Bill seeks truth in financial planning


New York --For four years, a truth-in-financial-planning bill has been struggling to be born. Late this month, it seems likely to pass the House of Representatives and go to conference with the Senate.

The House version is a reasonably good bill for consumers, though sheared of some of its original provisions. But the Senate version doesn't show much concern for the problems posed by deceptive planners. If you think this bill should pass, write to your senator about it.

A financial planner should examine all your personal financial arrangements -- from budget to insurance to investments -- and organize them into a coherent whole. Some actually do that. Others only pretend to, while selling you products on which they earn sales commissions. Here are some of the things that the bill, the brainchild of Rep. Rick Boucher, a Virginia Democrat, would require planners to do (and what you should insist on while waiting for it to become law):

* Disclose, in a brochure, the planner's business background, the services offered and whether he or she will earn sales commissions on the financial products you buy.

Good planners already do this. But the bill also requires the planner to tell you how to find out whether he or she has ever been disciplined for financial misbehavior and what conflicts of interest might exist.

You can get the free disciplinary record (and employment

record, if you ask) of any registered investment adviser by calling your state's securities office and asking for the adviser's CRD (Central Registration Depository) file. Planners who dispense investment advice must, by law, be registered advisers. If they're not, watch out. If you can't find your state's office, the North American Securities Administrators Association (202-737-0900) can give you the phone number. The number for the Maryland division, in Baltimore, is 576-6360.

You should also ask the planner for his or her ADV. That's the registration form filed with the Securities and Exchange Commission, disclosing how the planner does business.

To understand how much a planner depends for his or her livelihood on selling you something, ask what percentage of the firm's income comes from (1) sales commissions, (2) fees charged only for advice, (3) fees charged for managing money and (4) fees received from companies that pay to have their products sold.

* Disclose in advance the fees or commissions you'll pay on each transaction. "This takes us a long way toward giving consumers the information they need to judge the degree to which information is biased by what a planner earns," says Barbara Roper of the Consumer Federation of America.

But this provision isn't as thorough as it should be. The bill generally doesn't apply to stockbrokers and insurance agents who call themselves "financial consultants." So unless you ask, you still won't know how much your insurance agent earns on a policy you buy. Brent Neiser, executive director of the Institute of Certified Financial Planners, thinks that these "consultants" should be forced to register as advisers or not use the word.

* Disclose your total costs. Periodically (perhaps once a year), the planner would have to tally everything that you've paid for his or her services. The total might surprise you. Again, stockbrokers and insurance agents generally aren't includ

ed. Your broker is covered only if you have a "wrap account," in which the broker earns fees by recommending investment advisers.

* Keep records of your financial situation, investment goals and the recommendations made. If the planner puts you into investments that were riskier than you wanted, these records will help the SEC discipline the planner (and perhaps help you win a lawsuit). You should insist on having these records.

* Pay higher fees to the Securities and Exchange Commission, to help pay for better surveillance of investment advisers (most of whom aren't inspected at all). This is virtually the only provision that the Senate agrees with, so higher fees can be expected to pass. But after all these years, it would be a pity to have a law with no consumer protections added.

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