Dan's Two Cents


Good News and Bad News

I want to share a few updates about PennyTree Advisors and myself in this first newsletter fo 2016. As with most things, there is both good news and bad news.

First the Good News

I  feel much better now that I no longer take medication to suppress my hormone levels and the effects of radiation treatments have diminished. My test results are good and the folks at Dana Farber say I am on track with the progress they expected. This is the “Watch and Wait” phase of this journey. Over the next six to twelve months, they expect my hormone levels to recover. When that happens, it is possible that the cancer will return. If it does, we will reevaluate the best treatment options. Until then, I continue to serve clients and conduct ethics training across the US and Canada.People tell me that I look healthy…..so,  good news.

Now the Bad News

Hourly and flat fees will increase in 2016. After speaking with other fee-only advsors in the Boston area, I find that my current fee structure is below the norm for other CFP® professionals with similar experience and expertise. Effective January 1st, the hourly rate for new clients increased to $250 per hour. Existing clients will be billed $200 per hour in 2016 but can expect the fee to increase to $250 per hour in 2017. In addition, for those clients enroilled in the Annual Review Program the minimum fee will increase to $250 per quarter upon renewal. If you are not enrolled in  the Annual Review Program, I encourage you to sign up. It assure that your goals stay on track, your data is up to date and helps with rebalancing your portfolio. It also eases the budget by spreading out the cost of financial planning on a predictable basis. Just email me if you prefer that method rather than hourly billing.

Next, I continue to explore options for succession plans for my practice but sadly without significant progress. I know that this is an important consideration for you and I continue to look at various ways for you to continue to receive clear, unbiased and objective advice after I am no longer able to provide this service myself. I hope that I will have good news to share on this issue in 2016.


The Ethics of Disclosure

Every year I teach ethics to thousands of financial advisors across the US. At the end of sessions I get interesting questions about ethical dilemmas faced by the attendees. This past month, I had to face one of my own. 

I had a routine check-up with my doctor. We discussed what the TV ads describe as “my going problem.” He conducted an exam and ordered blood tests. He referred me to specialists and they ordered more tests. After several weeks we had a diagnosis and a treatment plan. 

My ethical dilemma was whether to disclose this information to clients - just to new clients or to all clients. Discussion of my reproductive system wasn't something covered in my CFP Board training. What is covered? Making sure that clients and prospective clients have all of the pertinent information they need when deciding to hire an advisor. I decided it would be pertinent if I hired a professional. So, I decided to share what I know with all of you.

 I have advanced prostate cancer. It cannot be removed surgically but it can be treated with chemo and radiation. Eventually, even these measures will fail and the cancer will move to my bones and other organs. I trust the team at Dana Farber to do everything they can to postpone that day into the future. How far into the future I don't know. In the meantime, I plan to continue helping clients and teaching advisors as usual. I feel fine and enjoy what I do. As the disease progresses that may change and I may need to scale back or even stop doing one or both activities. Until then, I will focus more on developing a meaningful succession plan and  helping my clients become more self-sufficient. 

I tell new clients that my goal is for them to take greater control of their own financial lives so that eventually they may not need me. Some of you are there already!  And, some still need a guide along the way. I know that some of you may choose someone else to be your guide. That is OK. I understand that uncertainty about my health may be too discomforting for our relationship to continue. I will be content with the time we had and hope you are, too. 

I started treatment this week to slow down the cancer without slowing me down as well. There will be challenges along the way and I am grateful for all of you who choose to continue this journey with me. 

CFP Board and CE

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I had just finished delivering an ethics training session in Fort Myers last Thursday night when one of the attendees came up to me to ask a question. He wanted to know what I thought about CFP Board's plans to takeover as exclusive CE provider. I told him that he was mistaken - that CFP Board CEO Kevin Keller had announced at the FPA Retreat that the organization was exploring the idea of offering CE as a way to increase the quality of CE available to CFP® professionals. But, my questioner insisted that on a statewide conference call, the assertion was made that CFP Board was looking to become the sole source of CE.

Since I would be impacted by such a move both as a CE provider and as a certificant, I sent a quick email to Kevin Keller asking for clarification. As a member of CFP Board's Board of Directors I was involved in hiring Kevin in 2007. Kevin sent a quick and emphatic reply, "Categorically False". 

CFP Board is concerned about the overall quality of CE and is exploring how to raise the quality of training available to CFP® professionals.  This includes the option of creating some training themselves. While I have no argument with the fact that there are too few truly outstanding training sessions available, I question whether CFP Board becoming a CE source is the right solution to the problem. 

As a standards setting body, CFP Board determines which courses meet their CE requirements. That means that CFP Board is at least partially accountable for today's low level of quality. They approved the courses and the instructors. There are lots of both. Tens of thousands of courses offered by thousands of providers using thousands of instructors. The problem is not that CE courses are hard to find (except perhaps for ethics, where CFP Board sets higher entry barriers) but that there are simply too many courses and too many ineffective instructors.  CFP Board becoming one more CE provider would not make a significant difference especially since it will take a while for CFP Board to create content.

I propose a couple of things that CFP Board can do that would make a difference.

First, create an online evaluation tool for use by CFP® certificants. Give every approved course a unique code and require that this be included in all course descriptions and handouts. Attendees would be able to go to CFP Board's website to rate any course they attend. After a minimum numbers of evaluations, courses with strong evaluations are eligible for renewal and those with low scores run the risk of losing their "CE Eligible" status. Scores should be searchable on CFP Board's website so those looking for content could select highly rated courses that meet their needs. Instructors could be rated the same way with each instructor carrying a unique identifying code. 

Second, register instructors and courses separately from the CE provider. Currently, the same course is often registered multiple times by different organizations offering it at different times and in different venues. A course should be submitted once and receive a unique code indicating acceptance by CFP Board. Likewise, instructors should be required to demonstrate certain qualifications and perhaps complete some level of on-line training before being listed by CFP Board as a qualified instructor. Sponsors wanting to offer CE to certificants could choose an existing course and instructor with no further approval needed; or, they could propose new courses using approved instructors  or new instructors, or both. Once approved, the course and instructor are added to CFP Board's database and become searchable after receiving a minimum number of ratings.

Since  sponsors submit credits to CFP Board, it is a simple matter to identify which courses are not generating sufficient level of responses. This also allows CFP Board an opportunity to audit submissions remotely by sending surveys to attendees asking them to rate both the course and the instructor. The lack of an existing audit process is another possible reason for the dearth of good training and the continuation of lower quality courses.

The technology exists to do this today. It would attract more attendees to higher rated courses and act as a drag on those that are poorly designed or delivered. If I can easily provide feedback on a burrito at my local taqueria, how much more important is it to evaluate contininuing education?

The Marathon

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I spend a lot of time training CFP® professionals on ethics. I was on my way to Minneapolis to deliver a workshop to an audience of advisers when the bombs went off. Ethics is certainly about knowing the diffference between right and wrong so let me offer some thoughts on what happened in my hometown.

The actions of the coward or cowards who planned this attack are wrong in any civilized society. Killing and maiming innocent spectators is indefensible. Yet, the bomber(s) reached the deluded conclusion that setting off explosives was the right thing to do.  I am at a loss for how that is possible - whether it be at the Marathon or the London Tube, a train in Madrid or an Israeli marketplace. What does this say about our world when such things can be rationalized by zealots regardless of their political or religious beliefs.

What is easier for me to understand are the actions that we all accept as right. And the Marathon - before and after the blast  - demonstrates a lot of what is right about my city.  Our race is not about celebrity or money. Sure, there are elite racers and there are those in a small community of distance runners who might recognize their names, but mostly this is about the runners who scrawl their names and tape them to their jerseys. About Moms and Dads who train throughout a cold, dark winter to prepare for the challenges of this type of extreme endurance. It is about parents pushing their disabled kids in wheelchairs and soldiers and firefighters covering the course in full gear.  There are a few hundred professionals and 27,000 amateurs running from Hopkington to Copley Square. It is all about what any of us can do if we set a goal and challenge ourselves to persevere.

Joining these dedicated amateurs are hundreds of thousands of my fellow Bostonians lining the entire 26 miles of the course to give support in whatever way they can: a shout of encouragement, a round of applause, bells and whistles and silent salutes.  We cheer everyone - the fast and the slow, strangers and friends, family members and out-of-towners.  We keep cheering long after the elites have showered and received their laurel wreathes. The Marathon inspires people to come together to share their strength and offer their support for tackling this difficult test. It is about the best of what we can do and the best that we can be.

After the explosions, our support continues. My city is filled with stories of samaritans helping the wounded and heroes running toward the destruction to help rescue victims. We talk about rides offered to displaced runners who cannnot reach their families. Out-of-town runners unable to get into their hotels because of heightened security being housed by complete strangers. We grieve for the families of the victims and we all know someone who was there. 

And, we know that the race will run again next year. There will be a Marathon and we will want it to be the biggest "evah". We will line the streets and cheer. We will make noise and shout our encouragement to runners from near and far. We are from Boston and we are strong. We waited eight decades for the Sox to win. We know what it means to come back every year to try and try and try. It will take more than a coward with a backpack full of nails to stop us from coming together to celebrate the triumph of the human spirit over adversity.

Fiscal Cliff


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I was recently asked by the media relations people at CFP Board to provide some feedback on the Fiscal Cliff  that is so much in the news right now.  They expect the media frenzy on this issue to continue to escalate and wanted to be ready when reporters called with questions. They asked a series of questions and as I started to answer them I thought that I should share them with my faithful readers of Dan’s Two Cents.

Are you worried about the fiscal cliff?  Why or why not?

In the word’s of the immortal Alfred E Neuman , “What - Me Worry?” First, what good would it do? I cannot control it, change it or influence it. What will happen, if anything, will occur based on the action or inaction of two leaders in Washington. Neither has called to ask my opinion. Second, Neither of these two leaders gains by causing all the dire consequences you hear in the media. They may be stubborn but they are not stupid.  A deal will be struck that allows both sides to save face and come back to fight another day.

Are your clients worried about the fiscal cliff?  What are they saying and how are they coping with the uncertainty of a deal?

I haven’t had a single call or question so I would have to say that either they are not worried or, they don’t think that there is anything I can do to help. I do have smart clients.

What questions are your clients asking about the fiscal cliff?

They are not asking anything. That may be because every news broadcast has featured so much coverage of the issue that there isn’t much that hasn’t been covered.  I am waiting for the first network to mount a “Fiscal Cliff Countdown Clock” so we can know exactly how many days, hours and minutes remain until Armageddon.

Have you been advising any specific strategies (estate planning, investment, gifting) in light of the fiscal cliff?

I’ve long since learned “when in doubt, do nothing.” So given the uncertainty about where the compromises may appear, I have not come down from the mountain bearing a tablet with the best steps to take now. I’ll leave that to the personal finance magazines. I take a long-term view based on certain principles such as - Save More, Spend less, Diversify, Ownership beats Loanership, Costs Matter, and Don’t Let the Tax Tail Wag the Dog.

Have any clients requested you to take major action in their portfolios (i.e., selling, recognition of capital gains, deferral in realizing losses)? Have you recommended these types of major actions?  Why?

I have discussed harvesting capital gains with several higher income clients - those with the giant red target on their backs for future tax increases. But this is usually in connection with other asset allocation rebalancing decisions and not simply to avoid a possible increase in the rate.  It is just part of the discussion concerning the benefits of acting now versus the possible drawbacks that may result from tax reform that looks more like class warfare than economic reform.

“Nature abhors a vacuum.” And the financial press abhors the lack of a crisis. They need news and stories and drama to get us to watch, listen or read so the sponsors who pay the bills can sell us stuff we don’t want or need. There is a line in the Tennessee William’s play “Cat on a Hot Tin Roof” where Brick reminds Big Daddy about nature and a vacuum. I think Big Daddy had the right response, “That’s what they say, but sometimes I think that a vacuum is a hell of a lot better than some of the stuff that nature replaces it with.” 


On Fairness

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The resignation of my longtime friend Alan Goldfarb as Chair of the Board of Directors at CFP Board of Standards last week created quite a stir within the financial planning community. CFP Board sent a press release announcing Alan's resignation and that CFP Board had initiated an investigation into allegations of a potential violation of Standards of Professional Conduct. CFP Board also announced that two members of its Disciplinary and Ethics Commission also resigned pending an investigation into potential ethical violations. There is nothing to indicate that the Goldfarb case is in any way connected to the resignations of the other two volunteers - or that the two Disciplinary and Ethics panel resignations are connected, either.

I will not comment on the pending cases. CFP Board has a robust and well designed process to adjudicate potential ethical violations by leaders and volunteers. I know because it was developed during my tenure on the same disciplinary panel and adopted when I served as a member of the Board of Directors of CFP Board. At the time we recognized that investigations of members of the Board of Directors and the Disciplinary and Ethics Commission went beyond the standard processes used by the Disciplinary and Ethics Commission.  There were just too many conflicts of interest involved to ask Disciplinary and Ethics Commission members to sit in judgement of a fellow volunteer with whom they have an ongoing working relationship. But, we also recognized that all CFP® professionals must be subject to the same rules, if not the same processes. 

I think it is unfortunate that Alan and the two Disciplinary and Ethics Commission members resigned. These resignations forced CFP Board to announce investigations and hearings that should have proceeded confidentially as they do for all other  professionals. None of these individuals has yet to be found guilty of an ethical violation. They have not yet had a hearing and the charges against each may ultimately be dismissed or end in private censure. That is the outcome in a substantial number of cases. In such circumstances, only the CFP® professional is aware of CFP Board's decision. There is no public announcement and certainly no nationwide email blast by CFP Board and half a dozen media outlets. If the process found that a violation required more serious discipline (a Letter of Admonition, Suspension or Revocation) that would be the appropriate time for CFP Board to announce  sanctions as well as a summary of the circumstances involved. They could also outline the process used to reach judgement. That is when any guilty parties could and should resign.

I view the decision to resign by my friend and former colleague on the Board of Professional Review as well-intentioned but misguided. He sought to preserve the integrity of the organization to which he has devoted countless hours as an unpaid volunteer, but his actions had the opposite effect and created doubts regarding the very organization he wanted to protect. When Alan Goldfarb went public, he forced CFP Board to make a public statement, as well. Alan could and should have continued to serve as Chair while the disciplinary process went forward in the same way that congressmen and presidents remain in office while an ethics allegation is reviewed. In this post-Watergate era we as a society  demand complete transparency - we want to know everything and expect that nothing should be private. This runs counter to our individual liberties under our Constitution. The public's right to know must not supercede  the individual's right to privacy. What we suffer today is a voyeuristic obsession with scandals and paparazzi lurking to capture our very human faults and failings. This  inevitably reduces the willingness of men and women to assume these highly visible roles whether in the political sphere (Do we really need to know our candidates preference in underwear?) or in leadership positions at our professional organizations. 

Make no mistake, there is good news here for the profession. CFP Board's actions demonstrate an unwavering committment to high ethical standards for all CFP® professionals. No "good ol' boy" network and no cronyism. The standards apply to all. However, one of the seven Principles that guide the Standards of Professional Conduct is Fairness. In this case we are not treating the folks involved the same as we treat other CFP® professionals suspected of a potential violation. These are good people who devoted untold hours to serving the financial planning community. They deserve better from us than a rush to judgement and public humiliation. Let us all withhold judgement until all parties can have their respective days in court. If there are indeed ethical violations there will be ample time then to ogle the car wreck.


On Aging

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Summer is a busy time for birthdays in my family. It seems like there is a celebration almost every other weekend.  The ages of the celebrants cover a wide range - from one to ninety-two! Several celebrated what we think of as "milestones." 

This prompted some conversations about the way we look at age. When I was twelve, I couldn't wait to be a teen and experience the independence of not "being treated as a kid." By the time I was sixteen and finally got my drivers license, I wanted to be 21. When I was 21, I wondered if I had to wait until 30 to earn respect as an adult. My views on aging changed as I grew older.  Even though I still see myself as young, I know that to some in my family I must appear old, dare I say, elderly. 

So, I was heartened by a survey I saw reported in Investment News recently concerning a global survey regarding the way people's views have changed. It seems that I am now just middle aged since survey responders pegged Middle Age as starting at 48. Even better, I won't start Old Age until I hit 71. Personally, I am hoping the trend pushes that back to 75 by the time I get there. Bottom line, our longer life spans are forcing people to reexamine the traditional life stages. 

As a financial planner, an important part of my job is to help people better prepare for these different stages. The same survey reported that more than two-thirds of the respondents worry about their own preparedness and an astonishing 40% would rather die young if getting to their 90's included a loss of mobility or independence. Of course, good health is an important consideration but I would suggest that accumulating sufficient assets to live independently for an extended period is also critical. And, there are just too many people who haven't set aside nearly enough. 

Bob Hope famously said, "Getting old is not for sissies."  It is also not for the unprepared and underfunded. Financial advisers have to do a better job helping people to develop meaningful savings plans that stand the test of time. There will simply be too many of us for the traditional  social and governmental institutions to support if we do not do more to take care of ourselves. 

The survey was conducted by Euro RSCG Worldwide and can be viewed here


Lives of Service

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I attended two funerals this week for two extraordinary men. Tony King was my kid's guidance counselor and a former colleague when I was teaching. He was my age and died unexpectedly and too soon. Fr. Charles Sheehy epitomized the best of the "Greatest Generation."  He had been ill for a while and his passing was sad, but lacked the sudden, shocked gasp emitted when anyone heard the news about Tony.

I found myself thinking about these two special men and how alike they were. I don't know if they ever met despite the fact that they both worked in the same community - but I am sure they would have liked and admired each other. Both were quiet and thoughtful listeners. They shared a strong, religious faith that guided them in their everyday lives. Whenever you spoke with either, you knew that you had their complete attention. They were men of purpose and you knew you could rely on them. Neither spent any time on the negatives but focused on what could be done and what needed doing. Of Irish ancestry, each had ready smiles and a sparkle in their eyes. 

Both spent their lives in service to others. Fr. Sheehy ministering to the spiritual needs of his flock and Tony helping teenagers successfully navigate the stormy passage from adolescence to adulthood. Neither chose his career to accumulate wealth or power. It was giving that marked both men - not getting. Both lived to serve others and make the world they lived in a little better - quietly, gently and without calling attention to themselves. Both chose occupations that many today would eschew - preferring vocations with more prestige, excitement and earning potential than teaching or the priesthood. 

I travel around the country conducting ethics training for financial advisers. I teach them to place their clients' interest first and to always do what is best for the client no matter the cost to themselves. That is the way Tony King and Fr. Sheehy were with everyone. 

I also spend a lot of my time talking to clients about accumulating assets and managing investments. This focus on financial success may blind us to achievements like those exemplified by the two men who passed this week. While neither earned a high monetary reward for their labors, what they lacked in cash compensation they earned in the respect of everyone who knew them. The value of their lives of service cannot be measured like ROI or Alpha but, without doubt, my family and my community are their beneficiaries. 



The "F" Word

The use of the "F" word has grown in the past few years in the financial services world.  No, not  that word.  I mean the "fiduciary" word.  Yet, most consumers do not understand the difference between what they should expect from a fiduciary; or, how to tell the difference between an advisor that is a fiduciary and one that is not. I'll try to help you understand the distinction. 

First, forget about using the person's title as any sort of indicator. Most of the time it doesn't matter if the person calls themselves a financial adviser, consultant, planner, wealth manager, or is a VIce-president of any sort.  It is not what the person is called that matters. It is what the person does and to whom they owe their primary loyalty that counts.

 A fiduciary places your interest above all others. That means ahead of their company, their product distributors, and even themselves. They do the right thing for their customers all the time. Even when it means they might make less money - or even no money.

Speaking of money, you cannot always tell a fiduciary by how they are paid. While it is possible to be a fiduciary and earn commissions, it can be more difficult to deal with the inherent conflicts of interest between the adviser and the client. Likewise, just because the adviser works on a fee-only basis does not mean that they are automatically acting as a fiduciary. There are conflicts in that model, too. It is not the method of compensation that determines if a person is a fiduciary. Rather it is what the person does - the actions of the adviser - that matter.

That is why NAPFA requires their members to take a fiduciary oath promising to always act in the best interest of the client. It is also why CFP Board requires certificants engaged in financial planning to adhere to their fiduciary standard of conduct.

Consumers of financial advice need to demand that their interests come first when seeking financial advice. They should ask their advisor, "Are you able and willing to always act as a fiduciary when you provide me with financial advice?"

An Aging Crisis 4/19/12

Willie Sutton was a notorious bank robber. When asked why he robbed banks, he supposedly deadpanned the reply, "Because, that is where the money is." In fact, he never said that famous phrase at all. A creative reporter made it up. Willie’s real motivation? He wrote in his autobiography, Where the Money Was, “ Because I enjoyed it. I loved it. I was more alive when I was inside a bank, robbing it, than at any other time in my life.”

Nevertheless, in the financial planning world the same phrase could describe the senior market. Today's seniors control more wealth than at any time in the history of the world. Those in or approaching retirement are attractive prospects for both ethical and unethical practitioners. While there are many competent and trustworthy professionals interested in serving older clients, the magnetism of all that money also draws those looking for an easy buck.

Inevitable Consequences

The longer lifespans of today's seniors compound the problem. Demographers tell us that the 85+ age group is the fastest growing segment of our population. Since the largest portion of health care costs for seniors occurs in the final year of life, many seniors see their assets grow while much of their discretionary spending shrinks. This occurs at the same time that their cognitive abilities related to financial matters declines. This decline starts before retirement age (as early as age 50) and continues to worsen as we age. Progress is not uniform but it is an inevitable consequence of our aging brains. While we commonly accept that strength, speed and stamina diminish as we age, we are much less willing to recognize that our abilities to make sound financial decisions also diminishes. We joke about our inability to recall a name or grow frustrated when we can't seem to remember a word. We dismiss it as just a "senior moment" when it is actually an indications that the neural pathways in our brains are starting to weaken. Scientists believe that mathematical and quantitative abilities decline sooner than language and other functions.

Weakness Encourages Action

This diminished capacity to process financial decision-making combined with increased wealth has drawn the attention of two disparate groups: criminals who prey on the weak and regulators charged with protecting the vulnerable.  Financial planners are caught  between these two sides and pay the price in greater regulatory scrutiny, increased skepticism and diminished trust. Well intentioned regulations and consumer alerts pose additional barriers for ethical advisers trying to help seniors.  Confidentiality requirements and privacy policies may impede advisers from being able to alert appropriate parties when an aging client starts to make less than wise decisions.

Prudent professionals serving seniors accept that regulatory oversight is likely to grow - as will cases of financial fraud against the elderly since regulations may not deter those with unethical or criminal intent but instead punish them after the fact. Financial planners need to increase their knowledge of best practices when serving senior clients and put in place systems and processes that protect and preserve both client confidentiality and the client relationship while protecting the financial planner's business from increased liability

Good Ethics is Good Business

The Chinese word for crisis consists of two words  one symbol represents danger while the other represents opportunity. There is an aging crisis affecting all of us who work with older clients.  Conducting a financial planning practice at the highest ethical standards is the key to navigating the trouble waters that surround the senior marketplace. A strong ethical framework provides for principle-based decision making. This becomes even more important as rule-making becomes more prevalent and targeted. High standards of ethical behavior at all times allow financial planners and their clients to benefit from the opportunity while avoiding the danger. 

While there are many competent and trustworthy professionals interested in serving older clients, the magnetism of all that money also draws those looking for an easy buck.


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