New CFP Disclosure

Effective October 1, 2019, The CFP® Board of Standards has done a complete re-write of their Code of Ethics and Standards of Conduct for Certified Financial Planners®. The purpose as stated in the recently released "Roadmap" is as follows:

"CFP Board's Code of Ethics and Standards of Conduct reflects the commitment that all CFP® professionals make to high standards of competency and ethics. The Code of Ethics applies at all times, and sets forth principles that guide the behavior of CFP® professionals, ... The cornerstone of the Code of Standards is a CFP® professional's duty to act as a fiduciary and, therefore, act in the best interest of the Client at all times when providing Financial Advice."

Things just got a whole lot more complicated for CFP® professionals.

Under the "Duty to Provide Information to a Client", we will now need two disclosures, or one combined disclosure. The first one is a "Financial Advice Engagement Disclosure" and the other one is a "Financial Planning Engagement Disclosure." What's the difference? I'm glad you asked. The Financial Advice Engagement Disclosure is for clients who only want financial advice and not a financial plan. Whereas, the Financial Planning Engagement Disclosure is for clients who want a Financial Plan that may also include financial advice. Got that?

Well, it might help to understand what the steps are to a Financial Plan first. Here they are:

1. Understanding the Client's Personal and Financial Circumstances
2. Identifying and Selecting Goals
3. Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action
4. Developing the Financial Planning Recommendation(s)
5. Presenting the Financial Planning Recommendation(s)
6. Implementing the Financial Planning Recommendation(s)
7. Monitoring Progress and Updating

If you will notice, there is nothing in that list that mentions financial advice. Financial advice is a small sub-set of a Financial Plan, but it is often misunderstood by potential clients as the primary thing that Financial Planners do. However, that would be a wildly incorrect assumption.

Here are some items that a CFP® professional reviews as part of a Financial Plan:

1. Net Worth
2. Balance Sheet
3. Liquidity
4. Budget
5. Debt
6. Student Loans
7. Tax Returns - Most Recent and Projected
8. Asset Allocation
9. Taxable Accounts
10. Tax-deferred and Retirement Accounts
11. Sector and Style Concentration
12. Retirement Income
13. Retirement Income Taxation
14. Retirement Income Stress Tests - Worst Case Scenarios
15. Social Security Optimization
16. Medicare
17. Cash Flows - Current and Future
18. Life Insurance
19. Disability Insurance
20. Long Term Care
21. Property and Casualty
22. Education Planning
23. Account Titling and Re-Titling
24. Wills and Pour-over Wills
25. Revocable Trusts - Beneficiaries and Successor Trustees
26. Health Care Proxies and Living Wills
27. Real Estate Titling

Now do you see what a CFP® professional does that is different from someone who gives financial advice? I hope so.

If you are a consumer of Financial Advice or Financial Planning, then be prepared to receive more communication from your CFP® professional in the form of written disclosures. Right now, I have a combined document of four (4) pages. Add that to my Investment Advisory Agreement which is ten (10) pages. Of course, my Form ADV 2A is twenty-five (25) pages. Don't forget my Form ADV 2B which is fourteen (14) pages. Further still, there is the new Form CRS that is another two (2) pages. Just to be safe, I think that I will need to add another three (3) pages to describe my services and a fee comparison, so potential clients can see what they are getting for their money. All totaled, we are looking at a total of fifty-eight (58) pages of disclosures. FIFTY-EIGHT PAGES!

Of course, if you are a consumer of Financial Advice or Financial Planning, then I fully expect you to read all 58 pages and sign off on the fact that you did.

Forgive me for being a little bit sarcastic, but does the United States Securities and Exchange Commission, better known as the SEC, truly believe in their heart of hearts that people are going to read fifty-eight (58) pages of disclosures? How about the CFP® Board? Do they believe it?

Written disclosures are not for the benefit of clients. It is for the benefit of regulators and attorneys who draft the documents. It is job security for both.

https://firstcoastplanning.com

When Subscription Fees Work

I just read this article in Financial Advisor Magazine online.

When Subscription Fees Work: A different business model for an emerging clientele.

Looks like my firm, First Coast Planning, LLC is on the right track. My subscription model is $100 per month for one income families and $150 per month for two income families. According to this article, I may be priced too low!

You can read my firm's Form ADV 2A and 2B at the bottom of my web site at https://www.firstcoastplanning.com. 

I Love the CFP Board, But...

I love the CFP Board, but for solo-entreprenuers, trying to come up with a disclosure form that meets the SEC's Regulation Best Interest and the CFP Board's new Code of Ethics and Standards of Conduct means that I will have to develop two disclosure forms. There is no way on God's green earth that the Regulation Best Interest disclosure that I painstakingly came up with is going to qualify as a disclosure that meets the CFP Board's new Code of Ethics and Standards of Conduct.

Lucky for me, I have been doing this since December 1, 1992 and I have a lot of experience. I feel sorry for those CFP's who do not have my level of expertise. There was a chart that I saw recently on Twitter that used the Securities and Exchange Commission's estimate of costs to prepare the Regulation Best Interest Disclosure and it was staggering. The cost was between $4,000 to $8,000 per year, if I recall correctly. Don't forget to add on top of that, the cost to design a CFP disclosure that meets the new Code of Ethics and Standards of Conduct. That's probably easily another $5,000 per year. Of course, there is already the cost of Form ADV 2A and 2B disclosures that already cost in the $5,000 per year range. So, if we tally all this up, if you are a CFP and a Registered Investment Adviser, then you are probably looking at spending $15,000 per year just on disclosure forms.

If you are a client of a CFP, let me ask you, did you read from cover to cover and ask pertinent questions of your CFP and their business model as a result of their Form ADV 2A and 2B disclosures? Or, did you just trust them? What happens if now, in addition to the Form ADV 2A and 2B disclosures, your CFP now piles on top of that this new disclosure related to the Code of Ethics and Standards of Conduct and also, the SEC's Regulation Best Interest disclosure? If you did not read the Form ADV 2A and 2B before, are you really going to read these additional pages of disclosures?

This is what drives me batty about regulations in the financial services industry. The powers that be always believe that more disclosure is better than less disclosure. In my opinion, more disclosure increases the likelihood of someone not reading your disclosures. Let's face the truth, who wants to read 50 pages of stuff and sign over and over again in multiple locations that you are aware of this and agree with that? It is just going to be more confusing and harder to get new clients!!! People will freeze up and not do anything. More regulation, in my opinion does not protect clients from unscrupulous financial advisors. If you do not believe me, read my prior post about California Alcohol Licensee "Investments." Those "advisors" did not disclose doodle squat. They just stole people's money.

It is the same thing with gun control and these crooked advisors. One crooked advisor rips people off, then ALL advisors have to have more regulation as a result. It is not going to stop crooked advisors from stealing people's money. They will continue to steal people's money no matter what the regulations, because like criminals who manage to obtain guns illegally despite laws against it, these kind of "advisors" do not care about laws and regulations. Why? Because they are criminals, too. It is the same line of thinking that making law abiding gun owners subject to more gun laws will do absolutely nothing to stop guns from getting into the hands of criminals. The criminals will just break into more houses and more cars to get the guns they need to commit their crimes. A new gun law is not going to stop them, just like more regulations for financial advisors is not going to stop crooked advisors from stealing people's money.

Again, I will do the grunt work and come up with the proper forms and disclosures, but brother do I feel sorry for people without my level of expertise.

Maybe, just maybe, if you are a client of a financial advisor, then you might be a little forgiving about the things we have to go through just for the privilege of giving you advice. Further, have a little compassion when your financial advisor asks you to sign their CFP disclosure and their other forms, now that you know what goes into it.

California Alcohol Licensee "Investments"

This one takes the cake as far as Ponzi schemes go.

"I have a great investment for you. We loan money to California Alcohol Licensees who need funds to apply for a California Liquor License. When they get the license, then they will pay you back at a rate of 12% interest once they open their liquor store."

Well, I do not know for sure what the sales pitch was, but I do know that $300,000,000 was stolen from investors who fell for this. Think of it. Investors actually put $300,000,000 into this so called "investment." THREE HUNDRED MILLION DOLLARS OF STUPIDITY!

Are we this dumb and stupid America? Or, is this just the result of pure unadulterated greed?

Readers of my book, Meet Wally Street. The Reason You're Stupid, 2nd edition (aptly named in this case) know full well that Ponzi schemers sell investments that are unregulated and do not exist. If these "investors" had read my book, then they would have never invested in this "investment." The problem is that I'm just a little peon in the grand scheme of things. Nobody knows who I am nationally, therefore most Americans miss out on some valuable Ponzi scheme protection for only $19.95. My 2nd edition book is available most everywhere, like Apple Books, Amazon, Barnes & Noble and others.

"Well, gee Rick. You are nothing but a self-promoter hawking your book." If you think that, then you are stupider than I thought. The choice is to lose your money to a Ponzi scheme, or buy my book for $19.95. Duh! I would venture to guess that everyone who loses their money to a Ponzi scheme, loses a whole lot more than $19.95. Yes, I called you stupid, because you are stupid, if you are one of the ones that invested in this California Alcohol Licensee scam. In fact, this one has to be at the top of the stupidity list. I'm not worried about missing out on you people as a client, since you proved to me your stupidity. I like smart clients who take my fiduciary advice.

Of course, the U.S. Securities and Exchange Commission is on the case and working to get your money back. Who knows how long this will take? Further, who knows how much of your original "investment" you will get back, if any? You can read all about it here: https://www.sec.gov/news/press-release/2019-168

What if you could find a fiduciary who did not want you to open a new account or transfer your assets to their firm? You're looking at him. No risk of a Ponzi scheme from me either, since I do not make you open or transfer accounts before getting a Financial Plan. This is the Future of Advice, in case you did not know.

https://www.firstcoastplanning.com