Protecting Your Practice. Vessenes Katherine

also headquartered in Bryn Mawr. Most of the 34,000 members of the society hold the CLU designation. 5

      CPA (CERTIFIED PUBLIC ACCOUNTANT) This designation, awarded to accountants after a prescribed course of study and experience, is described in Chapter 4.

      E&O (ERRORS AND OMISSIONS COVERAGE) Chapter 17 is devoted to this form of liability insurance.

      ERISA (EMPLOYER RETIREMENT INCOME SECURITY ACT OF 1974) Regulation of pension plans is included within the scope of this Act.

      IAFP (INTERNATIONAL ASSOCIATION FOR FINANCIAL PLANNING) This is a professional membership association dedicated to advancing the financial planning process. Founded in 1969, IAFP is the oldest and largest nonprofit organization of its type in the world. The IAFP represents more than 16,500 individuals and institutions in all 50 states and abroad who are committed to furthering the financial planning process as the foundation for smart decision making. Its members, primarily financial advisers, are from all backgrounds and disciplines.

       IARFC (INTERNATIONAL ASSOCIATION OF REGISTERED FINANCIAL CONSULTANTS) Headquartered in Chesterfield, Missouri, this professional association has more than 1,000 members. It provides practice management support services, hosts educational conferences, and awards the RFC designation to those who have earned it. 6

      ICFP (INSTITUTE OF CERTIFIED FINANCIAL PLANNERS) Headquartered in Denver, Colorado, this is a membership association for the Certified Financial Planner professionals who have qualified for the license prerequisites set by the CFP Board of Standards, Inc., the professional regulatory body also located in Denver. ICFP has 11,000 members.

      IPS (INVESTMENT POLICY STATEMENT) This written document verifies a client’s investment philosophy, financial goals, and the specific strategies for attaining these goals.

      NAIC (NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS) Created by state insurance regulators in 1871 to address the need to coordinate regulation of multistate insurers, NAIC membership includes commissioners from all states, the District of Columbia, and the four U.S. territories. NAIC helps regulators fulfill their obligation of protecting the interests of insurance consumers and provides a forum for the development of uniform policy.

      NALU (NATIONAL ASSOCIATION OF LIFE UNDERWRITERS) This is a federation of approximately 950 local life underwriters associations affiliated with 50 state associations; together, the local and state associations make up the national organization. There are 120,000 sales professionals in life and health insurance and other financial fields that belong to the local associations. To fulfill its mission, NALU develops programs in communications, education, ethical conduct, government relations and advocacy, member associations, public relations, and community service.

       NAPFA (NATIONAL ASSOCIATION OF PERSONAL FINANCIAL ADVISORS) With more than 575 members and affiliates, NAPFA is the largest association for fee-only financial planners. It is headquartered in Buffalo Grove, Illinois, and seeks to improve and promote comprehensive fee-only financial planning as well as to increase public awareness of the financial planning field and fee-only financial planners. The association has three membership categories: member, provisional member, and sustaining member. NAPFA affiliates are fee-only professionals in financial services and related industries who are not otherwise candidates for any category of NAPFA membership. Compensation based on commissions, rebates, bonuses, finder’s fees, or other types of compensation based on financial planning recommendations cannot be accepted by members. 7

      NASAA (NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION) The oldest international organization devoted to investor protection, NASAA is the voice of the 50 state securities agencies responsible for grass-roots investor protection and efficient capital formation. Its standing committees are organized into four sections, one of which is in the area of broker-dealer and investment adviser regulation. Uniform national model codes and guidelines developed and adopted by NASAA are made available for adoption by individual states.

      NASD (NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.) Subject to SEC oversight, NASD is the nation’s largest self-regulatory organization and has responsibility for the Nasdaq Stock Market as well as the vast over-the-counter securities market and the many products traded in it. Its membership includes virtually every broker-dealer that does a securities business with the public.

      P&C (PROPERTY AND CASUALTY INSURANCE) This form of insurance includes homeowner and automobile policies. As discussed in Chapter 12, it is rarely reviewed by financial planners.

      PFS (PERSONAL FINANCIAL SPECIALIST) This is a professional designation that has been created by AICPA for CPAs who want to specialize in financial planning. It is described in Chapter 5.

      RFC (REGISTERED FINANCIAL CONSULTANT) This designation, described in Chapter 5, is awarded by IARFC.

      RIA (REGISTERED INVESTMENT ADVISER) A financial services industry person or firm who gives investment advice about securities and is registered with the SEC and/or state securities administrator(s).

      RR (REGISTERED REPRESENTATIVE) A broker or sales representative of a broker-dealer.

      RR/RIA Registered Representatives who are also Registered Investment Advisers.

      SEC (U.S. SECURITIES AND EXCHANGE COMMISSION) This is an independent, nonpartisan, quasi-judicial regulatory agency with responsibility for administering federal securities laws. The SEC also regulates firms engaged in the purchase or sale of securities, people who provide investment advice, and investment companies.

      SIA (SECURITIES INDUSTRY ASSOCIATION) This is a trade association representing the business interests of more than 700 member securities firms throughout North America. SIA represents members’ interests in Washington and serves as a liaison between the industry, the regulators, and the exchanges; offers a broad range of services, enabling its members to operate more effectively; and serves as a medium through which member ideas, experience, and information can be exchanged.

      UPIA (THE UNIFORM PRUDENT INVESTOR ACT) This model act updated trust investment law and trustees’ responsibilities in recognition of the many changes that have occurred in modern investment practice.

      SECTION ONE

      DEFINING WHO’S WHO

      STIMATES INDICATE that there are hundreds of thousands of you managing many billions of dollars of assets. Yet, you exist in a legal limbo. Your professional duties can subject you to lawsuits in one state but not in another. Statutes and organizations vary widely in the way they do or do not distinguish among financial planners, financial advisers, and investment advisers. You can tell clients you are an insurance agent and yet, in some states, legally be held responsible as a financial planner. The first step, then, in protecting your practice is to determine what exactly you do and what you are legally entitled or required to call yourself.

      CHAPTER 1

      THE FINANCIAL PLANNER

      FINANCIAL PLANNERS and advisers find themselves on their own, trying to figure out how to describe their services accurately and how to play fair. Many follow the lead of their professional organizations in simply describing a financial planner as a person whose business is personal financial planning. While federal and state regulations are often excruciatingly more specific, they may not agree.

      Not only is it hard to define who is a financial planner, it is difficult to determine what laws and rules apply to the profession.

      Unfortunately, there is no significant body of law to use as guidelines regarding standards for financial planners and advisers. Because the financial planning profession and the statutes regarding the profession are so new, few cases have been tried under these laws; fewer still have been appealed and therefore reported as authority.

      To protect your practice, you need to be aware of the

5

Ibid.

6

Julie Sewing, Administrative Director, IARFC, supplied the information contained in this section.

7

Margery Wasserman, Executive Director, NAPFA, supplied the information contained in this section.