074 Pick Us…We’re More Better

Here's what we covered in today's episode:

  • Why has the CFP Board decided to shorten its certification exam?
  • Crowdunding for startups…is it a good idea?
  • FINRA wants to stop clean records as condition of settlements
  • Paying Fines is just the cost of doing business for financial services companies

 The CFP Board Cuts Down the Length of Its Exam

Well, just recently the CFP (certified financial planner) board decided to transition from paper-based exams over to a computer-based model  for its main certification exam.

Additionally the exam will be shortened from a 285 question, 10 hour exam that takes place over two days to a 170 question test that will be completed in six hours.

Sounds like a good thing to me but wait…

Some existing CFP designation holders are none too pleased. And they're asking some good questions as to why the changes are necessary?

At stake is the reputation of the designation itself.  How could a shorter exam actually be as comprehensive?

That's a fair question.  Is the CFP board just trying to make things easier to attract more people?

Crowdfunding for start-ups a bad thing?

There are some new rules under consideration by the Securities and Exchange Commission (SEC) that seek to allow start-up companies to crowdfund their businesses.  This opens up investment to a huge group of people that would otherwise have never had access to the startup world.

But not everyone thinks this is a good idea.

Yes, the people associated with the venture capital industry are very much against it.  They of course cite reasons that people who aren't “accredited investors” (those who have a $1million net worth and earn in excess $200k per year) are not educated enough.

Lynn Turner, a former SEC chief accountant says, “There's a danger to everyone involved.  Unless you have the expertise to do the necessary homework for this type of investment, you are doing nothing different than making a bet at the craps table in Vegas, and the outcome in Vegas may very well be better.”

Really?  Listen to find out what we think.

FINRA Says No More Clean Records

Under new rules that are being contemplated at FINRA (Financial Industry Regulatory Authority) brokers and broker dealers will not be able to demand that they have cleared records of wrongdoing as a condition of settlement of an investor complaint.

There is a movement afoot to reform “expungement”.

Finra chairman Rick Ketchum wrote in a January 6 letter to Sen. Jack Reed D-R.I. and Sen. Charles Grassley, R-Ia.,

We are presently developing the rule changes that would prohibit the practice of conditioning settlements on an investor's agreement not to oppose expungement. While the suggestion to include such conditions in exchange for additional compensation does not always originate with the brokerage firm or broker, this practice may interfere with arbitrators' abilitiy to independently determine the appropriateness of expungement and make the requisite affirmative finding.

Evidently the Senators was based on a study released back in October 2013 by the Public Investors Arbitration Bar Association that showed expungements granted in 90% of cases where they were requested from 2007-2011.

We think expungement is probably warranted in many cases as so many investor complaints are a result of people having second thoughts about their decisions. Any accusation/complaint filed against a broker can end up in arbitration.  It doesn't mean the person bringing the complaint has any basis for the complaint.

A slippery slope if you ask me to take this away from brokers.  This makes a broker's record like a credit report.  If anyone has ever tried to have an erroneous or incorrect item removed from their credit report you'll know what I mean.

Fines Are Just the Cost of Doing Business

A recent report from Tiburon Strategic Advisors shows that financial services firms are in the business of paying fines in the normal course of doing business it seems.

Here are a few examples they cited (thanks to LifeHealthPro for publishing this list):

Insurance company stumbles

  • American International Group (AIG) drew down its entire credit line and went back for more, pushing the U.S. government’s investment to $123 billion;
  • AIG lost $62 billion, the largest quarterly loss in U.S. corporate history, in the fourth quarter of 2008;
  • The U.S. government extended an $85 billion loan to AIG in exchange for an 80 percent equity stake; and
  • Prudential Financial life insurance agents sold investments without the required Series 7 license and illegally split commission with Prudential Securities brokers.

Full-service brokerage firm stumbles

  • Edward Jones & Co. paid a $75 million settlement for failure to disclose more than $300 million in revenue sharing payments from mutual fund families it recommended to customers;
  • Five firms paid a combined $36.2 million for failing to honor breakpoint discounts, with Wachovia Corp. paying the most at $9.7 million.

Independent advisor stumbles

  • The predecessor of TD Ameritrade, TD Waterhouse, was fined $2 million by the SEC for making cash payments to registered investment advisors.

Listen to hear our thoughts on this.

As always, if you need any help navigating the shark infested waters please let us know, we're always happy to help however we can.


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