March 1997 - Chapter Newsletter

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Next Meeting

Date:		March 11, 1997, Tuesday

Time:		7:00 - 9:15 PM

Location:	C.W. Post University, 	Humanities Hall

We will review the changes that were included in various pieces of legislation passed in late 1996 that were not effective until 1997. Particular attention will paid to the new Savings Incentive Match Plan for Employees (SIMPLE). There are recently published guidelines for the model amendment to set up SIMPLE 401K's that you will need to know. There is a lot of misunderstanding regarding the extent and nature of these 1997 changes which we will attempt to clarify.

NO APRIL MEETING

The Long Island Society is pleased to have scheduled Russell Marnell, JD, as our featured speaker for May. Mr. Marnell will be speaking on the financial impact of divorce on businesses and their owners
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The more things change, the more things stay the same. Forget that bit about people flocking to do-it yourself mutual fund investing now that there's a wealth of information out there for free. Mutual fund investors are sticking to the way they've alway s done it, says a survey by the Mutual Fund Forum, a Bethesda, Md. non-profit association of financial services firms that distribute funds through advisers. That means three out of five invest in funds exclusively through financial advisers. "If the study had come out a couple of years ago, we would have been astounded to see it's not the case that more people are becoming do-it-yourself investors," says Barbara Levin, executive director of Mutual Fund Forum. "But in the past year the world has begun to recognize that financial advice is almost necessary, perhaps because of information overload." Conducted by Yankelovich Partners, the survey questioned a national representative sample of 564 investors who'd bought a long-term mutual fund within the past five years, not including funds bought through pension plans. Most investors remain loyal to the original method of purchasing a fund, the survey found. Only one in 10 mutual fund investors has ever bought both directly and from a financial adviser. Those who have are about equally divided between the two purchase methods. (The survey included discount brokers in its definition of direct purchase and defined financial adviser as broker, investment representative, insurance agent, financial planner or bank representative.) The typical mutual fund investor is between the ages of 35 and 59, college educated, earns an average salary of $61,700 with an estimated $90,000 in investable assets, the survey says. About 40% of mutual fund investors - the largest segment - bought more than one fund only through a financial adviser. About 15% have exclusively bought more than one fund directly, and 12% have only bought one fund directly.
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President's Letter

We were all very pleased with the outcome of the Advanced Planners Conference. Those that attended were treated to great presentations, particularly those of our keynote and luncheon speakers. All of our speakers were given high praise for their remarks . The organization of this type of conference is very time-consuming. It is for this reason that on behalf of the Long Island Society and myself, I would like to thank Art Sherin for his hard work and diligence in assembling these speakers. Please be aware there will be no April meeting.
Nicholas Banno, CFP
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Chairman's Message

Recently, Virginia Kahn wrote an article that appeared in the New York Times. This article “Defining and Finding a Fee Only Planner” seemed to suggest that only N.A.P.F.A.’s advisors can serve the public without bias.

As Chairman of the Long Island Society of the Institute of Certified Financial Planners, I have some concerns about Virginia Kahn’s article, “Defining and Finding A Fee-Only Planner”. In general, I applaud the work of the National Association of Pers onal Financial Advisors. This is the only organization representing true fee-only financial planners. However, the presumption that all clients are best serviced by a fee-only planner is misrepresented.

I believe that fee-only is the best way to service our clients. However, our fee-only services are solely used with our clients who have enough assets to afford our minimum account size of $250,000. We recognize that in order for our smaller client s to afford quality financial planning we must use a mixture of fees and commissions. Therefore, we have elected to offer services that might have “fee-offset or fee-based” connotations. This is not designed to hide commissions, but to lower the total c ost to our smaller clients.

I feel that N.A.P.F.A.’s members are solid, highly educated individuals who provide quality services. However, if you were to interview them, you would probably find that many would not accept a client who came to them with a small account. You woul d probably also discover that their minimum fee for providing services would price them totally out of the reach of the average investor. Therefore, I take offense to Barbara Roper’s statement which infers that planners are simply trying to obscure the c ommission based part of their business. Admittedly, there are individuals in all fields who wish to obscure how they are compensated, but to make broad generalizations based upon a select group distorts reality and is a disservice to the public and our p rofession.

There are over 30,000 Certified Financial Planners throughout the U.S. who provide professional planning advice for their clients, some are fee or commission only, others use a mixture of fees and commissions. Certified Financial Planners must adher e to a code of ethics which places the client’s interests first. The question that needs to be asked is, if fee-only is the right way to provide financial planning services to the public, then why does the N.A.P.F.A. have only 500 members? In a competit ive marketplace, common sense would tell us that if one way of providing services to clients is superior to others, the marketplace would recognize this and that “way” would come to dominate the market. Yet, very few planners find themselves in a fee-onl y practice.

The real question to be addressed is, how is the average consumer of financial services best accommodated? The marketplace demonstrates that “fee-only” planning is not yet available to the general public. I do not know whether this is a pricing prob lem, or if it is caused by other factors. Consumers need to be educated as to how their planner is being compensated. However, the real objective is to bring quality advice at a reasonable cost to the general public.

We as members of the Long Island Society have an obligation to ourselves and the public. We need to act when respected institutions, such as the New York Times, print misleading stories. Please write to the Times and express your opinion that covera ge should be fair.