Welcome to the CFALA e-newsletter, a periodic publication with stories about noteworthy events and programs sponsored or hosted by the society, guest articles by members, book reviews, and other items of interest to CFALA members. Click on the headlines below to read the full stories. And if you’d like to contribute a story suggestion or, even better, write an article, we’d love to hear from you. Please email Executive Director Laura Carney at email@example.com or firstname.lastname@example.org.
In this issue ...
Regulatory Alert and Member Input
In the investment arena there are two primary parties who are able to offer investment advice to individuals and institutional clients. These two parties are broker-dealers and investment advisors. Many clients may consider the investment advice they receive from each party similar, but there is a key difference that is not generally understood by the investing public. This surrounds the standard of care that is applied in each case. Broker-dealers are held to the suitability rule while investment advisors are held to the more stringent Fiduciary Standard. More information on these definitions can be found here.
Should there be only one single standard for investment advice?
This is the question that Congress, the SEC and the investment industry itself is trying to answer. At this point the issue remains unresolved, yet studies and polling continue.
The position being taken by the CFA Institute is that the vast majority of retail investors do not know or understand what standard of care they can expect from various financial service providers. As such it supports a single Fiduciary standard aligned with the CFA Code of Ethics and Standards. More specifically CFAI supports:
- Adopting a single, definable, and enforceable standard of care
- Establishing a consistent treatment of all individuals and firms that engage in similar activities
- Applying such a standard when broker-dealers provide personalized investment advice to retail investors
- A "fiduciary" level standard that requires the duties of prudence, loyalty, and care for those who provide personalized investment advice
What are your views? You can weigh in directly with the SEC here. And you can let CFALA know your views as well by sending an email to email@example.com.
-By Dan Pomerantz, CFA, Advocacy Chair, CFA Society Los Angeles
The Future of Finance
The Future of Finance project is a long-term global effort by the CFA Institute to shape an ethical and trustworthy financial industry that benefits society as a whole. Restoring trust in our industry remains one of the most important challenges we face and CFAI has taken the lead. How can you help? You can familiarize yourself with this critical project and you can participate in an ethical renaissance. Read more ...
New York University Finance Professor Aswath Damodaran responds to a New York Times article about Marty Lipton regarding activist investors. Professor Damodaran challenges the ideas that 1) activist investors are short term; 2) activist investors damage companies; and 3) activists do not help long-term investors. His Musings on Markets blog is a great source for a variety of information regarding valuation, corporate finance, and financial news. Read more ...
The Biological Investor
In this article by Cynthia Harrington, CFA, she explores recent research about how biochemical processes affect our investment decision making, leading us to make irrational investment choices. This is the first article in a two part series. Read more ...
Irrevocable Life Insurance Trusts
Are your clients considering setting up an Irrevocable Life Insurance Trust for estate planning purposes? If so, what is the most tax efficient manner in which insurance premiums should be paid in the post-fiscal cliff tax regime? Erin S. Fukuto explores these issues and offers a possible solution. Read more ...
Fannie Mae & Freddie Mac's Preferred Share Payments to the U.S. Government
Continuing the debate about the state of Fannie Mae and Freddie Mac, CFALA member James Fenkner examines the role of government in these entities, provides history and context of the current situtation, and offers some ideas for change. Read more ...
State Pension Funding
CFA Institute's Weekend Reading for Equity Investors recently highlighted an Institutional Investor article which suggests that California and other states facing potential pension funding shortfalls might be able to learn something from . . . Wisconsin? Read more ... (Registration required.) And more ...
Downtown L.A. Outlook
Last month columnist Jon Regardie declared that L.A. Downtown is "blowing up" (or "melting down"), citing several high-profile examples, including the departure of AEG Chief Executive Tim Leiweke, driving force behind the L.A. LIVE district and the planned Farmers Field Stadium.