Saturday, September 22, 2007

Certify Able


A year ago, I wrote a column titled “Alphabet Soup” about the challenges associated with getting—and keeping—professional designations that are meaningful to plan sponsors (see “Alphabet Soup,” PLANADVISER, Fall 2006). However, it’s not as though all certifications or designations are hard to come by—and, unfortunately, there are people out there who are willing to take advantage of people.

Concerns about unscrupulous financial advisers using faux designations to mislead individual investors have resulted in a number of state initiatives to crack down on how these designations are used. And while stories of unscrupulous advisers are not as hard to come by as one might hope, the designation issue has already garnered coverage in the New York Times. The focus of that story was a “Certified Senior Adviser” in the state of Massachusetts who had allegedly taken advantage of clients, notably senior citizens, in promoting inappropriate insurance investments—and who subsequently was sued by regulators in that state.

At this writing, Massachusetts seems to be out in front on the issue—but similar initiatives are percolating in a number of other states. In April, the Secretary of State proposed regulations that became effective June 1, 2007. That new regulation prohibits financial advisers practicing in the state from “using a purported credential or professional designation that indicates or implies that an investment adviser representative has special certification or training in advising or servicing senior investor, unless such credential or professional designation has been accredited by an accreditation organization recognized by the Secretary by rule or order.” The regulation goes on to note that the term ‘senior investor’ shall include a person 65 years of age or older.”

Clearly, the focus of the new regulation is on protecting seniors. Less clearly, but nonetheless based on conversations we’ve had with Massachusetts officials, the regulations aren’t focused on employer-sponsored/workplace plans. Still, there are two issues that have to be of concern for advisers who work with retirement plans with ties to the Bay State. First, there are a growing number of retirement plan participants who are, in fact, older than age 65, and thus “senior investors” under the provisions of the Massachusetts regulation. Second, despite comments on the proposed regulations from a number of retirement plan providers asking that Massachusetts provide a specific exemption for work with retirement plans(1), the final regulations contained no such exemption.

Ultimately, of course, protecting individuals from unscrupulous practices is laudable and well within the mandate of these state officials. Advisers who have worked hard to attain—and retain—professional designations can certainly benefit from the elimination of designation “clutter.” Still, as the various states make their invariably individualized determinations as to how to structure these mandates (and compliance departments struggle to determine how those determinations are to be applied), it seems likely—in the short run at least—that retirement plan advisers, and their plan sponsor clients, will lack some clarity.

- Nevin E. Adams, JD

(1)In comments provided on the proposed regulations, The Life Insurance Association of Massachusetts suggested a new subsection to the law that would read: "This subsection shall not apply to the use of credentials or designations in the context of retirement planning provided or sponsored by an individual's current or former employer."

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