ERROLD F. MOODY JR.

December 4, 2005

Journal of Financial Planning

4100 E. Mississippi Ave

Suite 400

Denver, Colorado 80246-3053

RE: Fiduciary Requirements- Focus and Contributions, November 2005

Gentlemen,

I find it disingenuous for the Journal of FINANCIAL PLANNING (not just investments) to elaborate on duties and fiduciary responsibility when the bulk of planners nationally are illegal. The assumption portrayed/assumed in all articles is that planner is at least licensed as required by law. Generally true of almost all in regards to investment advice- but almost totally wrong for planners that represent that they are involved in financial planning. You cannot be illegal in one area of your business while (supposedly) acting as a fiduciary in another. It doesn't work that way- though the CFP Board, the FPA, NAPFA, CPA Society et al find that acceptable.

This has been a contentious issue for years and I have been the driving force to try and get planners to at least adhere to the law- the issue of being a fiduciary is moot if the planner is illegal. This is the case in most states with specific reference to California: if a planner in California acts in the formal capacity of comprehensive planning- even holds one out to be such- and charges a fee, they are illegal. Why? Because comprehensive planning mandates a review of insurance. (No matter how fee planners disdain the element of insurance as "dirty", "commission driven", "inherently wrong", etc. it is a mandatory facet of personal or business planning and must be addressed professionally. That it is harder to initially understand, harder to stay current, harder to analyze at any point is irrelevant. That something is simply hard is not a rationalization for avoidance. Or illegality.) Therefore anyone in this state (there are about 35+ others in the U.S. with similar laws) must be a Life and Disability Insurance Analyst. ("... a person who, for a fee or compensation of any kind, paid by or derived from any person or source other than the insurer, advises, purports to advise, or offers to advise any person insured under, named as beneficiary of, or have any interest in, a life or disability insurance contract, in any manner concerning that contract or his or her rights in respect thereto.") And I can certainly tell you that any consumer hiring a planner to cover his/her lifetime is clearly under the impression that insurance matters will be addressed (rightfully so)- along with a competent review of what has already been purchased (generally very difficult and involved.)

I am the only CFP in the state who has ever passed that exam. I am the only CFP in the state who can legally offer comprehensive financial planning that incorporates a fee (and now where almost all planners now reside). Therefore, irrespective of the correct investment activities, the illegal activity of implying proper licensing- itself a fraud- fails all the elements of being a fiduciary even if the activity did not incorporate the section of planning (insurance). (As to the reason for being the only one- the exam encompasses more material and more experience than the sophomoric training of a CFP has ever thought about, nevermind attained. So be it. If the education for CFPs is inadequate as compared to state requirements and they cannot pass the exam, they should not be allowed to practice in that area or to infer they are capable.)

The California Department of Insurance (DOI) "requested" NAPFA, CFP Board of Standards, College of Financial Planning, CPA's, IAFP et al to a meeting in 1997 to review the illegal activities. (Only the CFP Board of Standards and directors for CPA's attended. NAPFA refused to even respond to the "request".) The DOI reinforced the mandatory licensing and legal requirement by stating, in part, "While the easy solution for those in noncompliance may be to repeal this law, consumers who pay for fee advise on insurance matters deserve an analyst educated in insurance per CDI standards. The current licensing requirements ensure that relationship. Any legislative effort to repeal this law will likely be opposed, on the basis that such action is harmful to consumers, by consumer groups, insurers, agents and brokers, and the California Department of Insurance." And "Despite some groups interest in changing current law, there is an existing law which is, and has always been, quite clear. While a financial planner may be illegally engaging in insurance analyst activities and may not be aware of their violation, it is my hope that this the explanation of policy will provide them with the impetus to come into compliance or cease the illegal activity immediately. Per insurance code Section 1844, " any person who acts, offers to acts, assumes to act, as a life and disability insurance analyst when not licensed by the commissioner per this article...... is guilty of a misdemeanor." "Consistent with current practice, information obtained on individuals in noncompliance will be aggressively pursued."

Subsequently none of the organizations have done anything (the DOI is hardpressed with either money or manpower to pursue this). Some even established a formal breach of duty. The San Francisco CFP Society told members to continue violating the law but just keep quiet about it (A formal charge was made to the CFP Board by an attending Analyst- nothing happened). There has never been a NAPFA member in California (who are effectively required to do comprehensive planning) who has ever been legal. And since the bulk of planners charge fees for financial plans that also incorporate insurance review, they have violated the law. They can never apply the term "fiduciary" to their practice. (Just for the record, current DOI Commissioner Garamendi validated the mandatory position of licensing in 2004).

So there we have it. The term fiduciary may be reviewed by your magazine and others where such individuals are solely involved in investments. Fine- then let Investment Advisor magazine (wrongly) do the article. But the Journal is involved with FINANCIAL PLANNING and has a duty to address fiduciary responsibility from all areas of planning- it is not just investment advisory work. There are 5,506 CFPs in California. Almost all offer financial plans and most charge a fee (no matter the amount small or large). Whatever the numbers, legality must prevail. You cannot rationalize an illegal service. And it is not an obscure issue no matter the rationalization. From Bloomberg's Wealth Manager, April 2002, page 55, "legal barriers can also keep advisers out of the game. Many fee only advisers aren't allowed to deal with insurance at all. Several states require a special license to charge fees for insurance advice, and it's often tough for fee only advisers to qualify. In California, , advisers need an analyst license......." This law is not unknown, the requirements are not unknown. The DOI enforcement is nil- but that still does not release a planner from acting truthfully. I repeat- if the planner acts illegally, there cannot be a fiduciary in any capacity. Period. There must be more than ONE in all of California who can offer comprehensive fiduciary planning services. There isn't.

I have filed several motions to the CFP Board of Standards against planners who are liars and frauds pursuant to the appropriate Board standards. But the Board has repeatedly replied that, "we will not enforce an ethical violation unless preceded by a legal one." It seems simply wrong for the CFP Board to mandate standards that it requires no one to adhere to. It is wrong for the Journal to deliberate fiduciary responsibility where the officers and staff are aware to the dichotomy of the article. There can be no deliberation on fiduciary duty where the planner is already illegal. It is a charade.

I believe you owe a duty to readers to identify ALL the fiduciary responsibility that a planner must adhere to- not just the focus on investments. To do otherwise is its own breach.

Very Truly,

Errold F. Moody Jr.