ERROLD F. MOODY JR.
BSCE, LLB, MBA, MSFP, PhD
Masters of Science in Financial Planning
Registered Investment Adviser
Certified Financial Planner
2295 W. Ave 133
San Leandro, CA 94577
Phone & Fax 510 352-4127
September 19, 1994
Worth Magazine
575 Lexington Ave. 33rd Floor
New York, NY 10022
RE: Best Advisers, October 1994
I have instructed for the University of California for over 6 years in the financial planning courses for CFP certification. I have instructed in securities licensing classes for over 13 years and present seminars across the U.S. to corporate employees on financial planning and retirement. I act as a fee planner. I am therefore very familiar with the rules, regulations and ethical codes of acting as a securities broker, insurance agent, instructor or financial planner.
Unfortunately, some of the BEST advisers you have picked in California have been willfully violating state law for years and, I am quite sure, were doing so at the time of your review.
In order to charge a fee for investment advice in California, you must be registered with the SEC and the California State Department of Corporations. I am sure all the advisers are properly registered with these entities. However, if one practices comprehensive financial planning- which obviously includes many areas of insurance, he/she MUST also either be licensed as an insurance agent or registered as an Analyst with the California Department of Insurance- even if they charge just a fee with no implementation of a policy. That's the law and has been so for many years. (This was confirmed on 9/19 by Ms. Sibbern, an attorney representing the California Department of Insurance, 415 904-5382).
If a planner is not properly licensed or registered in the state, then the individual can only practice comprehensive financial planning in the following manner:
1. They provide written acknowledgment to their clients that they will not deal with any areas of insurance and must look elsewhere. However then they are not acting as a comprehensive financial planner since they are leaving a major area unaddressed.
2. Provide written statement to clients that he/she will utilize an independent insurance adviser for any insurance review and offset their fee accordingly. Recognize however that if a commissionable agent is used to implement such insurance, then this has effectively defeated the use of a fee planner. (Insurance premiums may be rebated in California.)
If the plans you reviewed did cover insurance areas and the planners remained unlicensed/unregistered, then they are breaching their ethical guidelines with the National Association of Personal Financial Adviser and the College for Financial Planning as well as practicing illegally within the state. How do you support illegal actions??
This situation has been addressed to these individuals at least three years ago in professional meetings. They refuse to be licensed as agents since they believe it would taint their fee only criteria. But they have also willfully refused to register as Analysts as well. If you did some reasonable checking, you might find that many (most?) NAPFA members are NOT registered in this state with the Department of Insurance. I further believe that this situation exists in other states but have no supporting verification. However, I believe it would be worth reviewing
Licensed agents must pay fees and are forced to take continuing education classes. Further, if you deal with Long Term Care, some of the hours of education must be in that subject area. If I and all other "legal" advisers have to do that to stay current with the state licensing standards, it would certainly seem necessary that the best advisors in the country should be required to do the same.
Finally, a review of their plans, which several members of a fee only group have done in past years, have shown they have properly addressed retirement planning, investment criteria, etc. However many of us found their commentary to be woefully deficient in the analysis of disability insurance, long term care- even basic life insurance. We felt that it was so sophomoric to be of no use at all AND a disservice to the client. For example, simply saying you need to get a disability policy is not comprehensive- or even good- planning. You need to properly express the emotional considerations, physical and financial concern, statistical risks as well as identify what policies are currently available, prices, problems, etc. It is not an easy thing to do. Finding and recommending a mutual fund is relatively "easy" since huge amounts of educational, historical and statistical material is available. Finding and describing a disability or long term care policy- even life insurance- is extremely complicated because the information to analyze and compare policies is almost non existent. But not doing it because it's hard is no excuse if one wishes to represent oneself as doing comprehensive financial planning.
I would appreciate a professional response to the above commentary since I believe that further action should be considered with state authorities. I have not pursued this issue previously except in private discussion, but with your now supporting those that are not properly licensed, it puts the rest of the legal planners- and financial planning- in a very bad light. These are ethical and legal guidelines which must be adhered to if the industry is to ever become a "profession".
Very Truly,
Errold F. Moody Jr.