Trying to drive the FPA to tiers

Classify advisers by level of advice, investment counseling guru urges

by Brooke Southall

The Financial Planning Association should group advisers into two distinct categories — fiduciaries and non-fiduciaries — insists a leader in the investment counseling field.

     Donald B. Trone, director of the Center for Fiduciary Studies in Sewickley, Pa., says that advisers who provide “comprehensive and continuous investment advice” can be categorized as fiduciaries, while advisers who market advice piecemeal are non-fiduciaries.

     For instance, advisers fit the latter group if they assist a customer merely in selecting mutual funds during a 401(k) rollover.

     Mr. Trone is the first to admit he’s on a mission that pushes the limits of bureaucratic capability.

     But he feels he is uniquely qualified to speak out on this issue. He is the only one of the 15 members of the Department of Labor’s Advisory Council on Employee Welfare and Pension Benefits Plans who represents the investment counseling industry.

     CLEARER DESIGNATIONS
     Mr. Trone says the nation is ready to look to a body of professionals who are trustworthy, competent and accountable to investors.

     While Duane Thompson, the FPA’s Washington-based group director of advocacy, doesn’t disagree with Mr. Trone’s vision of bifurcating the advising world into fiduciaries and non-fiduciaries, he doubts it is his organization’s ball to run with. “That’s really a job for the courts and the Congress and the CFP Board. The FPA can’t do it alone.”

     Mr. Trone says it does no good for Mr. Thompson or his FPA colleagues to wait around for others to take action. For one thing, he says, the Certified Financial Planner Board of Standards Inc. in Denver doesn’t have enough jurisdiction. Many planners and brokers don’t hold a CFP designation.

     Meanwhile, Mr. Trone says, new legislation that demands the participation of fiduciaries in managing the nation’s $5 trillion in corporate retirement funds is coming down the pike rapidly.

     In particular, Section 105 of HR-1000, a bill in the House of Representatives, encourages plan sponsors to ensure that investment advisers give participants specific advice. But it also demands that those advisers meet fiduciary standards.

     “The FPA should be all over this,” Mr. Trone says. “But it brings them back to: How do we deliver a standard of care?”

     But Mark Tibergien, partner with the Seattle-based accounting firm Moss Adams LLP, says that Mr. Trone’s call for clearer designations could take financial planning industry down a dangerous path.

     “It’s important that people who don’t live up to the standards get exposed to the people who do,” says Mr. Tibergien, a consultant to financial planning practices. “I’m concerned about creating a different sect. There are too many wedges and not enough ways to bond the industry.”

     ADVANCING THE PROFESSION
     But such a careful approach fails to recognize the public’s disgust with a financial industry that is long on disclosures but short on fiduciary care, Mr. Trone says.

     “The downside of having everybody operating under the same status is that they’re recognizing the lowest common denominator, which doesn’t elevate the profession,” he adds. “The FPA says it exists to ad-vance the profession for the good of the consumer.”

     Still, Mr. Thompson says he has a history of advocating strongly against creating a class of one-label-fits-all “financial planners.”

     For instance, in 1999, the Securities and Exchange Commission issued a proposal to exempt investment advisers at broker-dealers who offer fee-based services from registering with the agency. Mr. Thompson says the FPA has vehemently opposed adoption of that proposal — known as “the Merrill Lynch rule” — for the exact same reason that Mr. Trone advocates it: consumer clarity.

     Charles “Chip” Roame, principal with Tiburon (Calif.) Strategic Advisors, sees little downside to the FPA’s stepping up its leadership role on this issue. “When you create a ladder, it incents people to work harder to get there,” he says.

     But Mr. Roame also believes that it’s the type of conundrum that can be solved by “getting everybody in a room” and not letting them out until they come up with a decent solution.

     Mr. Tibergien and Mr. Roame say they see a danger in separating advisers into separate fiduciary classes based on whether or not they take fees or commissions.

     Mr. Trone notes that, in practice, 90% of those accorded fiduciary status would probably be drawn from the fee-charging registered investment adviser pool.