Monday, August 8, 2022 Aug 8, 2022
83° F Dallas, TX


Planners are popping up on every corner
By Laurel Ornish |

IN A BANK lobby in North Dallas it stands, about the size of an automatic teller machine. At first glance, it resembles those video display units in hotels that flash information about the events of the day.

The bank’s logo appears on the video screen, but this is no mere advertising gimmick: Hooked into a computer, the machine gives the bank’s customers investment research and up-to-date financial information at the touch of a finger. Really, the machine is a computerized investment advisory service, programmed daily by a brokerage firm owned by the bank’s company. By touching colored squares on the screen, customers gain access to a world of information: stock quotes, financial news and other hard data, plus comments and recommendations from the brokerage firm as to how customers can build their own portfolios of investments.

IT’S A SIGN of the times. This automated financial planning service is just one item in an increasingly diverse smorgasbord of options for consumers interested in financial planning and other financial services.

It’s a buyer’s market out there, but let the buyer beware. A new report from the Council of Better Business Bureaus warns that the legitimate financial planning industry is growing at an explosive pace. And so, inevitably, is the incidence of multimillion-dollar fraud committed by con artists and swindlers preying on naive, inexperienced consumers in search of financial planning advice. Almost anyone can hang out a shingle as a financial planner, and many who do have neither expertise nor ethics. One state securities official says these are the “Wild West frontier days” of financial planning.

Why the explosion in financial planning? How can consumers get competent help in planning their savings and investments and avoid the sharks circling around the unwary buyer?

Today, with more two-income families than ever before, combined family incomes have grown, even if real buying power has not always kept pace. The threat of losing part of the nest egg to the tax man has, in part, spurred increased interest in financial planning. Industry groups estimate that at least 10 million Americans (15 percent of all American households) could benefit from financial planning services. And after the economic shocks and double-digit inflation of the Seventies, Americans have become more financially aware than they used to be. They may realize the need for long-term planning while shopping around for their first house or condo, wondering how to pay for a child’s college tuition or reeling from “tax return shock” when their accountant breaks the bad news.

Another spur to the financial planning boom has been deregulation of the financial services industry, which began in the Seventies and continues today. Deregulation- and especially the weakening of the Glass-Steagall Act of the Thirties-means fewer rules as to which services banks and savings and loan associations can offer to customers. The Glass-Steagall Act prohibited banks from acting as brokerages. Another giant step toward deregulation in Texas came with the Uniform Limited Partnership Act of 1955, which allows investors to participate directly in investments through a limited partnership.

Deregulation also has meant increased competition. Today, banks and savings and loans find themselves competing for the same customers and looking for new ways of doing business. Suddenly, banks and S&Ls also face additional competition from brokerage firms, mutual funds, insurance companies and newly emerging financial “supermarkets,” such as Shearson Lehman/ American Express Inc. and the Sears Financial Network.

“We’re all looking for new sources of income, all looking to enhance the deposit relationships with the customer, to keep that customer in the bank,” says Chris Williston, senior vice president and chief operations officer for the Texas Bankers Association. “There are a lot of people out there competing for the customer’s dollar today, and the more services you can get your customers into and participating in, the more likely you are to keep them long term. There are a number of opportunities for new products and services for banks, but I don’t think any of them could be entered into as easily and as naturally as financial planning.

“You’re seeing the Sears and the Merrill Lynches also trying to get more financial services, and the banks are, frankly, threatened by it. It’s a traditional market that had been theirs. Banks are trying to get into as many relationship positions with customers as they possibly can, and that’s why you’re going to see them offering financial planning services. That’s why you’re going to see them offering insurance services in their bank lobbies, that’s why you’re already seeing them offering discount brokerage services.”

Tom King, executive vice president of the Texas Savings and Loan League, echoes Williston’s sentiments: “The savings and loans and the commercial banks are just now getting into [financial planning]. They really don’t have a good track record yet, but over the next four or five years, I think they will, especially as government starts looking into the way some of those ’shingle hanger-outers’ operate.”

IN DALLAS, MBank Preston (formerly Preston State Bank) contracted last year with Linda Mundy, an independent financial consultant, to come into the bank twice a week and provide services to the bank’s customers. For a fee of $75 an hour, Mundy will develop a Personal Financial Needs Analysis, which consists of basic advice only-no plan. Her total cost for a needs analysis generally ranges from $300 to $500. The next level of service is called a Subject Plan, which focuses on one area, such as investments, retirement or taxes, and costs from $350 to $900. Top of the line is a Comprehensive Personal Financial Plan, which includes investments, stock options, retirement income, educational funding, insurance, estate planning and taxes projected over a three- to five-year period. Cost: $1,200 to $2,400. An annual or semiannual review is recommended.

Mundy has an MBA from Harvard Business School and is registered with the Securities and Exchange Commission as an “investment advisor.” Under a law drafted more than a quarter century ago, the SEC does require the registration of investment advisors. Thirty-seven states also have their own versions of the Investment Advisors Act. But being “registered” with the SEC is not the same thing as having an SEC securities license to sell a product for a commission. It only means that a planner has filled out a form and waited 45 days for it to be processed. There are no professional standards or tests to be passed to assure SEC registration. Even so, it is estimated that of the 200,000 self-proclaimed financial planners in the United States, fewer than 10,000 have even bothered to register with the SEC.

MANY STATE AND federal securities regulators have expressed concern recently about the lack of regulation of the financial planning industry and about the Investment Advisors Act in particular. “Whenever I see ’registered with the SEC on an ad for a financial planner,” one SEC administrator says, “I want to laugh. People think that is equivalent to the Good Housekeeping Seal of Approval, but it isn’t.”

MBank Preston was the first of the MBanks in Dallas to implement financial planning for its customers and is serving as a pilot for other MBanks. The only other bank in Dallas to offer such services to date is RepublicBank Dallas, which limits its services to estate planning.

In recent times, independent financial planning companies have sprung up like weeds. Doctors and dentists, corporate executives, entrepreneurs and others who may be highly capable when it comes to producing wealth are realizing more and more that they often need help in constructively investing the fruits of their labor. More and more often, they are deciding that their accountants or attorneys are not always qualified.

Financial planning companies offer a variety of services and methods and employ “financial planners” with varying degrees of expertise and credentials. There are, again, no government licensing requirements or state or federal laws defining qualifications. A “planner” may have any and all-or none -of the following: an SEC or National Association of Securities Dealers license; a real estate broker’s license; a CPA’s license; a license to sell insurance; a Certified Financial Planner designation (offered by the College for Financial Planning and Institute of Certified Financial Planners, both of Denver); an MBA; a registration with the SEC; a membership in the Registry of the International Association of Financial Planners or a bachelor’s or graduate degree with a major in financial planning.

BASICALLY, THERE are three types of financial planners: (1) those who charge no fee but have products to recommend and sell and who will make a commission off your purchase; (2) those who, for a fee, may recommend that you invest in stocks or real estate, for example, but will not steer you to particular investments. Such planners would be unlikely to recommend a “hot” investment or stock, since their primary objective is to diversify the portfolio so the client is not too heavily invested in any one area. What type of diversification the planner may advise often depends on the institution and license the planner is affiliated with and the services that he or she has available to recommend; (3) the planner who charges a fee for the financial plan and receives a commission for the sale of products. These planners claim their advantage is that they can charge less than the fee-only planners.

TYPICALLY, ANY planner will first look at your income structure and current situation and forecast how much you will be paying in taxes next year. If, for example, you will gross $100,000, you could be paying $50,000 in taxes with no deductions. The planner will come up with a plan to try to cut the tax bill down to, say, $15,000, saving you $35,000, which can be used to establish and build an estate.

Next, the planner will ascertain your goals. What kind of liquid assets do you need? Are you saving for children’s education? Are you saving for a house? What are your financial goals and needs right now? Using the sheltered income, the planner may figure out a budget for you, how much leftover capital you have for investments and how to diversify those investments in the most prudent direction to meet your goals. If the planner is a licensed broker/dealer, he or she may actually make the investment for you. If your planner is working for a bank or an S&L, he may steer you into the bank’s certificates of deposit, IRAs or other services. This is one of the “buyer beware” aspects that you should keep in mind. Any planner, however, will argue that a broker or banker who recommends an investment must make sure it is in the customer’s best interest. Otherwise, a client can take his business elsewhere or, possibly, hold the institution or broker accountable to a regulatory or licensing agency. Institutions that are regulated by government agencies and insured and broker/dealers who are government licensed argue that they offer the consumer the most protection for that reason.

Some financial planners don’t make any decisions themselves about what investments you should make. Instead, they rely totally on a computer program. If the planner is not an expert in a particular area, he may input your income statement, balance sheet and other data and let the computer analyze it, project your taxes and make suggestions on how you should invest.

WITH THE ADVENT of deregulation of financial services, the nation’s retailers also are starting to get into the act in full force. Leading the pack is Sears Roebuck.

Sears actually has a longtime tradition of providing financial services to the public, as Sears corporate spokesman Doug Fair-weather explains, dating back to 1931 when the company founded Allstate Insurance amid great skepticism. “It was roundly believed in insurance circles back then,” he points out, “that you could not mix retailing and the selling of property and casualty insurance.” But Sears customers purchased their car accessories at Sears. Why not insurance for the car, as well?

Sears also was a pioneer in credit and credit marketing, beginning in 1911 when banks always required collateral and wouldn’t lend money for consumer purchases of goods based on a customer’s future earnings. Sears added the Dean Witter brokerage firm and Coldwell Banker real estate to its portfolio in 1981.

Sears then put what it calls “In-Store Financial Centers” in eight stores, including one in Dallas, during the summer of 1982. Company officials were so pleased with customer response that by the end of last year there more than 300 such centers. Fair-weather points out that the profitability of these stores is not the name of the game: “The stores are an excellent delivery mechanism, a great place to acquire the account, to begin the account relationship. Active Sears customers make up nearly half of all U.S. households. The Sears store is an absolutely golden opportunity to contact the customer who may initially come to Sears for any number of things, but who also has a need for a financial product or service. Once you’ve acquired the account, you can service it from another location.”

WHY WOULD consumers go to Sears, rather than to their friendly neighborhood banker or S&L? “Customers may find it more convenient to go to Sears, which is open on the weekend and in the evenings,” says Fairweather. “Comfort is another factor. Often, people are intimidated crossing the line into a stockbroker’s office. They think they’ve got to put on wing-tipped shoes and a Brooks Brothers suit to impress the stockbroker. People come up to Dean Witter brokers in Sears stores and they are treated pretty much the same way they are treated in other parts of the store. They’re not going to be backed into a corner and made to feel inadequate.”

Comfort and convenience aside, Dean Witter’s second-quarter income this year registered on the plus side, compared with a loss for the same period in 1984. Of Dean Witter’s new accounts, about 40 percent are now being generated from the In-Store Centers.

Sears Chairman and CEO Edward R. Telling told the Economic Club of Detroit last spring that his company is continuing to lobby for the blurring of the line between banks and non-banks. The nation’s largest retailer already operates Sears Savings Bank in California and is calling on Congress to create a new category called The Family Bank, which would be prohibited from making commercial loans, but could make loans for personal or family use or for small businesses.

THE FLURRY OF fraud in the industry is fueling efforts among federal, state and industry trade group officials to come up with regulations for financial planners. So far this year, a number of states-Texas not among them-have considered drafting such legislation. The SEC, with the help of the International Association of Financial Planners, is working on a revision of the Investment Advisors Act that would set up a self-regulatory organization that would come under the jurisdiction of the SEC, similar to the National Association of Securities Dealers.

The board of the 22,000-member, Atlanta-based IAFP recently met in Dallas. Its current chairman is Bill Carter of Dallas, president of Carter Financial Management. “I think all the people who are legitimate and who do quality work are adamant on getting some type of regulation,” Carter says. “There’s a frustration among legitimate financial planners all over the country that anyone can hang out a shingle and call himself a financial planner, and that’s tainting the whole industry.”

The IAFP has developed two instruments to strengthen the professionalism of the industry. First is a Code of Professional Ethics that all IAFP members must subscribe to. Already this year, the IAFP has thrown out nine members and reprimanded seven.

Second, the group has developed the Registry for Financial Planning Practitioners for all planners, not just its own members. To qualify for the Registry, a planner must have been involved in financial planning for at least three years, meet minimum educational standards in financial activities, pass a five-hour examination, maintain a mandatory continuing education requirement of 30 hours per year and follow a six-step process with customers in their financial planning practices. The Registry differs from a Certified Financial Planner designation, which requires only that the planner pass a series of six examinations.

Unfortunately, there have been some cases of fraud in the financial planning industry, including two noteworthy ones in Texas.

Ward Truman Jones, Jesse Thomas Jones and Joe B. Bledsow were convicted in May in Dallas of conspiring to defraud the IRS by promoting the sale of abusive tax shelters through a company known as Alpha Financial Enterprises Inc. Ward Jones was sentenced to 25 years in prison for selling a shelter in which the customer put all his assets in a family trust, then took a deduction on payments made. Income that remained was distributed to family members. The adjusted income was then so low that it would be below the filing requirement amount. Some individuals who invested in the scam were audited and required to pay tax from back years, in addition to penalties; others are still being audited.

On Sept. 12, 1984, a Harris County jury convicted William W. Romine, chairman and sole shareholder of American Bankers Trust Co., of misapplication of fiduciary funds. Romine sold IRAs to 3,411 investors between 1980-82 and accepted $3.7 million in investor funds. Testimony from Harris County auditors indicated that only $251,000 in investor funds remained at the time ABT filed for bankruptcy in February 1983. Romine fraudulently claimed the IRAs were FDIC insured, and he had failed to disclose that 80 percent of the first year’s deposits would be taken out as commission. Romine was sentenced to 10 years in prison, which was probated, and he was fined $10,000.

CONSUMERS IN THE market for financial planning services will continue to have more options, assuming that the dual trends of deregulation and increasing affluence continue. As with any professional service, it is important to shop around. Consider such factors as: your familiarity with the institution and its personnel; whether you want a licensed broker/dealer who makes a commission on products he recommends or a planner who charges a set fee; whether you want investments that are insured and guaranteed; whether you wish to deal with a financial institution that is regulated or a company that is not; and how much planning you want and can afford.

The financial services explosion is still a relatively new ball game; a great deal of shaking out is still going on. Sears Chairman Edward Telling says he is convinced that what Sears is pushing for-continued deregulation-will continue to be the trend. “Instead of attacking the problems of the banking system with a regulatory meat cleaver, we should be setting up a structure based on two fundamental imperatives: safety and consumer choice.”

“If we do so,” he states, “we can give consumers what they deserve-equal access to financial services, the widest possible range of investment options, guarantees of safety and soundness-without turning back the clock, and without turning our backs on the widely accepted innovations of recent years.

“In the long run, a system in which the consumer’s interest overrides any company’s desire for a temporary competitive advantage will be better for consumers and companies alike. Consumers themselves will win their fight for a free and open financial services system.”

Some final words of caution come from Dallas’ Michael A. Jordan, president of Pacific Broadcasting Corp. Jordan and his partner, Mary P. Heller, use financial planners with a broker/dealer securities license to help market deals they put together.

“It’s like any of the advisory industries, whether it’s a stockbroker, insurance salesman or other,” he warns. “A financial planner gives you advice, and you may or maynot follow it. Sometimes you make money,and sometimes you don’t. However, keep inmind that if they were really geniuses at calling the market, they wouldn’t be brokers,they would be trading only for their own account. You have to understand that they’reeveryday people, and they provide servicesfor everyday people.”

A Consumer’s Bill of Rights*

You’re entitled to:

1. A clearly written, customized financial plan that includes a balance sheet ofassets vs. liabilities and a projected cashflow statement for at least one year.

2. A precise definition of your financial objectives and the steps you may taketo achieve them.

3. A discussion with your planner ofthe amount of risk you are willing toundergo to achieve your financial goals.

4. Suggestions on how you can improvepersonal cash management.

5. A range of investment choices, withthe pros and cons and risk factors involved in each.

6. A specific schedule for monitoringthe progress of your financial plan, including reviews of your objectives andmeetings for the purpose of checking onthe results of your planner’s advice.

*Source: Better Business Bureau

You Better Shop Around:

Tips on Choosing a Planner*

1. Check him or her out. Inquire as to the person’s experience and background. Makesure the planner is current in his knowledge of the fast-changing investment world. Contact the state securities division to determine if the planner is complying with state andfederal laws.

2. Contact the Better Business Bureau or the IRS. See if there is a file opened onthe financial service, either through complaints or voluntarily. Promoters are requiredto register with the IRS. Ask them for their registration number. If the promoter balks,he may be promoting a shady deal.

3. Ask for references and check them out. Also, seek the opinion of your own CPA,attorney, etc. Oftentimes in a shady deal, the promoter will direct you to an appraiseror attorney of his own. Get an unbiased opinion. Ask for names of long-term clients.

4. Determine whether you will be dealing with the planner or an associate.

5. Ask to see examples of plans and monitoring reports they have drawn up for otherclients.

6. Make sure the promoter or planner has an established office, not just one deal forsale. Ask how long he has been in the community.

7. Beware if a promoter comes to you with a package whose only advantage is todecrease your taxes.

8. If the planner has no specific area of expertise, verify that he has a close workingrelationship with accountants, attorneys and other professionals.

*Source: IRS, BBB

For More Information:

1. International Association of Financial Planners, Atlanta, Georgia, (404)252-9600.

2. State Securities Board, 2700 Stem-mons Freeway, Suite 312, Dallas, Texas75207, (214) 630-8681.

3. Better Business Bureau of Metropolitan Dallas, 2001 Bryan, Suite #850,Dallas, Texas 75201, (214) 220-2000.

4. College for Financial Planning,Denver, Colorado, (303) 755-7101.

5. Institute of Certified Financial Planners, Denver, Colorado, (303) 751-7600.

Related Articles


The Best Financial Planners in Dallas 2015

As chosen by their peers.
By D Magazine

The Best Financial Planners 2009

The top 68 planners as chosen by their peers.
By D Magazine