ERROLD F. MOODY JR.

April 14, 2006

Kate Kinkade

Editor

California Broker

RE: March Editorial Column: SEC ruling and FPA

Dear Ms. Kinkade,

I think (allow me) that you are confusing two different topics in your column. The issue is about charging a fee for advice, not offering a plan for "free". That is where the FPA, NAPFA, et al have violated their own rules regarding licensing and integrity. In that regard, you also have to be familiar with the requirements of California law and the offering of insurance advice for a fee. To put it succinctly, there are no fee FPA members in California who are legal- hence their position for licensing as advisers is in clear violation of their own ethical standards.

The FPA is practicing selective hypocrisy since, while effectively every member offering fee planning is a registered investment adviser, not one has ever passed the Life and Disability Insurance Analyst exam as mandated by the state. (All comprehensive planning advice MUST include an insurance review). I am the only CFP who has ever taken and passed the Analyst exam.

And therein is a problem (I think) with your comments. If a salesperson- not charging a fee- wants to present a plan, so be it. If they are selling an investment or insurance for a commission, standard licenses apply. But if a salesperson want to charge a fee for a plan, they have changed their position entirely. The point is that they are now incorporating fee investment advice and must become an RIA. The FPA states that they have crossed the line and are fiduciaries that must be licensed. I tend to agree with that assessment. Unfortunately for all, the offering of insurance advice for a fee crosses the line as well. The FPA won't address that issue and is able to "get away with it" since the state neither has the financial resources nor manpower to prosecute the thousands of planners in California who violate the law. The problem that consumers have is that there are next to none of the fee planners who have ANY insurance license at all. They feel as CFPs (the majority of planners) that they have had sufficient background in insurance and need not be insurance licensed in any capacity. Having taught the CFP courses as well as insurance continuing education, I can state that a non licensed planner (CFP or other designation) covering insurance is a runaway train with a bad conductor. Their advice is pitiful- be it free (and unknowledgeable) or for a fee (illegal). But nobody says or does anything so the unethical and illegal practice continues and the consumer ends up with bad information that they are clueless to. And all under the guise of acting as a fiduciary (see NAPFA marketing as a specific).

Planning under a commission requires licensing. Planning for a fee ups the ante to another level. The RIA becomes mandatory. So does the licensing as a Life and Disability Insurance Analyst. That the first is "easy" to do and the second is extremely hard is no defense for not doing it. Insurance comprehension and analysis is far more difficult to do than anything with investments. If an entity wants to charge a fee for insurance advice, California mandates that they have to step up to the plate and prove their competency. Anything less is a disservice and a direct fraud.

It's about time that this issue is addressed in total. The SEC actually cannot validate any major brokerage firm as being legal when charging a fee when they "know" that the firm is already violating state insurance laws (about 35 states have similar fee insurance requirements). The FPA actually cannot file a suit for compliance to any fiduciary standard since they act with fraudulent integrity. We have a big fight by two entities that either do not know the laws (ignorance is no excuse) or are actively violating them (breach of fiduciary duty).

Ultimately the consumer loses.

Very Truly,

Errold F. Moody Jr.