Individual retirement account holders may find themselves brokerless if the Department of Labor (DOL) adopts a recently proposed rule that would subject investment professionals associated with the accounts to a fiduciary standard. Testifying before the U.S. House Education and Workforce Committee (the Committee) Kenneth Bentsen, a vice president at the Securities Industry and Financial Markets Association (SIFMA), a securities industry lobbying group, warned that brokerages will drop millions of IRA account owners if the proposed rules are finalized.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the SEC’s forthcoming universal fiduciary duty regulations in Advisor’s Journal, see Financial Planners and Insurance Producers at Odds over Fiduciary Standard (CC 11-131), SEC Fiduciary Standard Study Answers Few Questions (CC 11-25), Study Finds that Universal Fiduciary Standard Will Hurt Investors (CC 10-97), What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10 40), & SEC Unprepared to Implement a Fiduciary Standard for Broker-Dealers (CC 11-33).

Are you an employee or independent contractor of your firm? If you’re doing business in California and get the classification wrong, you could be in for criminal charges and up to a $25,000 fine.

California State Bill 459—which would impose strict recordkeeping requirements and severe penalties on firms that misclassify employees as independent contractors—passed the state senate on June 2. The bill moved to the Assembly and went on to a hearing at the Assembly Committee on Labor and Employment two weeks later. The bill is expected to come to a vote in the Assembly later this summer.

Under the bill, firms that mischaracterize employees as independent contractors can be subject to fines of up to $25,000. They also will be required to keep records verifying independent contractor status for at least two years or face a fine of $500 per employee and misdemeanor criminal charges.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of income taxation, see Advisor’s Main Library: Income Taxes.

Why is this Topic Important to Wealth Managers? Provides wealth managers with update on industry statistics.  Discusses areas where wealth managers are needed now and in the future.

According to a recent report by Javelin Strategy and Research (California); “[a]lthough the recent ‘Great Recession’ has caused millions of Americans to tighten their belts financially, nearly one out of five consumers are financial sleepwalkers”—those who do not manage their personal finances. [1] That’s right; at least 20% of Americans are not currently using wealth managers to manage their personal finances. The report states that the rate is more than double that of 2009. [2] This presents a vast opportunity for wealth managers to expand their market share.

The United States Department of Labor project that personal financial advisors are estimated to grow by 30 percent over the 2008–18 period.  “Growing numbers of advisors will be needed to assist the millions of workers expected to retire in the next 10 years.” [3] Further, “[a]s more members of the large baby boom generation reach their peak years of retirement savings, personal investments are expected to increase and more people will seek the help of experts.” [4]

Moreover, there is a trend in corporate America to replace “traditional pension plans with retirement savings programs, so more individuals are managing their own retirements than in the past,” creating additional opportunity for wealth managers. [5] In addition, as medical technology continues to advance and people on average, live longer, the need for additional financial planning arises.

The average compensation for wealth managers is around $89,920 to $110,130 for those marketing insurance products and services as well as other financial investments. [6] New York has the most wealth managers in terms of total numbers. [7] In addition, New York wealth managers made on average $146,460, the most from any state. [8]

A significant number of wealth managers are located in New York, California, and Florida mostly. [9] Vero Beach Florida had the highest concentration of wealth managers per capita earning around $84,430. [10] Approximately, 63 percent work in the finance and insurance industries, and approximately 29 percent of “personal financial advisors are self-employed, operating small investment advisory firms.” [11]

For previous blogticles covering the wealth management industry, see the series beginning The Future of Wealth Management

Next week’s blogticles will discuss insurance and tax related issues.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] Personal Finance Management (Part 1): What Consumers Really Want from PFM.  Javelin Strategy & Research.  https://www.javelinstrategy.com/research/Brochure-199.  Last Accessed 11/24/2010.

[2] Personal Finance Management (Part 1): What Consumers Really Want from PFM.  Javelin Strategy & Research

[3] Occupational Outlook Handbook, 2010-11 Edition.  United States Department of Labor.  Bureau of Labor Statistics.  Personal Financial Advisors.  http://www.bls.gov/oco/ocos302.htm.  Last Accessed 11/24/2010.

[4] Occupational Outlook Handbook, 2010-11 Edition.  United States Department of Labor.

[5] Id.

[6] Occupational Employment Statistics. U.S. Department of Labor.  Bureau of Labor Stastics.  Personal Financial Advisors. May 2009.  http://www.bls.gov/oes/current/oes132052.htm. Last Modified Date: May 14, 2010. Last Accessed 11/24/2010.

[7] Id.

[8] Id.

[9] Occupational Outlook Handbook, 2010-11 Edition.  United States Department of Labor.

[10] Occupational Employment Statistics. U.S. Department of Labor

[11] Occupational Outlook Handbook, 2010-11 Edition.  United States Department of Labor.

The Department of Labor is looking to significantly broaden the definition of who is a fiduciary when giving investment advice to employee benefit plans and plan participants. Many plan consultants who previously escaped classification as fiduciaries will soon be subject to the conflict of interest and self-dealing rules that are applied to plan fiduciaries, creating a compliance nightmare for those advisors.

The Employee Benefits Security Administration (EBSA)—the agency of the U.S. Department of Labor responsible for administering ERISA—released proposed regulations on October 22, 2010, that will expand the reach of the plan fiduciary rules, even applying the rules to some advisors who do not advise a plan or its participants on a regular basis.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of employee benefit plans, see Advisor’s Main Library: Employee and Government Benefits.

We invite your questions and comments by posting them below or by calling the Panel of Experts.

Fee disclosure rules for 401(k) plans were expected out of the Department of Labor in early 2011, but the Department beat its own estimates, releasing a final rule on plan fee disclosures on October 14, 2010.   The rules impose significant disclosure requirements that are important for everyone associated with self-directed employee retirement plans, including employees and their advisors and plan fiduciaries.

The new rules apply to plan years beginning after November 1, 2011. Although plan administrators have over a year to comply with the new requirements, the disclosure requirements are very extensive—the release that includes the regulations is over 150 pages long—and will require significant action on the part of most plan fiduciaries, so time is of the essence.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of 401(k) retirement plans, see Advisor’s Main Library: Section 17.5  401(k) Plans.

We invite your questions and comments by posting them below or by calling the Panel of Experts.