wealth planning

thoughts on the CLU: underwriting the financial risks attached to a client’s “life"

Advocis — Fri, 04 Sep 2009 13:20:56 GMT

I had the occasion to revisit a December ’08 posting of Greg Pollock’s in the message board and came across a question about the CLU designation’s importance, relevance and name brand. A challenge was presented about the name and its apparent reference to insurance to the exclusion of other contemporary values and expertise that a professional financial services designation should stand for. The perception is that it’s one-dimensional, outdated, antiquated and irrelevant.

Some would argue that the term Chartered Life Underwriter is misleading. The term isn’t misleading. It is in fact quite accurate. The challenge is that the words within it are also ambiguous. And those whose agenda is to downplay the CLU for their own interests (i.e. competing designations) are intentionally exploiting this ambiguity to the uninformed. The uninformed, because they don’t know any better, are buying into it. We don’t need to change the name; we just need to explain the words beyond their current understanding.

Here’s my slant on it for consideration. What do the letters in the CLU designation stand for?

Chartered Life Underwriter is NOT the same as Chartered “Life Insurance” Underwriter. There is a perception that because Life Underwriter is part of the term, it automatically refers to the field level underwriting process behind life insurance. This perception is pervasive in the market and understandably so. Because of this ambiguity, inappropriate assumptions are made to the meaning of the words. Clear up the inappropriate assumptions by changing the slant and you change its perception. Change its perception and you change its value. There’s a reason why it’s called “Life” Underwriter and not “Life Insurance” Underwriter.

A CLU professional underwrites the financial risks attached to a person’s “life”, not the financial risks and obligations attached to that person’s life insurance. This includes the risks attached to an individual’s savings habits, investment strategies, pension programs, retirement income needs, human behaviour influenced through the emotions of greed and fear, investment risk profile, approaches to income protection, long-term care planning, challenges that come with a critical illness, estate wants & needs, lifestyle security, business dependencies, family obligations, wealth transfer, taxpayer responsibility, hopes & dreams.

A CLU professional’s value does not revolve around the sophisticated understanding of insurance products. A well constructed insurance program obviously plays an important role in a person’s security but it is not the whole meal deal. The professional CLU has the competency to handle the whole meal deal – which is a consumer’s entire financial “life” – hence the term Chartered Life Underwriter.

—Rick Johnson, CFP, CLU, CH.F.C., CSA, CFSB

Lipson, Part II: Singleton shuffle still on the dance card

Advocis — Fri, 30 Jan 2009 17:25:54 GMT

The Supreme Court of Canada dismisses the appeal of Earl and Jordan B. Lipson and upholds Tax Court's earlier decision that they breached the general anti-avoidance rule or “GAAR.”

Converting equity into deductible debt: what the Court said
One of the more comforting conclusions offered by Lipson is that the Supreme Court once again confirmed the general principle that interest on investment loans is tax-deductible.

Also of particular importance to advisors is the fact that the Court explicitly stated that the Lipson’s ploy is to be distinguished from the transaction at issue in the 2001 Supreme Court Case of Singleton, where the interest was ultimately found to be properly tax deductible.

You’ll recall that in Singleton, a partner in a law firm borrowed money that he had built up in his law firm capital account and used it to pay off his mortgage. He then borrowed that money back to pay off his capital-account loan at the firm and sought to deduct the loan interest. The Canada Revenue Agency challenged the transaction, but lost at the Supreme Court.

Moreover, in Singleton neither GAAR nor spousal attribution rules were issues before the Court, further reinforcing the conclusion that the Lipson decision should not affect financial planning which strictly derives from the fact pattern in Singleton.

But what of Lipson’s impact on the larger issue of debt-swap strategies generated from the Singleton decision—which are commonly referred to as the "Singleton Shuffle"? These are strategies based on the proposition that one can arrange one’s financial affairs in a tax-efficient manner and make one’s interest on investment loans tax-deductible.

The law, as all advisors know, is that interest on a loan for commercial purposes is deductible. This means that investors may borrow money to acquire income-producing assets, such as shares or rental property, and then deduct that against income. However, when loan money is used for a personal purpose, like purchasing a house in order to live in it, no deduction is permitted.

As you know, this is where Singleton-style planning comes in, with its plethora of strategies designed to capitalize on interest deductibility. These strategies are used many Canadians who own non-registered assets: typically an advisor suggests they sell these assets and use the resulting proceeds to pay off their mortgage. The investor then gets a loan secured by his or her new home equity, and uses the loan for the purpose of earning investment income from a non-registered account. The result that interest on the loan is fully tax-deductible. This strategy of “shuffling” assets converts non-deductible mortgage interest into a deductible investment loan.

It seems safe to say, according to the text of the Lipson ruling, that Singleton shuffles are still permissible and will not invoke the application of the GAAR. In specific, the Court’s opinion was that the Canadian Revenue Agency:

has not established that in view of their purpose (the interest deductibility) provisions have been misused and abused. Mrs. Lipson financed the purchase of income-producing property with debt, whereas Mr. Lipson financed the purchase of the residence with equity. To this point, the transactions were unimpeachable. They became problematic when the parties took further steps in their series of transactions.

The Court found that both borrowing for the shares and the purchase of the house were "unimpeachable." The Court further found that the Income Tax Act’s interest provisions were not "misused and abused." Indeed, it was only the "spousal twist" and the reliance on the attribution rules that made the Court find the transaction to be abusive under the GAAR.

In other words: Singleton-style debt-swap refinancing still appears to be perfectly legal, minus the Lipson twist.

Further impact on advisors, planners and clients
Obviously Lipson is a key decision for tax planners, since it further refines the area of what constitutes acceptable tax planning that began in Singleton.

Whenever the Supreme Court rules on a matter of direct relevance to financial services professionals, a certain amount of uncertainty is bound to result. Indeed, the Court noted that:

the GAAR may introduce a degree of uncertainty into tax planning, but such uncertainty is inherent in all situations in which the law must be applied to unique facts … [but] the GAAR is neither a penal provision nor a hammer to pound taxpayers into submission. It is designed ... to restrain abusive tax avoidance and to make sure that the fairness of the tax system is preserved.

What is certain is that the Court’s decision in Lipson must be carefully considered in all financial planning strategies involving interest deductibility, and especially when spousal loans are proposed.

Looking ahead, the fact that the Supreme Court split 4-3 in a ruling that the Lipsons’ tax-planning strategy was sufficiently abusive to be captured by the GAAR will contribute to a further lack of certainty for advisors and planners involved in sophisticated debt swap schemes and family members.

The bottom line? For advisors and their clients, the decision is both good and bad, The positive side is that your clients can still borrow money against the equity in their homes and use the proceeds to invest in, say, the market, and reap the benefit of tax deductible interest. The negative side is that the case may mean it is now easier for the Canada Revenue Agency to invoke the GAAR, with further uncertainty in providing advice and planning the end result.

The full text of the Supreme Court’s decision in Lipson v. Canada is available here.

Lipson, Part I: Supreme Court says 'no way' to Lipsons

Advocis — Fri, 30 Jan 2009 17:21:19 GMT

Unlike the Singleton case, here the Court looks at the general anti-avoidance rule

The Supreme Court of Canada dismisses the appeal of Earl and Jordan B. Lipson and upholds Tax Court's earlier decision that they breached the general anti-avoidance rule or “GAAR.”

Most advisors and planners now know that on January 8, 2009, the Supreme Court of Canada released its decision on the Lipson appeal.

Here’s the decision, in brief:

Earl Lipson and his wife Jordana Lipson entered into an agreement of purchase and sale for their family residence. Jordana borrowed $562,500 from a bank to finance the purchase of shares in a family corporation. She paid the borrowed money directly to her husband who then transferred the shares to her. Lipson and his wife then obtained a bank mortgage for $562,500. Later that same day, they used the mortgage loan funds to repay the entirety of the share loan. For a three year period—1994, 1995 and 1996 (justice moves slowly!)—Lispon deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income whenever applicable. However, the Canadian Revenue Agency disallowed the deductions for those taxation years and reassessed the Lipson accordingly. The Tax Court of Canada dismissed the Lipsons' appeals (Lipson’s brother had also performed a similar set of transactions), ruling that the transactions constituted a misuse of ss. 20(1)(c), 20(3), 73(1) and 74.1 of the Income Tax Act and the taxpayers’ appeals were dismissed. The Federal Court of Appeal upheld that decision and at long last the case reached the Supreme Court of Canada.

In a 4-3 split, the Court dismissed the Lipson's appeal and confirmed the application of the general anti-avoidance rule or the GAAR to the transaction at issue. The Court noted that that there was no dispute regarding the general tax deductibility of interest expenses under s. 20(1)(c) and s. 20(3) of the Income Tax Act.

Rather, it was the spousal issue which caused the Court to rule that GAAR was applicable:

It has long been a principle of tax law that taxpayers may order their affairs so as to minimize the amount of tax payable. However, this principle has never been absolute, and Parliament has enacted the ... to limit the scope of allowable avoidance transactions while maintaining certainty for taxpayers...

The Court focused on was how the Lipsons handled the transfer of shares.

After determining that the GAAR did apply, the majority of the court found that the use of the attribution provisions of the Income Tax Act was abusive. In particular, the use of the attribution provisions let Lipson reduce his income tax from what it would have been had he and his wife been dealing at arms-length—that is, the rules resulted in a tax benefit to which Lipson would not have otherwise been entitled.

The Court reasoned that the series of transactions did not become problematic until Lipson and his wife turned to the spousal attribution rules, which resulted in Lipson applying his wife's interest deduction to his own income. That is, the attribution rule was used by Lipson to permit him to in effective deduct his wife's interest expenses—something he could not have done if he and his wife were not married. And therein lay the problem, for the Court found that the purpose of the attribution rule is to prevent spouses from reducing tax by attempting to use to their advantage their non-arm's length relationship when transferring property between them.

Before the shares were transferred from Lipson to his wife, dividends on the shares were taxable and Lipson could not deduct any interest expense. After the sale of the shares to Mrs. Lipson, income on the dividends was still taxable back to Lipson—but the employment of the attribution rules to the Lipson's advantage meant that the interest expense could be claimed by Lipson—a situation that frustrated the purpose of the attribution rules and therefore qualified as “abusive tax avoidance."

The GAAR's application was the focus of the appeals and was the proper basis for the reassessments of the transactions. These transactions are caught by the GAAR. Courts should avoid extending the GAAR beyond its statutory purpose. But, bearing this purpose in mind, where the language of and principles flowing from the GAAR apply to a transaction, the court should not refuse to apply it on the ground that a more specific provision—one that both the Minister and the taxpayers considered to be inapplicable throughout the proceedings—might also apply to the transaction.

Finally, in determining the tax consequences of the GAAR's application under s. 245(5), courts must be satisfied that an avoidance transaction has been found under s. 245(4), that s. 245(5) provides for the tax consequences and that they deny the tax benefits that would flow from the abusive transactions. Courts must then determine whether these tax consequences are reasonable in the circumstances. In the present case, the disallowance of the interest expense in computing the income or loss attributed to the taxpayer and allocation of that interest deduction back to his wife is a reasonable outcome.

In the next posting we’ll look at the specifics of the Court’s decision and what it means for advisors and planners moving forward.

Time for the Advocis Psychic Friends Network?

Advocis — Tue, 27 Jan 2009 21:13:20 GMT

Brits turning to the paranormal for financial advice

A few days ago the National Post ran an article by Ben Leach entitled “Turning to a Psychic for Financial Clarity,” which noted that:

Psychics are reporting a big increase in business from wealthy professionals seeking advice on how to survive the credit crisis. Bankers and accountants who formerly put their faith in spreadsheets and complex formulas are now turning to clairvoyants for guidance. Many are even taking in job offers and contracts to be analyzed.

According to the British Astrological and Psychic Society (BAPS), the economic downturn has prompted a “dramatic increase” in the demand for psychical and astrological readings in last three months.

The story quotes a London “clairvoyant,” Jayne Wallace, on who is behind this rise in seeking the opinion of the other-worldly and the occult.

We're getting lots of city workers, particularly men, coming in for readings. A surprising amount of my clients are very high-up, wealthy, important people from within the financial industry. They might be worried about losing their job or a lot of the time they're asking about whether it's right to get out of the finance industry altogether.

BAPS President Jackie Towers states that this is “a difficult time for a lot of people and it's our job to put them at ease—to give them that bit of guidance or clarity that they are looking for."

While we couldn't agree more with Ms. Towers' sentiment, we are concerned about the lack of accreditation and continuing education for her members, not to mention insurance... after all, how many of them warned us about the U.K.'s LIBOR market freezing? (Not that we're calling their abilities into question, but we're just saying...).

For the entire story at the National Post, click here. For an expanded version of the story from the U.K.'s Telegraph, click here.

What would Bozo do?

Advocis — Sun, 20 Jul 2008 14:20:24 GMT

Scientific insight into “know your client?

A recent post on the Psychology Today blog entitled “The Evolution of Economic Rationality: Do Monkeys Understand Money?” looks at how we, along with other primates, think about concepts like value, utility and money.

Now consider a problem advisors encounter: that of the client who refuses to act in his or her own self-interest. Call it weakness of the will, a refusal to face facts, or simply a desire to live for today, tomorrow be damned, we all know people mismanage their money even though they obviously know better. Here’s a perfect illustration of what I mean, in a comment posted by reader hank_j a couple of months ago, in response a post called Canadians failing to sock away extra cash:

my problem is that while many of my middle-aged clients have finally gotten the message that they should have started saving in their twenties, they now feel that being in their 40s means its TOO LATE to reap the power of compound interest so they figure they'll keep on spending and leave the rest to government pensions. And that's the roadblock I hit with them and have to work on getting through. Does anyone else have this problem?

Well, to answer hank_j’s question, yes, zoological research scientists have this problem!

As the Psychology Today blog reports:

…studies have shown that monkeys take any handout above zero that is offered to them in a version of what, in humans, is called the Ultimatum Game. In the Ultimatum Game, one person is designated the Proposer (who thus offers the ultimatum) and the other becomes the Responder (who decides whether to take it or leave it). The Proposer offers an amount of money to the Responder out of a total amount that the Proposer has been given by the experimenter - usually this is $10. The whole game involves the Proposer offering the Responder an amount, which the Responder has the option to accept or reject. Accept the split and both sides get what was offered; reject it and both sides get no money at all. This obviously not an evenly matched game. The Proposer has the power to make the ultimatum. All the Responder can do is either take whatever is offered or say no, which is costly to both players.

When humans play this game, the Responders will sometimes refuse offers that they deem too low. Depending on the person and the circumstances, people tend to refuse offers below 20% of the total. Monkeys, however, have no such scruples, and will take anything above zero.

The report then observes:

Yet another way of looking at it is to suggest that monkeys are actually pretty smart. Economists continue to scratch their heads at the results of studies with the Ultimatum game. They assume that people are basically oriented to maximize their own profits. If you and someone else worked equally to earn $100, and that person has the power to divide it and chooses to offer you only one dollar while keeping $99 for himself, well, you are still better off with one dollar than with nothing.

Which is in fact what one would expect to happen.

But now consider the report’s surprising conclusion:

Hence economic rationalists find it slightly scandalous that people ever refuse any offer. Economists think that if people were true to financial logic, they would act more like monkeys….Thus, when monkeys play, they behave as economists would have humans do - they accept any offer above zero (emphasis added).

But what about saving for retirement? Most scientists say there’s not much evidence that animals plan far into the future, but then again, how many Canadians plan ahead for their futures? Recall hank_j’s words:

many of my middle-aged clients … now feel that… its TOO LATE to reap the power of compound interest so they figure they'll keep on spending and leave the rest to government pensions.

Isn’t this behaviour scandalous too? Isn’t the idea that it is now “TOO LATE” to start saving of a piece of the thinking that concludes —as illustrated in the Ultimatum Game—with the refusal to accept anything lower than 20% of the possible total?

Obviously people have a more complicated understanding of utility and value than a monkey: people refuse to take 20% or less because of reasons of self-image and equity, in addition to the money’s use value.

But when we’re talking about retirement, we’re talking about the biggest Ultimatum Game most of us will ever play: after all, for most of us, once we stop working, that’s it—there’s no more new income coming into our retirement account. So regardless of where we are now on our life’s journey, isn’t the only sensible thing to start saving before it really is “TOO LATE”? Or is this just all monkey business? Share your thoughts, please!

Get ready to offer TFSAs in 2009

Advocis — Sun, 20 Jul 2008 14:18:46 GMT

Potential value-add to client relationships

A recent article by Mark Noble on www.advisor.ca, “Client relationships the big win in TFSA planning,” reviews the results of a recent research study on the tax-free savings account (TFSA), which becomes available next year. Noble concludes that while advisors shouldn't anticipate a significant amount of revenue generation from TFSAs, the new product should made available to an advisor’s clients as a value-added service.

The recently-released TFSA Market Assessment, from Harris/Decima research, contains the results of Canada-wide polling (sample = 2,500) which reveal the possible short-term reaction of Canadians to TFSAs. Noteworthy among the results are the following items:

Canadians appear eager to open TFSAs, with more than 50% stating that they “will likely open one next year”
however, only 3% of respondents said they knew a "great deal" about TFSAs, with 95% of them averring that they "know only a little" about or have "absolutely no awareness" of TFSAs
87% of those planning to invest in a TFSA will leave the money in cash or a cash equivalent, like a high-interest savings account or a GIC
just 39% of those intending to open a TFSA will use it for equity products
fully 28% of Canadians with an RRSP reported that next year they will invest less in their RRSPs to free up money to place inside TFSAs

That last statistic indicates quite clearly that advisors will have work to do by way of explaining to clients that the RRSP and the TFSA are best used in a complimentary—and not a competitive—manner.

Indeed, this is the area that Noble sees as the chance to add some cement to the advisor-client relationships: TFSAs represent for advisors a chance to show clients the usefulness of their advice, since advisor guidance can prove to be the main driver in bridging the tremendous gap between the public’s interest in TFSAs—recall that the majority of those pooled said they wanted to open a TFSA—and their knowledge of them.

However, the initial $5,000 cap on a TFSA means that the advisor’s profit from opening a TFSA will be quite modest. That’s why the advisor should see that his or her real return on opening a TFSA lies in augmenting the advisor/client relationship.

In addition, a major surprise of the report, according to Bob Murphy of Harris/Decima, lies in how the older population thought of TFSAs:

One of the things we found sort of surprising is that, in part, seniors didn't see this as applicable to their own needs. When we looked at verbatim comments, we saw many say this is great for young people. They were projecting its value on others as opposed to seeing its value for them… When you look at the opportunity for seniors, who are required to draw money from RRIFs and LIFFs, they may not need to spend all of that money. This allows them to park it in a more tax-efficient space. Although the return is negligible in the immediate term, any of those earnings in a TFSA will not affect their OAS. Many of them don't understand that.

Again, the role for the advisor in terms of providing counsel and education on this issue is apparent.

Finally, it's worth asking how the general population will react to TFSAs, given the current economic situation. "It's fairly clear that in the short term, the easy spot to put… money is going to be high-interest savings accounts that are TFSA-structured, given people's strong cash orientation right now," Murphy says.

For Mark Noble’s entire story on TFSAs and the Harris/Decima study, please click here.

“There will be casualties”

Advocis — Fri, 04 Jul 2008 17:03:21 GMT

Or, professionalism and the fee-based practice

In our last post we looked at some recent comments by David Wingar and reported Neil Acharya in Investment Executive. Wingar is an independent financial advisor who heads Future Asset Management LLP in Bridgend, Wales. Speaking at the Million Dollar Round Table’s annual meeting in Toronto, Wingar offered attendees some very hard-nosed and, for some, hard-to-swallow commentary.

One thing that struck home was how unapologetically Wingar seems to see maximizing one’s receipts as the sine qua non of financial advising. Indeed, as reported by Acharya, Wingar “was motivated to switch to a fee-based system after he got fed up with not getting remunerated for everything he did.” Or, in Wingar’s own words:

It’s not about commissions or fees, it is about getting paid. As a professional person, if I give advice, I expect to get paid. A lot of the advice I give might not end up with a product, which is the old way of getting being remunerated in financial services (sic).¹

Isn’t this a highly reductive understanding of professionalism: one that sees payment as the prime motivator, and perhaps the sole one?

Indeed it is. After all, won’t Wingar’s call for advisors to follow his model result in an “advice gap,” one which means that the less well-off, those who need financial advice the most, but who can least afford the fee-for-service model, will find it harder to get the service they need?

Wingar himself seems to sense this, in his blunt remarks about the bottom-line effects of advisors transitioning to fees-based practices that target the well-heeled, the entrepreneurial and the deep-pocketed corporations: “There will be casualties, but if I go shopping at Wal-Mart, I don’t tell them what price I want to pay, they tell me.”

Is the possibility of an “advice gap”—between those who can afford the fees-based model and those who can’t—developing sometime down the road a real one? If so, what would it mean for the majority of Canadians?

And what about the idea that seems to lurk behind Wingar’s practice model—that the concept of “being a professional” is essentially a mere proxy for maximizing one’s profits?

Isn’t a requisite part of “being a professional” to act in a professional manner—which in turn entails an active devotion to other areas of responsibility, such as community, the profession itself, and so on? Where in Wingar’s “there will be casualties” vision of the advisory practice is there room for a richer understanding of the advisor as professional?

As always, please share your thoughts!

For Neil Acharya’s complete article in Investment Advisor about David Wingar, click here.

¹Quoted from Web edition of Investment Executive, Thursday, June 26, 2008 (sic note added).

The multi-generational advisor

Advocis — Fri, 27 Jun 2008 17:29:11 GMT

Legacy planning helps transfer values and wealth

Our last post raised the topic of advisor specialization. Following up on that topic, a recent piece in Investment Executive caught our eye, when Neil Acharya reported the comments of Michael Babikian, Vice-President of Transamerica Insurance and Investments Group, at this month’s Million Dollar Round Table annual meeting in Toronto.

Babikian’s subject was on ways financial planners can turn themselves into multi-generational advisors by successfully transferring the wealth of their high net worth clients from one generation to another. While most advisors are quite familiar with the methods employed by traditional estate planning, legacy planning is also a useful tool which more advisors should be comfortable using.

Of course, Babikian noted that a significant difference exists between legacy planning and good old-fashioned estate planning: “Estate planning is transferring wealth in the most tax efficient manner, legacy planning incorporates family values… as planners we make sure wealth transfers efficiently and effectively from generation one to two, but we don’t prepare the family for the money,” according to Babikian. As a result, legacy planning is driven by something more a concern about tax avoidance: “Tax is not the major cause of money loss. A planner for a high-net worth client is in risk mitigation.”

All of which suggests to us that, from the point of view of this blog, legacy planning nicely illustrates the point Rick McKenster made several posts ago about the true value of the CLU designation residing in what it enables the advisor to do for the client, especially on a level that goes deeper than just assets and planning, and that provides answers to the plethora of “what if” questions that major life events always bring with them.

As an example, consider the something that all seasoned advisors are familiar with—the delicate issue of estate planning, which is all too often shot through with sibling rivalries and resentments. Most clients are reluctant to raise the matter at all, at least until it is almost too late. But legacy planning gives advisors a way to transform estate planning into a process that is as much about the family’s own values and history—and how to preserve those intangibles—as it is about preserving the family’s tangible wealth. As Babikian asked, “how many people out there know their great-grandparents names? Not many. How many people out there would, if they got a cheque every month from them?”

Babikian further observed that many high net worth clients often express a two-fold anxiety about their inheritors: “Clients fear their children are not going to live as well as they do, but they also fear that they will spoil them.”

One remedy for this problem that advisors can offer to their clients is the “incentive trust,” which can function as a means to keep alive the client’s own sense of family values and vision, to extend their own personal philosophy of life well beyond their own life. Babikian’s example was a client who placed great value on education. The legacy plan ensured that any benefactors who pursued an academic career would have their salaries matched dollar for dollar. One can be sure the children of those academics will grow up infused with the grandparent’s veneration of higher learning.

On a more prosaic level, the incentive trust can provide a useful means to breaking the cycle of one of estate planning’s most dire problems, that of assets disappearing before they can be transferred from “generation one” to “generation three.” Babikian offered the eye-opening U.S. statistic that only 6% of wealth is transferred from grandparents to their grandchildren. The rest? Gone in a generation.

What are your thoughts about legacy planning? Are there any readers out there who have been doing it?

To read Neil Acharya’s article in its entirety, please click here.

Differentiating yourself with the CLU

Advocis — Fri, 20 Jun 2008 16:55:51 GMT

For the CLU, the proof is in the process

Have you ever been face to face with a client or prospective client and realized that the solution was about more than product or transaction, more than an event? That the need or solution would be found in the process?

If you have, then you need the CLU. It is so much more than a life insurance designation.

It is a designation which enables the advisor to recognize the value that’s locked into the overall planning process—in the various planning for security, business success and retirement that all tie together into an integrated process. In short, the CLU takes the advisor a step beyond, by building a holistic, principle-based fiduciary relationship with the client on a foundation of consistency and trust.

A previous blogger put it very well: "We underwrite the what if of the client's income." The what if?—what should we do upon death, disability, diagnosis and or retirement—that’s the great question of CLU-driven planning.

The CLU underwriter's professional goal is to create financial security. And the CLU designation is a set of competencies like no other. Which leads us to another fundamental question:

Do you want to differentiate yourself?

Rick McKenster

Trustee, The CLU Institute

Professional designations and the advisor

Advocis — Fri, 06 Jun 2008 20:31:45 GMT

Is the recent downward trend evidence of cost-cutting?

A recent article in Investment Executive reported the results of the Investment Executive 2008 Dealers’ Report Card. Among other trends noted, it seems that fewer advisors are getting financial planning designations:

Not even the certified financial planner designation has been spared. The percentage of advisors holding a CFP has dropped to 44% in the 2008 Report Card, from 54% in 2004. The percentage of those holding the registered financial planner designation fell to 4% this year from 7% in 2004, and the percentage of those who have completed the professional financial planner course has plummeted to 1% from 10% four years ago. IE didn’t ask advisors in 2004 whether they completed the personal financial planner program, but only 2% of advisors surveyed this year have. (Combined, the total percentage of advisors holding either related designation totals 3%, which is still a steep decline from 2004.)

The result is surprising to many, mainly because it seems counter-intuitive, given how many companies promote to the public their financial planning expertise and comprehensive wealth-management strategies.

Can this downward trend be accounted for by the fact that some firms now grant their advisors a wide degree of independence in assessing how they should best meet the needs of their clients?

Or are these firms trying to cut back on the time and money devoted to professional training?

Based on your own experience, where do you think the answer lies?

For the full story from Investment Executive, click here.