FPA of MN Newsletter – May 2016
FPA All-Member Virtual Update on May 10!
What does FPA have planned to help members learn about and navigate the DOL fiduciary rule? What special discounts and benefits do members have exclusive access to? What research is coming up in FPA that will help members and their businesses? Join FPA staff and leaders for an FPA All-Member Virtual Update on May 10 at 1 pm CT. This quick 30-minute webcast will bring you up to speed on what FPA is doing for you!
Recap: 4th Financial Empowerment Session at Tapestry
In April, the Financial Education Committee completed its 4th Financial Empowerment Session at Tapestry Pregnancy & Family Resource Center. Previous sessions were organized over a five week period with four sessions devoted to income and expense tracking, budgeting and an overview of credit and debt with time set aside during the fifth week for Tapestry clients to meet with a Financial Planner.
The format for the most recent session was restricted into a two week workshop format. The first week focused on several topics including:
- thoughts and feelings when it comes to money and personal finances,
- the importance of knowing when money comes in,
- how money goes out with a great collaboration on ways to make the money last a little longer than the month and
- how cash flow gaps have been managed with a discussion on the pros and cons of each.
During the second week, the group
- dived a bit deeper into expense tracking,
- engaged in a very interactive discussion about credit and debt,
- shared knowledge of community based resources and
- a conversation amongst existing mothers and mother to be as to how personal finances are likely to change once a new children enters the world.
The insight and resourcefulness of the class room participants was truly amazing.
Attendance was the best it has ever been. In typical Tapestry client fashion, there was a great deal of interaction and the stories shared were insightful and beneficial for the group as a whole. Most importantly, both Tapestry’s clients and staff were pleased with the feedback and results. We look forward to utilizing this revised format in future sessions with Tapestry’s clients!
FPA of MN NexGen Family Saints Ballpark Outing - August 11
Enjoy Saints outdoor baseball this summer with the FPA of MN NexGen group at the brand-new CHS Field. All FPA NexGen members (age 36 and under) & their families are encouraged to attend. The ballpark setting is spectacular and the atmosphere is fun for baseball fans and non-fans alike with a lot of non-baseball entertainment mixed in. We’ll sit together as a group and at the end of the game stick around for a NexGen group photo on the field!
Cost is $15/adults, $14/children 14 and under (children under 2 that don’t require a seat are free). Optionally kids 14 and under can add a “Kid Zone” access pass (play area, obstacle course, etc.) for an additional $2. Note: Registration fee covers ticket, handling fee and a on field picture; the fee is not refundable. Food and beverages will be available for purchase.
Specific meetup location and distribution of tickets to be determined after registration closes and our group size is finalized; these details will be emailed to you well in advance.
Let Your Voice Be Heard! Register for 3rd Annual Advocacy Day in Washington, D.C.
Are you passionate about financial planning? Do you want to help educate federal policymakers about the profession and the important role financial planners play in the lives of their clients? If so, register now to take part in the 3rd Annual FPA Advocacy Day in Washington, D.C. on June 22. This is your time to meet with those who have influence over your profession. Let YOUR voice be heard!
SYMPOSIUM BREAKOUT - The Client Base Advantage
Presentation Scheduled for Monday, 1:10-2:10 pm
Anticipated CE: 1 NASBA/CPE, 1 CLE Stnd
NO CE: CFP, MN insurance, WI insurance, CIMA
Are you working your client base efficiently — or do you cherry pick?
By cherry pick, I mean this: do you glance over the names in your client files and call only the people you think will do business? Are you calling them because of a hunch, a preconceived notion or past history? If that’s the case, you’re allowing business to fall through the cracks.
When you cherry pick, you miss out on great opportunities to cultivate relationships and write more business. As a consultant, I’ve seen it happen in many offices, large and small. I’ve learned that most advisors cherry pick because they:
- Lack a system to keep clients on the radar screen.
- Don’t know what to say if the call isn’t about appointment scheduling.
- Don’t have enough time to make the calls (Or at least they think they don’t!)
A good system can eliminate cherry picking. Time is allotted each day to contact clients, and when you’re on the phone, friendly questions become second nature to you. Your clients deserve the attention, and in the end, you’ll uncover opportunities that lead to revenue.
Where do you start? I recommend using a system in which names from your database come up automatically twice a year. One option: pull up your clients’ names on their birthdays and then six months later. If a client’s birthday is in January, for example, his or her name pops up in January and in July.
Print the list of names to determine your course of action. Maybe you need to schedule an appointment or just check in to see how things are going. Of course, it’s easy enough to call for an appointment. It’s more challenging to make the check-in calls, and that’s why cherry picking happens.
What do you say during a check-in call? There’s no right or wrong way to do it. The call is about reaching out and reminding clients you’re here. Try a simple:
“How are things going? Any changes we should be aware of?”
“Any changes since our last discussion/meeting”
“We discussed XYZ at our last meeting. Are you ready to move forward?”
Sometimes during a check-in call, clients talk about things that haven’t come up before. Why? Because it’s not a sales call. You’re just checking in.
Once a system is in place and you’re comfortable with the phone language, you should carve out a regular time to make the calls. Personally, I believe all calls should be delegated — even the check-in calls and referrals. Your support team can spend an hour a day scheduling your appointments, checking in with your clients and following up on leads. If you have a hard time letting go of the calls, go ahead and make them, but be sure to schedule time in your calendar. The calls should be a priority.
One more thing. The same system applies for prospects. Every time you contact prospects, they feel cared for and will want to become clients.
The key thing to remember, especially in today’s market, is that people want to hear from you. Yes, it’s good to send newsletters and birthday cards, but it’s more meaningful when you take time twice a year to check in or have a face-to-face meeting.
Work your client base — you’re sitting on a goldmine! Instead of cherry picking, create a system that allows you to contact and service your clients on a regular basis.
See What’s Scheduled So Far for the FPA Annual Conference - BE Baltimore 2016
Download the schedule-at-a-glance for a sneak peek at sessions and speakers presenting at the FPA Annual Conference–BE Baltimore 2016 Sept. 14-16. Learn more about daily tracks, roundtable discussions and FPA exchange topics brought back by popular demand! Learn more and register now!
The New Fiduciary Rule
On April 6, 2016, the U.S. Department of Labor (the “DOL”) issued final regulations expanding the definition of a “fiduciary” with respect to pension and retirement plans, IRAs and other accounts under ERISA and the Internal Revenue Code. The regulatory package (collectively, the “Final Rule”) follows nearly one year after the DOL’s proposed regulation (the “Proposed Rule”). Similar to the Proposed Rule, the Final Rule:
- Significantly expands the definition of who is a “fiduciary” under ERISA by reason of providing “investment advice” to ERISA plans or IRAs;
- Introduces two new DOL “prohibited transaction” class exemptions that may be used by financial institutions that fall under the expanded definition of “fiduciary,” including the Best Interest Contract Exemption (the “BIC Exemption”); and
- Amends six existing DOL prohibited transaction class exemptions that are commonly used in the financial sector to limit their availability in certain circumstances and to impose additional conditions on the use of the exemptions.
The Final Rule significantly expands the scope of communications with plans and retirement accounts that may give rise to fiduciary status. If a firm is deemed to be a fiduciary, it will become subject to the prohibited transaction provisions of ERISA and the Internal Revenue Code, which would limit its ability to receive commissions, fees and other compensation. On a going forward basis, firms will need to consider whether their product and service offerings will (i) utilize a business model under which they will not be considered a fiduciary under the Final Rule (e.g., by providing only general educational information) or (ii) cause them to become an ERISA fiduciary, in which case they will need to adjust their business model to receive only a fee from the customer (and not revenues from products purchased) or comply with onerous requirements of the BIC Exemption or another prohibited transaction exemption.
The Final Rule, including the related preamble, exceeds 1,000 pages in length, and although it is not starkly different from the Proposed Rule, it will take time for us in the profession to analyze in detail. Having said that, below is a high-level review of the key changes from the Proposed Rule and potential considerations for the financial services community:
- The effective date of the Final Rule has been pushed back. The Proposed Rule would have been effective eight months after publication, whereas the Final Rule will be phased in over time, with many provisions becoming effective in April 2017. All of the Final Rule’s requirements will be in effect on January 1, 2018.
- Appraisals. Appraisals, fairness opinions or similar statements, which would have been considered fiduciary investment advice under the Proposed Rule, are not addressed in the Final Rule and will instead be subject to subsequent regulatory guidance.
- Investment Education. The Final Rule provides a description of the types of investment education that would not constitute investment advice. Like the Proposed Rule, the Final Rule narrows the DOL’s pre-existing guidance on what constitutes investment education and generally limits asset allocation models and interactive investment materials from identifying specific investment products or alternatives. Unlike the Proposed Rule, the Final Rule would allow the use of specific investment products or alternatives for employee plans under limited circumstances where the product or alternative is a designated investment alternative under the plan and is subject to oversight by an independent plan fiduciary. With respect to IRAs, asset allocation models may not identify specific investment products or alternatives, and investment materials may only identify specific investment products or alternatives that have been specified by the IRA owner. Firms will be forced to consider whether their communications and allocation materials can be structured as investment education under the Final Rule, or whether they will need to concede fiduciary status and whether they can design an approach which complies with the available exemptions, such as the BIC Exemption, for making these communications and offering specific investments pursuant to these communications.
- Additional Carve-Outs from Fiduciary Status. Like the Proposed Rule, the Final Rule includes carve-outs for certain communications that would otherwise be deemed to be fiduciary investment advice.
- The Final Rule slightly expands the “counterparty” or “seller’s” exception from the Proposed Rule. Under the Final Rule, subject to certain additional criteria and disclosures, advice provided in an arm’s length transaction will not give rise to fiduciary status if the plan or IRA is represented by an independent fiduciary that has financial expertise. Under the Final Rule, an independent fiduciary will be deemed to have financial expertise if the fiduciary is a bank, insurance carrier, registered investment advisor or registered broker dealer, or if the fiduciary has at least $50 million in assets under management (including plan and non-plan assets).
- Like the Proposed Rule, the Final Rule includes additional carve-outs for certain swaps and security-based swaps and the communications of employees of the plan sponsor. These carve-outs largely track requirements applicable under the Commodities and Futures Trading Commission’s rules.
- Rollover Advice. The Final Rule, like the Proposed Rule, treats plan or IRA rollover advice as investment advice. This is a departure from prior regulatory guidance from the DOL, on which many firms had relied.
- Best Interest Contract Exemption. In light of the expanded universe of financial service providers that will be deemed fiduciaries under the Final Rule, as part of its rulemaking, the DOL has adopted the BIC Exemption with some changes from the Proposed Rule. Under the Final Rule’s BIC Exemption, an investment advice fiduciary may receive compensation that would otherwise be prohibited, provided it meets certain requirements, including an acknowledgement that it is operating in the best interests of its plan client. The following aspects of the Final Rule represent key changes from the Proposed Rule:
- The Contract. The Final Rule does not require a written contract for advice to employee plans subject to Title I of ERISA, although a contract is still required for advice provided to IRAs.
- Timing and Delivery of the Contract. The Final Rule does not require the contract to be provided in advance of the giving of advice, and instead allows the advisor to include the contract with standard account opening documents, provided that the contract retroactively covers any advice given prior to execution of the contract. The Final Rule also allows contracts entered into before January 1, 2018 to address the BIC Exemption requirements
- “Approved Asset List.” Unlike the Proposed Rule, the Final Rule does not limit the applicability of the BIC Exemption to an approved list of assets. Nonetheless, as the BIC Exemption requires advisors to render advice as to all assets in the best interest of their plan clients, advisors will be forced to consider whether it will be harder to justify the recommendation of certain asset classes and certain investments that entail enhanced fees for the advisor.
- Proprietary Products. The DOL has made clear that the Final Rule does not flatly prohibit the sale of proprietary investment products or third-party products that generate distribution fees or other compensation for an advisor. Instead, sellers of proprietary products may rely on the BIC Exemption. Firms relying on this exemption must adopt enhanced conflict policies, represent to clients that they operate in their clients’ best interest and make specified disclosures to clients. Advisors will need to consider the extent to which those requirements will be workable to allow them to sell their proprietary products.
- Level Fee Fiduciaries. The Final Rule’s BIC Exemption also exempts “Level Fee Fiduciaries” (i.e., fiduciaries who, together with their affiliates, receive only asset-based fees or set fees that do not vary based on investment) from certain prohibited transactions provided that they meet a streamlined list of requirements.
- Disclosure and Record Retention. The DOL has reduced the disclosure and recordkeeping requirements under the Final Rule. Notably, unlike the Proposed Regulation, advisors will not have to provide projections of fees over 1, 5 and 10 year periods. However, the Final Rule’s BIC Exemption does require certain web and transaction disclosures, notice to the DOL of the intention to rely on the BIC Exemption and the retention of certain records for six years.
- Given these changes, the BIC Exemption under the Final Rule may be more workable for some firms than the Proposed Rule would have been. But the feasibility of operating within the BIC Exemption will likely depend on the nature of an advisor’s business and the character and fees of the investments that will be offered.
- Principal Transactions. The Final Rule includes an exemption permitting fiduciaries to fill orders from their principal accounts for debt securities, which is substantially similar to the corresponding exemption under the Proposed Rule.
- PTE Amendments. Much like the Proposed Rule, the Final Rule amends a number of existing, commonly used prohibited transaction class exemptions, adding a requirement that the fiduciaries relying on these exemptions operate in the best interest of their clients. This new requirement will require firms that had previously relied on these exemptions to reevaluate their compensation structures and the way that they communicate with clients.
- While there have been some significant changes to the rule, including the relaxation of some of the Proposed Rule’s more controversial requirements, the Final Rule will require financial firms to reassess and potentially restructure their business models relating to servicing retirement accounts. Firms will need to choose whether to generalize their communications in order to fall outside the scope of the new fiduciary definition, offer advisory services for a fixed fee and forego revenues on sales and products or accept the new requirements imposed by the BIC Exemption and the legal risks associated with operating under that exemption.
New FPA Whitepaper: Do You Understand the Value You Offer Clients?
FPA Members: Download your copy of Defining and Communicating Your Value – the first of three exclusive, action-oriented whitepapers based on the recent practice management research by the FPA Research and Practice Institute™. For FPA members only, the whitepaper walks you through the process for understanding and defining your value. Download your copy today!
Be a leader in your profession – consider serving on the 2017 FPA Board of Directors
Would you like to make a difference in your profession? Put your skills and passion to work—be a leader—submit your name as a candidate for the FPA Board of Directors. The board is the driving force behind FPA’s vision to be the professional membership association for the financial planning community and CFP® professionals. Contact firstname.lastname@example.org to receive a board nomination package. Nominations are due July 1, 2016.
Nominate Your Extraordinary Colleagues Today for FPA’s Top Awards
FPA is seeking nominations for two prestigious awards. The P. Kemp Fain, Jr., Award honors individuals for their significant contributions to the profession. The Heart of Financial Planning Award recognizes those contributing and giving back to the financial planning community and public through financial planning. Submissions are due July 1. Nominate a colleague today!