Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the news that the CFP Board has decided to issue a second draft of its proposed changes to the CFP Standards of Conduct, which is expected to be released in mid-December with a comment period running in January of 2018. Also in the news this week was a new report from PIABA that points out 5 out of the 13 “public” members of FINRA’s Board of Governors (who are supposed to represent consumers and have no ties to the industry) actually do have substantive ties to the financial services industry, which raises the significant conflict-of-interest concern that the majority of FINRA’s Board is actually comprised of industry representatives (whereas it is supposed to maintain 13-out-of-24 board seats with non-industry public governors).
From there, we have a number of articles on mergers and acquisitions of advisory firms, including a discussion of some of the key factors that drive an advisory firm’s valuation (beyond just its size and revenue), what an “earn-out” is and why it’s often used as part of the terms of an advisory firm acquisition, and how the ongoing wave of industry consolidation is likely to progress in the coming years as a small subset of mega-firms begin to emerge.
We also have several investment-related articles, from a discussion of how the “p-hacking” phenomenon (of doing so many tests for statistical significance that, ironically, it becomes inevitable that there will be a large number of false positives) may have inappropriate spurred the “investment anomalies” research, a look at the rapid rise and fall of many ETFs (which also appears to be tied to how many ETFs are being launched on spurious anomalies research), and an explanation of how Research Affiliates formulates its own forward-looking return assumptions (important for both portfolio design, and determining reasonable investment assumptions to plug into financial planning software).
We wrap up with three interesting articles, all focused around the theme of financial services industry change: the first raises the question of whether, as the Broker Protocol unravels, if it’s time for the SEC to step in and formally codify a version of the Broker Protocol for all firms (broker-dealer and RIA) under Regulation S-P; the second looks at whether it’s time to ditch life insurance illustrations and instead demand and require that insurance companies provide more detailed projections (which more clearly explain what are guaranteed costs and what are uncertain assumptions that could be manipulated); and the last suggests that perhaps the best way to fix the compliance woes at broker-dealers is for independent B/Ds to become more stringent on their hiring processes in the first place, vetting prospective brokers and weeding out the bad ones, so that they don’t have to create compliance procedures that cater to such a low level “lowest common denominator” broker (to the detriment of all the rest of the good and honest advisors at the broker-dealer). Which is especially important in today’s environment of broker-dealer consolidation, where large swaths of brokers – good and bad – may be getting absorbed into other broker-dealers in the coming years!
Enjoy the “light” reading!