Your clients will get the following letter when you change to a new firm:

Issues to consider when your broker changes firms
You’re receiving this notice because your broker has changed firms. If you’re thinking about whether to follow your broker or stay with your current firm, it’s a good idea to examine key issues that will help you make an informed decision. A good relationship with your broker is surely valuable to you, but it’s not the only factor in determining what’s in your best interest.
Before making a final decision, talk to your broker or someone at your current firm about the following questions, and make sure you’re comfortable with the answers.

Could financial incentives create a conflict of interest for your broker?
In general, you should discuss the reasons your broker decided to change firms. Some firms pay brokers financial incentives when they join, which could include bonuses based on customer assets the broker brings in, incentives for selling in-house products or a higher share of commissions. Similarly, some firms pay financial incentives to retain brokers or customers. While there’s nothing wrong with these incentives in either case, they can create a conflict of interest for the broker. Whether you stay or go, you should carefully consider whether your broker’s advice is aligned with your investment strategy and goals.

Can you transfer all your holdings to the new firm? What are the implications and costs if you can’t?
Some products, such as certain mutual funds and annuities, may not be transferable if that’s the case, you’ll face an additional decision if you follow your broker to the new firm: whether to liquidate the non-transferable holdings or keep just these holdings at your current firm. Either way, there couId be costs to you, such as fees or taxes if you liquidate,
or different service fees if you leave some assets at the current firm. Your broker should be able to explain the implications and costs of each scenario.

What costs will you pay, both in the short term and ongoing if you change firms? In addition to liquidation fees or taxes if you sell non-transferable assets, you may have to pay account termination or transfer fees if you close your current account , or account opening fees at the new firm.(Even if the new firm waives its fees as an incentive to transfer, that wouldn’t reduce any transfer or closure costs at your current firm.) Moving forward, the new firm may have a different pricing structure for maintaining your account or making transactions (such as fee-based instead of commissions ,or vice versa),which could increase or lower your account costs.Your broker should be able to explain the pricing structure of the new firm and how your ongoing costs would compare.

How do the products at the new firm compare with your current firm?
Of course, not all firms offer the same products. There may be some types of investments you’ve purchased in the past or are considering for the future that aren’t available at the new firm.
If that happens, you should feel comfortable with the products they offer as alternatives If you tend to keep a lot of cash in your account, ask what investment vehicles are available at the new firm for the cash sweep account and whether the interest rate would have an effect on your return.

What level of service will you have?
Whether you follow your broker to the new firm or choose another broker at your current firm, consider whether you’ll have access to the types of service, support and online resources that meet your needs.

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FINRA recently announced that it was backing off — for now — on its initiative to control U.S. registered investment advisors, WealthManagement.com reports. Richard Ketchum, the agency’s chairman said: “I’m not a big believer in beating a head against the wall,” and said that FINRA would “focus on things we can impact.”

This change in strategy was due to the U.S. Congress not planning on changing regulations regarding investment advisers. Right now, the Securities and Exchange Commission regulates the advisers, but because of budgetary constraints, they only get the chance to look at the advisers approximately once every 11 years.

However, FINRA did not permanently drop seeking the ability to take over reviewing registered investment advisers.  It called it a “critical investor protection,” but said that there was “clearly a lack of consensus about how best to address that problem.”

Congress has shown no interest in changing who reviews registered investment advisers. The agency said that “other issues are closer to the top of Congress’ agenda, so this one will likely not be resolved in the near term,” but it hoped that the legislative body would review the issue in the future.

Written by Lisa Swan

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Did you know that despite the economic turmoil Barack Obama inherited as president and the state of the economy during his term, that the stock market actually had one of its best performances in history?

WealthManagement.com quoted figures from Leuthold Weeden Research showing that the S&P 500 has shown a 77.8% price return during Obama’s administration, as of September 2012.

There are also some other surprising figures historically in the article. In Franklin D. Roosevelt’s first term, the S&P showed a record price return of 162%. At 79.2% and 72.9% respectively, Bill Clinton’s first and second terms were second and fourth in the top five historically, regarding the S&P 500 figures.

There was only one Republican in the top five numbers for the S&P – Dwight D. Eisenhower’s first term, which showed a 69.9% price return.

Written by Lisa Swan

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Morgan Stanley announced that it had lower numbers of advisors as of 2012’s third quarter, but with slightly higher financial advisor productivity. WealthManagement.com revealed that the firm now has 16,829 advisors, down 1 percent from the previous quarter and 5 percent from this time the year before.

In comparison, Wells Fargo and Merrill Lynch, said that their head counts have stayed flat in the previous quarter. Scott Smith of Cerulli Associates told WealthManagement.com regarding Morgan Stanley that “they’re mucking along, but with 16-17,000 advisors, it’s just tough to recruit to fill natural attrition and retirement.”

In addition, Morgan Stanley said that they were purchasing back Citigroup’s 14 percent share in the company. Morgan Stanley also shed Smith Barney from its name. The Citigroup purchase would be $13.5 billion at 100 percent valuation. The firm also said that it would buy Citigroup’s remaining 35 percent share in the company by 2015.

Morgan Stanley announced that its FAs saw their revenue per advisor go up this quarter. The assets under management per advisor increased from $101 million to $105 million.

James Gorman, the company’s CEO, said that “a key to our future is the increased contribution of our wealth management to our revenue, profitability, returns and funding stability.”

Written by Lisa Swan

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Some financial advisors may need a new elevator speech, WealthManagement.com writes. The article says that “answering basic questions about value proposition continues to challenge so many financial advisors.” That means being able to answer simple questions about who you are, and what you have to offer. Here are some of the areas that WealthManagement.com says raise red flags:

  • Reciting a mission statement: This can “activate the sales alert antenna,” the article says, and can end up causing harm.
  • Putting on an “I’m smart” act: While advisors are generally smart, it is not smart to try to sound too complex with obscure jargon. It could potentially be a turnoff to your clients.
  • Acting like “I really care”: This should be “a given,” the article says, like having good hygiene. Some read “I really care” as a sales pitch. Show, don’t tell.
  • Communicating “I’m different”:  Give a normal response. You potential clients won’t like an answer that comes across as silly or weird.

Instead, when asked what you do, keep in mind that half of the people aren’t even listening to your answer. But you don’t want to answer it in any of the above ways, or it will raise red flags. In addition, communicate with good body language, not just words.

Written by Lisa Swan

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Barack Obama is derided as a socialist by some of his political opponents, but there is something very surprising about what the stock market has done during his tenure.

WealthManagement.com reports that according to Leuthold Weeden Research, Obama’s presidential term is one of the “best handful of terms in modern stock market history.” In fact, the other three best performances by the S&P 500 took place with Democrats in the Oval Office. “Curiously,” though, writer David Aldo Geracioti  notes that neither Obama nor the Democratic Party have publicized those facts.

In addition, of the five worst modern S&P 500 performances, four took place with Republicans in the Oval Office, with George W. Bush as president for two of them.

The S&P 500 has increased in value by 77.8% percent during Obama’s term. That is third in modern history, trailing only Franklin D. Roosevelt seeing a 162% S&P price return in his first term, and the S&P 500 increasing 79.2% under Bill Clinton. Bill Clinton’s second term and Dwight Eisenhower’s first term round out the top five.

Of the five worst, Herbert Hoover saw the S&P 500 go down in value by 73.3% in his term. The second worst was FDR’s second term, with the value going down 41.3%. Nixon’s second term, and George W. Bush’s two terms are the other two presidential terms with the most negative S&P values.

Written by Lisa Swan

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If you don’t get in the swim of things with social media, you could be hit by a tidal wave. That is what a speaker at a SIFMA social media seminar recently said, WealthManagement.com reports.

Jamie Cox, an advisor with Harris Financial Group, said “What most people in my role don’t understand is that … the social tools are going to run over a great many of us.” He told the conference, “If you’re not using social tools, you’re going to regret it, because those of us who are using it understand it and can adapt as the needs change, but those who aren’t, they’re not going to make it.”

Natalie Taylor of Wedbush Securities has been giving her company’s advisors a four-step process for connecting with social media. The first step is establishing an advisor’s website, with information which could ultimately be repurposed on LinkedIn, Twitter and Facebook.

The second step is getting on LinkedIn – Taylor calls it a “business essential.” Joining Facebook and/or Twitter is the third step, while being involved with blogs is the fourth step. All the social media sites offer ways to interact with clients.

Cox says that Twitter is vital for finding out intelligence, with very quick, real-time search capabilities to find out the pulse of the nation – or a segment of the nation.

Written by Lisa Swan

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The $5.12 million lifetime federal gift tax exemption will expire after this year. Because of that, high-net-worth individuals and their financial advisors have been looking into how to put that exemption to good use, WealthManagement.com reports.

Compensation Strategies, Inc. surveyed a variety of financial advisors to see what they and their clients were going to do on the issue. According to the survey, the top gifting options including establishing personal trusts, gifting to relatives, establishing a dynasty trust for the relatives, giving assets to charities, creating an irrevocable life insurance trust, a grantor retained annuity trust, or an intentionally defective grantor trust, and giving gifts to multiple people.

The survey said that according to financial advisors, the most recommended advice is the following: “(1) establishing a residential trust, (2) transferring property with high appreciation potential, (3) creating a dynasty trust, (4) making outright gifts, (5) establishing an ILIT funded with a new life insurance policy, and (6) creating a GRAT.”

WealthManagement.com says that the results from this survey could create a “dialogue” between financial advisors and clients over what to do about the gift tax exemption.

Written by Lisa Swan

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The information revolution caused by the growth of the Internet also means that more records about financial advisors are publicly available than ever before. WealthManagement.com says that advisors need to get used to this “fishbowl effect.”

For example, the site BrightScope shows all sorts of data – both positive and negative – on financial advisors. Mike Alfred, the CEO of the company, tells WealthManagement.com that his company is simply making more available information that was already out there, such as assets under management, education, and even disciplinary information. But the publication says that Alfred’s company has “knocked the dust off advisor data and put it on display in a new way.”

BrightScope is just one of the companies putting such information out there on the Internet. Paladin Registry gets data from advisors themselves, AdviceIQ only will put up financial advisor information if they have had no records of disciplinary against them, and Advizent has data only accessible to its members. FINRA is also making its databases more user-friendly to the public, with a variety of ways to search on brokers.

Jack Waymire of Paladin tells WealthManagement.com that “higher quality advisors have nothing to hide, and lower level reps are uncomfortable with transparency.”  He notes that if advisors ”refuse to answer questions, we go back to the investor with an alert. And we say our experience is you may want to avoid this advisor in the future.”

What this all means is that financial advisors will need to be more transparent with their clients, due to all of these new information out there, because the industry is moving things in that direction, forcing financial advisors to reveal as much information as possible. The article also notes that “advisors are going to be visible whether they like it or not,” so that they should take steps “to make sure that the information being broadcast is accurate.”

Written by Lisa Swan

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