2SCHWAB SOOTHES FEARS OF SMALL RIAS 3SEC FINE-TUNES … · site that consumers can use to check whether an insurance sales-man has the state’s approval to sell products. Mr. Morley

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

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2 SCHWAB SOOTHES FEARS OF SMALL RIAS 3 SEC FINE-TUNES ITS

REGULATION BI FAQ 14 PRIVACY REG TWEAK HELPS ADVISERS 18 FINRA TAKES AIM AT

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

FEB. 17-21, 2020

Numbers GameExperience is key in adviser M&A deals.

Page 12

Fiduciary CornerWho benefits from the SECURE Act?

Page 16INSIDE3 On Advice6 Editorial14 On Retirement

Cover illustration: Brian Stauffer

BY BRUCE KELLY

KIMBERLY Springsteen-Abbott, a se-nior brokerage and private placement executive barred from the securities industry in 2015 by the Financial In-dustry Regulatory Authority Inc., displayed wide-ranging misconduct involving tens of thousands of dollars of expenses charged to private place-ment funds, and Finra’s banning of her from the industry was in line with industry standards, according to a re-view of her case released Feb. 7 by the Securities and Exchange Com-mission.

Finra also ordered Ms. Spring-steen-Abbott to pay almost $209,000 in disgorgement and a fine of $100,000.

Ms. Springsteen-Abbott is the CEO and chair of Commonwealth Capital Corp., according to the com-pany website. She did not return a call for comment last Friday. Her attorney, Steven M. Felsenstein, de-clined to comment.

PRIVATE PLACEMENTSCommonwealth Capital packaged in-vestments in equipment leases into 13 private placement funds that are sold through independent broker-dealers. In the past, Ms. Springsteen-Abbott was also head of the related bro-ker-dealer, Commonwealth Capital Se-curities Corp. That position is now held by her husband, Henry Abbott, accord-

SEC calls out ‘egregious’ acts of barred exec

BY JEFF BENJAMIN

AS CHARLES SCHWAB CORP. tries to shed a reputation for focusing more on the big guys than the little guy, ahead of its $26 billion acquisition of TD Ameri-trade Holding Corp., the company has published a five-point pledge to the inde-pendent adviser community.

Although bigger is usually seen as better, Schwab is boasting that more than half the advisory firms it serves have less than $100 million under man-agement.

The pledge, which begins by stat-ing that the custodian has no asset minimums, no custody fees and “no intention to raise them,” is like-ly designed to calm the nerves of regis-tered investment ad-visers that are being aggressively solicited as Schwab and TD work toward bringing together 12 million cli-ent accounts and $1.3 trillion in total assets.

The deal is at least eight months from being official and a couple of years from full integration.

The idea of combining at least 50% of

the RIA custody market under one roof has been seen as a threat to the smaller RIAs on the TD platform, but not always seen as welcome at Schwab.

In addition to underscoring its com-mitment to working with smaller RIAs, the Schwab pledge emphasized “best-

in-class technology and open architecture,” which harkens to TD’s reputation for having the better technology of the two.

“We built our busi-ness on small advis-ers,” said Bernie Clark, head of Schwab Advi-sor Services, in an in-

terview with InvestmentNews earlier this month. “Under $100 million is the fastest-growing space.”

[email protected] Twitter: @benjiwriter

I’d like to draw your atten-tion to our newest video feature – By the Numbers

– which we launched earlier this year. It’s a weekly fea-ture, hosted by yours truly, that provides a concise report on relevant items in the news.

The goal of the series is to offer a short take (less than two minutes) on a

current data point. Thus far, I‘ve ad-dressed what lays ahead for ETFs in 2020, dived into what the SECURE Act means for annuities, and,

in the latest video, I get into ESG investing (which you can read more about in Jeff Benjamin’s excellent cover story on page 8).

This week’s video looks at alternative assets, and we have something on non-transparent ETFs coming soon.

Please check out the videos at investmentnews.com/playlist/by-the-numbers and share your thoughts with me at [email protected]. I welcome any constructive comments so that we may improve this product to best deliver the information you want and need, in a variety of formats.

Just don’t critique the hair — there’s nothing I can do about that.

[email protected] Twitter: @geomoriarty

EDITOR’S NOTE

Introducing: By the Numbers

GEORGE B. MORIARTY

TopNews

CONTINUED ON PAGE 22

“SPRINGSTEEN -ABBOTT’S ... ASSO-CIATION WITH FINRA WOULD POSE A RISK.”SEC CASE REVIEW

Schwab pledges to play nice with smaller RIAs

KEY POINTS

• Schwab publishes pledge boasting no asset mini-mums or custody fees.

• Pledge is meant to calm nerves of its advisers.

InvestmentNews.com February 17, 2020 InvestmentNews | 3

BY MARK SCHOEFF JR.

BROKERS MUST ADHERE to a high-er investment-advice standard that will be implemented later this year, even when they’re selling private offerings to wealthy individuals deemed sophis-ticated investors, the Securities and Ex-change Commission said last week.

In an updated list of frequently asked questions about Regulation Best In-terest, the SEC said the rule applies to so-called accredited investors, who are allowed to buy unregistered securities because they meet certain income and wealth thresholds.

Brokers must comply with Reg BI “if that accredited investor is a ‘retail cus-tomer’ as defined in the rule,” the SEC FAQ states. “The definition of ‘retail cus-tomer’ does not exclude high-net worth natural persons and natural persons that are accredited investors. Whether a broker-dealer engages in limited activity does not dictate whether or not Regula-tion Best Interest applies.”

8 QUESTIONS ADDEDThe question on accredited investors was one of eight new questions added

last Tuesday to a list of frequently asked questions about Reg BI that now totals 21. The FAQs about the customer rela-tionship summary, known as Form CRS, also were updated.

Brokers might be surprised at the

SEC’s answer because accredited in-vestors are assumed to be able to fend for themselves when it comes to invest-ment decisions. “It might raise some eye-brows,” said Todd Cipperman, principal at Cipperman Compliance Services.

Most of the FAQs about Reg BI are answered with language that is taken straight out of the text of the final rule. But the answer on accreted investors is fresh, according to Kurt Wolfe, a compli-ance attorney at Troutman Sanders.

“It’s probably in response to spe-cific questions from brokers-dealers in markets catering to high-net-worth individuals,” Mr. Wolfe said. “It’s a fair question.”

The query comes at a time when the SEC is trying to let more ordinary inves-tors buy often risky private placements. The agency recently proposed a rule to loosen the definition of accredited investor to include people with special skills and expertise.

“The whole way the SEC is think-ing about these high-net-worth or su-

BY BRUCE KELLY

IN YET ANOTHER troubling development for investors in GPB Capital Holdings’ private placements, the company told in-vestors last month that it won’t be able to provide important tax documents, at least by April 15, to at least 6,353 investors or limited partners in one of its largest funds.

The tax form, known as a Schedule K-1, is issued annually to owners of limited partnerships. In a let-ter to investors dated Jan. 23, GPB Capital said it would not be able to issue Schedule K-1 tax documents for GPB Automotive Portfolio before tax day. GPB Au-tomotive was one of the company’s two largest funds, with $622.1 million raised and $52.2 mil-lion paid in commis-sions to brokers who sold the product, according to filings with the Securities and Exchange Commission.

AIMING FOR END OF JULYIn the letter, GPB said it hopes to issue the forms by the end of July. “Based on this information, we encourage our limit-ed partners to reach out to their own tax professionals for guidance,” according to the letter.

“As a holding company with underlying operating companies, GPB Capital is dili-gently working to collect tax information from all of our various entities and invest-ments to prepare accurate final Schedule K-1s by the end of July,” said spokesperson Nancy Sterling.

BUSINESS STRATEGYGPB’s stated business strategy was to part-ner with independent broker-dealers to sell

private partnerships to wealthy investors. In turn, GPB was to

use that capital to buy auto dealerships and waste

management business-es with the intent of generating high sin-gle-digit returns for clients. Such private placements usually generate steep com-missions of 7% to 8%

for brokers selling the product, typically with

additional fees and costs. The Schedule K-1 tax

form tells investors what they have made or lost during the report-

ing period, and it also informs them what the private placement is worth. Investors are required to file the form for their private placement investments. If a Schedule K-1 is not delivered, investors can file an exten-sion on their taxes.

GPB Automotive is just one of a series of GPB private placements. In total, GPB

SEC FAQ says Reg BI applies to sophisticated investors

GPB fails to issue K-1 to investors

I t takes a lot of hard work and effort for a financial adviser

who sells insurance to lose a state’s permis-sion to hawk products that typically pay the adviser juicy commis-sions.

Indeed, a broker really has to put their shoulder to the wheel of malfeasance to get a state insur-ance commissioner to sit up, take notice and say, “Wait just a minute. This guy might not be on the up-and-up. Better take a look!”

Take the case of Ronald D. Mor-ley, who has been barred from sell-ing securities twice: once in 2006 by Maryland, where he is based, and again in 2016 by the Securities and Exchange Commission, for

two different schemes. He is also a convicted felon in Kansas.

Despite his ques-tionable background and an ongoing ef-fort by the Maryland Insurance Adminis-tration to take away

his license, Mr. Morley’s license is deemed “active” on the state web-site that consumers can use to check whether an insurance sales-man has the state’s approval to sell products.

Mr. Morley promotes his insur-ance experience and background on his LinkedIn profile page, even though Maryland is trying to re-voke his license. His current firm is called Client One Marketing.

Adviser barred twice from securities, clings to insurance


CONTINUED ON PAGE 22 CONTINUED ON PAGE 22

ONADVICE

BRUCE KELLY

“IT MIGHT RAISE SOME EYEBROWS.” TODD CIPPERMAN, PRINCIPAL AT CIPPERMAN COMPLIANCE SERVICES


TopNews

BY JEFF BENJAMIN

AS THE LONGEST economic expansion in U.S. history continues to get older, it ’s only natural that speculation is building over when the next recession will hit.

But this economic cycle carries with it the unprecedented potential for some-thing known as a negative-interest-rate policy, and some now see that as inev-itable.

“If the next recession is anything but mild, the Fed will go to negative rates,

which will be a com-plete and utter disas-ter,” said Paul Schatz, president of Heritage Capital.

Citing as a refer-ence point the Federal Reserve’s response to the 2008 financial cri-sis — driving interest rates down from 5.5% to zero and then layer-ing on $4 trillion worth

of quantitative easing — Mr. Schatz ex-pects the Fed to embrace the kind of nega-tive-rate policy that has become common in many parts of Asia and Europe.

“They’re already floating the trial bal-loon of negative rates,” he said. “It’s not going to work because it’s a vortex that destroys your bond market.”

DESPERATE ATTEMPTAs global central bankers have cut rates in a desperate attempt to stimulate eco-

nomic growth, the result has been ap-proximately $13 trillion worth of nega-tive-yielding sovereign debt outside the United States.

Last month, in an interview with InvestmentNews, Allianz chief eco-nomic adviser Mohamed El-Erian said it is “very unlikely” the U.S. will employ negative rates because “the Fed fully un-derstands the risks and costs. And sec-ondly, it’s very unlikely because I do not believe we’re going into a recession.”

In an interview for this story, Mr. El-Erian said the chance that negative rates will spread to the U.S. is limited by the effects the policies are having in Europe.

“It’s highly unlikely because of in-creasing evidence that the experiment of negative rates in Europe is failing,” he said. “The right option is to employ a comprehensive policy approach that doesn’t rely on central banks. If that’s not possible, there is a scope for the Fed for a lot of quantitative easing.”

CHANGE OF OPINIONMr. El-Erian added that the European central bankers who initially embraced negative rates are now divided over the policy’s effectiveness.

“Going negative has been shown to encourage savings, it encourages exces-sive risk-taking, it allows zombie com-panies to stay alive and it increases the misallocation of resources across the country,” he said.

Negative yields could mean inves-

tors would have to pay for the privilege of owning a bond or storing money in a savings account. While that possibility has been kicking around as a potential threat to the U.S. for a half-dozen years, the voices citing the threat are getting louder.

Michael Bazdarich, an economist at Western Asset Management Co., pub-lished a report Feb. 6 arguing that neg-ative rates are both inevitable and tech-nically manageable from a financial market perspective.

Like Mr. Schatz, Mr. Bazdarich doesn’t believe the Fed has enough cushion, with rates currently below 2%, to avoid negative rates as a tool for fighting a recession.

Mr. Bazdarich was not available for an interview for this story, but in his pa-per he explained that in each recession since the 1970s, the Fed has respond-ed by cutting short-term rates by more than five percentage points.

In the wake of the financial cri-

BY EMILE HALLEZ

BANK OF AMERICA launched a full-service workplace benefits program in hopes of landing more business from its corporate banking customers.

The massive financial services com-pany had soft-launched the initiative about a year-and-a-half ago, but it offi-cially made the program available to em-ployers on Feb. 5.

That program, which the bank calls Financial Life Benefits, is a response to demand from employers and workers for comprehensive financial well-being and health care benefits, said Steve Ulian, managing director at Bank of America.

“Employees are basically crying out for help around their financial well-be-ing and are looking to the employer to do something about it,” Mr. Ulian said. Employers are also using full-service benefits to retain talent and help keep

employees productive, he said.“Fifty-six percent of employees sur-

veyed are stressed when it comes to their financial situation, and 53% said that stress interferes with their productivity at work,” Mr. Ulian said, citing survey figures from the company’s workplace benefits report.

Through the new service, the compa-ny is providing 401(k)s, defined-benefit plans, health savings accounts and non-qualified deferred compensation plans alongside its banking services. Togeth-er, the services address short-term and long-term financial planning, Mr. Ulian said.

IN-PERSON GUIDANCEThe service also includes in-person guid-ance from Merrill Lynch advisers.

Bank of America’s corporate banking service is aimed at companies with at least 800 employees, though it also has

small and midmarket banking options, Mr. Ulian said.

Roughly 100 companies have signed up for the packaged service since the soft launch, though Bank of America now has many more opportunities to add clients, he said. About 40% of midsize to large U.S. companies have a banking re-lationship with Bank of America, includ-ing 95% of Fortune 1,000 companies, ac-cording to the bank. In addition, it works with about 3 million small businesses.

FIELD SPECIALISTS“We have all of these services in-house. We aren’t a strict 401(k) provider that has to go out and find a [health savings account] provider to partner with,” Mr. Ulian said. “We are uniquely positioned to bring this to [banking clients].”

To help sell the benefits package, the company is hiring between 100 and 140 field specialists who will work with cor-

porate bankers, he said. The company has also recently made related invest-ments in technology, including a feature that allows clients to view their consum-er banking accounts alongside their em-ployer-sponsored benefits and wealth management accounts, he said.

“We know that employees aren’t looking at their financial lives in silos,” Mr. Ulian said.

[email protected] Twitter: @EmileHallez

BofA launches Financial Life Benefits Initiative

Rising concern over negative interest rates hitting US

“IF THE NEXT RECESSION IS ANYTHING BUT MILD, THE FED WILL GO TO NEGATIVE.”PAUL SCHATZ, PRESIDENT, HERITAGE CAPITAL


<2%CURRENT FEDERAL FUNDS

INTEREST RATES

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

I F YOU ONLY TUNED IN to ESG in 2019, you would think the strategy, which invests with environmental, social and governance matters at the fore, represents the latest magic elixir for the investment community. Every client wants it, every adviser touts access to it, and every asset

manager swims in dollars allocated to it. For reference, Morningstar reported net � ows for

2019 of $20.6 billion into sustainable funds, more than three times the net � ows of 2018. In the most re-cent evidence of the urgency now surrounding ESG, BlackRock launched an exchange-traded fund dedi-cated to this strategy on Feb. 7. By last Wednesday, a Finnish pension insurer had invested $600 million in the new ETF.

This reads like the stuff of Pets.com — if you hav-en’t been paying attention for the past 20 years.

However, ESG’s sudden in� ux of relevance is the culmination of the work and dreams of many altruistic investment professionals over the years. Yet, strikingly, given the years spent building this business that has governance in its name, the sector seems ill-prepared for its moment. And just as ardent believers see their dream become reality, they � nd themselves beset by challenges around the gover-nance of the products they have built up for so long.

In this week’s cover story, Jeff Benjamin exam-ines “greenwashing,” the practice of making a fund appear ideologically purer than it really is. The most salient anecdote appears to be a case of uninten-tional malfeasance, a situation created by a lack of standards.

CAUSE OF CONSTERNATIONAn exchange-traded fund launched in 2016 touting it-self as “Fossil Fuel-Free” — an attractive label to ESG purists. But astute observers discovered that the name was inaccurate, causing consternation about the puri-ty of the ETF, or lack thereof.

The fund’s creators acknowledged the oversight and amended the name, adding the word “Reserve” to more

ESG’s unsustainable

irony: A lack of

transparency

accurately re� ect the ETF’s components. But given that the � nancial industry must always fend off allegations of impropriety, this imprecise labeling, purposeful or not, undermines the ef� cacy of the ESG initiative.

Practitioners argue that the challenge grows because current ESG nomenclature is analogous to the value versus growth situation. While the general concepts are clear, the underlying de� nition varies from shop to shop.

‘GAPING HOLES’There are “gaping holes” in the consistency of ESG data, Vanguard’s head of ETF product management, Rich Powers, told Jeff Benjamin. And that incon-sistency yields accusations of greenwashing from groups that increasingly seek a standard de� nition of what ESG is.

Because Europe has led the way on ESG for years, there might be hope for a breadcrumb trail to follow. But while the Europeans have forged a path, they, too, have struggled to develop a coherent standard. The

European Union instituted a reporting directive, but an expert at ESGClarity.com argues that the current formulation of the EU’s reporting directive must lead to comprehensive disclosure of non� nancial infor-mation. The author argues that under the current directive, “Investors are unable to take suf� cient account of sustainability-related risks and the oppor-tunities of their investments.”

Several � rms, including Morningstar, MSCI and As You Sow, have started rating ESG investments, but as with the funds, there’s no consistency, and it’s at the portfolio level. For the ESG sector to succeed, an organized effort must be launched to establish clear rules of play.

The industry must reach a state where clients and advisers don’t need to perform deep-dive research to determine if the term “Reserve” must be included in an investment vehicle. To do that, industry leaders need to set standards and grades for all types of ESG investments so that the investing public, thirsty to support sustainability, can be con� dent there is suf� -cient governance of ESG portfolios.

Now that it’s attracting real dollars, the ESG world must act like a real industry.

WHILE EUROPEANS HAVE FORGED A PATH, THEY, TOO, HAVE STRUGGLED TO DEVELOP A COHERENT STANDARD.

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GREENSCREEN

THE ADVISORY INDUSTRY STRUGGLES TO DEFINE WHAT’S GREEN AS ESG GROWS IN POPULARITYBY JEFF BENJAMIN


GREENTHE ADVISORY INDUSTRY STRUGGLES



With the investing public expressing a seemingly insatiable desire to put their money behind various forms of environmental, social and cor-porate governance causes, it’s not surprising that the asset manage-ment industry is virtually falling over itself to launch products and strategies boasting various forms

of ESG and sustainable-investing labels. Trouble is, aside from recognizing the growing

appeal of all things ESG, it turns out that investors, � nancial advisers, and asset managers are often working from different playbooks when it comes to de� ning the space.

Consider, for example, the SPDR S&P 500 Fossil Fuel Reserve-Free ETF (SPYX), which launched in 2016 without “Reserve” in the name but quickly added it following criticism from investors that the fund wasn’t ESG-pure enough.

By adding the word “Reserve,” State Street Global Advisors isn’t saying the index fund is necessarily free of fossil-fuel companies, but that it is free of fossil-fuel companies represented by the so-called Carbon Tracker 200, which tracks companies with the largest fossil-fuel reserves.

The distinction is no small thing to ESG purists like Andrew Behar, chief executive of As You Sow, a nonpro� t shareholder advocacy organization that screens and grades funds based on a variety of ESG criteria, including the overall carbon footprint of the underlying holdings.

“It’s a problem because people invest based on the name of a fund, then it underperforms because it in-cludes fossil fuels,” Mr. Behar said. “It’s also a problem for the real fossil fuel-free funds out there that are doing it right.”

In ESG parlance, the practice of making a fund appear purer than it actually is, whether intentional or not, is often referred to as “greenwashing.” And like ESG investing itself, greenwashing is nuanced and sometimes resides in the eye of the beholder.

“Ultimately, ESG investing is an extremely per-sonal investment decision,” said Matthew Bartolini, head of America’s research for State Street Corp.’s exchange-traded-fund business.

“Seeing the proliferation of ESG products, they of-ten have similar names and objectives, but de� nitions vary across providers,” he added. “If we wanted a fund with no companies interacting with fossil fuels, it would be a very concentrated portfolio appealing to a very narrow set of people who may not even invest in it, because a selection of 20 stocks with no connection to fossil fuels could be potentially very volatile.”

The Vanguard Group found itself in a similar pick-le when it was learned its suite of four ESG-labeled funds included exposure to some fossil fuel, tobacco and weapons companies.

“They’ve been caught holding gun stocks, alcohol, and a lot of things on human rights watch lists,” said Max Mintz, junior partner and � nancial adviser at Common Interest, an advisory � rm.

“The problem is everyone is using the same lan-guage and without digging through prospectuses and

talking to managers and getting access to the data, so it is dif� cult to know what you own,” he said. “The greenwashing problem is de� nitely growing.”

Like State Street, Vanguard takes the position that ESG is subjective, and when creating diversi� ed products to appeal to a broad market, there needs to be some � exibility.

“I think the ESG nomenclature is very analogous to how we think about what constitutes value or growth; there are lots of ways to categorize value and growth,” said Rich Powers, head of Vanguard’s ETF product management.

“As we thought about what we’re bringing to the marketplace we wanted it to re� ect what we’re hearing from advisers,” he added. “When it comes to the con-sistency of ESG data and availability, there are gaping holes. We’re not trying to be all things to all people with this suite of funds. And if you have a different view, there are other products out there from different � rms.”

GREEN GROWTH The reason some investors and � nancial advisers believe the practice of greenwashing is growing and getting out of hand ties into the growing appeal of ESG investing.

In 2019, 300 mutual funds and exchange-traded funds categorized by Morningstar as sustainable attracted $20.6 billion in net � ows, which is nearly four times the $5.5 billion in net � ows the category saw in 2018.

One recent high-pro� le example of the asset-


management industry stepping up to acknowledge and address the rising demand for ESG products and strategies is the January announcement by Black-Rock CEO Larry Fink that the world’s largest asset manager will be altering its investment policy to focus on climate change and other ESG factors.

FILLING THE GAPSThe news has drawn both praise for the general effort and criticism for all the potential gaps the asset man-ager is leaving unfilled on the ESG front.

“I like seeing BlackRock enter the space in such a way, because in 10 years [ESG] won’t be a label any-more, it will just become industry best practices,” said Martin Jarzebowski, director of responsible investing at Federated Investors.

Mr. Jarzebowski, representing a firm that also makes ESG investing a priority, acknowledges the chal-lenges for investors when it comes to matching ESG strategies with objectives.

“When you think about greenwashing and how to start rationalizing it, it’s an issue of whether actions speak louder than words,” he said. “The labels can simply be cosmetic.”

Mr. Mintz of Common Interest is more in the strictly critical camp when it comes to a company with the size and swagger of BlackRock putting its stamp on the ESG space.

“When the big players start rebranding things as sustainable, that’s when you have a problem, because ESG investing has become the most recent fad that the asset management industry is running on,” he said. “I still have a couple issues with BlackRock around proxy voting when they either don’t vote or are voting with management.”

Victor Orozco, a partner at Bair Financial Planning, also questions the motives behind any large asset man-ager that suddenly finds religion in the ESG space.

“BlackRock, in doubling their solutions, they might have the most ESG funds out there, but they still have so much in non-ESG funds,” he said. “It’s hard to be sure if they’re being truly genuine and in-tentional, or are they just trying to do a money grab?”

From BlackRock’s perspective, according to the two long and detailed letters written to both corpo-rate executives and shareholders in January, Black-Rock acknowledges supporting 12% of 40 sharehold-er proposals, as well as voting against almost 5,000 corporate directors last year.

“Where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable,” the letter to CEOs states.

BlackRock also does not apologize for offering non-ESG funds for investors who might not be in-terested in ESG strategies or causes. But BlackRock

does confirm the need for greater consistency and standards regarding ESG nomenclature.

“We want to make sustainable investing more accessible to all investors and lower the hurdles for those who want to act. We have advocated for clear and consistent naming conventions for ESG prod-ucts across the industry, so that investors can make informed decisions when they invest in a sustainably labeled fund,” the shareholder letter states.

With such vague parameters and definitions in overall ESG space, it is sometimes difficult to distin-guish between intentional misperception and a more honest mistake.

“It is still a fairly subjective concept because the way a manger defines his ESG approach is going to be unique,” said Mamadou Sarr, head of sustainable investing at Northern Trust Asset Management. “The definition of ESG is broad in nature and it leaves room for interpretation.”

The labeling challenge and confusion typically go all the way down to the individual portfolio holdings. Last year, for example, the bond market saw $230 billion worth of bond issuance labeled as green. Of that total, $190 billion worth of those bonds followed the climate bond initiative that was established to address the greenwashing issue in fixed income.

But more extensive auditing found that only $41 billion worth of the green bonds issued were certified as green.

“It varies by issuance, but if you’re in a dirty industry and issuing a green bond, it is a question of whether you are you assessing it independently from the sector,” Mr. Sarr said.

As an impact investing consultant, Sonya Dreizler recognizes the confusion related to all the various ways of describing ESG investing.

“I do think there are new ESG and sustainable labels coming to market each year,” she said. “But gre-enwashing is not a term I usually use because it’s a vocabulary issue. ESG is data on a company and how each fund or manager uses that data varies signifi-cantly from manager to manager.”

COMMON LANGUAGEBut even as people like Ms. Dreizler can envision a time when ESG data is viewed as just data that is incorporated alongside all the other data used to an-alyze investments, she believes the industry needs to agree on some common language and definitions.

“From what I’ve seen, most funds use the ESG ter-minology in a nuanced way, but we all view it as the

same,” she said. “There are movements to formalize language, but that’s still pretty nascent.”

Absent strict standards for what qualifies as an ESG investment, the space has become more reliant on research firms and data providers like Morning-star, MSCI and As You Sow, all of which offer portfo-lio-level analysis of ESG criteria.

In the Morningstar system, for example, a fund with a rating of four or five out of a possible five globes is deemed as being managed in a sustainable manner.

“It’s not a be-all, end-all, but if you’re looking at an intentional fund with ESG at its core, that fund should get four or five globes,” said Jon Hale, Morn-ingstar’s global head of sustainability research.

“The ESG-labeled funds that don’t get four or five globes suggests they’re not living up to their name,” he added. “When I look at ESG funds in scoring average or lower globe ratings, I could see someone saying these are certainly not as comprehensive on sustainability as they hold themselves out to be. But that means you need to ask more questions about what they’re doing.”

A MARKET SOLUTIONWhile gaps remain in the reporting and gathering of ESG data — which is not helped by the generally subjective nature of sustainable investing — some be-lieve the resolution will come via market forces that essentially fold ESG factors into all the other data used to analyze investments.

“We feel there is a convergence of societal, regulatory and investor demands that make ESG a topic that has to be central in the investing process, and some people are already doing that,” said Remy Briand, head of ESG at MSCI.

In some ways, the market is already doing that, as illustrated by Morningstar’s globe ratings, which occasionally uncover funds that are not even being marketed as ESG but merit high globe ratings. These funds just happen to recognize, and manage for, cer-tain ESG risk factors, such as potential liabilities as-sociated with certain industries or business practices.

“We’ve seen hundreds of funds in the U.S. in the last year or two from mostly traditional asset manag-ers who claim they are integrating ESG as a consid-eration, but not making it a primary focus,” Mr. Hale said. “From a fiduciary standpoint, all asset managers should be considering ESG risks, regardless of what investors think about ESG.”


How to spot greenwashingUntil the asset management industry can agree on

some standard definitions and practices regarding sustainable investing, the onus will be on financial advisers to look behind the scenes and under the hood of any strategy marketed as incorporating ESG factors.

The following are due diligence best practices and tips for avoiding “greenwashed” products:• Request a meeting with the asset manager’s ESG

team to understand their process and where they sit within the company.

• Find out if the firm has a formal commitment or mission statement regarding ESG investing.

• Find out if the firm has dedicated ESG-investment professionals, including portfolio managers and analysts.

• Ask about the firm’s ability to leverage ESG data and analytics in security analysis from a risk perspective.

• Ask about the firm’s policy and track record when it comes to shareholder proxy voting and engaging directly with company management and directors.

Minding the data:• It’s important to know the asset manager’s source

of ESG data.• Single-source third-party data is limited and can be

stale.• The next step would be an in-house team develop-

ing proprietary ESG assessments.• The ideal scenario would be for the firm to have

active engagement, collaborating dialogue with individual companies.

Examples of resources for screening funds:Morningstar.com: Using data from Sustainalytics, Morningstar’s globe rating system provides a historical sustainability score that includes metrics for carbon risk and fossil-fuel involvement. The globe ratings are updated monthly based on the latest portfolio reporting, and consider the trailing 12 months, while weighting recent portfolios more heavily.

MSCI.com/ESG-ratings: MSCI is expanding its universe of funds that are screened and graded with ESG scores. The grading is on a seven-point scale and provides context as to specific ESG areas where the fund is strong, average and weak.

FossilFreeFunds.org: Part of AsYouSow.org, this screening tool provides detailed analysis of a fund’s underlying holdings. In addition to a breakdown of fossil-fuel holdings, the site grades funds on factors in-cluding deforestation, gender equality, civilian firearms, military weapons and tobacco.

—Jeff Benjamin

CONTINUED FROM PAGE 9

“THE GREENWASHING PROBLEM IS DEFI-NITELY GROWING.”

MAX MINTZ, JUNIOR PARTNER, COMMON INTEREST

“Our business is open to everyone, and we want to reach all of our diverse communities.”

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

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

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

Transform for the future with Fidelity.

LEADby example

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

IN012207.indd 1 2/5/20 4:05 PM

RIAs / INDEPENDENT BROKER-DEALERS / WIREHOUSES / M&A / CUSTODIANS / INDUSTRY GROUPS


Industry

T he � nancial advice industry logged another record year for mergers and acquisitions in 2019 and ap-

pears poised for further consolidation over the year ahead. According to In-vestmentNews Research data, 70% of � rms that acquired a competitor over the past two years are currently consid-ering another purchase.

They’re wise to think about it. Our data, collected from a survey of industry dealmakers, suggest that prior experience with acquisitions can smooth the path to success in future transactions.

Overall, advisory � rms that made mul-tiple acquisitions over the past two years — let’s call them repeat acquirers — felt more positive about their transactions than those that made only one purchase. In assessing the success of their most re-cent deal, 78% of repeat acquirers rated it highly (eight or above on a 10-point scale), compared with 54% of all other acquirers.

An acquisition-oriented strategy may be suitable for � nancial advisory � rms as they typically seek to build scale within an industry they already know well.

Academic research has shown that prior acquisition experience general-ly bene� ts � rms only when targets are concentrated in their own or a similar in-dustry. In addition, scholarship indicates that processes established through prior

acquisitions help � rms avoid mistakes in the kind of heated transaction market in which the advice industry now � nds itself.

According to data from Echelon Part-ners, which tracks wealth management M&A activity, the annual number of in-dustry transactions has grown at an aver-age rate of 15.4% over the past � ve years.

Experience makes a difference from the earliest stages of transactions. Repeat acquirers, for example, were nearly twice as likely as others to have obtained � -nancing for their latest acquisition, possi-bly because they had established banking relationships from earlier deal-making.

In addition, 76% of repeat acquirers had recently obtained a formal valua-tion, which likely expanded their options both by easing access to � nancing and enabling them to use equity in structur-ing the deal. For perspective, only 38% of � rms currently considering a sale — arguably those most in need of an accu-rate accounting of their market worth — had received a third-party valuation over the past two years.

BIGGEST HURDLESAlthough all acquisitive � rms in our study encountered challenges in their transactions, single and repeat acquirers identi� ed different sets of pain points. Asked to name their biggest hurdles, � rms that made only one acquisition were more likely to cite early-stage is-sues such as agreeing on a valuation and retaining acquired clients.

In contrast, challenges that were comparatively common among repeat acquirers tended to be longer-term op-erational issues less central to the deal’s immediate value. For example, they were more likely to cite technology integra-tion or branding as pain points.

Interestingly, repeat acquirers were about 40% more likely than others to prefer a partial sale, in which they re-tain a senior partner in some capacity following the transaction. That tactic could be an important reason that ini-tial stages of an acquisition appear to run more smoothly for this cohort.

Repeat acquirers were not only more prepared for the early phases of their deals, they also appeared to take a lon-ger-term view of � rm value. Unsurpris-ingly, more than three-quarters of all ac-quiring � rms said they were motivated by revenue growth. Yet repeat acquirers drilled deeper into fundamental pro� t drivers when identifying the motivations behind their deals: They were 33% more likely to cite asset growth, 72% more like-ly to cite talent acquisition and 81% more likely to cite scale.

Firms in all stages of development made acquisitions in recent years, but younger � rms were more likely to say they were considering one over the next two years. That more younger � rms are

considering buying a competitor re� ects the fact that acquisitions are increasingly a core industry strategy, rather than a le-ver to consider only after organic growth becomes elusive.

As the industry heads into what is ex-pected to be another record M&A year, economic and competitive pressures will encourage many � rms to act on their plans.

The data in this article come from the 2019 InvestmentNews/Live Oak Bank/SkyView Partners study Maximizing the M&A Opportunity: A Roadmap for Ad-visory Firm Buyers and Sellers. To share input or ideas for upcoming research, please email [email protected].

Experience is key to record industry M&A

SAVE THE DATE: COMING TO A CITY NEAR YOU IN 2020.

Chicago, IL | April 22

Boston, MA | June 30

Denver, CO | October 1 IN PURSUIT OF EXCELLENCE

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

Huntington BeachMarch 18, 2020

FIRST STOPSan Francisco, CA | October 20 October 20

New York, NY | November 18 November 18

PRESENTED BY

ChicagoDenver

San Francisco

New YorkBoston

GUESTBLOGDEVIN MCGINLEY

TRANSACTION PAIN POINTS

Retaining acquired clients

Client communication

Agreeing on valuation

Marketing/branding

Aligning pricing models

Technology integration

Realigning staff responsibilities

Single acquirers Repeat acquirers

27%10%

27%21%

17%10%

9%14%

11%17%

21%28%

19%31%

Source: 2019 InvestmentNews Adviser Technology Study

HOW WOULD YOU RATE THE SUCCESS OF YOUR ACQUISITION?

Single acquirers

Repeat acquirers

Low (1-3)

Moderate (4-7)High (8-10)

4%

41%54%

Moderate (4-7)

High (8-10)

22%

78%

NUMBER OF M&A DEALS AMONG RIA FIRMS IN 4Q 2019. SOURCE: FIDELITY QUARTERLY M&A REVIEW127


BY JEFF BENJAMIN

THE MOVE BY Creative Planning to join the party and sell a piece of the � nancial advisory business to private equity investors is not about capitaliz-ing a growth spurt, according to Chief Executive Peter Mallouk.

“If I want to do this for a long time, I want to have a big pile of money on the side so we can continue growing, even in down markets,” he said of the recent decision to sell a minority stake in the $50 billion registered investment adviser to private equity � rm General Atlantic.

Mr. Mallouk, 50, who has been lead-ing Creative Planning since 2004, said General Atlantic’s ownership stake is “in the teens,” and he still owns “well over 80%” of the business.

“I still retain control and we’re not doing anything different than before,” he added, emphasizing Creative Plan-ning’s recent push into acquisitions will not suddenly shift into a high-er gear with the new capital.

Private eq-uity, a category � ush with cash

and looking for investment opportu-nities, has for the past few years been buying up large swaths of the � nan-cial advisory space, which has been fueling merger activity and driving up valuations.

But, unlike some RIA-PE partner-ships that have handed over majority ownership stakes and management control to the outside investors, Mr. Mallouk insists he is just taking ad-vantage of what the market is offering.

“Valuations have been so high, we’re at unprecedented levels in this space, and there’s record private equi-ty money on the sidelines,” he said.

ORGANIC GROWTH Creative Planning, which has 700 em-ployees in 27 of� ces serving about 30,000 clients, has experienced pri-marily organic growth since Mr. Mal-louk took over. The RIA made its � rst acquisition 11 months ago and has made an acquisition during each of the past four months, which is a pace Mr. Mallouk expects to maintain.

“About one acquisition a month seems like the pace that makes sense for us,” he said. “None of the [PE] mon-ey is for acquisitions; that’s just re-served for the � rm.”

Daniel Seivert, chief executive of the investment bank Echelon Partners, said he is not surprised private equity would end up with a piece of Creative Planning, even if it’s a minority stake.

“Creative Planning is one of the most attractive growth plays in the wealth management space that to this point was not available to invest in,” he said. “They have a highly replicable business model; they have an amazing track record of organic growth, with a repeatable process.”

Mr. Seivert also likes the fact that Creative Planning didn’t give up majority ownership or management control as part of its deal with PE investors. “There is a huge advantage to minority, noncontrolling, long-term capi-tal in that Peter Mallouk stays in control but gets help with some of the larger strategic develop-ment issues,” he said.

[email protected]: @benjiwriter

Peter Mallouk on Creative Planning’s PE strategy

SAVE THE DATE: COMING TO A CITY NEAR YOU IN 2020.

Chicago, IL | April 22

Boston, MA | June 30

Denver, CO | October 1 IN PURSUIT OF EXCELLENCE

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

Huntington BeachMarch 18, 2020

FIRST STOPSan Francisco, CA | October 20 October 20

New York, NY | November 18 November 18

PRESENTED BY

ChicagoDenver

San Francisco

New YorkBoston

BY EMILE HALLEZ

KESTRA FINANCIAL recently settled with Ohio National, ending the bro-ker-dealer’s lawsuit over trail commis-sions on certain annuity contracts.

The companies � led a notice Jan. 8 in the U.S. District Court of the West-ern District of Texas that they had reached a settlement, indicating that they planned to � le dismissal docu-ments within 45 days. The court has since stayed the case pending the submission of the request to dismiss, which is due Feb. 24.

The broker-dealer’s Kestra Invest-ment Services subsidiary � led the law-suit in July, one of many � led against Ohio National in the wake of its high-ly controversial decision to end trail commissions for advisers who sold variable annuities with guaranteed minimum income bene� t riders. The decision, which was unprecedented in the industry, affected most brokerages that sold the insurer’s annuities.

’MUTUAL SATISFACTION’Other � rms, including UBS, RBC and Veritas, also sued Ohio National. Terms of the settlement weren’t disclosed in court records. A Kestra representative could not be reached by press time.

“We have reached a resolution with this broker-dealer regarding trail commissions,” an Ohio Nation-al spokeswoman said in a statement. “The terms are con� dential, but the matter was resolved to the mutual sat-isfaction of all parties.”

The insurer declined to comment on other active litigation against it.

In its complaint, Kestra leveled nu-

merous charges, alleging breach of contract; breach of implied covenant of good faith and fair dealing; tortious interference with contracts; and unjust enrichment. The broker-dealer sought monetary damages, interest, punitive damages and attorneys’ fees. It also asked the court for a declaration that Kestra had rights to ongoing trail com-missions pursuant to its selling agree-ment with Ohio National.

The insurer began making attempts to of� oad some of its GMIB contracts in 2017 and offering buyouts, as that business was reportedly unpro� table, Kestra wrote in the complaint.

However, Ohio National was unsuc-cessful in its bids to get clients to sur-render their contracts, which led the insurer to take the drastic step of ter-minating its selling agreements with broker-dealers, according to Kestra.

“Ohio National sought to make it harder and more expensive for Kestra to service the GMIB Contracts,” the complaint stated. “This, defendants hoped, would encourage Kestra to recommend that its customers accept the buyout offer and move into anoth-er product for which Kestra could be compensated.”

In 2018, Ohio National stopped writing new annuities and laid off 300 employees.

There are still several high-pro� le lawsuits pending, including a class action brought by Veritas Independent Partners and Avantax Investment Se-curities. The plaintiffs in that suit � led an amended complaint on Dec. 20.

[email protected]: @EmileHallez

Ohio National, Kestra settle over VA commissions

he added, emphasizing Creative Plan-ning’s recent push into acquisitions will not suddenly shift into a high-er gear with the new capital.

Private eq-uity, a category � ush with cash

said he is not surprised private equity would end up with a piece of Creative Planning, even if it’s a minority stake.

“Creative Planning is one of the most attractive growth plays in the wealth management space that to this point was not available to invest in,” he said. “They have a highly replicable business model; they have an amazing track record of organic growth, with a repeatable process.”

that Creative Planning didn’t give up majority ownership or management control as part of its deal with PE investors. “There is a huge advantage to minority, noncontrolling, long-term capi-tal in that Peter Mallouk stays in control but gets help with some of the larger strategic develop-ment issues,” he said.

[email protected]: @benjiwriter

PETER MALLOUK


RETIREMENT / SOCIAL SECURITY / INSURANCE / TAX / MEDICARE / COLLEGE / TRUST & ESTATE / PHILANTHROPY

Planning

O lder workers face a series of critical de-cisions as they tran-

sition from the workforce into retirement. Financial advisers are ideally posi-tioned to help their clients navigate these decisions, including when to retire, whether to work part-time, when to

claim Social Se-curity and how to draw down their retirement savings.

Steve Vernon, a research scholar at the Stanford Cen-ter on Longevity and president of Rest-of-Life Com-munications, calls the age span from 62 to 70 the “retire-ment opportunity zone,” a window of time when retirees

and their advisers can create a game plan for a 21st century retirement that is likely to last longer than those of previ-ous generations.

For many retirees, their new job in retirement is to tackle this big planning challenge, which includes important de-cisions about medical insurance to aug-ment Medicare, protecting against long-term care risk, enhancing health and longevity, and nurturing a social portfo-lio that can be critical to well-being.

In addition, some retirees may want to consider how to deploy their home equity, whether that’s by downsizing to a smaller, less expensive home or taking

out a reverse mortgage, Mr. Vernon said during a recent webinar.

Mr. Vernon says retirees should build a retirement income portfolio that’s rem-iniscent of their income during their working days, divided into paychecks and

bonuses. In retirement, the paychecks that provide guaranteed income might consist of Social Security bene� ts, pen-sions, annuities and tax-free payments from a reverse mortgage to cover � xed costs in retirement. The bonuses — fund-ed by withdrawals from invested assets, wages and other sources, such as rent-al income — can pay for discretionary spending, such as travel.

SMART DECISIONS Using the example of a married couple, both age 60, Mr. Vernon demonstrated how using a variety of levers, such as working longer, delaying their Social Se-curity bene� ts and making smart � nan-cial decisions, could nearly double their retirement income, from about $62,000 if they retire at age 62 to nearly $120,000 per year by postponing retirement until 70.

Separately, a new report from the Center for Retirement Research at Bos-ton College dubs Social Security “a great equalizer” of retirement wealth across various racial and ethnic groups.

“The non-Social Security retirement wealth held by white households aver-ages about seven times that of blacks and about � ve times that of Hispanics,” according to the recent issue brief au-thored by Wenliang Hou and Geoffrey Sazenbacher. “Adding in Social Security

wealth changes the picture dramatically.” The researchers noted that when So-

cial Security bene� ts are added to the more traditional wealth measurements of pensions, de� ned-contribution plans, other investible assets and home equity, “retirement wealth for white households drops to about 2.5 times that of minori-ty households.” They noted that “Social Security has such a powerful effect be-cause the program is nearly universal and its bene� t formula is progressive,” meaning the bene� t formula provides much higher bene� ts relative to earn-ings for lower-wage workers than for their high-wage counterparts.

ADDED SOURCES OF INCOME Two other recent pieces of research highlighted the availability of additional sources of income for retirees: home eq-uity and employment.

A newly released working paper from CRR posed the question: Are homeownership patterns stable enough to tap home equity? Yes. Most homeown-ers age 50 and older stay in their homes for decades and are well-suited to tap-ping some of their home equity through a reverse mortgage or property tax de-ferrals. However, few households do.

“A potential reason that homeown-ers are reluctant to borrow against their house is that, if they do decide to move, they have to pay back the loan with in-

terest, which could leave them with inad-equate resources at a vulnerable time in life,” the report said.

“Retirees might be more likely to tap their home equity if they felt that they had adequate public or private insur-ance protection against the risk of need-ing long-term services and support,” the paper concluded.

Finally, a new analysis of Bureau of Labor Statistics data by SimplyWise.com, a website focused on Social Security ben-e� ts and other retirement income topics, found that the portion of seniors enter-ing or remaining in the job market has reached near-record levels.

The labor participation rate among workers 65 and older hit 20.6% in De-cember 2019, the highest level in nearly 60 years; and the BLS expects that rate to keep growing, to an estimated 23.3% by 2028. In addition, the 2.6% unemploy-ment rate for seniors in December 2019 remains below the 3.5% national unem-ployment rate. Sixty-two percent of em-ployed seniors are working full-time.

(Questions about new Social Securi-ty rules? Find the answers in my ebook at InvestmentNews.com/mbfebook.)

Mary Beth Franklin, a certi� ed � nancial planner, is a contributing editor for [email protected]: @mbfretirepro

Planning for retirement in the 21st century

BY EMILE HALLEZ

CALIFORNIA ISSUED a range of pro-posed revisions to its sweeping Consum-er Privacy Act, including changes that speci� cally affect employer-sponsored retirement plans.

The consumer-friendly act requires many businesses to disclose, upon re-quest, what information they keep on customers and allow people to opt out of having their data sold. In many cases, cus-tomers can also have their data deleted.

A big question for retirement plan

service providers is whether they would be exempt from some of those require-ments, much as employers are.

“It was a positive step forward,” said David Levine, principal at Groom Law Group. “There was really nothing [previ-ously] about bene� ts plans in the CCPA regulations.” The revisions clarify that disclosures for bene� ts plans fall into their own category and are not the same as those that must be made by compa-nies like Facebook, Mr. Levine said.

Importantly, the proposed changes to the law arguably show that a single dis-

closure from an employer about the data gathered for bene� ts plans is suf� cient, meaning that not every service provid-er or adviser serving a plan would have to make subsequent disclosures, Mr. Levine said.

That is particularly relevant given the expansion of services that advisers pro-vide, which often span retirement, health and wealth management, he said.

The new law tasks employers with notifying employees and job candidates about what data the company keeps. Employers must also take steps to en-

sure that the information is secure.Parts of CCPA went into effect Jan. 1,

but most businesses that are affected by it were given an extra year to prepare for the full list of requirements.

One reason why plan service pro-viders want to avoid making multiple disclosures is the paper trail showing that they use participant data to cross-sell services, said Jason Roberts, CEO of the Pension Resource Institute. Whether participant data is a plan asset is still a question, and class-action litigation is a danger to record keepers, Mr. Roberts said.

[email protected]: @EmileHallez

Advisers get some relief on proposed California privacy regs

ONRETIREMENT

MARY BETHFRANKLIN

KEY POINTS

• Working longer and delaying Social Security bene� ts can signi� cantly boost retirees’ income.

• Nurturing a social portfolio can be critical to well-being.

AMOUNT RETIREES WILL LOSE IN POTENTIAL INCOME THEY COULD SPEND DURING THEIR RE-TIREMENT BECAUSE THEY CLAIMED SOCIAL SECURITY AT A SUBOPTIMAL TIME.SOURCE: UNITED INCOME STUDY ON SOCIAL SECURITY DECISIONS

$3.4T TRUST & ESTATE / PHILANTHROPY

Wendy BensonMassMutual

Adam AntoniadesCetera Financial Group

Guy AdamiCNBC

David CanterFidelity Clearing & Custody Solutions

Peter CieszkoAmerican Century Investments

Eric ClarkeOrion Advisor Solutions

Jennifer ConnellyJConnelly

Robert DeChellisBonsai Personal Pensions

Mark GoldbergGriffin Capital Securities

Tash ElwynRaymond James & Associates

Maureen DuffBNY Mellon

Brian HamburgerMarketCounsel

Kate HealyTD Ameritrade Institutional

Ben HunekeMorgan Stanley

John HylandPrivate Advisor Group

Jim Jessee

Aaron KleinRiskalyze

Michael KimAssetMark

Michael KellyFS Investments

Trap KlomanCommonwealth Financial Network

Adam MalamedLadenburg Thalmann Financial Services, Inc.

Megan McAuleyInvest in Others Charitable Foundation

Bob OrosHighTower Advisors

John PaveseMerrill

Jamie PriceAdvisor Group

Steve PlumpPIMCO

Meghan PeacheyNatixis Investment Managers

Paul SantucciUBS Wealth Management

Christine ShawInvestmentNews

Sterling SheaDow Jones

Suzanne SiracuseSuzanne Siracuse Consulting Services, LLC

Andrew StavaridisEnvestnet

Kate ThompsonAllianz Global Investors

Rich SteinmeierLPL Financial

Matt WitkosEaton Vance Distributors, Inc.

Jeff VivacquaCambridge Investment Research, Inc.

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IN012217.indd 1 2/13/20 11:42 AM

SEC / FINRA / STATE REGULATORS / CONGRESS / FIDUCIARY / COMPLIANCE


Regulation/Legislation

BY MARK SCHOEFF JR.

TRADE ASSOCIATIONS representing brokerages and investment funds spent more lobbying lawmakers last year than groups representing investment advisers.

Data compiled by the Center for Re-sponsive Politics and � lings with the House Clerk’s Of� ce show the usual heavy investment by industry groups in trying to in� uence legislation.

For instance, the Securities Industry and Financial Markets Association spent $6.6 million on lobbying in 2019, while the Investment Company Institute spent $4.9 million. Both � gures were about the same as the amount each group spent in 2018. The Financial Services Institute spent $480,000 in 2019, hitting the same spending level as in 2018.

The insurance industry also weighed in heavily on Capitol Hill. The American Council of Life Insurers spent $4 million on lobbying last year, compared to $3.6 million in 2018. The National Association of Insurance and Financial Advisors spent $2.4 million in both 2019 and 2018. The In-sured Retirement Institute spent $440,000 in 2019, up from $290,000 in 2018.

Investment adviser groups were much more modest in their lobbying outlays.

The Investment Adviser Association spent $220,000 in 2019, the same as in 2018. The Financial Planning Association spent between $40,000 and $50,000 in 2019, roughly the same as it did in 2018.

HIRED LOBBYISTSThe FPA hired a government relations � rm, The Raben Group, to help it lobby lawmakers. For some quarters, the Ra-ben Group � ling showed that it spent

less than $5,000 on FPA as a client but didn’t specify an amount.

The Financial Industry Regulatory Authority Inc., the brokerage industry self-regulator, also lobbies Congress. It spent $400,000 in 2019 and $440,000 in 2018. Finra does not contribute to law-makers' political campaigns.

When trade associations � le their lob-bying reports, they indicate the legisla-tion — or issues areas — that they target.

In 2019, the SECURE Act topped the list for most groups. Congress approved the legislation, which made signi� cant changes to retirement savings policy, in December after the � nancial industry had been struggling for years to get it over the � nish line.

EXCISE TAXAnother bill that appeared frequently on lobbying disclosure forms of industry groups was one that would impose a 0.1% excise tax on � nancial transactions.

Proponents say the tax would most impact high-frequency trading and would be a relatively painless way to fund important government programs. Critics of the measure say it would set back ordinary investors, who would pay the levy when purchasing stocks, bonds and other products.

“A � nancial transaction tax harms Main Street America, who uses � nancial markets to achieve their dreams, includ-ing a secure and digni� ed retirement,” David Bellaire, FSI executive vice pres-ident and general counsel, said in a re-cent interview.

[email protected]: @markschoeff

Brokerage groups spend more on lobbying than adviser groups

T he SECURE Act signed into law on Dec. 20 is being hailed as the most signi� cant retirement legislation

enacted in the past decade. It provides incentives to get more small businesses to offer retirement plans for their em-ployees and to boost retirement savings generally.

For the act to meet expectations, more small businesses need to be inspired to offer retirement plans. Recognizing this, lawmakers created a new form of multiple employer plan, known as a “pooled” MEP

or PEP. A PEP allows unrelated small em-ployers to engage a “pooled plan provider” to serve as the ERISA 3(16) administrator and the named � duciary for their shared plan. PEPs are designed to help participat-ing employers reduce costs, administra-tive duties and � duciary liability (though employers retain � duciary responsibility for their selection and monitoring of the pooled plan provider).

Financial service companies will serve as pooled plan providers and will undoubtedly market their PEPs directly to business owners. But owners are un-likely to act without the involvement of a � nancial adviser in the decision-making process.

DEEP DIVERetirement advisers should take a deep dive into the data about small businesses (de� ned as independent business having fewer than 500 employees) to understand the PEP market before deciding whether and how to serve it. According to the U.S. Small Business Administration:• There are 5.9 million small businesses with paid employees, ac-counting for 99.7% of all � rms with paid employees.

• Small businesses account for 47.3% of all private sector employees and, from 2000 to 2018, small businesses accounted for 64.9% of net new jobs cre-ated in the U.S.

At a high level, the size of the small business mar-

ket looks enticing for � nancial profes-sionals. But there are more numbers for advisers to consider in the process of developing a strategy to provide re-tirement advice in this market. Here are some important statistics from a recent Small Business Association blog post:Percentage of businesses that already have retirement plans:

• 45% of � rms with 1 to 49 employees.• 76% of � rms with 50 to 99 employees.• 90% of � rms with over 100 employees.• 89% of all employers have fewer than 20 workers.

• 35% of employees consider retirement bene� ts a key reason to take a job.

• 47% say retirement bene� ts are an important reason to stay with the employer.These statistics tell us that the mar-

ket for retirement advice is biggest among very small em-ployers and that hav-ing a quality retirement plan helps to attract and retain talent. These are the right conditions for PEPs; however, as the IRS website that pro-vides resources for small businesses points out, there are at least eight other retirement plan

options for these small businesses to consider. Consequently, advisers seek-ing to provide retirement plan advice to small-business owners will need to get up to speed on the features and bene-� ts of PEPs relative to other available options.

THE REAL QUESTIONThe question is, can a retirement plan specialist have a viable business con-centrating on this market? While the an-swer is uncertain, focusing exclusively on retirement advice in the micro-mar-ket would be challenging because re-tirement plans compete with other pri-orities for the scarce resources of small businesses.

A better approach may be to provide holistic advice and help with prioriti-zation of � nancial objectives. Business owners must balance saving and invest-ing with managing liquidity, credit, in-surance and tax issues.

Bluntly, what a small-business own-er typically needs is a � nancial planner who understands small businesses and can deliver solutions in concert with product and service specialists operating as a team or arranged through referrals.

Blaine F. Aikin is executive chairman of Fi360 Inc. and Cefex.

Who bene� ts from the SECURE Act?

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35%EMPLOYEES WHO SAY

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IN012220.indd 1 2/13/20 4:46 PM


I t is no secret that cybersecurity threats are evolving far more rapidly than the ability of governments and regulators

to counter them. Legislators and regulators in the

states understand the urgency of this problem and have made admirable ef-forts to develop protections for consum-ers and investors.

Unfortunately, in our industry, a side effect of these individual state efforts to strengthen cybersecurity protections has been to create significant compli-

ance challenges for advisers. What we need now is greater coordination to help these various authorities come together behind a principles-based approach to combating cyberthreats.

As one illustration, all 50 states have laws requiring companies to notify con-sumers about data breaches, but the

definitions of a “breach” and “personal information” vary by state. For firms and advisers — most of which work with cli-ents across multiple states — this cre-ates unnecessary complications in de-veloping protocols in case of a breach.

VARIOUS PROTECTIONSWe are working with lawmakers and reg-ulators to emphasize a common-sense approach to cybersecurity that harmoniz-es various protections and guards against cyberthreats, while also maintaining op-erating efficiency and flexibility.

In general, we believe that:

• National standards are preferable to a patchwork of state-by-state rule.

• Where possible, uniform approach-es to cyberthreats should be pur-sued, while also incorporating enough flexibility to allow firms to develop effective solutions for dif-ferent business models.

• Cybersecurity standards should not place undue burdens on small busi-nesses.

• All entities, whether private or public, should be held to a common, consum-er-friendly, data-security standard.

We are also taking practical steps to put these principles into action.

First, we support the draft privacy legislation introduced by Senate Com-merce Committee Chairman Roger

Wicker, R-Miss., in December. While still in its early stages, this bill would estab-lish national rules for handling person-al information online, creating uniform federal standards.

We intend to work with Mr. Wicker and other members of Congress to se-cure national data breach notification re-quirements — instead of a patchwork of unique approaches — that ensure prompt and effective notice to consumers if their personal information is compromised.

Second, we are working to address our members’ concerns surrounding the confidential client information they are required to provide to Finra for the regu-lator’s Consolidated Audit Trail initiative.

As currently envisioned, the CAT da-tabase will be an enormous repository of highly sensitive information, including personal and financial information on advisers’ clients.

We are working with regulators to en-sure that this vast trove of information is either properly secured — or simply not collected at all, as proposed in the recent request for exemptive relief filed by the CAT NMS Plan Participants.

We also continue to educate regula-tors on the challenges our members face each day in complying with rules that bear directly on cybersecurity, such as books and records requirements.

Dale Brown is president and CEO of the Financial Services Institute.

BY MARK SCHOEFF JR.

A FINRA PROPOSAL that would restrict registered representatives from moving to a new firm and bro-kerages from transferring assets to avoid paying arbitration awards has moved a step closer to enact-ment.

The Financial Industry Regu-latory Authority Inc. filed the pro-posal with the Securities and Exchange Commission in December. The SEC published it in the Federal Register on Dec. 30 and asked for public comments.

Earlier this month, Finra responded to the comments and made a technical correction to the proposal. The SEC oversees Finra and must approve the rule before it can go into effect.

Under the proposal, Finra would deny a new membership application if a brokerage or its representatives have pending arbitration claims where there is a concern about payment of potential awards or settlements.

The proposal also would force firms with substantial unpaid arbitration awards to submit an application for continuing membership and undergo heightened Finra scrutiny if they at-tempt to shift assets, management or owners to another firm and close down.

’STRONGER APPROACH’“Finra believes that these proposed amendments to select portions of the [application] rules would enable Finra to take a stronger approach to addressing the issue of pending arbitration claims, as well as arbitration awards and settle-

ment agreements related to arbitrations that have not been paid in full in ... con-nection with the application review pro-cess,” Finra said in the proposal. “In ad-dition, the proposed amendments would enable Finra to consider the adequacy of the supervision of individuals with pending arbitration claims.”

In a 2018 study, Finra said more than a quarter of arbitration awards went unpaid between 2012 and 2016. The bro-kerage industry self-regulator has come under pressure from Congress and in-vestor advocates, such as the Public In-vestors Arbitration Bar Association, to

help harmed investors collect after winning arbitration cases.

Andrew Stoltmann, a Chica-go securities attorney and PIABA member, said addressing the prob-lem through the Finra member-ship application process is another of Finra’s “piecemeal steps.”

’BAND-AID’ ON A PROBLEM“Instead of performing surgery, they want to cure the problem with Band-Aids,” Mr. Stoltmann said. “It barely nibbles at the edge of the problem. It appears to be more of an attempt to pacify Congress so Finra can say, ‘Look, we’re addressing the issue.’” He added: “Net-net, it’s a good thing, but it’s nothing we’re all getting

excited about.”Finra defended its efforts to address

unpaid arbitration."FINRA has taken many steps —

including the [Member Application Process] proposal — to use the tools within our power to help customers re-cover the awards they are owed," Finra spokeswoman Michelle Ong wrote in an email. "This issue is not unique to FINRA's forum or the broker-dealer in-dustry."

[email protected] Twitter: @markschoeff

Cybersecurity rules can create compliance challenges

Finra proposal to clamp down on unpaid arb awards moves foward

Regulation/Legislation

GUESTBLOGDALE BROWN

KEY POINTS

• Movement of assets would be restricted if arbitration claims are pending.

• Firms would face heightened Finra scrutiny.

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TECHNOLOGY / BUSINESS DEVELOPMENT / MARKETING / NEXT GEN / CLIENTS / EMPLOYEES


YourPractice“THE QUALITY OF YOUR EMPLOYEES DETERMINES THE STRENGTH OF YOUR BUSINESS.”— KYLE BROWNLEE, CEO OF WYMER BROWNLEE WEALTH STRATEGIES

I n order to build a deeper bond with your clients, try being less digital.

Many advisers have spent the past decade improving communications with clients via digital platforms. We provide email newsletters, quarterly video up-dates on the markets and tweets on the latest news.

Now, of course, the large discount � rms use bots and automated voice sys-tems to deliver virtually all their services.

While the power of technology can be awesome, and it helps us reach a larger audience, here’s one piece of advice you don’t get often: Stop. Being. So. Digital.

If you’re a � nancial adviser, that is, a human being providing � nancial advice and guidance to other human beings, take steps to ensure that you are offering human interactions rather than merely digital ones.

The clients who have hired you have done so because they want a personal re-lationship. If they wanted a purely digital experience, they could certainly � nd a variety of offerings online for much less than they pay you.

I’ve been an adviser for almost 30 years. While I � nd myself learning some-thing new almost every day, here are a handful of things we employ in our of� c-es to make sure that our clients feel as if they are working with an organization comprised of actual human beings.

1. A person always answers the phone. We could certainly cut our costs by using technology to answer our phones, but we have always believed it’s a critical compo-nent of providing service to have a caring person answer the telephone.

2. Personalized note cards. How often do you receive a handwritten note these days? How do you feel when you get one? We encourage everyone in our organiza-tion to send out note cards each week.

3. Small, dedicated client service teams. As your organization grows, it’s easy for clients to lose their connection

to your � rm if they interact with a new person each time they call. To counteract this, we organize our CSRs and adviser support staffs into small, dedicated teams that serve a speci� c group of clients.

4. “Because we care gifts.” We love sending our clients small gifts, so much so that we have all our associates track how many gifts they send each quarter. The goal is to illustrate to the client that, � rst, we are listening to them, and, sec-ond, that we care about them.

As an example, a client might mention they are going on a cruise to the Pana-ma Canal. We’ll arrange to have a book about the Panama Canal sent to the cli-ent’s home.

Yes, our � rm was an early adapter of digital marketing and communication. But we have a client care team whose sole purpose is to monitor and improve the experience clients have when inter-acting with our company.

Remember, it costs a lot less to person-ally communicate with an existing client than it does to � nd a new one. Not being exclusively digital helps your � rm look better, and it helps your clients feel better in the end.

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $8 billion in AUM.

Stop. Being. So. Digital.

Mention “� nancial wellness” to 10 attendees at a � ntech conference and you might get 15 de� nitions.

Ask 10 clients and you might have the same result.

The label is intriguing and appealing, but there’s an onion here that needs peel-ing. Leave out the “� nancial” angle for a moment and consider that wellness can be evaluated through the dimensions of:

• Physical wellness • Emotional wellness • Social wellness • Intellectual wellness • Spiritual wellness • Environmental wellness • Occupational wellness“Wellness” is a noun — but also a verb.

Webster’s says that wellness is “the state of being in good health, especially as an actively pursued goal” (emphasis mine). So, wellness is also a process in pursuit of

the goal of wellness.When we combine these perspectives,

� nancial wellness is easier to de� ne, but harder to accomplish. Money is relevant to all seven of the dimensions listed above. Having money can help fund solutions and opportunities to improve most as-pects of wellness. In addition, wellness is dynamic — changing as we age, rising and falling in importance. What jumps out to me is the complexity of achieving “wellness” — and the opportunity to em-ploy both digital and human support to � nance wellness.

PEACE OF MINDMany top advisers — and clients — char-acterize � nancial wellness as “peace of mind.” At minimum, the industry needs to support a holistic approach to clients’ newfound longevity to help them address their growing and changing needs for “peace of mind.” It’s critical to appreciate that we’re traveling together on a jour-ney none of us have completed before — growing awareness of our own longevity and how our world view is changing. Ag-ing clients and advisers are not abstract

population cohorts — they’re us.So, the key to “� nancial wellness” is the

entirely subjective de� nition of “personal peace of mind,” as well as the recognition that it’s also a process that will evolve as the different dimensions listed above pres-ent themselves at different times. A more broadly aging society led by the massive baby boomer cohort is discovering the im-portance of life balance as the median hits 64 this year — and the oldest are 74.

At those ages, our clients (and some advisers) have awareness and apprecia-tion for the value of emotional, spiritual and intellectual wellness. Their need for mobility supports physical wellness. Be-ing relevant and engaged keeps many working for occupational wellness.

EMPATHY AND INSIGHTPerhaps most important in later ages is social and environmental wellness — to be with others and to live safely and in-dependently. That’s the real point of � nan-cial wellness. Financial industry leaders are declaring the path forward for the industry: the objective of the adviser/cli-ent/digital working relationship. They are

challenging us to align in support of the clients’ peace of mind and the shifting as-pects of wellness as they discover more perspective. It’s the moment of truth for � -nancial advisers, many of whom are chal-lenged to muster the empathy and insight needed to fully support clients, as well as the � exibility and interest to engage effec-tive technology to help them deliver more effectively across their entire clientele.

Financial wellness is the True North of the wealth management industry, and it’s a journey we’re all taking. Together.

Steve Gresham is a wealth management industry consultant and former head of the Fidelity Private Client Group.

Financial wellness is a journey that we’re all taking together

GUESTBLOGSCOTT HANSON

KEY POINTS

• Make your clients feel as if they’re working with people, not machines.

• Personal interaction costs less than � nding new clients.

GUESTBLOGSTEVE GRESHAM

YourPractice


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sis, the Fed funds rate peaked at 2.4% in late 2018 and is currently hovering around 1.5%.

“Short-term rates are likely to stand below 2% when the next recession emerges,” Mr. Bazdarich wrote. “If the Fed is to pursue rate cuts on anything approaching the scale seen in previous recessions, a move to the negative is in-evitable.”

The report says the Fed can either respond to slower growth by “doing nothing to help the economy weather the next recession or embark on a neg-ative-rate policy.” Mr. Bazdarich cites Asia and Europe as proof that “there is nothing in bond math requiring positive yields.”

As illogical as it might seem, a neg-ative Fed funds rate would mean com-mercial banks would pay other banks to borrow cash reserves from them. Mr. Bazdarich said banks will do it because it will cost them even more to hold the reserves.

RIPPLE EFFECTThe ripple effect could be punishing to anyone relying on fixed-income invest-ments.

“Negative rates become a black hole that sucks you in and you can’t get out,” Mr. Schatz said. “Many bond mutual funds and pension funds have strict rules on what they must invest in. Why on Earth would anyone buy a $100 CD only to get $99 back a year later? But that’s what happens when funds have to own Treasuries and those Treasuries pay negative rates.”

Michael Hennessy, founder and chief executive of Harbor Crest Wealth Advisors, agreed that turning to nega-tive rates to battle a recession could be crushing to anyone in or near retire-ment.

“The issuance of negative-yielding debt would hit the baby boomers the hardest, just as that cohort moves out of the workforce and into retirement,” he said. “Additionally, banks would need to find creative ways to replace the income they need to generate from their depos-its at the Fed. This would likely mean increased fees to consumers, and poten-tially even negative deposit rates to the average saver.”

WORST-CASE SCENARIOSBut, worst-case scenarios aside, Mr. Hennessy believes a recession that would lead to negative rates is not yet a real threat.

“There is increased talk, but right now I don’t see a likelihood of a reces-sion,” he said. “The unemployment rate is 3.5%, the stock market is at all-time highs. There’s no reason at all to go to negative rates right now.”

Mr. Bazdarich writes that Fed offi-cials are also “confident they will not need to resort to negative interest rates. However, as Mike Tyson once said, ev-eryone has a plan until they get punched in the face. It is hard to imagine that Fed officials will not resort to any tactic available or conceivable when the econ-omy appears to be in need of it, and it’s hard to see Congress standing in the way.”


NEGATIVE RATES CONTINUED FROM PAGE 4

INVESTMENTNEWS

THE 25 STATES that have enacted model legislation designed to protect seniors from financial abuse have re-ceived 426 reports from broker-deal-ers and investment advisers, accord-ing to the North American Securities Administrators Association.

The reports shed light on vic-tims of securities fraud and elder exploitation, and other seniors who need some form of assistance, NA-SAA said in a release.

The group’s Model Act to Protect Vulnerable Adults from Financial Exploitation was adopted by the or-ganization of state securities regula-tors in 2016.

“The model act is on a course to become operative in a majority of states this year, and, as more states enact legislation based on this mod-el, we expect to see additional re-porting leading to more enforcement actions and greater protections for seniors and other vulnerable adults,” said Christopher W. Gerold, NASAA president and chief of the New Jer-sey Bureau of Securities.

INVESTIGATIONS UNDERWAY Based on the 426 received reports, state securities regulators opened 81 investigations, and initiated 32

formal enforcement actions. Report-ing firms also delayed the disburse-ments of funds 57 times.

The model act gives industry participants and state regulators tools to detect and contain financial exploitation of vulnerable adults, NASAA said. The law gives bro-ker-dealers and advisory firms quali-fied immunity if they delay disburse-ments because they suspect financial exploitation. It also requires them to report to the state securities regu-lator and state adult protective ser-vices agency if someone at the firm believes they've spotted financial ex-ploitation of an eligible adult.

NASAA says model law is working to fight senior financial abuse


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per-sophisticated investors seems to be changing,” Mr. Wolfe said.

The agency appears to be empha-sizing that as the number of people deemed accredited increases, they still deserve the protection of Reg BI.

The SEC is likely to continue to make other clarifications in future it-erations of FAQs about the rule, which

must be implemented by June 30.“They’re going to give the custody

rule a run for its money in terms of FAQs,” Mr. Cipperman said. “Best in-terest is this sort of creation of regu-latory compromise. It doesn’t have a common law background to it. There-fore, the commission staff has to de-fine what the standard means.”

[email protected] Twitter: @EmileHallez

REG BI CONTINUED FROM PAGE 3

has raised $1.5 billion; broker-dealers sold the securities to wealthy clients in chunks of $50,000 to $100,000.

It is not clear whether the company is delaying sending tax forms to inves-tors in its other private placements.

GPB has a history of not providing investors with timely information.

The company is under investigation by the FBI and SEC and has failed to produce audited financial statements for its funds. Investors don’t know the value of the GPB funds, and thus, their investments.

In October, the Department of Jus-

tice charged the former chief compli-ance officer of GPB Capital Holdings, who is also a former SEC examiner, with obstruction of justice relating to an SEC investigation of GPB.

“A business that stops distributions, can’t get accountants to audit its finan-cials, misses mandatory reporting, has former employees indicted and now can’t get investors basic tax informa-tion has more red flags than Tianan-men Square,” said Joe Peiffer, an at-torney who has sued GPB on behalf of investors. “It’s hard to see how this gets better for investors.”

[email protected] Twitter: @bdnewsguy

GPB FAILURE CONTINUED FROM PAGE 3

“Having been in the insurance busi-ness for well over two decades, we real-ize the importance of your hard-earned savings when you retire,” Mr. Morley writes. “Now more than ever it is import-ant to plan for 30 years in retirement with income you cannot ever outlive.”

He also markets himself as having some connection to financial planning: “Allow us to provide a written plan to show you how to accomplish this plan, and we will provide you with a candid second opinion as to whether or not you can lesson [sic] your risks in retire-ment income planning.”

He goes so far as to assert a connec-tion to Ed Slott, one of the most prom-inent and respected financial advisers in the industry. Mr. Morley’s LinkedIn profile says he’s a member of Mr. Slott’s Elite IRA Advisor Group, a private study group for advisers who work with cli-ents’ individual retirement accounts.

Making matters even more confusing for consumers, Mr. Slott’s organization had problems with Mr. Morley’s claim.

“We take great pride in only working with ethical advisers and financial pro-fessionals,” said a spokesperson for Mr. Slott. “Mr. Morley is not a member of Ed Slott’s Elite IRA Advisor Group, and we have contacted him to remove this inac-curate information from his social media profile.”

FALSE REPRESENTATIONNowhere on LinkedIn does Mr. Morley mention that in 2006, Maryland barred him from the securities business for falsely representing to investors that certain investments were safe and se-cure, even though a few state securities regulators had prohibited the sale of those securities. According to Mary-land, he caused financial harm to con-sumers and agreed to pay restitution.

A decade later, the SEC barred Mr. Morley from working at a broker-dealer or RIA, which means he can’t sell secu-rities. According to the commission, he sold a fraudulent stock offering, Summit Trust Co., to 130 clients. He held the ti-tle of independent trust consultant from Summit and earned more than $3 mil-lion in commissions from 2008 to 2014.

As part of the matter, Mr. Morley agreed to pay more than $3.5 million in disgorgement, interest and penalties.

He was also criminally convicted in Kansas in 2018 for securities fraud and related issues but served no jail time. He was given 36 months of pro-bation and ordered to pay back almost $850,000 to clients.

“I do not hold myself out as a reg-istered investment adviser and I have never been one,” Mr. Morley said last Thursday. When asked whether his business refers clients to financial planners, he declined to comment.

LICENSE REVOKEDIn October, Maryland revoked Mr. Mor-ley’s insurance license, but he has ap-pealed that order, with another hearing to be held at the end of March. That’s why he appears to be an insurance pro-ducer in good standing.

In the past, this column has focused on the confusing nature of the various regulatory regimes under which finan-cial advisers work. Among the most vexing issues is that of advisers who are restricted or barred from selling securi-ties, but continue to hold a license to sell insurance.

Mr. Morley’s long, troubled history and background in the financial ad-vice business begs the question: What on earth does it take for an adviser or salesman to lose his license to sell in-surance products to consumers?

According to Maryland’s insurance department, Mr. Morley should lose his license. He “has demonstrated on numerous occasions that he does not meet the standard of trustworthiness and competence required in an insur-ance producer,” the order from October reads. He “owes millions of dollars to other regulatory authorities and to the victims of his fraudulent conduct, but has failed or refused to pay the money he owes.”

The insurance industry’s failure to act appropriately is a stain on the fi-nancial advice industry. Why won’t the insurance industry move more quickly and effectively against sales agents like Mr. Morley?


BARRED ADVISER CONTINUED FROM PAGE 3

ing to the firm’s BrokerCheck profile.In 2013, Finra charged Ms. Spring-

steen-Abbott with persistent misuse of investor money over a three-year peri-od to pay for personal expenses includ-ing home remodeling, trips, meals and Christmas decorations.

She then reached a $1.5 million set-tlement with the SEC after the agency alleged that related private placement funds misled investors regarding com-pensation practices at the funds.

Ms. Springsteen-Abbott eventually appealed Finra’s decision to bar her from the brokerage industry to the SEC. While the SEC’s decision upholds Finra’s barring over misuse of expense

charges, the SEC review found that Finra’s fine was excessive.

The SEC found Ms. Springsteen-Ab-bott’s misconduct to be “egregious,” misusing funds for over three years to unjustifiably enrich herself by misal-locating money from the funds “to the harm of investors.”

“Once Finra began investigating, Springsteen-Abbott continued to con-ceal her misconduct by providing false information ... in an attempt to justify the expenses,” according to the SEC. “Springsteen-Abbott’s continued as-sociation with a Finra member firm would present a risk to the integrity of the markets and to investors.”


ABBOTT CONTINUED FROM PAGE 2

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