunity Link®, click on More eCBR in the bottom right corner of the eCBR widget.)

Operations Tech InsighT

Save Time and Money by Transacting Business Protecting Yourself and Your Clients from Tax Identity Electronically Through Commonwealth Theft: The Basics — Mark Feldhusen — Michael Sundberg As snail mail moves slower than ever and overnight A report recently published by the U.S. Treasury Inspector delivery costs continue to rise, it’s good to know that General for Tax Administration said that 1.6 million Commonwealth offers a variety of ways to expedite Americans were victims of ID theft or tax refund crimes document submission and money movement securely through June 2013, up from 1.2 million taxpayers in all and conveniently. Learn more about the types of client of 2012. We’ve put together a list of best practices for paperwork and requests you can submit electronically. protecting yourself from tax-related scams, as well as guidelines for what to do if you are a victim. Compliance & Regulation The Bulletin Board Could Your Practice Fall Victim to Fraud? — John Clark Names in the News — Jacquelyn Marchand As an independent financial advisor, you must run a business, oversee your clients’ finances, and adhere to Read about Commonwealth advisors who have been both regulatory and firm requirements, to name just a recognized by and quoted in the financial industry press. few responsibilities. With everything else you have to do, guarding against fraud may not be top of mind. But, given the variety of fraudulent schemes out there, it’s a critical aspect of managing your practice. Here, we offer a number of basic strategies you can use to mitigate the risk of fraud in your practice.

Archives: Our comprehensive archive of online exclusives and print stories dates back one year. You can search by topic, author, or other keywords, or simply browse through historic content. Printer-friendly versions of articles are available at the click of a button. You’ll also find downloadable ezines and PDFs of our print issues dating back to 2002. Editorial

Perspectives from the Chairman: Exploring Purpose and Passion

JOSEPH DEITCH

Is it just me, or have you noticed that life is becoming increasingly complicated? How can that be? Shouldn’t it be easier because of all the amazing technology that now exists, not to mention the improved financial situation that many of us enjoy?

Yet, even with these advances, I’d swear that I’m busier Purpose and Passion: Avoiding the Trap than ever! It’s not that I’m complaining; rather, I’m trying Although our purpose and our passion define us, fuel us, to understand this new normal so that I can make the and nourish us, it’s periodically wise to take stock of where necessary course adjustments. Or perhaps it’s the head we are, where we want to be, and what life is really all adjustments that I need to consider. . . . about. This applies not only to our own professional and Today, we have instant access to pretty much any and personal lives, but to those of our clients as well. I submit everything. Search engines not only provide immediate to you that we do our greatest good—for ourselves and answers, but literally anticipate our wants and needs. Plus, others—by keeping our assets and our activities in perspective. there are more apps than we can conceive of, opening up And what better time than the first CBR of the New Year the world to us like never before. No, the real issue—for to take a step back before we take a leap forward! us and for our clients—is how to make sense of what is available to us, how to make the most of it, and, let us not forget, how to enjoy the process. The funny thing is that The real issue—for us and for our this has always been the essence of our quest. But it’s so easy clients—is how to make sense of to get sidetracked and caught up in arbitrary scoreboards what is available to us, how to make and other stuff ! the most of it, and, let us not forget, “Money Is Merely a Medium of Exchange.” how to enjoy the process. I was surprised and delighted to hear the words come out of the speaker’s mouth. It was the same thing that I have been telling my son (and trying to remind myself) his whole In looking at the venerable philosophical and spiritual life, and now the keynote speaker at our recent National traditions of our ancestors—both Eastern and Western—it’s Conference was sharing the same advice: “Money is merely clear that we have always aspired to higher levels of being. a medium of exchange.” Whether you prefer to call it higher consciousness, or love, or self-actualization, or whatever, life is much more It’s so easy to lose track and forget our primary purpose in than just money. It’s also about much more than just us life. And we do so regularly. Obviously, we use money to as individuals. The fact is that we are integral parts of purchase the things we need, but along the way, we tend families and communities upon whom we all depend for to lose perspective. Since we are constantly using money our sustenance, no matter how you define it. And, yes, to measure our position and progress, we get in the habit I know that some of this might be seen as an unusual of thinking in terms of money instead of what we need it statement for the chairman of an investment firm to for. We get captivated, we get confused, and, ultimately, make, but if we’re going to improve our lot in life, then we get addicted. we need to see life for what it really is. And, frankly, the In a related sense, have you ever considered how life is best business plans always start with identifying and then the ultimate amusement park or casino experience? There fulfilling powerful needs. are tantalizing games and temptations everywhere we But the trap that we are all susceptible to is the addiction look. We might begin each year (or each new day, as the to the material and/or egoistic scoreboard. While this may case may be) with one agenda, but along the way, our not be anything new, I suspect the reason that many of us curiosity and desires get captured and activated by an feel increasingly burdened in a world where we ironically endless succession of “opportunities.” commonwealth.com For Advisor Use Only 5 Editorial

have more and better conveniences is that the pace and have a limited perspective, different backgrounds, and power of the stimuli keep increasing. It’s an amped up varied orientations; and we’re also hugely influenced by video game, and we’re right in the middle of it! our individual fears and desires. Rather than shrinking from the reality of our limitations, however, we should Throughout history, we have always tried to figure out consider embracing this newfound knowledge. Let what life is all about. Are we directing it, or caught up in every day bring exciting new observations and new it, or perhaps a little of both? What I’ve found is not so realizations—especially about yourself! If you can allow much an answer as a recipe: At the core of all the great yourself to be fascinated by it all, the practice will provide philosophical, scientific, and spiritual traditions is an endless delight and unimaginable rewards. appreciation of, and a cultivation of, awareness. This is a journey that we must all take as individuals, but Essentially, the more we can open our minds and hearts only when we so choose. We can’t make others do this to ourselves and to others, the more we can let in. It all kind of work; we can only make respectful suggestions as starts with a true desire and a conscious decision to appropriate. Basically, we can only really work on ourselves, improve. A desire and a decision to let go and let in. Or and then hopefully serve as a positive example. But unlike as some people say, “Let go and let God.” But this is not the limitations of material wealth, love and wisdom light about competing religions or beliefs; it’s about intelligent the world and show the way. and enlightened growth. It’s about common sense. Then again, as someone once said, “There is nothing more As the Name Implies . . . uncommon than common sense.” At Commonwealth, we understand that our success is a My own experience has been that the more I look, the function of your own—both monetary and otherwise. more I see. What I see is not always pretty, but it is invariably interesting and always helpful. Don’t be Happy New Year from all of us! surprised to find out that you’re as blocked, biased, and blind as everyone else. After all, by definition, we all Joseph Deitch is the founder and chairman of Commonwealth Financial Network®.

We keep moving forward, opening new doors, and doing new things, because we’re curious and curiosity keeps leading us down new paths. — Walt Disney

6 For Advisor Use Only January/February 2014 Wealth Management / Insurance

Overcoming Commitment Issues: A Four-Step Process for Eliminating the LTC Wild Card in Clients’ Retirement Plans

SUSAN KOBARA, CLTC

Long-term care planning can be a with clients is often easier said than done. If you’re not sure where to begin, this four-step approach can help you controversial topic, generating enthusiastic incorporate long-term care planning into your practice: discussion and debate among advisors. 1. Believe 2. Commit to action I frequently hear advisors who are proponents of long-term 3. Master the conversation care planning say: 4. Tap into the Insurance department’s resources • “I would be remiss if I didn’t bring it up with Believe every client.” In order to talk convincingly with your clients about • “Not bringing it up is negligent and setting clients long-term care planning, you first need to believe that up for financial catastrophe.” it’s a critical component of their financial plans. Most • “It’s too big of a risk to ignore in the planning process.” advisors plan well for the inevitable death of a client, • “It could blow up their entire retirement plan.” but it’s just as important to plan for old age. Without • “It is my fiduciary responsibility to have every client a long-term care plan, a client risks significant financial prepare for this possibility.” loss due to health care costs. On the other hand, advisors who aren’t yet on board with Keep in mind that all of your clients already have a the idea often say: long-term care plan in place. How is that? Well, in the absence of a long-term care insurance (LTCI) policy, • “My clients don’t need it.” their plan is to spend their own income on long-term • “It’s too hard to sell.” care expenses. Your plan, in the absence of an insurance • “I’m uncomfortable engaging in the long-term policy, is to counsel them at the time of a long-term care care conversation.” event on the least damaging way to reallocate their income to cover those expenses. • “It’s too expensive.” • “It’s not worth my time.” It is generally assumed that clients’ biggest worry is running out of money. A 2013 Merrill Lynch retirement I can certainly understand the arguments on both sides, study, however, revealed some surprising responses to the but I would argue (how could I not, as a long-term care questions “What is your number-one retirement worry?” product manager?) that long-term care planning is vital and “What are your top financial worries for retirement?” to clients’ financial health. Of course, having the discussion (see Figure 1).

Figure 1. Health Problems: The #1 Retirement Worry

Biggest worries about living a long life Top nancial worries about retirement

Serious health problems 72% 52% Health care expenses 37% Not being a burden 60% 34% on my family Outliving my money Running out of money 28% to live comfortably 47% 4% Lack of personal savings 18% Population by Being lonely 26% Investable Assets: 6% Lack of social security Not having a purpose 21% 15% Above $250K Having nothing left to leave Lack of company pension 3% Below $250K my children/grandchildren 13% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0% 10% 20% 30% 40% 50% 60%

Source: Merrill Lynch, “Americans’ Perspectives on New Retirement Realities and the Longevity Bonus”

commonwealth.com For Advisor Use Only 7 Wealth Management / Insurance

The number-one retirement worry is “serious health brochures, and website content to help you promote your problems,” followed by “not being a burden on my insurance capabilities. You’ll find some of our offerings family.” The top financial worry is “health care expenses.” on COMMunity Link® at My Practice > Marketing > These responses relate directly to the need to plan for Marketing to Clients > Letters > Insurance. long-term care. Ironically, while your clients may not Every day, I hear from advisors whose clients have want to discuss this topic, their health and the related presented them with a long-term care proposal from expenses are of great concern to them. Your belief in the another agent or advisor. In some cases, a client has value of a long-term care plan can help your clients recently purchased a policy elsewhere and wants the understand the disconnect between their concerns and advisor’s opinion on it. Your commitment to letting their reluctance to plan for these arguably inevitable costs. clients know that you can assist them with long-term care planning can help avoid these situations and keep assets Commit to speak with every client over with your firm. 50 years old one time a year; then follow Master the Conversation through with an appointment dedicated The long-term care conversation can be simple. Ask your to the long-term care discussion. clients these questions, especially if they object to discussing long-term care outright:

Whenever I speak with advisors who are unsure whether • Do you expect to live a long life? LTCI is appropriate for a specific client, I ask, “What • Is it reasonable to think that, if you live to 85 or would you recommend if this client were your mother or 95, you may become ill or frail and need long-term father?” Could this client benefit from a long-term care care services? plan? What would be the consequences to the client’s • What is your plan for that care? family and finances in the absence of a plan? Is this a risk • What will it cost? your client is willing to take? • How will you pay for it? Believing in the need to protect your clients’ families and Sometimes, when an advisor brings up long-term care finances will lead to action. planning, the client rejects the idea and the advisor accepts the rejection. If you believe that this is a risky strategy, Commit to Action don’t let the client off the hook. Instead, help him or her Meaningful action is the result of following belief understand the consequences of not having a plan. with commitment. You can demonstrate the effect of a short or lengthy health Commit to speak with every client over 50 years old one event on clients’ retirement income with retirement time each year; then follow through with an appointment planning software such as MoneyGuidePro.TM The dedicated to the long-term care discussion. If the client Insurance team can provide data on the cost of care in your doesn’t want to meet, don’t give up. Bring it up every year area now and in the future. Or, you can take a conceptual until he or she is uninsurable or passes away. Sometimes, approach and ask your clients how they would feel if: clients who previously expressed a lack of interest suddenly want to talk, usually because someone they know and love • Their income is significantly diminished as they has had a serious change in health. grow older? • They have to spend thousands of dollars a month, Commit to sending communications to clients to let indefinitely, on uncovered health care expenses? them know that you can assist with these planning needs. • Plans to leave money to loved ones are altered by Commonwealth provides preapproved letters, e-mails, events that might have been foreseen?

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Tap Into the Insurance Department’s Resources underwriting. We can help you work through your clients’ Our primary goal is to make the insurance process easier concerns or objections. We can help you master the for our advisors. As committed as you may be to helping planning conversation. And we can help you design a your clients plan for potential long-term care expenses, you marketing plan to reach appropriate clients. may want assistance in the actual advisory process and Belief, commitment, conversation, and leveraging the navigating Commonwealth’s suite of solutions, including Insurance team can lead to meaningful interactions and traditional LTCI, linked-benefit products, and life insurance successful insurance cases for your clients. with long-term care riders. The Insurance team can help by providing information Susan Kobara is a long-term care product manager on the industry landscape, carrier and product selection, in Insurance. She is available at x9737 or the cost of care in your area, plan design, pricing, and at [email protected].

All change, even very large and powerful changes, begins when a few people start talking with one another about something they care about. — Margaret J. Wheatley

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Peer Learning: Developing a Niche with Divorcing Clients

ROSE WATSON, JD, MSEL

Here in the Advanced Planning department, we’ve noticed that divorce planning is creeping up the list of hot topics with advisors, closely behind social security benefits planning.

At the 2013 National Conference, advisors Nichole Raftopoulos and Carl Watkins shared some of the successes and challenges they’ve experienced in building their own divorce practices. It was a lively and informative discussion, and I couldn’t pass up the advisor continues to work with both parties. Maintaining opportunity to summarize their insights for the rest trust and ensuring that you’re looking out for each client’s of the Commonwealth community. best interests are often among the biggest challenges. If you’re thinking about offering specialized services to Keeping lines of communication open as two people part divorcing clients, here are answers to some key questions, ways can bring its own set of tests. When you’ve worked based on Nichole and Carl’s observations. closely with and developed relationships with both parties, what happens if one client needs to be fired? What is the Certified Divorce Financial One opportunity to grow your practice is to build Analyst (CDFA) designation? relationships with other CDFA advisors in your local The CDFA is an important designation for advisors business area. Not only can you provide your existing who want to start a divorce practice. You can’t build a clients with a vetted, competent professional to handle successful niche as a sideline, acting as a financial planner their divorce matters, but you open the door to grow who helps clients here and there with divorce. In addition your practice from the referral networks you’ve established. to working with individuals to pursue their overall financial In some situations, you might also consider building goals, a CDFA adds value by helping clients understand “Chinese walls” between yourself and another advisor in how the financial decisions they make during a divorce your practice, with each of you confidentially representing will impact their financial future. Part of a CDFA’s role is one party. to assist in dividing assets, keeping the division equitable for both parties. What are some tips for managing The CDFA designation can be a great complement to the new client relationships? CFP® certification or ChFC®, allowing advisors to offer Helping a client maintain perspective through the divorce a targeted, well-defined service for their divorcing clients. process can save both time and money. For example, a couple may become passionate about assets of relatively Can advisors work with existing clients insignificant dollar value, and the pursuit of those assets who are divorcing? may end up costing an outsize amount of money. It’s important to use goal planning and negotiation to settle The CDFA coursework advises against working through matters, hopefully out of court—and most definitely a divorce with current clients. It’s better to retain the before they get out of control. Once forensic accountants clients’ assets under management but to avoid giving and other subject matter experts enter the process, fees advice on the divorce. Of course, even if you steer clear of tend to soar. Advisors can do their clients a service by divorce matters, a number of concerns can arise when an helping them gain perspective early in the process.

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Divorce cases also require managing the client’s emotions family law bar. Try doing more than just attending bar throughout the process. Many clients will be sad, angry, meetings on a regular basis. For example, to keep your and possibly even unwilling to communicate with the message in front of potential referrals, you might: other party in the beginning. Your role is to offer patience • Build in lunch meetings with attorneys as schedules allow and empathy, showing that you understand what the client is facing. One challenge is that clients will come to • Step up your marketing game with tools such as you in various stages of their own divorce process, with Constant Contact and regular mailings different levels of emotional distress. Especially if it’s early • Advertise in local bar association publications in the process, you may want to encourage your clients to Be sure to review your business website to ensure that it seek third-party counseling so that they don’t feel they’re truly reflects your message. You may or may not find it to working through the emotional aspects of divorce alone. be a big source of referrals, but it’s important to keep your site up to your standards. Are you listed with relevant How can attorney education provide value? professional organizations such as the CDFA? Today’s Family law attorneys aren’t always tuned into the financial clients are Internet-savvy, and it’s not uncommon for and tax aspects of dividing assets. For example, retirement them to go online for research and referrals. assets, such as pensions and 401(k) plans, play a big role. The question is, how can we help eliminate or minimize It’s also worthwhile to study up on the family law practice taxes when dividing these assets? Attorneys are often aware and its lingo, including changes in the legislative environment of the need for a qualified domestic relations order (QDRO) and common negotiation practices. If you can, sit in on to divide qualified retirement plan assets without income tax meetings with attorneys and learn about case law. By consequences. (A QDRO is not needed to split IRA assets.) building your knowledge, you’ll be able to show your What they may not consider, however, are the tax concerns referral sources that you understand their work. associated with future distributions. If a client will need to Remember, it may be more difficult for an attorney to take a distribution sooner, what are the tax implications? refer a client with an existing financial advisor than it is If a pension plan is under discussion, have the parties for you to refer a client in need of a family law attorney. considered when the client can have access? It may not be Carving out a specialty in helping divorcing clients may until much further down the road that one party retires. be the key to opening doors. How will this time frame impact the client’s budget? What can you learn from your referral relationships? Your role may be to help the attorney divide assets in a Attorneys, like any other professional, have reputations. manner that saves money. Is there a way to eliminate the Examining this reputation may give you an idea of how need for a QDRO by looking to another asset for division? the attorney typically approaches divorce cases. Is he The sooner you can get involved in the process, the easier known to be litigious, or someone who promotes mediation? it may be to manage the client’s expectations and resolve Is she a seasoned family law attorney, or does she dabble in these types of questions. family law practice? What is the attorney’s communication style? One important observation may be how the two What are some marketing best practices for parties’ attorneys work together. growing a divorce practice? A client’s attorney relationship is often based on the Networking continues to play an important role in attorney’s fee (what can the client afford?); the complexity relationship building. If you’re seeking to grow your divorce of the case; and possibly a personal referral. While you are practice, you may wish to expand your networking with assessing the attorney’s recommendations, knowing these attorneys outside the estate planning bar and into the other factors can help you guide the client through the

commonwealth.com For Advisor Use Only 11 Wealth Management / Planning

process. Clients should be happy with their attorney’s way. For additional resources you can use to assist clients performance. In rare circumstances, if the attorney pre- and post-divorce, visit Commonwealth’s Financial relationship seems detrimental to a client’s case, you may Planning Playbook on COMMunity Link® at Financial need to encourage him or her to seek a second opinion. Planning & Research > Financial Planning > Playbook > Usually, however, an attorney’s advice will be appropriate; Life Events. your client may simply need assistance in fully understanding Thanks again to Nichole and Carl for providing us with the recommendations and the options available. their valuable insights! Next Steps Rose Watson is the manager of advanced planning. She is As you move forward with your divorce practice, remember available at x9891 or at [email protected]. that the Advanced Planning team is available to help you evaluate your clients’ financial needs every step of the

Never become so much of an expert that you stop gaining expertise. View life as a continuous learning experience. — Denis Waitley

12 For Advisor Use Only January/February 2014 Wealth Management / Planning

Does Your Client Have a Pension? His or Her Social Security Benefit May Not Be What You Expect

TERE D’AMATO, CFP®, CLU®, CHFC®, MSFS

Are you aware that the Social Security Administration (SSA) may be overstating your clients’ benefits? When a teacher, firefighter, court clerk, state university professor, or an employee at your local Social Security office requests his or her statement online, the retirement benefit reported could be double or even triple what that person can expect to receive.

Many towns, counties, states, and school systems do The Government Pension Offset (GPO). If your client not withhold social security taxes for their employees. In will receive a pension from a job not covered by social addition, federal employees hired before 1984 may not security and is also eligible for social security benefits as the have paid into the social security system. Instead, these spouse or survivor of a worker, his or her spousal or survivor workers receive a pension designed to replace the social social security payments may be reduced by two-thirds of security retirement and disability benefits they would the client’s government pension. If the pension is equal otherwise receive. to or greater than 1.5 times the social security spousal or survivor benefit, the benefit will be reduced to $0. But that doesn’t necessarily mean these workers don’t qualify for social security benefits altogether. Many public Calculating the Impact of the WEP and GPO employees worked in the private sector at some point during their careers and paid taxes into the system, making If the annual social security statement is an overestimation, them eligible for benefits. And therein lies the problem, how can you more accurately account for social security as there are two legislative provisions designed to prevent benefits in your client’s retirement income plan? The SSA these workers from “double-dipping”—or receiving both has created two calculators to help determine the amount their pension and full social security benefits—which can of the reduction for government workers: drastically affect how much retirement income they receive. 1. To use the WEP Online Calculator, you will need the earnings listed on the client’s annual statement. The WEP and GPO 2. To use the GPO Online Calculator, you will need The Windfall Elimination Provision (WEP). If your the spouse’s statement. client will receive a pension from a job not covered by social security and is also eligible for social security benefits The calculators, along with additional information on from working at another job, his or her social security WEP and GPO, are available at www.ssa.gov/gpo-wep. payments may be reduced. The formula depends on the Let’s look at a few examples. Jill taught first grade at the client’s number of years of “substantial earnings” under local public school for most of her working life, and, like social security and his or her eligibility year (i.e., the year many teachers, she worked during her summer breaks. the client turns 62 or becomes totally disabled). The She didn’t earn much at those summer jobs, but she did maximum reduction is limited to half the amount of the earn enough credits to be fully insured for social security. noncovered pension in the first month of entitlement. Jill expects to receive $5,000 per month through her The WEP cannot reduce the social security benefit to $0, state’s teachers retirement program, and her social security and it doesn’t apply if the worker has 30 or more years of statement reports that her benefit will be $434 per month substantial earnings under social security, which, in 2014, at her full retirement age (FRA) of 66. Using the WEP is $21,750 (in 2013, $21,075). Workers with between 21 Calculator, Jill finds that her benefit will be reduced to and 29 years of substantial earnings will see some offset $192 per month. If she retires earlier than her FRA, it but not as much as those with 20 or fewer years of will be further reduced. substantial earnings.

commonwealth.com For Advisor Use Only 13 Wealth Management / Planning

8 Things You May Not Know About Social Security and the Government Worker

1. The WEP applies to the public employee’s worker benefit. The GPO applies to the public employee’s benefit as a spouse. The WEP applies to the benefits received as the spouse of a public employee. The GPO never applies to the benefits of the spouse. 2. Not every government pension will reduce social security retirement benefits. Only government pensions based on noncovered earnings are subject to the WEP and GPO. 3. The WEP will never totally eliminate a government worker’s pension, but the GPO can eliminate the government worker’s benefit as a spouse or survivor. 4. The WEP reduction will never be more than one-half of the monthly noncovered pension. This helps ensure that workers with low pensions will get a social security benefit. 5. The WEP affects the benefit of the spouse of a public employee, but it does not affect the benefit of the survivor of a public employee. If the public employee dies before the spouse reaches age 70, the survivor benefit will replace the spousal benefit, increasing to the amount the public employee would have received before the WEP was applied. Plus, the survivor can continue delaying his or her own benefit (and accruing credits) until age 70. 6. Taking a lump-sum distribution of a government pension at retirement will not avoid the WEP and GPO reduction on social security benefits. The only way to avoid the provisions would be for the employee to forfeit his or her rights to the pension, which would allow the employee to withdraw his or her own contributions and interest but forgo the employer’s contributions. 7. The GPO doesn’t apply until the worker’s pension begins. If the worker applies for social security before the pension kicks in, the benefit will not be reduced. 8. Most government workers are eligible for Medicare even if they are not eligible for social security. The annual social security statement will list Medicare wages if the worker paid Medicare taxes on those earnings.

Jill’s husband, Jack, has always worked in the private sector. Rethinking a Common Social Security His social security benefit will be $2,500 per month at Claiming Strategy FRA. Jill understands that she is eligible to claim as Jack’s When working on retirement income planning with your spouse but wonders how her pension will affect her spousal clients, you may recommend that they consider the popular benefit. The GPO Calculator shows that Jill’s spousal “Claim Now and Claim More Later” strategy, which aims benefit will be completely offset. The most she can expect to maximize a couple’s social security benefits over their to receive is $192 per month on her own earnings record. lifetime. With this strategy, once reaching FRA, the spouse

14 For Advisor Use Only January/February 2014 Wealth Management / Planning

with the history of lower earnings files a claim for social Now let’s revisit Jill and Jack. The WEP reduces the security retirement benefits. The other spouse, after reaching government worker’s social security benefit, as well as the FRA, files for a spousal benefit, electing to defer his or spouse’s benefit, since it is based on the worker’s benefit. It her worker benefit until age 70. can, however, still make sense for the spouse with the higher social security benefit to delay claiming until age 70 and Here’s how the strategy works for private-sector workers. instead file a restricted application for spousal benefits. Sam and Sally have always worked in jobs covered by social security. Sam’s benefit at FRA is $2,000 per month, and In Jack’s case, at age 66, he could receive a check for one-half Sally’s is $800 per month. To maximize their benefits, Sally of Jill’s WEP-reduced benefit of $192, which works out to claims hers as soon as she retires, but Sam needs to delay $96 per month. Although WEP may reduce how much his benefit until age 70, so he can accrue delayed credits. Jack can receive as a spouse now, what’s more important is that he is accruing delayed retirement credits on his record. At age 70, Jack can claim his The WEP cannot reduce the social security benefit to own worker benefit, which will have grown $0, and it doesn’t apply if the worker has 30 or more from $2,500 to $3,330 per month. Further, claiming a $96-per-month spousal benefit years of substantial earnings under social security. for four years would have no effect on Jack’s future benefit, but if he didn’t claim it at his FRA, it would be money left on the table. Instead, at age 66, Sam files a “restricted application” for a spousal benefit based on Sally’s earnings record. Sam’s Will Your Clients Have Less Income Than spousal benefit is $400 per month. At age 70, Sam contacts the SSA and applies for a retirement benefit based on his They Planned For? own earnings record. Due to his delayed retirement, his Clients with a history of working in both the public and benefit is now $2,640—a 132-percent increase over his private sectors can find themselves in a tricky position benefit at FRA. Once Sam files his claim, Sally is eligible when it comes time to plan for income in retirement. for a spousal benefit of $1,000, adjusted based on the age An understanding of the nuances of the WEP and GPO she first claimed benefits. Over their life expectancy, by can help you more accurately predict their cash flow and delaying Sam’s benefits, the couple’s total cumulative make plans to fill any gaps that may arise. retirement benefits will be higher, ensuring that Sally also receives the highest possible survivor benefit. Tere D’Amato is the vice president of advanced planning. She is available at x9168 or at [email protected].

commonwealth.com For Advisor Use Only 15 Wealth Management / Investments & Research

Socially Responsible Investing: A Growing Trend

PETER ESSELE, CFA®

For the first time in a number of years, Commonwealth offered a session dedicated to socially responsible investing (SRI)—commonly known in the investing community as ESG (environmental, social, and governance) investing—at our 2013 National Conference in Phoenix.

This was our first foray into highlighting this style of of the industry’s leading SRI/ESG managers—Calvert, investing at the conference since before the financial Parnassus, and Pax World—have seen tremendous growth crisis, so we really didn’t know what to expect in terms over the last decade, with total assets increasing by almost of attendance and interest, although we did have a 240 percent. Conversely, the asset management industry general inkling. as a whole grew only 180 percent over the same period. In fact, the top five managers in the industry based on assets The session was well attended, and when I polled the audience under management—Vanguard, Fidelity, American Funds, to see how many people were familiar with this style of PIMCO, and Franklin Templeton Investments—have had investing, an overwhelming number of hands went up. collective growth of only 173 percent over the last decade. This seems to be emblematic of what is happening across Here at Commonwealth, we’ve seen a similar trend. As the asset management industry as a whole. It now appears the primary analyst covering SRI/ESG strategies, I can a growing number of clients, advisors, and asset managers attest to the fact that advisor and client interest in the are incorporating ESG into their investment schemes. Let’s space has increased significantly over the past five years, take a look at how far ESG has come over the last decade. particularly in the last year or so. If that sounds overly anecdotal, see Figure 2, which illustrates in-house interest The Proof Is in the Numbers at Commonwealth. The chart shows total assets under With the growing interest in ESG, particularly in the last management for the PPS Select SRI portfolios since inception, five years, asset managers that specialize in this type of which, as you can see, have grown steadily over the years. investing have reaped the benefits, as Figure 1 shows. Three

Figure 1. SRI Industry Growth

25 SRI Industry Assets (Calvert, Parnassus, Pax World) 20

10 Billions ($)

0 2/1/04 6/1/04 2/1/05 6/1/05 2/1/06 6/1/06 2/1/07 6/1/07 2/1/08 6/1/08 2/1/09 6/1/09 2/1/10 6/1/10 2/1/11 6/1/11 2/1/12 6/1/12 2/1/13 6/1/13 10/1/03 10/1/04 10/1/05 10/1/06 10/1/07 10/1/08 10/1/09 10/1/10 10/1/11 10/1/12 10/1/13

Source: Commonwealth, Morningstar® Direct

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Figure 2. PPS Select SRI Growth

30 PPS Select SRI portfolios: Assets under management

15 Millions ($)

0 7/1 1/11 2/11 3/11 4/11 5/11 6/11 8/11 9/11 1/12 2/12 3/12 4/12 5/12 6/12 7/12 8/12 9/12 1/13 2/13 3/13 4/13 5/13 6/13 7/13 8/13 9/13 11/10 12/10 10/11 11/11 12/11 10/12 11/12 12/12 10/13 11/13

Source: Commonwealth

Why Now? since the crisis. Citing keynote speaker Guy Kawasaki’s As mentioned during our session at National, the industry message about being relevant, unique, and valuable, Scales has seen a growing trend away from the “hands-off” style noted that socially responsible investments rank high in of investing that prevailed among clients before the all three areas. financial crisis of 2008. As account values plunged and numerous Ponzi schemes were exposed in the heart of What About Performance? the crisis, clients began to scrutinize their advisors and You may be thinking, “That’s great, but performance investment choices more closely, adopting a more hands-on suffers, right?” Not quite. Figure 3 shows the performance approach. Increasingly, clients are focusing not only on of the MSCI USA Index alongside the MSCI KLD how they’re invested but also where they’re invested, all 400 Social Index. (For those unfamiliar with the latter, the way down to individual securities within a mutual fund. it’s simply the MSCI USA Index with an ESG overlay.) It’s not news to anyone that Joe Main Street is more When discussing performance, it’s appropriate to use concerned with his investment choices these days than he indices rather than actual mutual funds, in order to illustrate was in 2003, and, with that added level of scrutiny, there relative performance without an active management appears to be a growing awareness of ESG investing. component impacting returns. The chart shows pure passive investing and passive investing with an ESG Advisor Jeff Scales—who, along with Eileen Burkhart, offered overlay. You’ll notice that a $100 investment in the ESG a Q&A session during our National presentation—reported index would have accumulated more assets since inception that client interest has grown significantly in his practice than $100 invested in the traditional MSCI USA Index.

commonwealth.com For Advisor Use Only 17 Wealth Management / Investments & Research

Figure 3. ESG Index Performance (U.S.)

$800.00 MSCI KLD 400 Vs. MSCI USA Index

$700.00 MSCI KLD 400 Social Index MSCI USA Index $600.00

$500.00

$400.00

$300.00

$200.00

$100.00

$0 4/30/91 4/30/01 4/30/90 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96 4/30/97 4/30/98 4/30/99 4/30/00 4/30/02 4/30/03 4/30/04 4/30/05 4/30/06 4/30/07 4/30/08 4/30/09 4/30/10 4/30/11 4/30/12 4/30/13

Figure 4. ESG Index Performance (International)

$170.00

MSCI EAFE ESG Vs. MSCI EAFE $160.00 MSCI EAFE ESG MSCI EAFE

$150.00

$140.00

$130.00

$120.00

$110.00

$100.00 4/30/09 6/30/09 8/31/09 2/28/10 4/30/10 6/30/10 8/31/10 2/28/11 4/30/11 6/30/11 8/31/11 2/29/12 4/30/12 6/30/12 8/31/12 2/28/13 4/30/13 6/30/13 8/31/13 10/31/09 12/31/09 10/31/10 12/31/10 10/31/11 12/31/11 10/31/12 12/31/12 10/31/13 Source: Bloomberg, Commonwealth

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Turning to the international side of things, a similar picture Announcing that it would become a PRI signatory, PIMCO emerges. Since its inception in April 2009, the MSCI EAFE stated, “This recognition forms the foundation of our ESG Index has outperformed the traditional MSCI EAFE approach to investing responsibly. It is also consistent with Index, and that outperformance appears to be increasing our conversations with a growing number of investors who as of late (see Figure 4). now regard ESG as a fundamental component of the way they invest—a basic principle of their approach to investing.” Clearly, ESG overlays have helped both domestic and international performance, as both ESG indices have Just a Fad? outperformed their traditional counterparts since inception. Given Commonwealth’s commitment to the space—we’ve From Fringe to Mainstream been focusing on it for more than three years within the PPS Select SRI portfolios and for more than five years at Further bolstering the case of outperformance in the space, the broader firm level—the Asset Management team is behemoth asset managers like PIMCO, MFS, and Schroders pleased that ESG investing is moving well beyond its core have incorporated ESG-related issues into some of their base. Although something of a new concept in the domestic investment processes. There are those in the industry retail arena, incorporating ESG factors has been an with the naïve mindset that adopting ESG standards integral part of the process for quite some time in Europe leads to underperforming strategies, yet here are three and Australia, as well as among U.S. foundations and premier asset managers that have recognized the benefits. endowments. There is a growing interest from (and actual PIMCO, for instance, recently adopted the United Nations investments made by) pension funds, accredited investors, Principles for Responsible Investment (PRI), which holds and family offices that weren’t previously associated with it to the following guidelines: this style of investing. • Incorporate ESG issues into investment analysis As an analyst who attends many investment symposiums and decision-making processes. across the industry, I can assure you that, five years ago, a • Be an active owner and incorporate ESG issues great way to get out of a stale conversation at a cocktail into ownership policies and practices. party following all-day meetings was simply to mention • Seek appropriate disclosures on ESG issues by the SRI or ESG investing. These days, that’s no longer the case. entities in which it invests. There are some out there who call it a fad, but I’d say it’s • Promote acceptance and implementation of the here to stay. principles within the investment industry. • Work to enhance effectiveness in implementing Peter Essele is a senior investment research analyst. He is the principles. available at x9627 or at [email protected]. • Report on activities and progress toward implementing the principles.

commonwealth.com For Advisor Use Only 19 Wealth Management / Investments & Research

E Pluribus Unum: How the PPS Select Team Forms Consensus Decisions

SEAN FULLERTON, CFA®

When it comes to choosing a new investment or making a portfolio change, the Preferred Portfolio Services® (PPS) Select team acts together rather than individually.

You might assume, therefore, that the members of the low levels, and that REITs offered diversification relative team share similar viewpoints in the lead up to the trades to other holdings in our portfolios. Both the bears and we make across our portfolios. After all, everything from bulls on our team presented research supporting their views. our quarterly asset allocation commentary to the fact that ® Last May, the scales ultimately tipped, when the bullish we publish our portfolios on COMMunity Link could members of the team softened their support for the REIT imply that we ascribe to a unified “house view.” asset class because interest rates were so low that there was But the reality is more nuanced and, we would argue, a particularly high risk of a rise in rates. Consequently, the much healthier for your clients’ portfolios. The four team made a consensus decision to reduce the allocation members of the team, all of whom are CFA® charterholders, to REITs across the portfolios with exposure to this area. bring varying and sometimes disparate perspectives to As it turns out, the timing of our decision to lighten the table and thoroughly debate every decision the team REIT exposure has been favorable so far. Soon after we makes. The portfolios are only traded after this process made the trade, taper rumors caused a significant pullback occurs and a team consensus is reached. Rather than in the asset class (see Figure 1). Although we cannot claim discussing in abstract terms, let’s review how the team to have anticipated the exact timing of Chairman Bernanke’s worked together to implement three recent trades. May 22, 2013, comments that engendered the taper rumors, we believe that this example illustrates how our team The REIT Trade structure helped us make better decisions than we might Advisors may be interested to learn that the allocation to have made acting individually. If the bears had been in a real estate investment trust (REIT) fund in many of charge, we would have traded out of the asset class too our portfolios has sparked vigorous discussion within our early and given up future gains. If the bulls had had their group, not just over the past few months but over the way, we might have stood pat or even increased our past couple of years. One reason for this is that we consider position at the wrong time. REITs to be an out-of-benchmark bet because we measure ourselves against the Russell 3000 Index. Consequently, Figure 1. Performance of MSCI U.S. REIT Index, REIT returns have a larger-than-normal effect on the December 2012–November 2013 relative performance of our portfolios. Over the span of two years, on what seemed like a monthly 1120 basis, a couple of our team members brought up the topic 1070 of REITs in our weekly meetings, primarily arguing the 1020 bear case. They were concerned that valuations had become 970

stretched and that a rise in interest rates could have a 920 negative effect on investor demand for REITs and on REIT Exposure 870 REITs’ ability to self-finance. They also pointed out that Reduced the U.S. REIT space was relatively small—with only 820 125 stocks in the MSCI U.S. REIT Index—which 1/31/13 2/28/13 3/31/13 4/30/13 5/31/13 6/30/13 7/31/13 8/31/13 9/30/13

limited the universe available to active managers. 12/31/12 10/31/13 Others in our group argued the bull case, asserting that commercial property market fundamentals had been Source: Bloomberg improving, that rates had remained at or near historically

20 For Advisor Use Only January/February 2014 Wealth Management / Investments & Research

The Municipal Fund Trade Figure 2. Franklin Federal Tax-Free Income Fund Vs. In addition to spending time on allocation decisions, the Previous Holding, October 2012–November 2013 PPS Select team devotes significant effort to making what we believe are the right fund selections. An example of 104 FAFTX how we do this took place in October 2012, when we 102 Previous Fund replaced a long-standing municipal bond fund. 100 98 This was a fairly contentious decision for us because the original fund had delivered excellent performance over 96 the previous few years. Because of its longer-than-average 94 duration and higher portfolio concentration, the fund’s 92 management team had been successful in riding both the 90 decline in rates and the tightening of spreads between high 88 and medium credit-quality issuers. 86 Despite the fund’s successes, however, one team member 1/31/13 2/28/13 3/31/13 4/30/13 5/31/13 6/30/13 7/31/13 8/31/13 9/30/13 pointed out the risks associated with a long-duration, 10/31/12 11/30/12 12/31/12 10/31/13 lower-quality-oriented portfolio. From a contrarian Source: Bloomberg perspective, a recent decline in rates and tightening of spreads had made these areas less attractive. The fund And the team’s solidarity ultimately paid off. As the interest also had a history of either performing in the very top rate environment changed during 2013, the new fund few percentiles of its peer group or in the very bottom. held up better in the face of asset class-level headwinds. For these reasons, he argued that it made sense to sell the fund at the top. Other members of the team were One more note . . . looking at Figure 2, some might ask skeptical at first, but the evidence suggested that a change why we maintained exposure to the asset class at all. We did indeed make sense. accept and understand that, in most market environments, some portion of our portfolios will have a tendency to After culling the universe of municipal bond funds and underperform. We see this as a positive. It means that the organizing meetings with a variety of portfolio managers, portfolios are diversified with assets that have low correlations the team settled on the Franklin Federal Tax-Free Income to one another. Although the municipal bond portion of Fund (FAFTX) as a replacement. We liked that the fund the portfolios struggled in 2013, strong equity market had a history of conservative, consistent management under performance helped the portfolios gain ground overall. the watch of a tenured and stable team. Its duration was more than a year shorter than our original manager, the The International Trade credit quality tended to be a bit higher, and the portfolio Since before the financial crisis, the PPS Select team had was more diversified. maintained an underweight to developed international Over the next couple of months, interest rates moved equities. This was primarily due to our concerns about the lower, helping the relative performance of our original economic and political situation in Europe, as well as our fund and hurting the performance of our replacement. relatively more optimistic view on prospects here in the U.S. Had we erred in making the switch? Because we had But our calculus began to change in mid-2012, when thoroughly vetted the decision and agreed as a group to European Central Bank President Mario Draghi pledged make the trade, we avoided the temptation to admit to support the euro at any cost. Another major factor was defeat and alter the portfolios again.

commonwealth.com For Advisor Use Only 21 Wealth Management / Investments & Research

Japanese President Shinzo Abe’s year-end announcement exposure to a given asset class. We spend a significant of a three-pronged plan to reflate and reform the Japanese amount of time determining position sizes, evaluating economy. At this point, our team began to debate whether the holdings of each portfolio against its individual attractive valuations and the new political environment benchmark, and ensuring that we are under- or overweight justified the risk of investing more heavily in economies by an appropriate amount. that were growing very slowly or still contracting. Looking into 2014, we expect to carry on our debate At first, the concerns of our more cautious team members about a variety of topics. In particular, we’ll likely about preserving our clients’ capital overrode our more continue to discuss the REIT asset class and our position aggressive members’ interest in catching a possible market there. Additionally, the emerging market equity asset class bottom. But, by May 2013, the team as a whole became looks set to inspire some discussion. Emerging market willing to increase our international exposure closer to our stocks have significantly underperformed developed markets benchmark because of the more attractive valuations in in 2013—and indeed over the past three years—but international stocks compared with U.S. equities and valuations appear increasingly attractive, and we believe a reduction in what we saw as tail risk in the asset class. in the long-term growth story. Still, relatively slower growth in China and the tapering of Federal Reserve asset Currently, valuations in Japan look less compelling than purchases could continue to cause short-term headwinds. before, but European stocks remain inexpensive and the economic picture in that region is improving. We continue Because more than half of you use the PPS Select platform, to monitor this area carefully. we strive to be as transparent as possible about our approach to investing; we look forward to sharing more insights about A Look into 2014 our approach in the future. Our ultimate goal is to free up As these three examples demonstrate, our views on your time, allowing you the flexibility to manage existing portfolio allocation and fund selection are constantly clients and to build your client base. If you have questions, evolving, and we don’t always share the same opinions. we are more than willing to discuss the rationales behind We see this as a competitive advantage, which allows us our positioning; please don’t hesitate to give us a call. to evaluate our investment choices from as many angles Past performance is not indicative of future results. as possible. Still, we make our final decisions as a team. Of course, these discussions translate into actual asset Sean Fullerton is an investment research analyst. He is movement across our 44 distinct models, with some available at x9262 or at [email protected] affected more or less, depending on their objectives and

22 For Advisor Use Only January/February 2014 Wealth Management / Investments & Research

A Fresh Look at Pricing Your Advisory Business: Blended Vs. Breakpoint Schedules

BRIAN LAMPRON, AIF®

When was the last time you thought When we compared the average fees of our advisors with those of the industry, we learned that Commonwealth about your advisory fee schedule? advisors generally undercharge for their services. This is clearly illustrated in Figure 1, which shows that Commonwealth Many financial advisors transitioned their practices to advisors tend to consistently charge less than the competition, the fee-based model 10, 15, or even 20 years ago. In the regardless of the value of the assets managed. period since, as our industry has evolved, advisors have Based on my nine years of experience working with been asked to provide more value and services for the fees Commonwealth advisors—and with other advisors while they charge. At the same time, the costs of running their working at another broker/dealer for several years before small businesses—office space, technology, marketing, joining Commonwealth—I believe that our advisors are supplies, and staff—have continued to rise. Despite the the best in the industry. Not only are they caring people, many increases in costs, most independent advisors haven’t but they also have the highest average production in the revisited their pricing schedules. Maybe it’s time. industry, according to Investment Advisor magazine’s 2013 Broker-Dealer Reference Guide. The Most Productive and Credentialed but Charging Less In addition, Commonwealth advisors are among the most Commonwealth’s Investment Consulting Services team credentialed in our field. More than 45 percent have their ® spends a lot of time talking with advisors about this very CFP certification. That percentage is almost unheard of subject, and we have done a fair amount of research on it. when compared with advisors affiliated with competing We have access to extensive amounts of industry data, broker/dealers. Moreover, Commonwealth advisors draw including industry surveys and various articles on advisory from years of experience in the financial services business. fees. We also track, on a quarterly basis, the average fees Still, the fees they charge don’t reflect it. that Commonwealth advisors using the Preferred Portfolio Services® (PPS) platform charge.

Figure 1. Commonwealth Advisors’ Average Fees Compared with the Industry Average

1.5 1.30% 1.15% 1.2 1.07% 1.01% 0.86% 0.91% 0.90% 0.9 0.79% 0.78% 0.72% 0.70% 0.6 0.56%

0.3

0.0 $0–$1M $1M–$2M $2M–$3M $3M–$4M $4M–$5M $5M+

Average Industry Fees Average Commonwealth Fees

Source: PriceMetrix’s FeeCheckTM

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The Impact of Underpricing A blended schedule is more of the industry standard. It’s After this brief review of industry data, maybe you are what institutional money managers and separate account ready to reassess your fee schedule. But how do you begin? managers use. Let’s compare two almost identical schedules—one a breakpoint and one a blended Let’s start by looking back at Figure 1 and considering option—as illustrated in Figure 2. the tiers with the higher dollar amounts—$2 million and up. If you underprice in these areas, it doesn’t really hurt your business because managing these accounts at almost Figure 2. Breakpoint Vs. Blended Fee Schedules any price is likely to be fairly profitable. A $4 million Breakpoint Blended account for which you charge 72 basis points, for example, AUM Fee AUM Fee earns you $28,800 a year. For $28,800 annually, you Less than $500,000 1.15% First $500,000 1.15% could spend a significant amount of time on the account $500,000–$1,000,000 1.00% Next $500,000 1.00% and provide your client with a lot of service while still remaining profitable. $1,000,000–$2,000,000 0.90% Next $1,000,000 0.90% $2,000,000–$5,000,000 0.80% Next $3,000,000 0.80% But if you focus on the lower-tier amounts—specifically on the accounts valued at under $1 million—you can see $5,000,000+ 0.55% $5,000,000+ 0.55% where underpricing could have a real impact on your Source: Commonwealth business. And these are the tiers in which the majority of Commonwealth advisors’ accounts fit. You need to get At an initial glance, could a client even tell the difference the pricing right here, as these accounts are drastically less between the two schedules? They look pretty much the profitable, though probably just as much work to service, same; however, with the breakpoint schedule, if you do compared with the larger accounts. some simple calculations, you’ll find that your revenue could drop even as the value of the account increases. Take an account worth $200,000 for which you charge a 1-percent fee to manage. This means that your annual Suppose you handle a $995,000 account and use the fee is $2,000. If you are worth $250/hour—and I would breakpoint schedule in Figure 2 to charge for your services. contend that Commonwealth advisors are worth more, Your fee will be 1 percent or $9,950 annually. If, over the based on their credentials and experience—that is eight course of one year, the account value were to increase by hours a year of work to remain profitable. If you add up $5,000 (or slightly more than 5 percent) to $1 million, the number of hours you spend in meetings, prepping, your fee would actually drop, to $9,000 (0.90 percent x researching, and talking with clients annually, on average, $1 million). So, even though you would have done a good do you come up with more than eight hours? I bet that job and helped the client’s assets grow, your revenue would most of you do. drop more than 9.5 percent because of your fee schedule. It is a flawed way to price the value of your expertise and labor. So if you would like to make a pricing change, this is the client tier you should target. If you were to use a blended schedule, however, your fee for managing the $995,000 account would be $5,750 on The Blended Approach the first $500,000 and $4,950 on the next $495,000, for a total of $10,700. If the account value were to rise to One way to increase the profitability on smaller accounts $1 million, your fee would be $5,750 on the first is to switch to a blended fee schedule. Most advisors at $500,000 and $5,000 on the next $500,000, for a total Commonwealth use a breakpoint schedule. In my opinion, of $10,750. So you would do better in both cases. breakpoint is a commission term—like the breakpoints associated with A-share mutual funds.

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Figure 3. Breakpoint Vs. Blended Fee Schedules with 33% Change in AUM Starting Account Value: $900,000 Breakpoint Blended Initial Fee: $9,000 New Value New Fee Revenue Impact Initial Fee: $9,750 New Value New Fee Revenue Impact 33% AUM Decline $603,000 $6,030 –33% 33% AUM Decline $603,000 $6,780 –30% 33% AUM Increase $1,197,000 $10,773 19% 33% AUM Increase $1,197,000 $12,523 29% Source: Commonwealth Let’s look at another example to further illustrate the Finally, keep in mind that adjusting your advisory fee important additional benefits of a blended schedule. schedule doesn’t have to be your only option. Many Figure 3 illustrates the fees earned for managing an advisors have separated their asset management and account with an initial value of $900,000 and how a financial planning services and started charging planning 33-percent decline and 33-percent increase affect the fee. fees using Commonwealth’s Wealth Management Consulting program. It’s another way to increase your As you can see, not only is the blended schedule initially value-added service offering to clients while receiving more profitable, but it also offers some downside protection adequate compensation for your work and expertise. against market losses or client withdrawals. And, as previously Stay tuned for our March/April issue of the CBR, where described, it offers more upside as the account value grows. we’ll look at this topic in greater detail. If you are thinking about increasing your advisory fee, moving to a blended schedule could be an ideal way to do Next Steps it. Typically, it is fair, equitable, and more of an industry We can help with analysis. The Investment Consulting standard. It also encourages clients to consolidate assets Services team can help you with the analysis. We have worked under your management, as their fee may likely be reduced with a number of advisors to analyze how this type of on incremental assets because the new money (or portions change will affect their practices and profitability. We can of the new money) will be managed at a lower rate. share how other Commonwealth advisors have increased their fees and help you shape your discussions with clients. Knowing Is Half the Battle Fee schedules and templates. We also have fee schedules Just to clarify, we are not suggesting that you raise your fees and templates to help you illustrate your fee schedule to merely because they may be below the industry average, clients. These templates, which you can customize with or that you rip up your existing contracts with clients and your own numbers, logo, and color scheme, are available have them sign on with you at a higher rate. on COMMunity Link®. Find them at Products > Fee-Based If you do decide to shift to a blended schedule, however, Programs > PPS Custom > Fee-Based Marketing Strategies > your overall fee revenue will increase. Would such a change Fee and Service Templates. put your fees more in line with the competition? Yes and So your next step is to reach out to the team. We can analyze no. Most likely, your fees would still rest well below the your book and help you come up with a schedule that industry average, but your smaller accounts would be more works for your practice. Contact us at x9415, option 1, or profitable. If you are uncomfortable approaching existing at [email protected]. clients to modify their fee structure, consider adopting a blended schedule for all new client relationships. Many Brian Lampron is the manager of the Investment advisors have found this method easier to implement. And Consulting Services group. He is available at x9395 or if you’re comfortable with your fee schedule as it stands, at [email protected]. that’s fine; but now that you know how you compare with the competition, you’ll be better prepared—and therefore more confident—to discuss and stand firm on your fees if clients or prospects attempt to negotiate. commonwealth.com For Advisor Use Only 25 Wealth Management / Investments & Research

Seller’s Remorse: What Annuity Companies Are Doing to Mitigate Their Risk

ETHAN YOUNG An insurance rider that promises a 7-percent compounded interest step-up on an income benefit base, a 6-percent income distribution guaranteed for life, and the ability to invest in equities while transferring most, if not all, of the investment risk to the issuing company—and all this for the low cost of just 60 basis points a year! Sounds like a pretty good deal, doesn’t it?

It was, and still is, for most everyone but the insurance of 5 percent to 6 percent, you’d need gross returns to companies that have insured tens of billions of dollars via average around 10 percent over time to get any dependable such contracts. The severe market downturn in 2008 coupled income step-ups. While not impossible, it’s unlikely that with the years-long period of low interest rates has some clients will regularly see these double-digit returns in insurance companies concerned that their richest guarantees policies that employ managed volatility hedging as a may have been a little too aggressive. Recently, we’ve seen de-risking strategy. a trend of annuity carriers taking steps to mitigate the risk At least a few carriers appear to have changed the rules posed by long-term obligations such as living benefit and of investment post-issue. One company recently forced enhanced death benefit riders. The financial risk hasn’t clients into a significantly more conservative set of funds simply disappeared; in many cases, it’s been transferred under the threat of losing an income guarantee if they back to the consumer. didn’t comply. This seemingly extreme approach to risk mitigation could only be pursued by a company that had Underpriced and Over-Delivered already decided to exit the variable annuity marketplace, Individual companies have approached de-risking in a as the backlash from such a tactic would almost certainly number of ways. Let’s take a look at some of the most hamstring new sales. common risk mitigation strategies used by the biggest issuers of variable annuity contracts over the last 10 years. Higher fees. A second de-risking method that also involves manipulating contracts already on the books is Managed volatility funds. The most common tactic has to increase fees. Excepting some of the early iterations of been a switch to managed volatility funds, which are these living benefit riders, many guarantees came with designed to minimize the effect of severe market declines variable pricing structures. Insurers have been able to go and generate more consistent returns over time. The back to existing contracts and increase the costs on some objective sounds appealing—who wouldn’t want a smoother of the riders. In some cases, policyholders can opt out of ride in volatile markets? But, along with mitigating the the price increases by agreeing to forgo future increases effect of serious downturns, these hedging strategies also to the guarantees’ benefit base. cost clients some upside performance. This is problematic for a product whose value proposition is guaranteed income For more modern riders, the proposition isn’t as flexible with an inflation hedge during retirement. and essentially allows the company to increase the costs for all policyholders at its discretion. To be fair, some With most of these products, a rising income guarantee variable pricing is pegged to a known quantity, like the during distribution is predicated on an account value that 10-year Treasury. Other riders put limits on the amount rises above the existing income benefit base on some the price can increase in a calendar year. For many contracts, predetermined contract anniversary. In most cases, that however, there are no hard and fast rules governing would require a gain that—at the very least—is just higher increases or decreases to the rider charge. It’s imperative than the expenses and fees coming out. Given that most that advisors and clients understand the cost structures of these contracts have an all-in cost between 3 percent of these underlying guarantees. and 4 percent, when factoring in distributions in the range

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Cash settlements. More recently, some companies have proposed cash settlement offers to clients who are willing to release the insurer from its obligations. The offers vary in generosity, with the most lucrative extended to clients deemed to be the biggest risks. (A young couple insured with joint income, with a benefit base that far exceeds their actual account balance, would be a prime example.) In most cases, accepting the cash offer involves giving up all insurance aspects of the contract, including any guaranteed death benefit. When considering the value of any cash settlement offer, it’s important to analyze all features and benefits of the existing policy—including the income benefit base, distribution guarantees, and death benefit guarantees—relative to the on-the-fly pricing, restrictions on equity exposure, and less client’s situation. If the investor’s needs have shifted since aggressive rollup and distribution rates, as well as tighter the purchase of the original annuity and the existing rider restrictions on issue ages, make these riders more palatable no longer suits them, it may be worthwhile to accept the for insurance companies, even during periods of extreme additional infusion of cash. For older clients who have yet to volatility. Issuers of variable policies have also created start distributions, the window of opportunity to best utilize products that serve to further offset the risks of living benefit the guaranteed income rider may be closing, and it’s possible riders. Contracts with a focus on accumulation—stripped that the buyout offer might be appealing. But, assuming of all insurance guarantees, for example—help to diversify the investor’s needs are similar to when the contract was their annuity holdings and may even allow for greater first purchased, it’s unlikely that he or she would be able sales capacity on products with income guarantees. to find a competitive guarantee in today’s market, even with Although many carriers think they now “have it right” in the enhanced cash surrender value. Those investors—and the living benefit market, they’ll continue to try, as best most people likely fall into this category—are best served they can, to reduce the risk that some of the older products by staying in the policy they already own. carry. With that in mind, advisors should continue to monitor these changes to ensure that the policy is still the The Marketplace Now client’s best option. A far cry from the living benefits at their most aggressive, today’s riders are designed with significantly more levers Ethan Young is the manager of annuity research. He is that an insurance company can use to offset risk. Variable available at x9148 or at [email protected]

commonwealth.com For Advisor Use Only 27 Compliance & Regulation

Advisor Impact: Lifting the Ban on the General Solicitation of Reg D Offerings

ROB MOLINARI The JOBS Act, which was signed into law in April 2012, directed the SEC to issue rules eliminating the prohibition on the general solicitation and advertising of private placements that exist under Rule 506 of Regulation D. Final amendments to Rule 506 were released in July 2013, with an effective date of September 23, 2013.

When this was first announced, I received more than a The new rule. Instead of an outright elimination of the few calls from excited advisors. But as a person tasked ban on general solicitation in its implementation of the with managing risk to Commonwealth and our advisors’ JOBS Act, the SEC decided to create a new, additional livelihoods, this news created more anxiety than excitement Rule 506 exemption that allows for general solicitations for me. As updates to Regulation D were promulgated by while leaving the aforementioned exemption and conditions the SEC, my anxiety lessened, but there still remained a intact. The Rule 506 exemption that was enacted in 1982 has feeling that this could potentially put our advisors in become Rule 506(b), and the new exemption that allows some difficult situations. for general solicitation is Rule 506(c). Here’s the reason why I am no longer as anxious about Rule 506, Then and Now allowing general solicitations. On the surface, it may Most private placements offered through Commonwealth seem as if the Rule 506(c) exemption is more relaxed have relied upon the Regulation D Rule 506 private than Rule 506(b), but in fact Rule 506(c) has introduced offering exemption. two standards that will likely prove too burdensome for The original rule. Rule 506, originally enacted in issuers to choose to comply: 1982, permits issuers to offer and sell securities to an 1. Unlike former Rule 506, which allowed issuers unlimited number of accredited investors and to no to accept up to 35 nonaccredited investors, only more than 35 nonaccredited investors, with no limit accredited investors may purchase a private on the dollar amount of the offering, as long as all of placement security under new Rule 506(c). the following standards are met: 2. Issuers have an affirmative obligation to verify the • There is no general solicitation or advertising. accredited investor status of each investor should • Nonaccredited investors have “such knowledge and they choose to use new Rule 506(c). The SEC has experience in financial and business matters that identified four acceptable “principles-based” verification [they are] capable of evaluating the merits and risks methods upon which an issuer may rely, which are: of the prospective investment.” – Verifying a natural person’s accredited investor • Issuers provide nonaccredited investors with status on the basis of income by documenting disclosure documents that are generally the same the review of copies of an IRS form that reports as those used in registered offerings. income (e.g., W-2, 1099, 1040); • Issuers comply with the anti-fraud provisions of federal securities laws. – Verifying a natural person’s accredited investor status on the basis of net worth by evidencing the • Issuers adhere to specific financial review of one of the following (dated within the statement requirements. past three months): bank statements, brokerage • Purchasers receive restricted shares that cannot be statements, tax assessments, or appraisal reports sold for at least one year without registering them. issued by independent third parties;

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– Obtaining written confirmation from a registered may, however, provide factual or resource information to broker/dealer, RIA, attorney, or CPA, which in turn clients, which the clients may use to help make their own must evidence compliance with one of the two decisions about a security, provided that such information principles-based verification methods above; or is delivered in its original form and in its entirety, properly sourced, and not summarized or marked up in any way. – If a natural person invested in a Rule 506 offering as an accredited investor prior to the effective date Let’s examine both of these rules in more detail and lay of the Rule 506(c) offering and remains an investor out what you may and may not do. of the issuer, the issuer may obtain certification from the investor that he or she is still accredited. Rule 3040: Private Securities Transactions Thus, I expect most of the private offering issuers that of an Associated Person Commonwealth works with will decide to continue to This rule states that no person associated with a member issue securities pursuant to the existing parameters of Rule firm shall “participate” in any manner in a private securities 506(b) rather than under new Rule 506(c). transaction prior to providing written notice to the member firm with which he or she is associated. The written notice What Does This Mean for Advisors? must describe in detail the proposed transaction and the Although these restrictive standards reduce my anxiety person’s proposed role therein and state whether he or she over lifting the ban on general solicitations, I do think has received or may receive “selling compensation” in advisors could face difficult situations, and here is why. connection with the transaction. Issuers of Rule 506(c) securities will be allowed to advertise What does “participate” mean? As discussed in NASD via websites, social media, television, e-mail, cold calls, Notice to Members 01-79, participation in a securities mass mailings, newspapers, magazines, and the like. When transaction includes the act of making the sale. It also this realization sunk in, all I could think of is how the includes “referring customers, introducing customers to pharmaceutical company ads on TV and in magazines the issuer, arranging and/or participating in meetings must lead to a veritable cornucopia of questions for doctors between customers and the issuer, or receiving a referral about the advertised drugs. Likewise, I expect that when a or finder’s fee from the issuer.” client’s interest is piqued by an ad for a private placement What makes it a private securities transaction? To answer security, he or she will inevitably bring it to the advisor this question, it is helpful first to clarify the legal definition for advice or a recommendation. of a security. In SEC v. W. J. Howey Co., a landmark Supreme Court decision handed down in 1946, a security The ban on the prohibition of general (i.e., an “investment contract”) is defined as: solicitation and advertising means that 1. An investment of money you may start to receive more questions 2. In a common enterprise from clients on Reg D offerings. 3. With profits derived from the efforts of others A private securities transaction, therefore, involves an advisor’s participation in a security transaction Unfortunately, in accordance with NASD Conduct Rule that was not approved in advance and in writing by 3040 (private securities transactions) and FINRA Rule Commonwealth, was not recorded on the books and 2111 (suitability), as well as firm policy, if a security is records of Commonwealth, and was not supervised by not offered or approved by Commonwealth, an advisor Commonwealth as if the transaction had been executed may not provide a recommendation, opinion, or call to through Commonwealth. An advisor’s participation action or otherwise provide advice to a client about whether in such a transaction without prior written approval or not he or she should buy, sell, or hold the security. Advisors

commonwealth.com For Advisor Use Only 29 Compliance & Regulation

selling compensation, whether or not he or she receives compensation tied specifically to the private securities transaction in question. If Commonwealth’s Investment Research staff has reviewed a product’s performance and portfolio makeup, why can’t the advisor relay that information to the client and provide a recommendation? Broker/dealers are required to perform due diligence on a security prior to permitting any associated person to make a recommendation to an investor or prospective investor about the security. Due diligence involves more than reviewing performance and portfolio makeup from third-party sources. constitutes selling away. This is a serious violation of Rule 3040 and firm policy and one that can result in the advisor’s When our Investment Research team performs due immediate termination from Commonwealth for cause. diligence on a nontraded product, it conducts a thorough background investigation of the key people at the sponsor What if the advisor hasn’t received or doesn’t expect company. It also requires the product sponsor to complete to receive selling compensation? Advisors often believe a due diligence questionnaire, which Commonwealth that, if they did not receive a commission associated with reviews initially and on an ongoing basis. In addition, their participation in a private securities transaction, they Commonwealth reviews offering materials and other legal could not have violated Rule 3040. “Selling compensation,” documents, financial books and records, investment however, has a much broader definition. methodology, custodians and escrow agents, use of The rule states that selling compensation shall mean “any proceeds, existence and adequacy of insurance coverage, compensation paid directly or indirectly from whatever past disciplinary history, and more. Moreover, the source in connection with or as a result of the purchase process typically includes an on-site visit. or sale of a security, including, though not limited to, Further, there can be potential conflicts of interest that commissions; finder’s fees; securities or rights to acquire may not appear on the surface. For example, the advisor securities; rights of participation in profits, tax benefits, could recommend selling a security and receive no apparent or dissolution proceeds as a general partner or otherwise; compensation. But since there is a reasonable likelihood or expense reimbursements.” that the proceeds generated from the sale would be used In addition, FINRA has consistently held that an to purchase securities or provide advisory services for which advisor’s receipt of “anything of value” equates to selling the advisor would likely receive compensation, an underlying compensation under Rule 3040. According to FINRA, potential for compensation-based conflict exists. an existing client relationship between an advisor and an If a member firm were to approve participation in a investor automatically constitutes selling compensation private securities transaction, is there a books-and-records because the relationship itself is something of value. In requirement? Yes, as discussed above, Rule 3040 requires other words, if the transaction in question involves an any advisor’s participation in a private securities transaction existing client of the advisor or Commonwealth, it is for compensation to be recorded in the books and records automatically assumed that the advisor has received of the advisor’s broker/dealer. In addition, the firm must

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supervise the advisor’s participation in the transaction as What if the recommendation doesn’t lead to a if the transaction were actually executed through and on transaction? The applicability of the suitability rule behalf of the member firm. is triggered upon the recommendation of a security or an investment strategy involving a security or securities, Rule 2111: Suitability regardless of whether or not a transaction actually occurs. There are two aspects of FINRA’s Suitability Rule This would apply to explicit recommendations to sell, 2111 that apply to doing business in securities not buy, or hold. As discussed above, any call to action or offered by Commonwealth. The rule requires: inaction relating to buying, selling, or holding a security or following an investment strategy involving a security 1. Member firms to have a reasonable basis to believe would trigger the suitability obligations under FINRA’s that a recommended transaction or investment Suitability Rule 2111. strategy involving a security or securities is suitable for at least some of its customers; and May an advisor provide advice on unapproved products through Commonwealth’s Wealth 2. Advisors to have a reasonable basis to believe that a Management Consulting program? After all, it recommended transaction or investment strategy is an investment advisory service, and the service involving a security or securities is suitable for each is not conducted through the broker/dealer. No. customer in accordance with each customer’s unique Providing advice on securities that have not been approved investment profile. by Commonwealth is referenced as a “prohibited The due diligence that a member firm carries out on a consulting service” in Commonwealth’s Wealth particular product must provide, both to the advisor and Management Consulting Manual. An advisor who is to the member firm, an understanding of the potential both an investment adviser representative (IAR) and a risks and rewards associated with the recommended registered representative (RR) cannot put aside his or her security or strategy. So, for example, if Commonwealth obligations as an RR. FINRA’s suitability rule applies to does not perform sufficient due diligence on a security all RRs who make recommendations that relate to securities and form an understanding of the product’s risks and and investment strategies involving securities, even if rewards before the advisor recommends the security or done so while working in an investment advisory capacity. strategy, both the advisor and Commonwealth would In conclusion, although I expect most Reg D offerings to be in violation of the suitability rule. Even if the continue to be issued pursuant to the existing (though recommendation turned out to be the right call, the newly named) Rule 506(b) exemption, the ban on the advisor and Commonwealth would be deemed in violation prohibition of general solicitation and advertising means of the suitability rule if these obligations were not fully met. that you may start to receive more questions from clients If the recommendation ends up working out for the on these offerings. A thorough knowledge of what you may client, how can it be considered unsuitable? If no and may not do in response to such questions (as outlined firm-level due diligence were performed on the product in Rules 3040 and 2111) will stand you in good stead and sponsor, compliance with the rule would not have and help protect both your business and Commonwealth’s been satisfied. Moreover, the advisor most likely would from penalties under the law. not have reviewed the product offering documents and all relevant materials well enough to understand the Rob Molinari is the vice president of compliance. He is product and determine its suitability. available at x9828 or at [email protected].

commonwealth.com For Advisor Use Only 31 Four-Corner Marketing

Where the Real Magic Happens: Integrating Traditional and New Media Marketing

NICOLE LAMOUREUX-MILLER

If a client told you she wanted to invest all of her money in one asset class, or in a single security, you’d strongly recommend that she do anything but.

You might also wonder if she had some insider information or psychic premonition about the way the market was going to perform. Barring a crystal ball that shows one specific security or asset class prevailing over another, however, it makes sense for an investor to diversify. Then there’s the client who asks you for guarantees. “If I well-considered portfolio, a successful marketing plan has do X, will I get Y?” Now, as your friends in Compliance a mix of components that all blend (integrate) to create a have told you, you can’t offer guarantees. And for good whole greater than any individual part. reason—there is no magic bullet to investing success. In fact, when we hear someone who claims to have found Integrating Media and Communication Channels one, we’re rightfully skeptical. There are, however, some approaches to investing that are more successful than The Wikipedia entry on integrated marketing others, and most would agree that the concepts of asset communications explains the concept in a couple allocation and diversification fit that bill. of different ways: Why am I telling you things you already know? So 1. “[Integrated Marketing] is used practically to allow we can draw parallels between investing success and one medium’s weakness to be offset by another marketing success. medium’s strength, with elements synergized to support each other and create greater impact.” Everything and Nothing Works 2. “Instead of simply using various media to help tell a The Advisor Marketing team at Commonwealth fields brand’s overall story, with [integrated marketing] the calls daily from advisors looking for the “one thing that marketing leverages each communication channel’s really works”—the secret marketing device that will bring intrinsic strengths to achieve a greater impact together ideal clients en masse to your office door. From experience, than each channel could achieve individually.” I can tell you that everything works . . . and nothing works. When talking about channels and media, marketers Some marketers will disagree. They’ll say social media is the typically are referring to the following two categories: answer. Or advertising. Or having a direct mail campaign. Maybe they’re proponents of website offers, or print • Traditional: Print, television, radio, and direct mail. brochures, or radio, or seminars. They’re all right, except These methods have been around from the beginning, they’re missing one critical piece of information. There is and we tend to generalize them with one word—print. absolutely no one action that works in isolation. As with • New Media (or nontraditional): Website, social investing, there is no magic bullet to marketing success. media, e-mail, and multimedia, such as online videos No, the true magic of marketing takes place when one and podcasts. We can sum this all up as online. takes a diversified and integrated approach. Just like a

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opposite side of the fence; in other words, match a The intersection of these methods is where the magic happens! traditional tactic with a new tactic (see table). You don’t have to do everything all at once; you can step your way in to diversifying and integrating your activities as you get more comfortable. New Media Traditional Media Websites Print and directory advertising Traditional Media New Media Social media Outdoor advertising Online video and radio Live seminar Online webinar, podcast, or video Television and radio E-mail marketing advertising Print brochure E-brochure or website copy Direct mail Direct mail campaign E-mail campaign Print ad Online ad Placed article E-mailed article or e-newsletter Networking event LinkedIn or other social media Ensure consistent messaging. A critical component of the integrating marketing approach is that your messaging be consistent across all of the methods you use. If you are My suggestion is to focus on one initiative and see how placing ads in local publications that speak to your expertise many cost-effective and time-conscious ways you can in retirement income planning, but your website has nary market the messaging, combining both online and print a mention of this specialty, you have an issue. Worse, if methods. For example, if you are presenting a short seminar you’re using print material that does not reference your on diversification, you could: website—the method most consumers, regardless of age, • Advertise the event on your website. use today to learn more about you—you need to put • Create a postcard/mailer about your event or on the down this CBR immediately and fix this oversight! subject matter to garner interest. So, the first step in implementing an integrated and more • E-mail the invitation to a predetermined attendee effective marketing strategy is to take an objective look at list and encourage recipients to forward the message everything you’re doing and ensure that your messaging to a friend. is consistent. • Include a button on your website so participants can Mix and match your activities. Next, consider whether register/reserve a spot. or not you have a mix of marketing “levers” working for • Conduct an e-mail campaign around diversification you. Do you have a social media presence (if it makes for a set period of time. sense for your target market and your brand image)? Do • Post a follow-up piece on the subject on your website you also have some print advertising for brand awareness? for attendees to reference. Local brand awareness is easier to achieve than national • Write an article on diversification for your e-newsletter. awareness, and it is in line with most advisors’ strategies. How about targeted e-mail or mail campaigns for a • Share details on your LinkedIn and other social specific type of client or a particular need you can fulfill? media sites. Is that campaign tied to your website? For example, is • Ask participants to tweet the event to their followers. there a promotional item on your homepage or a link to • Share photos from the event (with appropriate more information? permission) on your website and/or social media sites. For any one activity you undertake, consider whether The good news is that most of your online media activities or not there may be a complementary activity on the will be free; the only spend is on your (or your staff ’s) time.

commonwealth.com For Advisor Use Only 33 Four-Corner Marketing

Next Steps If you need help putting together your integrated marketing My hope is that this all sounds intuitive and even a little bit plan, the Advisor Marketing team is only a phone call fun. But if you’re feeling a touch overwhelmed and aren’t (x9236) or an e-mail ([email protected]) sure where to find the material you need to implement away. Whether you have a specific objective in mind or integrated marketing, don’t fret. You can find a slew simply want to learn more about what’s available, we’re of resources in our Four-Corner Marketing tool on happy to lend a hand. In the meantime, leave the magic COMMunity Link®. In fact, if you check out the Bundles bullets to the charlatans and make good choices informed section, you’ll find several topical areas where we have by history and experience. already provided you with an integrated approach by including a mix of new and traditional marketing material. Nicole Lamoureux-Miller is the director of advisor marketing and marketing project management. She is available at x9153 or at [email protected].

The will to succeed is important, but what’s more important is the will to prepare. — Bobby Knight

34 For Advisor Use Only January/February 2014 Practice Management

Hiring and Mentoring: By Advisors, for Advisors

ANGELA C. SARVER

The interviewing and hiring process Describe the first steps you take when filling a position. can be one of an advisor’s most Gabe: We evaluate and update the job description, discussing challenging responsibilities. with staff the qualifications needed to fill the position, and then we post the job opening on Craigslist.com, with a job service, or with a local employment agency. We often hear advisors say, “I’m just not good at it.” When you think about it, though, the interview is simply Lynn: We review and update the job description. We let a means to obtain specific information. Just as you talk our employees know the type of candidate we’re looking with clients to determine their risk tolerance and financial for and request their referrals. We also check our archives goals, you speak with candidates to assess their skills, for résumés we’ve collected during other recruiting activities experience, and career aspirations. or by way of referral. When we don’t already have candidates in the process, we use CareerBuilder.com to post an ad. Proper preparation is one of the keys to maximizing the Occasionally, we will use a temporary-to-permanent interview process. This involves crafting effective questions, arrangement if the need is immediate and we need time assessing the experience listed on the résumé, and sharing to recruit a permanent person. information about your firm’s mission and vision. Phrasing questions properly and honing your listening skills and What techniques do you use to distinguish body language can make a significant difference in the responses candidates provide. qualified candidates from the others? Gabe: We review cover letters and résumés and rate them Here, we talk with two Commonwealth advisors, each on a scale of one to three, one being the highest. Depending with very different practices, who have particularly strong on the number of résumés we’ve received, all candidates processes for interviewing and hiring the right people for rated “one” are invited to come in for initial testing in their teams. areas such as spelling, grammar, filing, prioritizing, Gabe Lapito, co-owner of Strategic handwriting, typing, and math skills. Staff members are Retirement Plans in Billings, Montana, encouraged to greet the candidates and thank them for joined Commonwealth in 2007. The coming in. This allows us to create a memorable first firm’s expertise is in financial planning impression and to get a feel for their personalities. for retirees, with a focus on providing We look for candidates who demonstrate compatibility, exceptional service and results. Gabe competency, and character. We believe the first two can and his six team members are committed to helping be taught, but character must be demonstrated. clients protect their existing assets while pursuing their financial goals. Lynn: After reviewing the résumés for content, grammar, and skill set, we e-mail viable candidates an explanation of Lynn Weirich, cofounder and president the position and ask if they are interested in continuing of Business Financial Group in San in the process. We then send them an application and Antonio, Texas, joined Commonwealth in schedule a preliminary interview. Following that interview, we 2000. Launched in January 1998, BFG ask them to send us another e-mail answering three questions: has more than two dozen employees who support five areas of service to assist • What is your understanding of the position and the role? executives, business owners, and individual clients in 16 states. • Are you a good fit for the position and why? • What value would you bring to our firm and to our clients?

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If the responses are good, we send the applicant the Predictive Index (PI) and Total Testing profiles. We use the Total Testing website to evaluate Microsoft skills and problem solving, attention to detail, and math and language skills. After reviewing all of the test results, we schedule time with Practice Management to review the PI and to develop additional questions for the second interview. During the second interview, we involve other team members in the conversation to gauge the candidate’s fit with our firm.

Describe your interview process and why it is effective in helping you hire the right people. Gabe: The initial in-person meeting with a candidate Please share a best practice that has helped involves an array of tests and allows us (and the applicant) you in the interviewing/hiring process. to obtain a first impression. The tests are graded, and we Gabe: Access to the PI has been a huge help for us. We determine who will be called back for a one-on-one interview find it to be surprisingly accurate in describing a person’s with me. The third time a candidate comes to our office, behavior. Practice Management has the PI results for all we have narrowed the field down to two or three finalists. members of our staff, so with their help, we can predict The entire team sits in on the interview and has the how a candidate will work with others in our office. After opportunity to ask questions. Following the team interview, the candidate has been selected, we schedule a group call we discuss the candidate’s qualifications and make a decision. so the new employee can learn how we all operate with Lynn: The process is structured so that, regardless of the our different strengths. person conducting the interview, we are asking similar Lynn: We involve other team members in the interview questions, specific to past experiences that relate to the process when we’re serious about a candidate. While we job opening. That way, we can look at answers to similar explain to the team that the partners will make the ultimate questions and see where we find the best fit. We also get decision, we want their feedback in determining “cultural feedback from the receptionist and executive assistant fit.” Although we agree on specific questions they will ask, who are corresponding with the candidate on their so there is some structure, we do want it to be a “get to know experience with the person. you” session. We also find this helps build a relationship so that, when a person is hired, they feel more welcome when What other tools or resources do you use in the they arrive and are familiar with some of the team members. interview process? How do they help you in the selection process? How do you distinguish your firm as a Gabe: We use the Practice Management team a lot! They great place for candidates to work? help us stay on the straight and narrow regarding the legal Gabe: We offer competitive pay and generous benefits for side of hiring practices. They have numerous testing tools a small firm in our area. For example, we offer paid covered to offer, and they suggested Craigslist.com as a resource parking; a SIMPLE IRA plan; health savings accounts; for our search. group health, dental, vision, life, and long-term disability; Lynn: As previously noted, we conduct extensive testing and 15 annual PTO days that accrue monthly. On Mondays to help us make the best selection possible, based on the during the lunch hour, we usually have a staff meeting, candidate’s skills and competencies. which gives us the opportunity to catch up with each

36 For Advisor Use Only January/February 2014 Practice Management

Commonwealth Mentors: John Raybould — John Reid

Mentoring is an important extension of the hiring process because it often provides a way to promote career development. It’s not limited to the advisor/employee relationship, however; many successful mentoring relationships exist between advisors. Over the past year, we have featured Commonwealth advisors who, by sharing their stories and methods, have mentored other advisors looking to grow their practices. This month, we introduce John Raybould of Sterling Financial Group in Salt Lake City, Utah. Coming off of 23.9-percent business growth in 2012, John has focused on continuing that growth throughout 2013 and into the New Year. Looking back, John notes that 2008 was the year his firm’s growth truly took off. Ironically, he didn’t begin 2008 looking to add clients; rather, he wanted to continue improving the client experience through service. Through focused client conversations, John ensured that any referrals he received were ideal clients who would help define the future of his practice. “I have aligned myself with very dynamic individuals,” John explains. “My thought was to not only work with profitable clients but great people who make my day enjoyable. By defining what an ideal client looks like to me, often beyond revenue, I have clients who understand value and are quick to thank me and provide the right referrals.” John is clear in describing to clients who is a good prospective client and who may not be. In order to fully articulate his vision of an ideal client, John sometimes found himself role-playing with clients, which made him more confident having similar conversations with his clients’ friends and family. Having straightforward discussions up front has helped John reinforce the value of the client relationships while filtering out prospect meetings that may be less than ideal. In the early stages of his career, John says, the lack of a framework for client referrals and underpriced fees were shortcomings. “Two things have helped me,” he notes. “The first is the pricing of my services. If everybody thinks you’re charging the right price, then you’re too cheap. I’ve followed the rule that if less than 10 percent of your customers are telling you you’re charging too much, you’re not charging enough. “The second is the delegation of services. For example, I am not interested in simply being my clients’ investment manager. In fact, I’m not very good at it, so I delegate that role. When I found success, I realized there were certain things that I don’t do well. Realizing this got me to where I am a little bit quicker.” John also encourages a focus on the process of wealth management, not just the result: “My clients understand it’s a process and not an event,” he says. “Accumulation to distribution is a long-term process that needs to be understood as such or else there is an outcome bias. This focus makes people more rational in their decision-making. Making the right decisions to solve problems for clients also means helping the client to make the right decisions. There’s mutual accountability—success cannot be determined entirely by me.” John backs up his process with a systematic program based on cash flow models to depict retirement goals for clients. Clients understand that there are a variety of factors that will determine their success in reaching their financial goals, not just one thing. They recognize that the work John and his team do throughout the course of the process adds tremendous value to their lives. John Reid is an associate consultant in Practice Management. He is available at x9862 or at [email protected].

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other. We also use this time to discuss attributes such as Is mentoring part of your culture? attentiveness, creativity, decisiveness, honor, loyalty, sincerity, How do you bring it to life? tolerance, and wisdom that help us to make smart and Gabe: Although we don’t have a formal mentoring ethical decisions. This exercise also helps us connect and program, it does occur organically as more experienced work more cohesively as a team. employees work with new employees to help them Lynn: We try to make the experience positive and understand our systems and processes. If employees interesting. We spend time talking about the team express interest in moving within the company, we work members, showing our picture brochure, and describing with them to determine what makes sense given the the culture and our mission. We also illustrate the career business needs and their skills, and then we develop a path options they will have and review our benefits mentoring type of arrangement. program, which is quite extensive. Lynn: Yes, not only within the culture, but we are also involved in mentoring students through various programs How do you mentor your employees for such as the National Association of Women Business Owners new opportunities within your firm? and the CPA society’s Junior Duel program. In addition, Gabe: We’re always looking for ways to work smarter, we have interns each summer and some throughout the not harder. We encourage our employees to embrace the school year. We ask our associates to help us mentor and philosophy “If it’s not broken, break it and make it better.” guide them. The interns prepare a summary of their Generally, during a new employee’s first week in the office, experiences that we share with all employees at our weekly he or she shadows a person who knows the job. We’ve meetings so they know they are making a difference. found that most of our new hires learn by seeing first and As these advisors’ experiences show, communication is then doing. This process allows them to expand their skills a critical factor for success, whether you are assessing a and confidence and prepares them for the next steps. New candidate’s skills or mentoring an employee or another hires are also required to study for their FINRA Series 7 and advisor. Being clear about what you want and expect Series 66 exams, which builds their knowledge of our business. defines your success, as well as the success of your staff Lynn: We start talking about the career path process right and clients. away, encouraging new hires to set their own goals for achievement. Then we set target dates to get back together Angela C. Sarver is the supervisor of practice management. and review how they are doing. We also make new employees She is available at x9873 or at [email protected]. feel welcome by having different groups of staff take them to lunch during their first few weeks. Natural relationships form, and team members help mentor each other.

38 For Advisor Use Only January/February 2014 The Bulletin Board

Commonwealth Cares: Spreading Messages of Hope

PAULA O’SHAUGHNESSY Commonwealth ended our year of had spent all of their resources keeping their children alive that a box of crayons was a luxury item. Thus, the giving as we started it—with a bang Happy Hope Bag project was born. and great accomplishments. Last year, the The Commonwealth Cares foundation partnered Fund, Inc., is a registered As we embark on a new journey in 2014, we are thankful 501(c)(3) charity dedicated to with thousands of for the opportunity we have to make a difference in the empowering all of our future school children and communities in which we work and live. corporate philanthropic efforts. corporate sponsors Its goals are simple: to relieve to fill and distribute Some of our standout accomplishments in 2013 included human suffering, promote 5,000 hope bags full raising more than a quarter of a million dollars, through social and economic growth, and sustain and protect our of games and activity both employee and advisor donations, to aid those tragically planet’s resources. books. The goal for injured in the Boston Marathon bombings; collecting more 2014 is 15,000 hope than 2,000 pounds of food for the Sacred Heart Food Pantry For more information, including how you can make bags. With sponsors in Waltham, Massachusetts; reading to children during a donation, visit the Community like UPS and partners lunch to promote and aid literacy initiatives; making wishes tab on COMMunity Link®. like Dana-Farber come true for young children battling chronic or terminal Cancer Institute, illness; and contributing to the host community of each and Massachusetts General Hospital, and Boston Children’s every one of the conferences we held throughout the year. Hospital, the Happy Hope Bag project is well on its way to spreading Conor’s spirit of hope to hospitalized children Spreading Hope and families in Massachusetts and throughout the country. One of the new organizations we’re excited to work with in 2014 is the Message of Hope Foundation, Join Us in Our Journey www.messageofhopefoundation.org, whose mission Commonwealth’s philanthropic efforts have always been is to deliver hope to children with special needs and part of the fabric of our community and continue to chronic illnesses. Founder Emi Burke has experienced distinguish our Anything but Common® culture. We the importance of this mission firsthand and now works look forward to a great year, with continued efforts in our to encourage health care providers to consider the power longstanding programs, as well as in those newly created, of hope in overcoming medical adversity. and we’re excited to work alongside you to give back to When her youngest son, Conor, was 1 year old, doctors those in need. told her and her husband that Conor would never sit, If you’re interested in learning more about Commonwealth crawl, walk, or speak. They were advised to put him in a Cares, or if you would like to share your own efforts to facility so that he wouldn’t be a burden on their family. The support your community, please contact me, or reach Burkes refused to give up on their son, however, and in the out to Commonwealth Cares chair Gavin Morrissey at last six years, Conor has defied all the odds. In 2009, he x9719 or at [email protected]. was one of the first recipients of a stem cell infusion for brain regeneration. Two weeks after that infusion, Conor Paula O’Shaughnessy is a senior human resources generalist got out of his wheelchair and started walking. and a Commonwealth Cares board member. She is available During one of Conor’s hospitalizations, Emi noticed dozens at x9276 or at [email protected]. of children with no activities to keep them occupied—not even crayons or coloring books. She was told their families

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2014 Top Producer Meeting Qualifiers

Chairman’s Retreat Qualifiers* Congratulations to the following advisors who qualified for Commonwealth’s 2014 Chairman’s Retreat.

Julie Andrews Robert Ellis David Navarro Alexandra Armstrong Will Ellis Mike Ovshak Alp Atabek Ray Evans David Rampello John Augustine Paul Ferrucci John Raybould Carl Bailey Rich C. Fitzer Dave Root Jim Ball Sean Flynn Steve Rudolph Tom Bartholomew Johannes Fure Jeff Segal Stuart Benjamin Lisa Hayes Andy Serafini Joe Bonasera Tom Hine Shelley Seward Debra Brede Bruce Hosler Ashok Shendure Tim Brennan Richard Kass Matt Somberg Charles Brown Michael Kessler Rick Tonkinson Wade Carpenter Marty Kossoff Paul Verderese Joe Chornyak Sr. Kevin Lange Craig Verdi Carrie Coghill John Ledford Michael Ward Bob Condon Bill Leeb Gary Williams Nick Cosentino Brad Levin Jon Wolff Jeffrey DeBoer Mike Marchese Dan Wyson Kim Dignum Paul Miller David Young Sharon Duncan Randy Morris Mark Egidio Al Muskat

Commonwealth’s 2014 Chairman’s Retreat will be held March 13–15 at the Wynn Las Vegas in Nevada. *Qualifiers produced more than $1.35 million in production in 2013.

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Leaders Conference Qualifiers* Congratulations to the following advisors who qualified for Commonwealth’s 2014 Leaders Conference.

Michael Addessi Robert Ellis Gabe Lapito Julie Andrews Will Ellis Leo Lapito Alexandra Armstrong Gene Ellison Gregg Layer Alp Atabek Scott English Scott LeClaire John Augustine Ray Evans John Ledford Carl Bailey Greg Farland Bill Leeb Jim Ball Michael Fein Jon Leman Tom Bartholomew David Ferrucci Richard Lepine Stuart Benjamin Brian Fischer Brad Levin Justin Bitner Rich C. Fitzer Jeff Loring Joe Bonasera Stew Flaherty Michael Manning Debra Brede Ryan Fleming Mike Marchese Tim Brennan Sean Flynn Ralph Margel Charles Brown Curt Francisco Roger Merrill Mark Bryant Johannes Fure Cathy Miller Eileen Burkhart Dan Gilbertson Paul Miller Joe Cahill Mitch Glicksman Randy Morris Wade Carpenter Helen Goldstein Jimmy Morris Joe Chornyak Sr. Josh Gottfried Jeff Moscaret Carrie Coghill Ed Grogan Nathan Munits Bob Condon Robert Haley Al Muskat Tom Conway Lisa Hayes David Navarro Nick Cosentino Tom Hine Tim Newton Joe Cox Tom Hoban Wes Nicholson Bill Creveling Bruce Hosler Kevin O’Brien Jeffrey DeBoer Jeff Karelis Chuck Olsen Chuck DeNormandie Richard Kass Mike Ovshak Jay Diamond Lisa Keaton Charlie Parks Kevin Dick Michael Kessler Michael Pierce Kim Dignum Marty Kossoff Jon Pinnock Fred Dunbar Michael Kusick David Powell Sharon Duncan Mike Lambrix Paul Pradel Mark Egidio Kevin Lange Matt Ramer

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Leaders Conference Qualifiers* (continued)

David Rampello Marta Shen Jim Trull John Raybould Ashok Shendure Paul Verderese Randy Risler Raj Shendure Craig Verdi Dan Roberts Larry Sherman Michael Ward Dave Root Matt Somberg Tim Weller Steve Rudolph Don Sowa Art Widmann Jim Santos Edna Steidinger Gary Williams Jeff Scales Steve Stocker Jon Wolff Wayne Schluchter Mark Stoneburner Dan Wyson Jeff Segal Gerard Suarez David Young Andy Serafini Elizabeth Thorley Shelley Seward Rick Tonkinson

Commonwealth’s 2014 Leaders Conference will be held June 15–20 at the Penha Longa, a Ritz-Carlton Resort, Estrada da Lagoa Azul, Linhó, Portugal. *Qualifiers produced more than $1 million in production in 2013.

President’s Club Qualifiers* Congratulations to the following advisors who qualified for Commonwealth’s 2014 President’s Club.

Rob Abel Cliff Caplan Andrew Drago John Adamczuk Mark Catrabone Guy Dugas Barbara Allison Todd Chamberlain Scott Eglseder Barbara Appleby Bryan Chew Scott Ellingson John Bacci Seth Cohan Mike Fleming Nelson Ball Chris Collins Brant Ford Rondi Bennett Brendan Conry Chris Fraga Ed Benz Dan Cook Neville Frankel Bill Bestgen Jim Cox Jim Galante Robert Blakely Bryan Crabtree Paul Garrett Keith Blakeman Nick Daniel Todd George Stephen Blanchette Larry DeGraaf John Gingas Leo Boisvert John DelVecchio Jill Greenberg Gary Bragg Jim Diamond John Gunning Jack Cannata Mike Doherty Kathy Hamm

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President’s Club Qualifiers* (continued)

Richard Hana Shawn Monty Bob Sponseller Kevin Handford Mary Moore Andrea Stackland-Winterer Ross Haycock Dennis Morin Cary Stamp Mike Hefner Dan Murphy John Steiger Rick Henderson Melissa Myers Ed Stiles Greg Hinkson Russ Olson Joe Sullivan David Hoffmann Jim O’Sullivan Kerri Sullivan-Kreiss Jared Horner Ted Perry Nathaniel Tilton Bruce Horowitz Jerry Randisi Steven Tonkinson Bennett Jared Barry Ransick Andy Tupler Matt Jessup Steve Sant JT Tyrrell Malissia Johnson Wade Sarkis Jon Walton Ben Jones Rick Schwartzbard Peter Weiler Brian Keister Steve Seide Jim Werst Joe Leonczyk Greg Shields Andy Wheeler Jeremy Lobo Gail Simons Craig Whitbeck Valentine Lynch Mark Singer Kurt Whitesell Peter Manning Matt Sliwa Jan Wise Tom McCarthy John L. Smallwood Hal Michels Ed Sokolowski Eileen Monahan Rick Speicher

Commonwealth’s 2014 President’s Club will be held April 29–May 4 at the Grand Hyatt Kauai in Koloa, Hawaii. *Qualifiers produced more than $775,000 in production in 2013.

Summit Club Qualifiers* Congratulations to the following advisors who qualified for Commonwealth’s 2014 Summit Club.

Maurice Acriche Mike Baker Russell Bell Shane Ailes Dan Ball Dan Berglund Mike Alfstad Jerry Barbalatt Jack Bevilacqua Bryan Amandolare Heath Bartlett Mark Boldeia Anthony Assante Paul Beatty Chris Borden Nan Bailey Rick Beebe Alan Brachfeld Dick Baker Jesse Bell Peter Brent

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Summit Club Qualifiers* (continued)

Bob Bruce Bob Harris Richard Pecson Darrell Canby Erik Heben Eric Peterson Alan Chase Donald Hehir Marcus Pinnock Joe Chornyak Jr. Chris Hensel Ted Porter Mark Colgan Richard Hertzberg Norm Poulin Vic Conrad Mike Hodge Brad Pratt Joe Conway Andy Hoff Nichole Raftopoulos Scott Cooper Brett Hoffman Rex Rexroad Dennis Coughlin Jon Hoy Bob Rice Ray Croteau Tina Huston Dan Romaine Lori Daff-Siggins Stacey Hyde Leslie Roper Day George Darling Lou Ingargiola Ben Roth Rob DeHollander Trevor Kern Bob Roy Scott Dolitsky Dan Kutzke Louis Rusinowitz Ray Dunlap Jed Liebert Scott Schutte Dean Elliott Joe Little Bob Sherr Dave Fedor Jim Lynch Scot Shyman Peter Fendler Kris Maksimovich Shannon Staiger Mike Finnell Carol Malone Stan Steinberg Phil Fluegge Sal Maniscalco Trygve Stout Stephen Frank Joe Matza Shannon Taggart Chris Giambrone Tom McDavitt Giles Thompson Don Graham Jim McKee Jeff Voit Joel Greenwald Brian McKenney Jim Weiss Rick Greenwood Pete Miccoli Steve Wendt Trent Grinkmeyer Eloy Nava Ryan Wibberley Irwin Gross John Nguyen Larry Wilson Richard Grund Jamie O’Hearn Randall Wilson Steve Guglielmetti Mindy Pakulski Laurence Hale Chris Pascale

Commonwealth’s 2014 Summit Club will be held March 26–30 at Omni Scottsdale Resort & Spa at Montelucia in Scottsdale, Arizona. *Qualifiers produced more than $625,000 in production in 2013.

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Winners Circle Qualifiers* Congratulations to the following advisors who qualified for Commonwealth’s 2014 Winners Circle.

Dave Adams Al Gilbert Larry McCarty Walt Anderson Gwen Gloeckner Bob McMahon Ed Bayarski Doug Glynn Mike McNaughton Steven Beauvais Mike Gould Jeff Migneault Megan Benison Bob Hanna Bill Mixdorf Jeff Bennert Jon Harris Sean Monahan John Biestek Carl Hefflefinger Pamela Monetti David Boyden Dan Heitzman Sean Montgomery Len Brodsky Lynn Hendricks Shabri Moore Tom Brooks Bryn Henry Marilyn Morrison Sean Brown Jeffrey Heveroh Stewart Moscov Jack Buckley Dick Hildebrand Bob Nash Dick Bulger Shawn Hill Roberta Nestor Marciel Camacho Rob Hoey Tom O’Keefe Matt Campbell Charlie Hoffmann Gary Osentoski Mike Canfield John Holtzman Robert Penn Matt Catrabone Mark Hughes Chris Perry Cap Clegg Jeff Isaacson John Peters Greg Clifton Ken Johnson Erle Petrie Rich Colarossi Brian Joyce Mark Phillips Paul Cooper Mike Kalas Gary Porter Bobby Cummings Rich Kalina Chris Powers Garrett Cunningham Steve Kane Jason Reesey Kevin DeAngelis Jean Kelley Christopher Rivers Keith Deyo Ted Kerr Ron Robins Tim DiSette David Lee Joe Romano Eric Elek Bill Lewis Theresa Rosen Ray Emery Tom Liguzinski Steve Samuel Doug Feller Brian MacLean Paul Santucci Mike Fitzwilliam Deb Maloy Thomas Savone Sid Franks Christopher Masso Dan Schmitz Clay Frey Jose Matos Jake Short Stephanie Gale Bob Mauk Matthew Simard

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Winners Circle Qualifiers* (continued)

Ross Smith Dan Tucker Ed Warren Mark Sparhawk Suzanne Uhl-Melanson John Weibler Jon Sweet Dennis Vaughan Jason Wheeler Kristina TenEyck Bob Walczak Bert Williams John Torrence Dave Ward Alan Zartarian

Commonwealth’s 2014 Winners Circle will be held March 31–April 4 at The Wigwam in Litchfield Park, Arizona. *Qualifiers produced more than $525,000 in production in 2013.

Business Experience Qualifiers* Congratulations to the following advisors who qualified for Commonwealth’s 2014 Business Experience.

Steven Andrews Tim Duncan Terry Heimes Doug Bambeck Greg Eissner John Higgins Andy Barkley Todd Emoff Jerry Hupp Christian Benard John Ernst Bentley Hutchings David Berman Dave Erwin Eric Hutchinson John Bernards Dennis Fergusson Joe Jandreau David Biffen John Ferrante Jim Kelley Sharon Binstok Mike Finfgeld Susan Kendall Christian Bishop Scott Fishman Jim Kenning Magnus Brandfors Brad French Robert Krensky Christine Byrne Chris Fusselman Kenneth Lane Kevin Carbin Mark Gallagher Joe Lowry Jr. Rick Cernohorsky Dan Gannon Joe Lowry Sr. Bill Clement Chris Goetz Jacob Mack Michael Comstock Sean Gross Stan Majkrzak Brian Connelly Daniel Grossman Diane Maloney Kevin Davenport Kristin Guibord Eric Martin Andy Davies Chris Gullotti Ruth Matt Summer Deal Jae Ha Ryan McCall Chris DeRuyver David Haas Sean McCann Margie Determan Michael Hartman Louis Merkle Bob Donaldson Jim Haskins Scott Meyerson Ed Duffy John Hauserman Pete Miller

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Business Experience Qualifiers* (continued)

Chris Moran Dave Primozich James Taylor Bruce Moskowitz Bill Prue Alan Testa Sally Munford Craig Pulliam Peter Tsukazaki Lane Nakashima Judy Redpath Paul Vardoulakis Ronald Newton Bill Rice Tom Virostek Kevin O’Donnell Dale Rice Scott Walton Eric Otto Craig Richman Charles Warren Scott Parkhurst Robin Rogers Chad Weber Matt Parsons Cheryl Sparks Cliff Westberg Joshua Paul Bob Stern Nick Wilkins Howie Pentony Nick Strom-Olsen Jamie Williams Jerry Perfect Rick Stuller Tom Williams Bob Perimian Todd Sturman Paul Williamson Craig Petti Guy Swain Dean Wilson Bryan Pratt Jared Sweitzer John Yee Brian Prichard John Tauss Anat Yoder Sue Priem Barbara Taylor Kim Zwick

Commonwealth’s 2014 Business Experience will be held May 14–17 at the Fairmont Washington, D.C., Georgetown in Washington, DC. *Qualifiers produced more than $450,000 in production in 2013.

Century Club Qualifiers* Congratulations to the following Commonwealth advisors who qualified for Century Club.

Shane Ailes Bruce Horowitz Charlie Murphy Garrett Cunningham Sumant Lall Marcus Pinnock Andy Davies Gary Lavallee Nichole Raftopoulos John DiMatteo Michael Manning John Raybould Marty Gaughan Kip Matteson Dick Sawyer Irwin Gross Pete Miccoli Cary Stamp Shawn Hill Shabri Moore Mark Stoneburner

A celebratory dinner hosted by senior management, recognition awards, and tuition waivers at educational symposiums are a few of the benefits given to Century Club qualifiers. *Advisors must have $100,000 in net revenue from insurance products through December 31, 2013.

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A Welcome to New Advisors

ANDREW DANIELS

Please welcome the following advisors who have recently joined us.

Name Former B/D

Lina Bowman, Grosse Pointe, MI Sigma Financial Tom Butler, Wexford, PA Allegheny Investments Joe Cahill, Quincy, MA First Allied Securities Rich Colarossi, Islandia, NY NFP Securities Kevin Davenport, Cleveland, OH Northwestern Mutual Ralph Duckworth, Wexford, PA Allegheny Investments Matt Dupon, Pasadena, CA Cetera Advisor Networks Norm Dupon, Pasadena, CA Cetera Advisor Networks David Haas, Shoreview, MN LPL Financial Sean Montgomery, Covina, CA Cetera Advisor Networks Ted Nebel, Chicago, IL Ausdal Financial Partners Matt Ramer, Philadelphia, PA Morgan Stanley Ryan Tyrell, Conshohocken, PA Cetera Advisor Networks Tom Williams, Islandia, NY NFP Securities

Andrew Daniels is Commonwealth’s managing principal of business development.

48 For Advisor Use Only January/February 2014 The Bulletin Board

Looking Forward to These Events . . .

Date Meeting Location Contact March 5–7, 2014 Commonwealth 101 Commonwealth Sherri Taylor, x9965 Waltham, MA March 13–15, 2014 Chairman’s Retreat Wynn Las Vegas Louise Santry, x9337 Las Vegas, NV Michelle Lovely, x9875 March 26–30, 2014 Summit Club Omni Resort & Spa Jessica Fougere, x9366 at Montelucia Louise Santry, x9337 Scottsdale, AZ March 31–April 4, 2014 Winners Circle The Wigwam Lauren Callahan, x9445 Litchfield Park, AZ Kristen Malone, x9889 April 29–May 4, 2014 President’s Club Grand Hyatt Kauai Lauren Callahan, x9445 Koloa, HI Mike La Vita, x9894 May 14–17, 2014 Business Experience Fairmont Washington, D.C., Louise Santry, x9337 Georgetown Mike La Vita, x9894 Washington, DC June 1–3, 2014 Retirement Symposium Renaissance Boston Kristen Malone, x9889 Waterfront Boston, MA June 15–20, 2014 Leaders Conference Penha Longa Resort Jessica Fougere, x9366 Estrada da Lagoa Azul Michelle Lovely, x9875 Linhó, Portugal June 27–29, 2014 Business Focus Forum Renaissance Boston Louise Santry, x9337 Waterfront Boston, MA October 6–9, 2014 National Conference JW Marriott Orlando, Karen Tucker, x9463 Grande Lakes Orlando, FL

For more information, visit My Practice > Education > Conferences & Events on COMMunity Link®.

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Top 10 Clubs

Combined Production Below are the 10 highest-producing Commonwealth advisors for November and December based on equity, RIA, and insurance business. November 2013 December 2013 1. Tom Bartholomew 6. David Young 1. Tom Bartholomew 6. Bennett Jared 2. Summer Deal 7. Mike Marchese 2. Debra Brede 7. Nick Cosentino 3. Debra Brede 8. Jim Ball 3. Paul Miller 8. Mark Egidio 4. Dan Wyson 9. Andy Serafini 4. Mike Marchese 9. Jared Horner 5. Paul Miller 10. Kevin Lange 5. John Raybould 10. Sharon Duncan

Insurance Below are the 10 highest-producing Commonwealth advisors for November and December based on insurance business. November 2013 December 2013 1. Bruce Horowitz 6. Irwin Gross 1. Bruce Horowitz 6. Ryan Anderson 2. Andy Davies 7. John DiMatteo 2. Mark Stoneburner 7. Cary Stamp 3. Cary Stamp 8. Kip Matteson 3. Garrett Cunningham 8. Jason LaBelle 4. Charlie Murphy 9. Gary Lavallee 4. Gary Lavallee 9. Rex Rexroad 5. Shawn Hill 10. Marty Gaughan 5. Bill Rice 10. William Whelton

Preferred Portfolio Services® (PPS) Below are the 10 highest-producing Commonwealth advisors for November and December based on new PPS assets under management. (Advisors must have been with Commonwealth for at least 90 days to be eligible.) November 2013 December 2013 1. Bruce Laxer 6. Michael Addessi 1. Marty Kossoff 6. Tom Bartholomew 2. Todd Chamberlain 7. Ed Grogan 2. John Raybould 7. Eric Martin 3. Ed Sokolowski 8. Jon Pinnock 3. Debra Brede 8. Kim Zwick 4. Rex Rexroad 9. Shawn Hill 4. David Lee 9. Craig Verdi 5. Jeffrey DeBoer 10. John Raybould 5. Dan Roberts 10. Randy Morris

Wealth Management Consulting Below are the 10 highest-producing Commonwealth advisors for November and December based on Wealth Management Consulting business. November 2013 December 2013 1. Judy Redpath 6. Jeffrey Heveroh 1. John Raybould 6. Jay Diamond 2. Donald Hehir 7. Tim Nenninger 2. Eileen Burkhart 7. Shawn Hill 3. Eileen Burkhart 8. Pamela Monetti 3. Donald Hehir 8. Tom Liguzinski 4. Kim Moore 9. Randy Morris 4. Barry Shapiro 9. Kerri Sullivan-Kreiss 5. John Raybould 10. Marcus Pinnock 5. Marcus Pinnock 10. Rob Abel

50 For Advisor Use Only January/February 2014 Directory Call Us Direct: 800.251.0080 (Waltham) 877.347.1983 (San Diego)

Account Services, x9992 Legal, x9323 Cashiering Fields inquiries from Commonwealth advisors and employees on a wide variety of Responsible for all checks and securities deposited into NFS accounts, check and legal issues, manages outside counsel, and processes any matter of a legal nature. fed wire disbursements (excluding NFS retirement accounts), journals between NFS accounts, write-offs, and SSRs. Licensing, x9994 Data Integrity Maintains the securities registration and insurance licensing information for Maintains data utilized in many areas of Client360°, ® creates and distributes PPS advisors and home office staff. quarterly statements, and maintains Commonwealth’s proprietary performance reporting application. Practice Management, x9330 Direct Investments Responsible for the suitability review and approval of all directly held accounts Consults with advisors on matters important to running a business, including and brokerage business. business planning and goal setting, operational efficiency, succession planning, New Accounts production growth, and more. In addition to opening new accounts, responsible for adding and removing special account features and backing up the Service Center phone queue. Reception, x9494 Retirement Operations Friendly front-desk associates stand ready to direct your call to the most Responsible for processing of retirement distributions according to IRS appropriate person. regulations. Processes one-time and periodic distribution requests for all NFS prototype, Delaware Charter 403(b), and Pershing accounts. Recruiting and Transition Service Center Recruiting, x9195 Go-to call center for account services issues, including PPS Custom, transfers of Shares the Commonwealth story with prospective advisors through phone assets, new accounts, retirement, cashiering, trading, and direct investments. calls, e-mails, local office visits, and home office visits and works to determine Transfer of Assets whether there is a mutually good fit. Processes and tracks all incoming and outgoing transfers at Commonwealth. Transition, x9113 Primary contacts for transitioning advisors during their first few months Trade Desk, x9991 at Commonwealth, helping them acclimate to the firm, especially on the Executes all securities transactions within clients’ brokerage accounts; also operations side of the business. facilitates other investment transactions and answers market-related questions from the field. Technology HelpDesk, x9995 First line of support for technical issues advisors might be having with Compensation, x9990 Commonwealth-related technology products. Also provides technical support Ensures that affiliated advisors get paid for their securities and insurance business. and consultation on general technology issues. Open Monday through Friday, 8:00 a.m.–10:00 p.m. ET, and Saturday, 9:00 a.m.–5:00 p.m. ET. Advisory Services Wealth Management Advisory Fees, x9424, option 2 Calculates PPS quarterly and prorated management fees, one-time development Advanced Planning, x9415, option 6 fees, and closed and house account rebates. Also processes Wealth Management Researches technical issues, assists in advanced case design, and coordinates Consulting business and the collection of advisory fees for advisors running the expertise of home office specialists to solve clients’ planning problems. their own asset management programs at Commonwealth. Annuity Research, x9415, option 2 PPS Direct Operations, x9424, option 3 Works with variable, traditional fixed, and equity-indexed annuities and assists Involved in the day-to-day running of the PPS Direct and Select platforms, advisors with case planning, product inquiries, and sales ideas. including opening accounts and handling service requests. Insurance: Consultants/Case Design, x9914 Designs solutions using insurer-specific software and own industry knowledge, prequalifying clients’ medical histories along the way and helping to design Conferences and Events, x9463 proposals specific to each client. Oversees the million and one details necessary to successfully host exclusive Insurance: Operations/Case Managers, x9915 events for our advisors, as well as company-wide events for home office staff. Guides insurance applications through the entire underwriting process. Investment Consulting Services, x9415, option 1 Marketing and PR Assists advisors on a wide array of products and platforms in the wealth Advisor Marketing, x9236 management arena, including the PPS platform. Works directly with advisors and Commonwealth’s product and service areas Investment Research, x9415, option 4 to create customized marketing material for clients and educational material Provides expertise and advice on a variety of investment products and subjects, for advisors. helping advisors satisfy their clients’ diverse needs. Corporate Marketing, x9363 Retirement Consulting Services, x9415, option 5 As chief steward of the Commonwealth brand, promotes Commonwealth as Supports your retirement business by providing access to the best products, “the premier provider of high-end services to high-end advisors.” resources, and expertise. Public Relations, x9584 Creates consistent, positive media coverage of Commonwealth that reflects West Coast Operations our brand and enhances our recruiting efforts. Departments in our San Diego office include Cashiering, Compliance, Direct Investments, New Accounts, PPS, Recruiting and Transition, Retirement, the Compliance, x9603 Service Center, the Technology HelpDesk, TOA, and the Trade Desk. Each one Provides ongoing training, guidance, and support to all advisors and their mirrors many of the same workflows and functions as at the Waltham home staff, as well as internal departments, to help ensure ongoing compliance office. Open Monday through Thursday, 8:00 a.m.–5:00 p.m. PT, and Friday, with industry requirements and best practices. 8:00 a.m.–4:30 p.m. PT.

E-MAIL GenerallyBULLETIN speaking, BOARD Commonwealth staff e-mail addresses are as follows: [first initial][last name]@commonwealth.com For example, Kol Birke’s e-mail address is: [email protected] Commonwealth Financial Network 29 Sawyer Road Waltham, MA 02453-3483

WALTHAM OFFICE 29 SAWYER ROAD WALTHAM, MA 02453-3483 TOLL-FREE: 866.462.3638 PHONE: 781.736.0700 MAIN FAX: 781.736.0793

SAN DIEGO OFFICE 110 WEST A STREET, SUITE 1800 SAN DIEGO, CA 92101-3706 TOLL-FREE: 866.462.3638 PHONE: 619.471.9700 MAIN FAX: 619.471.9701

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