Wealth Management Prof blog

Professor William Byrnes

FINRA Sets Regulatory Sights on Structured Products

Posted by williambyrnes on January 11, 2012

The Financial Industry Regulatory Authority (FINRA) is targeting structured products over concerns about unsuitable sales to retail customers. In an exclusive interview with AdvisorOne (a Summit Business Media product) Bradley Bennett, enforcement chief at FINRA, said that the agency’s caseload on the recent financial crisis has eased up, and the agency is ready to renew its focus on structured products.

Structured products are often marketed to retail customers without an adequate explanation of their associated risks.  “They purport to give the alchemy of lowering risk while increasing yield,” Bennett said, “but the risk needs to be explained” both to the broker-dealer’s “sales force and customers, and be suitable given the customer’s financial circumstances.”

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of structured products in Advisor’s Journal, see SEC Warns Investors about Principal Protected Notes (CC 11-117).

For in-depth analysis of structured products, see Advisor’s Main Library: 7774. What is a structured product? How are structured products taxed?

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Better Late than Never: SEC Implements the Switch

Posted by williambyrnes on January 10, 2012

As anticipated, the SEC will delay implementation of the RIA transition. On June 22, the SEC approved rules that will transition thousands of advisors from SEC to state regulation, but the new rules won’t be effective until June 28, 2012, almost a year later than initially expected.

Under the regulatory structure in place before the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, investment advisors with $25 million or more in assets under management (AUM) were regulated by the SEC, and those with less than $25 million in AUM were regulated by the states. Dodd-Frank changed the registration threshold so that advisors with between $25 and $100 million in AUM—so-called “midsize advisors”—will be required to withdraw their registration from the SEC and register with state regulators.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the planned switch and in Advisor’s Journal, see Disarray at the SEC is Complicating the “Switch” (CC 11-83), Hedge Funds Must Now Register with the SEC under the New Wall Street Reform Act (CC 10-45) & Dodd-Frank Wall Street Reform and Consumer Protection Act (CC 10-35).

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Advisors are from Mars, Clients are from Venus

Posted by williambyrnes on January 3, 2012

You’ve been on a few “dates,” and you talk on the phone every couple weeks, but how well do your prospects and existing clients know you and understand your core personal investing philosophy? Small talk breaks down barriers and common interests keep the conversation moving, but taking the advisor-client relationship to the next level takes some work—and a lot of research. A recent survey gives us a head start by elucidating the communication divide that holds many advisors back from taking the big plunge with their prospects.

The survey found that HNW clients favor electronic communication media more than their advisors. Twice as many millionaires than advisors would like to use technology-enabled media—smart phone applications and social media. While 85% of millionaires are willing to communicate through social-media, e-mail, and text messages, only 43% of brokers and financial advisors share that willingness. And your millionaire clients are also more likely to use LinkedIn than you are (28% to 16%). And a third of millionaires already use social media in general as part of their professional life.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For other client development discussions in Advisor’s Journal, see Advisors’ Stairsteps of Influence (CC 11-49), Getting Your Feet Wet in the Social Media Market (CC 11-79) & Are Portfolios-To-Go Threatening Your Business? (CC 11-77).

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Treasury extends FBAR Deadline Again

Posted by williambyrnes on December 22, 2011

In a merciful move, the Treasury has again extended the FBAR filing deadline for persons with only signature authority over a foreign financial account to November 1, 2011. [Notice 2011-54]. Two previous extensions had pushed the FBAR due date to June 30, 2011, but the Financial Crimes Enforcement Network (FinCEN) and the IRS recognized the difficulty signatories were having locating the information they needed to complete the form.

Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), must be filed annually by all U.S. citizens, residents, business entities, trusts, and estates with a financial interest in or signature authority over one or more foreign financial accounts (FFA) with an aggregate value greater than $10,000.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the FBAR in Advisor’s Journal, see Do Your Clients’ International Assets Create Criminal Tax Exposure? (CC 11-73) & IRS Provides FBAR Answers (CC 11-119).

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Foreign Account Compliance: Are Foreign Policies Included?

Posted by williambyrnes on December 20, 2011

The Foreign Account Tax Compliance Act (FATCA) was designed as a comprehensive measure to combat offshore tax evasion—a noble aim. However, FATCA’s comprehensiveness is also a burden for many in the financial services industry, especially insurance carriers and producers. In comments to regulators, one foreign life insurance trade organization, the Association of International Life Offices (AILO), recently called FATCA’s requirements “onerous and disproportionate to the risk involved.”

Passed as part of H.R. 2847, the Hiring Incentives to Restore Employment Act (HIRE Act) on March 18, 2010, FATCA combats tax evasion by requiring disclosure from foreign institutions about accounts held by people, including U.S. citizens, and institutions risk being subject to U.S. tax. Many life insurance and annuity contracts are classified “accounts” under the Act, although FATCA doesn’t generally apply to property, casualty, and term life insurance contracts.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of FATCA in Advisor’s Journal, see IRS Proposed FATCA Guidance Expands Offshore Compliance Initiatives (CC 10-52) & Offshore’s Limited Shelf Life (CC 10-47).

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Money Laundering, Asset Forfeiture and Recovery, and Compliance: A Global Guide

Posted by williambyrnes on December 2, 2011

Register now to access Money Laundering, Asset Forfeiture and Recovery, and Compliance: A Global Guide, and receive a complimentary chapter in PDF! Order before December 15, 2011 and save 20%!*

View more information here

Written by Professors William Byrnes & Robert Munro of Thomas Jefferson School of Law, the new publication contains in-depth coverage of the laws and government actions in 47 nations to combat money laundering, terrorist funding and similar practices. Each nation has its own chapter with sections covering:

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The remaining nations of the world will be covered in quarterly updates scheduled to go live in 2012 and 2013.

Because the new product spans so many practice areas, it appears on seven area-of-law pages (Accounting, Banking, Criminal, Foreign Law, International Law, International Trade, and Taxation), plus Lexis Tax Center.  Just look under “Search Analysis, Law Reviews & Journals”.

This title is also available as an ebook and mobile-book.

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Will Germany Let Greece Default?

Posted by williambyrnes on November 30, 2011

Despite  calls for private creditors to absorb some of the cost of another round of Greek bailouts, German Chancellor Angela Merkel has backed down. Merkel met with French President Nicolas Sarkozy in Berlin on June 17, 2011 to discuss the role of private investors in the bailout. Following the meeting, the leaders announced a unified plan to deal with the Greek crisis. Chancellor Merkel is still asking private creditors to voluntarily take part in the bailout.

The Greek debt crisis spans back to early 2010, when a group of European governments—including Greece—faced funding crises that threatened European stability altogether.  At the time, Greece had €300 billion in debt, bigger than its economy.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For coverage of the U.S. debt crisis in Advisor’s Journal, see Debt Limit Standoff Boils Over (CC 11-115) & Debt Ceiling Approaching: Prepare for Impact (CC 11-100).

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The Psychology of Saving: If We’re Living Longer, Why Are We Saving Less?

Posted by williambyrnes on November 29, 2011

In addition to confirming earlier beliefs, a new academic study about the effects of increase life-spans on savings rates has inspired new intrigue.

The conclusions reached by Optimal Retirement and Saving with Increasing Longevity, by David E. Bloom, David Canning, and Michael Moore are simple enough but need some further discussion: “[A] higher level of wages leads to earlier retirement and increasing savings rates. On the other hand an increase in life expectancy leads to an increase [in] the retirement age, but less than proportionately, while reducing savings rates.”

Consequently, the importance of planning for middle-income families increases. Without a solid plan, many are left working many more years than they hoped or planned.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of retirement values in Advisor’s Journal, see Appealing to Your Affluent Clients’ Retirement Planning Values (CC-11-42).

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Consumer Financial Protection Bureau: Ready for Launch?

Posted by williambyrnes on November 28, 2011

Despite the best efforts of Congressional Republicans, the ribbon-cutting for the U.S. Consumer Financial Protection Bureau (CFPB) is on schedule for next month. And unlike other Dodd-Frank progeny, this project looks like it’s going to hit the ground running.

The stated mission of the CFPB is to “make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.” After the mortgage debacle of the recent financial crisis and stories about predatory practices in the credit card and pay-day loan industries, who can argue with that mission statement?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the fight over Dodd-Frank in Advisor’s Journal, see Is Barney Frank’s Resolve to Implement Dodd-Frank Weakening? (CC 11-95) & Republicans Look to Erode Dodd-Frank (CC 11-75).

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When are policy loans taxable?

Posted by williambyrnes on November 23, 2011

Generally, life insurance policies be withdrawn without income tax consequences. However, there are circumstances where a “loan” is immediately taxable. We have covered situations where a policy is surrendered with a loan outstanding, resulting in taxable income. This article discusses another case where a policy “loan” will be treated as taxable income.

In Frederick D. Todd II et ux. v. Commissioner (T.C. Memo. 2011-123), the Tax Court considered whether a distribution from a welfare benefit fund to a fund participant was a policy loan or a taxable distribution.

For previous coverage of life insurance policies held by welfare benefit funds in Advisor’s Journal, see Deductions for Life Insurance Premium Payments to Welfare Benefit Plan Denied (CC 10-29).

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of welfare benefit funds, see Advisor’s Main Library: B—Welfare Benefit Funds.

 

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LexisNexis® Tax Law Community Podcast: The Authors of “Money Laundering, Asset Forfeiture and Recovery, and Compliance–A Global Guide”

Posted by williambyrnes on November 21, 2011

click here for PodCast LexisNexis® Tax Law Community Podcast: The Authors of “Money Laundering, Asset Forfeiture and Recovery, and Compliance–A Global Guide”.

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More States Moving to Estate Tax Repeal

Posted by williambyrnes on November 18, 2011

In recent times, federal estate tax is receiving most of the attention. Nevertheless, most of the death tax activity affecting Americans occurs at the state level.

The reality is, fewer states (twenty-two plus D.C) currently have a “death tax”—referring collectively to estate and inheritance taxes. Recently,  a number of those states  increased their exemption amount to exclude a large majority of their residents from the tax. One state—Ohio—is on the verge of repealing its estate tax altogether.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Obama’s tax agreement, including its estate tax provisions, in Advisor’s Journal, see Obama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112) and Obama Tax Agreement Passed by House (CC 10-117).

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Annuities: They Get No Respect

Posted by williambyrnes on November 17, 2011

We are all aware that annuities have a bad reputation in the media: High fees, high-pressure sales, and unsuitability are the predominating themes.

A recent Securities Litigation & Consulting Group white paper summarizes  the sentiments of the anti-annuity press, commenting that, “[a]nnuities stand out as the investment are most likely to be unsuitable since in virtually every instance, the investor would have been better served by mutual fund or a portfolio of individual stocks.”

Annuities are neither inherently “good” nor “bad.” It follows that rational evaluation of annuities can’t be conducted in a bubble—it must focus on their application.  Herein lays their value and the coup de grâce the industry and individual producers have been awaiting.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see How Much to Allocate to Annuities: A Critical Analysis (CC 11-109).

For in-depth analysis of the income taxation of annuities, see Advisor’s Main Library: Section 19.2 Income Taxation of Annuities.

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IRS Provides FBAR Answers

Posted by williambyrnes on November 11, 2011

Failure to file an FBAR (Report of Foreign Bank and Financial Accounts) can result in harsh consequences. The report is that fines of up to $500,000 and 10 years imprisonment can be rendered. Therefore, the need to for you and your clients with foreign financial accounts (FFAs) to familiarize yourselves with the Treasury’s escalating FBAR rules. Unfortunately, understanding the FBAR rules has not always been a straightforward proposition.

Until recently, the FBAR requirements were shrouded in mystery; but with the release of  the last FBAR regulations earlier this year, the rules are finally clear. Furthermore, important clarifications  were made by the IRS at a June 1 webcast.

Read this complete analysis of the impact at  AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber). For previous coverage of the FBAR in Advisor’s Journal, see Do Your Clients’ International Assets Create Criminal Tax Exposure? (CC 11-73).

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Posted by williambyrnes on November 10, 2011

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Are Indexed Annuities Securities?

Posted by williambyrnes on November 8, 2011

Last year Congress finally concluded about whether indexed annuities are securities. As a security, indexed annuities were  subject to regulation by the SEC by including a provision in the in the Dodd-Frank Wall Street Reform Act that defines indexed annuities as insurance products outside the agency’s jurisdiction.

This year, some states are refusing to take Congress’s “NO” for an answer. In the latest action on the issue, Illinois Secretary of State Jesse White issued an order on May 24 indirectly concluding that indexed annuities are securities under Illinois law.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of indexed annuities in Advisor’s Journal, see Indexed Annuities: Still Insurance (CC 10 42).

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SEC Warns Investors about Principal Protected Notes

Posted by williambyrnes on November 3, 2011

In a low-interest rate world, high-yield investments offering principal protection are enticing to investors. But the complexity of some high-end investment products has the Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission’s (SEC) warning investors to look before they leap.

In an alert titled Structured Notes with Principal Protection: Note the Terms of Your Investment, the regulators warn investors that these structured products may not be what they seem. Although they are marketed under a variety of names with a “principal protection” component—e.g. “absolute return” and “minimum return”—the true extent of their safety is never obvious . Investors need to read the fine print to decide whether they are suitable for their investing needs and risk tolerance.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

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Dodd-Frank: Dying on the Vine?

Posted by williambyrnes on October 31, 2011

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was endorsed by President Obama as an asset providing the “strongest consumer financial protections in history.” However, almost a  year after the Act was introduced, implementation of its broad reforms is slowing

The complexity of the Act is the root of it’s first problem: The bill came in at an overwhelming 2,319 pages, or 300,000 words, about half the length of the entire Christian Bible. By comparison, other paradigm-shifting financial acts were short-stories; the Federal Reserve Act was 31 pages, Glass-Steagall was 37 pages, and Sarbanes-Oxley was 66 pages long. Even the gargantuan Health Reform Act was shorter than Dodd-Frank. Consequently, even the Federal government can’t  fully ascertain the Act.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the debt limit fight in Advisor’s Journal, see Storm Clouds over U.S. Debt (CC 11-85).

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What Next? ILITs & Estates under 5MM

Posted by williambyrnes on October 26, 2011

Life insurance is a common tool for ensuring estates have adequate liquidity to pay estate expenses and taxes. But recent changes to the estate tax have some people questioning whether the high premiums they’re paying are worth it when their estates are no longer likely to be hit by the estate tax.

With a $5 million exclusion amount and brand-new exclusion portability provisions, far fewer households have to deal with the federal estate tax. But is allowing unneeded life insurance to lapse the best solution?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of life insurance valuation in Advisor’s Journal, see Relative Policy Value of Life Insurance (CC 11-57).

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How to Lose a Charitable Deduction

Posted by williambyrnes on October 21, 2011

As an advisor, your clients look to you for competent advice in planning their charitable giving. It would be terrible to find out that the gift you thoughtful suggest cannot be deducted due to an avoidable paperwork mistake. Although the IRS sometimes forgives these minor errors, others are unforgivable, as illustrated in recent IRS email advice.

The IRS was not so forgiving with a taxpayer, who made what would otherwise qualify as a tax-deductible charitable gift. The problem was that the taxpayer “failed to get a contemporaneous written acknowledgment” from the charitable organization. In its advice the IRS said it will deny the taxpayer’s charitable deduction even if the taxpayer takes remedial measures and the charity amends its Form 990 (Return of Organization Exempt from Income Tax) to acknowledge the donation and include the information required by the Code.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of charitable deductions in Advisor’s Journal, see Qualified Charitable Distributions from an IRA (CC 11-03) & IRS Takes Qualified IRA Charitable Distributions off the Table for 2010 (CC 11-15).

 

For in-depth analysis of the charitable deduction under Section 170, see Advisor’s Main Library: B6—The Income Tax Charitable Deduction—I.R.C. §170.

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Are Unisex Mortality Tables Coming to America?

Posted by williambyrnes on October 6, 2011

“Men Are From Mars, Women Are From Venus,” goes the saying from the popular self-help book. But in a recent ruling, the European Court of Justice said that, although statistically verifiable, you’d better not acknowledge the 100 million mile (sorry, kilometer) gap between men and women when you’re pricing life insurance premiums.

The highest court in the EU ruled earlier this year that the long-standing practice of basing insurance premiums on gender is sex discrimination that is prohibited under EU law. Despite hundreds of years of data verifying the simple fact that women live longer than men, insurance carriers in the EU will soon be prohibited from considering gender when setting insurance premiums.

Under EU law, “[e]quality between women and men must be ensured in all areas, including employment, work and pay.” The European policy generally has been applied to remove gender discrimination in the workplace. But a 2004 European Directive “prohibits all discrimination based on sex in the access to and supply of goods and services.” And that directive has been specifically applied to access to life insurance.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Life Insurance Gender Gap in Advisor’s Journal, see Is the Life Insurance Gender Gap Really Closing? (CC 11-68).

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Corporate Tax Reform: Easier Said than Done

Posted by williambyrnes on October 5, 2011

Both sides of the political spectrum agree that corporate tax reform is a priority.For reform to happen, tough choices are needed from Washington. Reform would develop a system that forces multinational corporations to pay their fair share without hurting US competitiveness in the world markets. Overtax multinational corporations,  and they’ll move their operations overseas; under-tax and you’ll reduce revenue that is sorely needed by the US government.

As part of the ongoing debate and investigation of the US corporate tax system, the U.S. House Committee on Ways and Means is hearing testimony from tax experts on the US tax system and alternatives.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of corporate tax reform issues in Advisor’s Journal, see Obama’s Blue Ribbon Debt Commission Proposes Complete Overhaul of the Tax Code (CC 10-95).

For in-depth analysis of US Corporate Tax, see Advisor’s Main Library: A – The Corporate Income Tax.

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How Much to Allocate to Annuities: A Critical Analysis

Posted by williambyrnes on October 4, 2011

A commonly known characteristic of annuities is providing retirees retirement income security. However, a more complicated aspect is deciding exactly how much of a retiree’s nest egg should be allocated to an annuity to reduce the person’s probability of outliving their retirement income.

The Employee Benefits Research Institute takes some of the guesswork out of allocation in a study released this month. The study analyzes the impact of longevity and immediate annuities on retirement income adequacy. The study finds that the “optimal level of annuitization and asset allocation that would give a desired level of confidence that people will have enough retirement income, based on the three different types of risk: investment income, longevity, and long-term care.”

The study’s results offer a prescient guide for advisors looking to maximize their client’s retirement success through annuities. Although parts of the study are quite technical, briefly reviewing the results can be enlightening.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see Drama Over the “Drawbacks” of Annuities (CC 11-62).

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Court Holds that STOLI Law Isn’t Retroactive

Posted by williambyrnes on October 3, 2011

A stranger-owned life insurance promoter won a big victory when the California Court of Appeals ruled 2-1 that California’s 2009 anti-STOLI law does not apply to policies issued before the statue was enacted.

The ruling was issued by the 4th Appellate District in an appeal on the case: The Lincoln Life and Annuity Company of New York vs. Jonathan S. Berck, as Trustee, etc, Case No. D056373 (17 May 2011).

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of STOLI cases in Advisor’s Journal, see STOLI Scheme Lands Insurance Agent in Jail (CC 11-92).

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Tax Court Confirms that Surrender Charges Reduce Value of Life Insurance Policy

Posted by williambyrnes on September 30, 2011

The Tax Court recently determined that the fair market value (FMV) of a life insurance policy distributed by a terminated 419 welfare benefit plan is reduced by surrender charges. [Lowe v. C.I.R., T.C. Memo. 2011-106 (2011)].

This ruling strengthens the Tax Court’s position on surrender charges that was enunciated in Schwab v. Commissioner [Michael P. Schwab et ux. v. C.I.R., 136 T.C. No. 6 (2011)]. The IRS continues to challenge taxpayers who apply surrender charges to reduce or eliminate their tax liability when a policy is distributed to them by a welfare benefit plan. However, this ruling adds another degree of certainty to the FMV calculation.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Tax Court rulings in Advisor’s Journal, see Tax Court Revives Partnership Self-Employment Tax Debate (CC 11-56).

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FINRA Puts Disciplinary Histories on Web

Posted by williambyrnes on September 29, 2011

Disciplinary histories are becoming easier to access. Brokers’ disciplinary histories are now prominently displayed for the web savvy public; they’re no longer filed away at the Financial Industry Regulatory Authority (FINRA), where only the most diligent investors will find them. FINRA has made your disciplinary history freely and easily available to the public by launching a web-accessible discipline database.

Whether the easy accessibility of the information is a  beneficial will depend on a broker’s history. Those with a clean record will undoubtedly benefit from the easy accessibility of the information and the ease with which clients and prospects can search their record and compare it to others. Those with a negative history, whether deserved or not, may now find themselves on the defensive with prospects more often.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of FINRA complaint and disciplinary procedure in Advisor’s Journal, see FINRA Rule 45-30: Expansive New Complaint Report Requirements (CC 11-96) & Broker Bonus Arbitration Bottleneck Forces FINRA to Reconsider Arbitrator Qualification Standards (CC 11-08).

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Pensions Turn to Death Bonds

Posted by williambyrnes on September 28, 2011

It’s a given that most of us want to extend our lives as long as possible. But our ever-increasing life spans can financially strain pension funds and others that are contingent upon us dying to keep their books balanced.

Pension funds face severe longevity risk. If pensioners live longer than expected, payouts from the funds could eclipse the estimated cost of keeping the funds stable. Worldwide, $17 trillion of pension funds – $23 trillion in assets – is exposed to longevity risk.

But the big banks—including Goldman Sachs, JPMorgan Chase, and Deustsche Bank—are coming to the rescue by packaging that longevity risk and selling it to investors; and they’re counting on investors being interested in gambling on death.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of life insurance contracts in Advisor’s Journal, see IRS Guidance Provides Safe Harbor for Policies Maturing After Age 100 (CC 10-51).

For in-depth analysis of pension plans and other qualified employee plans, see Advisor’s Main Library: O – ERISA – FAQs.

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SEC Softening its Stance on Private Placements

Posted by williambyrnes on September 26, 2011

The Obama Administration’s 2012 federal budget proposal has revived two budget proposals that recent scandals have directed a slew of regulatory attention on private placement. Considering examinations of private placements recently being characterized by a FINRA executive as a “major, major initiative, it would seem strange for the Securities and Exchange Commission (“SEC”) to consider relaxing rules for marketing private placements.

Nevertheless, that’s exactly what SEC Chairman Mary Schapiro told members of Congress the agency is planning.

Speaking before the U.S. House of Representatives Committee on Oversight and Government Reform, Shapiro said that the SEC is going to “take a fresh look” at rules relating to private placements and other securities offerings, both public and private. Specifically, she said that the agency will reconsider the private placement public marketing ban and the 500-investor threshold that categorizes a company as “public.”

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of private placements in Advisor’s Journal, see Private Placements Becoming Much Riskier for Firms (CC 11-78) and Private Placements Becoming Much Riskier for Firms (CC 11-78).

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Dodd-Frank Whistleblowing—Rewarding the Robbers?

Posted by williambyrnes on September 13, 2011

Dodd-Frank’s whistleblower provisions may be more effective than originally anticipated, but will they lead to increased corporate compliance?

The whistle blower rules have received cristicism from some who believe the procedures will hinder compliance procedures rather than improve them. The liberal Whistleblower provisions have also raised concerns about the already overcommitted SEC being overwhelmed by frivolous claims by employees who view the program as a lottery with multi-million dollar payouts.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Dodd-Frank updates in Advisor’s Journal, see Is Barney Frank’s Resolve to Implement Dodd-Frank Weakening? (CC 11-95).

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Is the Contestability Period a Shield or a Sword in STOLI Disputes?

Posted by williambyrnes on September 12, 2011

Should insurance applicants and third-party investors be allowed to make material representations when applying for life insurance, if they can manage to hide misdeeds for at least two years? The United States District Court for the Southern District of New York thinks so.

In the latest STOLI case coming out of the federal courts, judge and jury discussed whether blatant fraud on a life insurance policy application is actionable to invalidate a policy after the contestability period has passed. The jury and court held for the investor in the $5 million case.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of STOLI in Advisor’s Journal, see STOLI Scheme Lands Insurance Agent in Jail (CC 11-92), New York Court of Appeals Upholds STOLI Arrangement (CC 10-106), & Recent STOLI Case Is a Big Win for Insurers (CC 10-59).

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Pensions Turn to Death Bonds

Posted by williambyrnes on September 8, 2011

It’s a given that most of us want to continue living as long as possible.  Exercising, eating healthy, and taking every precaution available to extend the gift of life to its limits. Nevertheless, even living a longer life is not exempt from the foreseeable strains it creates financially. Increasing life spans can create problems for pension funds and others that depend on us dying to keep their books balanced.

Pension funds are exposed to severe longevity risk. If pensioners live longer than expected, payouts from the funds could exceed the estimated cost of keeping the funds solvent. Worldwide, $17 trillion of pension funds – $23 trillion in assets – is exposed to longevity risk.

But the big banks—including Goldman Sachs, JPMorgan Chase, and Deustsche Bank—are coming to the rescue by packaging that longevity risk and selling it to investors; and they’re counting on investors being interested in wagering on your death.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of life insurance contracts in Advisor’s Journal, see IRS Guidance Provides Safe Harbor for Policies Maturing After Age 100 (CC 10-51).

For in-depth analysis of pension plans and other qualified employee plans, see Advisor’s Main Library: O – ERISA – FAQs.

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FINRA Changes the Rules on How Low-Price Equities Are Traded

Posted by williambyrnes on September 7, 2011

The Financial Industry Regulatory Authority (“FINRA”) has issued a regulatory notice addressing price volatility concerns associated with low-priced equity securities in customer margin and firm proprietary accounts. The notice advises that special attention be given to low-priced equity securities; price volatility is usually associated with low-priced equities because they are inherently volatile.

But what does FINRA consider a“low-price equity,” and what is the impact for you and your clients?

FINRA advises firms to weigh the risks that come with low-priced equity securities before extending credit in strategy-based or portfolio margin accounts. FINRA cautions firms to consider “volatility and concentrated positions in a single customer account and across all customer accounts, as well as the daily volume and market capitalization of each security when imposing ‘house’ maintenance margin requirements.”

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of FINRA-issued guidance in Advisor’s Journal, see Getting Your Feet Wet in the Social Media Market (CC 11-79) & SEC Says “Not So Fast” to Advisor Social Media Marketing (CC 11-40).

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Administration Defends Proposed Insurance Limitations

Posted by williambyrnes on September 6, 2011

The Obama Administration’s 2012 federal budget proposal has revived two budget proposals that will impact the life insurance business – one affecting Corporate-Owned Life Insurance (“COLI”) and the other affecting carriers’ Dividends-Received Deduction (“DRD”).

In response to concern that the proposals tamper threaten the tax preferred status of life insurance, the Treasury recently issued a letter clarifying that these proposals have relevance only to tax arbitrage issues, not the tax treatment of death benefits.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of corporate life insurance in Advisor’s Journal, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC 11-41).

For in-depth analysis of taxation affecting corporations, see Advisor’s Main Library: A – The Corporate Income Tax.

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Life Settlements—Savior of Municipal Finance?

Posted by williambyrnes on September 5, 2011

Life settlements provide a unique source of revenue because their returns are not contingent on the market’s success.

But are they still lucrative in comparison to other municipal finance? Rancho Mirage California City Councilman Scott Hines thinks so.

Under Hines’ plan, the city would issue bonds, with most of the issue proceeds being used to finance city projects. The remaining funds would be invested in life settlements with an aggregate face value equal to the face value of the bond issue. Payouts on the life settlements would then be used to pay back bond principal.

Instead of the typical municipal bond financing arrangement, where tax dollars utilized to pay back both principal and interest on an issue, Hines’ plan would leave taxpayers with only a bill for interest payments.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of life settlements in Advisor’s Journal, see Life Settlement Provider Accused of Falsifying Life Span Reports (CC 11-23).

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FINRA Rule 45-30: Expansive new Complaint Report Requirements

Posted by williambyrnes on September 2, 2011

FINRA is digging deep into your customer comment box, and starting July 21, nothing will be off limits to the regulator.

Brokerages often expand beyond securities activities to diversify their income streams and broaden the scope of services they offer their clients. Keeping up with the assorted regulators and what are often cumbersome and confusing combinations of rules has always been a chore for those firms.

Not long ago, firms at least have been able to keep their professions separated, dealing, for instance, with securities and insurance regulators as isolated entities with little overlap in their bailiwicks. But increasingly, regulators like FINRA are erasing this dichotomy, peaking into all of a firm’s activities, even activities that are unrelated to the subject of the regulator’s jurisdiction.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of FINRA rulemaking in Advisor’s Journal, see FINRA Plans New Power Grab as SEC Falter (CC 11-67), Broker Bonus Arbitration Bottleneck Forces FINRA to Reconsider Arbitrator Qualification Standards (CC 11-08), and SEC Approves FINRA Suitability and Know-Your-Customer Rules (CC 11-17).

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Is Barney Frank’s Resolve to Implement Dodd-Frank Weakening?

Posted by williambyrnes on September 1, 2011

Facing the onslaught of Republican legislative attempts to weaken Dodd Frank, Barney Frank (D-MA) seems unconcerned. His unwillingness to push for the prompt implementation of Dodd-Frank suggests that his resolve is weakening. And in recent weeks, Representatives have used the implementation lull to introduce a handful of bills that, if passed, would repeal or delay parts of the Dodd-Frank Wall Street Reform Act.

Dodd-Frank implementation was originally scheduled to launch July 21, but Mr. Frank has no reservations against allowing agencies more time to translate the abundant volume of provisions of the  reform into regulations. “There’s no gun at their heads. Nobody gets fired,” he stated.

However, by allowing for this delay, Mr. Frank risks giving the Republicans time to repeal Dodd-Frank one provision at a time.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Dodd-Frank financial reform in Advisor’s Journal, see Republicans Look to Erode Dodd-Frank (CC 11-75).

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The Changing World of Health Insurance: MLR’s Slam Commissions

Posted by williambyrnes on August 31, 2011

Increased medical loss ratios (MLRs) are devastating health insurance producers’ balance sheets and driving agents out of the health insurance business. As of  January, the Obama Administration’s Affordable Care Act increased the MLR requirement imposed on health insurance companies, forcing many carriers to reduce agent commissions by 25 percent or more.

The objective behind imposing MLRs is to ensure that consumers receive the full value of their premium dollars. This is accomplished by implementing a shift in how insurance carriers spend their money. Insurance carries are now required to spend premium dollars on direct medical services, rather than on administrative costs and profits. Under the new MLR program, insurers must spend 80 to 85 cents of every dollar on direct medical services. Insurers who fail to meet the MLR requirement must either adjust their premiums to account for any discrepancies, or refund excess premiums to consumers.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of health care reform in Advisor’s Journal, see Long-term Care Insurance Reform Act of 2010 (CC 10-46), Changes Affecting Large Employers in the 2010 Health Reform Law (CC 10-17), Changes Affecting Business in the 2010 Health Reform Law (CC 10-16), & Changes Affecting Individuals in the 2010 Health Reform Law (CC 10-15).

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STOLI Scheme Lands Insurance Agent in Jail

Posted by williambyrnes on August 29, 2011

A California insurance agent will spend years behind bars for his part in a stranger originated life insurance (“STOLI”) scheme that swindled six victims out of almost $800,000. In addition to being sentenced to 3 years 8 months in jail, Victor L. Weber, 55, was also ordered to pay restitution to his victims.

In the typical STOLI arrangement, investors or promoters approach seniors to allow investors to purchase life insurance on the seniors’ lives. Insureds are typically enticed to sign on the dotted line by promises of “free life insurance,” cash payments, vacations or other perks. Insureds are usually unable to purchase needed life insurance because their life insurance capacity is occupied  by the investor owned policy.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

For previous coverage of stranger-originated life insurance in Advisor’s Journal, see New York Court of Appeals Upholds STOLI Arrangement (CC 10-106) & Recent STOLI Case Is a Big Win for Insurers (CC 10-59).

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modern trends surrounding captive insurance – webinar

Posted by williambyrnes on August 26, 2011

Captive Insurance webcast

 

CLICK HERE TO REGISTER - No COST!

Please join us next month as we discuss the modern trends surrounding captive insurance. Wealth managers who have an interest in captives will likely find the information and presentation useful. CLICK HERE TO REGISTER

For additional information on captives see, Advisorfyi.com–States Competing for Captives Insurance Business,Alternative Risk Transfer RevisitedCaptive Market Continues to GrowLLC Series and Cell CompaniesGroup Captive Insurance Companies and Year End Tax Considerations, and A Dollar Saved…Captive Insurance Company Costs

CLICK HERE TO REGISTER

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The Pitfalls of Transitioning Between Firms

Posted by williambyrnes on August 26, 2011

If you’re considering transitioning your book of business to a new firm, maintaining the confidentiality of client information should be your principle concern. Accomplishing  a move without becoming the target of a lawsuit can be a daunting task. However, there is a protocol of best practices that if followed correctly can significantly lower the risk of violating confidentiality.

In 2004, three wirehouses – Citigroup Global Markets, Inc. (“Smith Barney”), Merrill Lynch, and USB Financial Services, Inc. – created the Protocol for Broker Recruiting (the “Protocol”). The Protocol’s objective is to protect clients’ privacy and flexibility when choosing Registered Representatives (“RRs”) – especially RRs who are switching firms. By reducing litigation over RRs transitioning to new firms, the high costs associated with competitive recruiting efforts can be minimized and client information can remain protected.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

For previous coverage of broker-dealer issues in Advisor’s Journal, see  Is a Hybrid Practice Model Right for You? (CC 11-46), What’s Driving the Increasing Appeal of the RIA Model? (CC 11-69).

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IRS QTIP Ruling: Perils of Future Changes

Posted by williambyrnes on August 25, 2011

Clients often want to use Qualified Terminal Interest Property trusts (QTIPs) to separate certain funds to care for a surviving spouse, while retaining some measure of control over the general distribution of the funds—whether they will be distributed to children or a charity. But navigating the QTIP rules as client’s circumstances naturally endure change can be cumbersome.  The danger exists when errors that seem trivial, result in eliminating any transfer tax benefit of the trust.

A recent IRS private letter ruling (PLR 201117005) provides us with a good reminder of the QTIP rules and an example of creative QTIP planning that provides the surviving spouse with adequate lifetime income while giving the grantor (and the surviving spouse) a degree of post-death control over disposition of the trust assets.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber)

For a graphic illustration of the QTIP trust, see the Concepts Illustrated practice aid at G—Credit Shelter Trust and QTIP Trust.

For coverage of QTIPs and other techniques useful in estate planning for blended families, see the Advisor’s Journal article Estate Planning for Blended Families (CC 07-16).

For in-depth analysis of marital deduction planning, see Advisor’s Main Library: G—The Marital Deduction.

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SEC Okays CFP Board’s Request to Dig into Applicants’ Backgrounds

Posted by williambyrnes on August 24, 2011

Cerftified Financial Planners (“CFPs”) and CFP applicants can longer hide their discplinary history behind the shield of client confidentiality. At the request of the Certified Financial Planner Board of Standards, Inc. (“CFP Board”), the Securities and Exchange Commission (“SEC”) issued a no action letter that gives brokers and advisors unlimited discretion to share customer complaint information with the Board without fear of reprisal from the SEC. The no action letter eradicates advisors’ ability to assert client confidentiality as a justification for not disclosing customer complaint information to the CFP, giving the Board free-reign to scour members’ backgrounds.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

For previous coverage of the financial planning industry in Advisor’s Journal, see Wall Street Reform Act Mandates Study of Financial Planning Industry (CC 10-73).

For in-depth analysis of financial planning concepts, see Advisor’s Main Library: A – The Need For Financial Planning.

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SEC Okays CFP Board’s Request to Dig into Applicants’ Backgrounds

Posted by williambyrnes on August 22, 2011

The dynamics of the confidentiality is enduring change. Certified Financial Planners (“CFPs”) and CFP applicants can no longer hide their disciplinary histories from the CFP Board under the shield of client confidentiality. At the request of the Certified Financial Planner Board of Standards, Inc. (“CFP Board”), the Securities and Exchange Commission (“SEC”) issued a no action letter that gives brokers and advisors the  to share customer complaint information with the Board without fear of reprisal from the SEC. The no action letter removes advisors’ ability to maintain client confidentiality as a justification for not disclosing customer complaint information to the CFP, giving the Board free-reign to scour members’ backgrounds.

What impact will this heightened need for disclosure have on the advisor- client relationship?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

For previous coverage of the financial planning industry in Advisor’s Journal, see Wall Street Reform Act Mandates Study of Financial Planning Industry (CC 10-73).

For in-depth analysis of financial planning concepts, see Advisor’s Main Library: A – The Need For Financial Planning.

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New Cancellation of Debt Rules Leave Grantors on the Hook

Posted by williambyrnes on August 19, 2011

The collapse of the secondary market for life insurance during the recent financial crisis left a lot of trusts anxious to dispose of large face value life insurance policies. Trusts that handed back policies in satisfaction of premium finance loans were then struck, along with their grantors, with massive tax bills for what is known as cancellation of indebtedness or cancellation of debt (COD) income.

The IRS recently released proposed regulations that address the income tax treatment of cancellation of debt income of trusts. Although this highly technical area of the law may not be of interest to lay audiences, it is a vital aspect for advisors selling high-value life insurance policies.

 

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

For previous coverage of an interesting case involving a premium financed policy in Advisor’s Journal, see Lawsuit Seeks to Hold Insurer Responsible for Suspicious Death (CC 10-101).

For in-depth analysis of life settlements (which can be structured as a premium finance transaction), see Advisor’s Main Library: B—The Life Settlement Industry.

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IRS High Net Worth Initiative: Fearsome Beast or Paper Tiger?

Posted by williambyrnes on August 16, 2011

The IRS commenced the Large Business and International Division’s high-wealth industry group (“HNW Initiative”) in October 2009 with the aim of examining high-net worth individuals for income tax compliance. But the Service may be “using more rhetoric than resources,” according to Syracuse University’s Transactional Records Access Clearinghouse (TRAC). TRAC’s April 14 report, based on information compiled from public records, accuses the IRS of having “very skimpy” audit goals for the HNW initiative.

TRAC’s orginal goal was to audit a mere 122 returns for the 2011 fiscal year. However, according to reports, TRAC will fall far short of this modest benchmark, and instead only audit 19% of the projected returns for the first six months of the year.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

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Getting Your Feet Wet in the Social Media Market

Posted by williambyrnes on August 15, 2011

If you’re one of the two out of three financial professionals who are out of the social media loop, you could be missing opportunities to boost your advisory business. Although the SEC and FINRA are cracking down on firms for social media misuse there’s still a wealth of untapped marketing potential for advisors brave enough forge into this new territory.

Social media sites like Facebook, Twitter, and LinkedIn can be used to build opportunities – if you know how to use them to the best of your advantage.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

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Private Placements Becoming Much Riskier for Firms

Posted by williambyrnes on August 14, 2011

There may be an increased need for caution when offering the newest private placements to clients. FINRA and the SEC are actively examining private placements and the firms that sell them. And if the regulators believe that something is amiss, they won’t hesitate to impose severe fines on everyone involved in the sale. As part of its ongoing sweep of firms that sold interests in failed private placements, FINRA has issued sanctions against two firms and seven individual principals of those firms. FINRA accuses them of causing significant investor losses by failing to conduct a reasonable investigation before offering the private placements for sale to investors.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

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Are Portfolios-To-Go Threatening Your Business?

Posted by williambyrnes on August 13, 2011

The value that consumers place on traditional portfolio managers seem to be rapidly changing. A growing number of consumers are opting for pre-packaged, low-cost portfolio managers. Portfolio-to-go companies can, at least nominally, provide many of the same services as full-service brokerage firms, since the companies are registered as either investment advisors or broker-dealers. Minimal overhead and services allow portfolio managers flexibility to offer those services without the “high” price tag at brick-and-mortar institutions. Portfolios-to-go have seen a surge in popularity recently, bringing in over $3 billion in assets over the past three years. In a world where post-recession fears have almost everyone bargain shopping, are online portfolios-to-go the Walmart of investing, set to dominate the market and phase out traditional wealth managers? Or are these pre-packaged portfolios an opportunity in disguise?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

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