A colleague called recently. I was just concluding another call, so as soon as I picked up his line I said, "I'm sorry to keep you waiting; I was on the other line." "That's OK," he replied, in a theatrically dejected voice, "all the action seems to occur on the other line."

U.S. securities and commodities market regulators may be feeling dejected for the same reason. Increasingly the newest, largest and riskiest market bets are being made 'on the other line' out of reach of regulators. Hedge funds and private equity funds largely escape SEC oversight, and the Amaranth meltdown highlights the scope and danger of the non-regulated portions of the commodities markets.

Clearly this seismic shift creates potential dangers for financial planners. It may also be a symptom of another type of seismic shift that will also affect financial planners, a shift that is rapidly raising the risk level of equity investments generally.

What is this second shift? It is the one superbly described in a recent article in Fortune.¹ In essence it is this. A number of forces-technology and globalization among them-are rapidly shortening the shelf life of corporate business models: "Across sectors-retailing, brokerage, software, publishing, computers-business models that produced profits for decades have shut down." Indeed, the article suggests that it will become rare for a corporate model to last as long as a decade and common for most models to become dated in three-to-four years.

One of the article's most interesting facts is this: In 1985 41% of companies ranked by Standard and Poor's earned the top, or least-risky, equity rating, while 35% were judged most risky. By 2006 the 41% had shrunk to 13% while the high-risk 35% had mushroomed to 73%. It is, in other words, significantly less likely than it used to be that a company with a profit-making model today will remain a good investment for a reasonable number of years. As Fortune writes, "Today's fast-moving reality may force a rethinking of just how long companies can and should survive."

One seismic shift is more than enough for most of us. But financial planners may be facing three. First, they may bear additional risk if investment recommendations they make are receiving diminished regulatory protection.

Second, they may bear additional risk if investments in general are becoming more risky because change is more rapid and corporate business models (largely invented to repeat learned activities rather than embrace new ones) have shorter profitable lives.

Third, financial planners face changes to their own business models. Just last month the Wall Street Journal ran an article titled, "Your Portfolio on Autopilot-Brokerages Roll Out Software to Automate Trading Strategies."² The implications are obvious.

People differ on what the combined effects of these forces will be. What seems clear is that this would not be a good time for financial planners or the bodies that regulate and promote them to ignore all the 'other lines' out there.

Sarah Ball Teslik

¹ Geoffrey Colvin, "Managing in Chaos," Fortune, September 19, 2006.
² Aaron Lucchetti and Justin Lahart, "Your Portfolio on Autopilot: Brokerages Roll Out Software to Automate Trading Strategies; Risks of Becoming a 'Quant'," The Wall Street Journal, September 30, 2006.

A few weeks ago, someone broke into our home. The alarm went off around 1:00 a.m. and I rushed downstairs to find that our sliding patio door had been lifted out of its runners and removed, allowing easy access to our kitchen. Fortunately, the burglar fled when the alarm sounded and nothing was stolen. But I didn't like the idea of having a big hole where the patio door had been. So I called a 24-hour locksmith service, and a repairman arrived within an hour to fix it. He replaced the patio door and installed two additional locks-at a total cost of some $1,100.00. After recovering from the sticker shock, I realized I was suffering from a condition that's becoming increasingly common these days: sugrophobia, the fear of getting suckered.

To be fair to the locksmith, he did quote the prices to me before undertaking any work. But as the police milled about looking for fingerprints and the locksmith hammered away at the patio door, I had the sneaking suspicion that I had been duped. Sure, I expected to pay a premium for calling out a locksmith at two in the morning. But $300 apiece for two new locks? That still seemed a bit excessive.

This was a classic case of information asymmetry, a situation in which the seller of a good or service (the locksmith) knows so much more about that good or service than the buyer (me) that the buyer can't adequately judge its true value. Was a new lock really worth $300? At that moment, as I was trembling from just having chased an intruder from my home, it surely was. But under any other circumstances, I don't think I would ever pay that much for a lock-unless it was made from kryptonite. I felt angry: at the burglar for having invaded my home and at myself for having paid a fortune to fix my door.

"There is a lot of self-recrimination around being duped," says Kathleen Vohs, a psychologist and assistant professor at the University of Minnesota's Carlson School of Management. "You want to punish the person who duped you but you also want to punish yourself. You think: 'I should have seen it coming. I shouldn't have allowed myself to get suckered.' And you become very wary about getting suckered again." Vohs and her colleagues coined the term "sugrophobia"-from the Latin sugro, meaning 'to suck'-to describe the fear of being duped. And she says there's a lot of it around as people find more and more to be mistrustful about, from home security to terrorism to online identity theft.

Information asymmetry offers the perfect opportunity for duping. Sellers of so-called 'credence goods'-which include things like medical and legal services as well as consultancy and home repairs-are specialists in their product or service. As a result, buyers often have no choice but to trust that the seller is telling the truth. (Yes, sir, with our patented new kryptonite locks not even Superman could break into your home!) Vohs cites research that suggests this trust is misplaced more often than we might care to think. In Switzerland, for example, studies have shown that physicians and their immediate families have 25% fewer operations than families who do not have a doctor in the house. Why? Perhaps because doctors tend not to recommend unnecessary procedures to their own family members. A study of car repair garages in Germany found that upmarket and lower-end mechanics both provided the same level of service quality, but the former charged twice as much as the latter. Why? Perhaps because patrons of the upmarket garages are paying for services that are not actually delivered.

In these kinds of situations, the information asymmetry is so great that it's next to impossible for the buyer to know if the price is right. "With certain transactions, it is difficult to know what the right exchange rate is," Vohs says. "You can feel suckered when you haven't been, or you could have been duped without even knowing it. This can lead some people to become over-vigilant, on the assumption that it's better to be a little too vigilant than to get suckered all the time."

Vohs attributes this heightened vigilance in part to advertising. She describes one study showing that skepticism about an ad's veracity increased with the number of ads viewed, regardless of whether the ads were actually truthful or not. "Young people in particular are far more untrusting of ads," she says. "They're more sugrophobic than their parents because they're more media savvy. Having grown up with consumer culture, they realize everybody's selling something. And they respond better to ads that are up front about that."

Vohs cites the campaign for Carlton Draught, one of Australia's best-selling beers, as an example of advertisers' quest for authenticity. In one radio spot, a deep baritone voice extols the wonders of Carlton's brew: It's made from 24 karat gold, fermented by angels, and endows drinkers with x-ray vision. Then the producer's voice interrupts to say, Just keep it simple. The segment ends with the tagline: "Carlton Draught, made from beer."

Sugrophobia may be a young term, but its roots are very old. Evolution has conditioned us to be wary of people who are dishonest, whether they are hunting saber-toothed tigers with us or merely fixing our car. But the condition has downsides as well as upsides. "Sugrophobics may go through life worried about being taken advantage of," Vohs says, "while non-sugrophobes may end up being easy marks for life's real scam artists." If it's true that there's a sucker born every minute, then a mild dose of sugrophobia could well come in handy. Now, if I could only find a less expensive locksmith.

- James Geary

For the past eight years, Pacific Community Ventures (PCV) has been nurturing businesses in California's low- and moderate-income communities. To date, firms belonging to PCV's portfolio of companies have created more than 1,500 jobs. It's ironic, then, that one of the obstacles facing PCV's latest venture-a matched-savings Individual Development Account (IDA) linked to financial literacy training-is this: It sounds too good to be true.

"There's a lot of initial skepticism," says Todd Schafer, PCV's director of development and external relations. "People think something's not right when they hear that if they save $2,000 over a three-year period, those funds will be matched 2-to-1 by private donations." But it is true and, with the help of a grant from CFP Board that will fund the expansion of its financial literacy and asset management workshops, PCV will extend the program to other businesses in its network.

Skepticism quickly turns to enthusiasm, Schafer says, when participants learn the details of the scheme. PCV got its start providing development venture capital and business advice to entrepreneurs in California's low-income communities. In 2004, it began working directly with the employees of its portfolio companies, too, through workplace-based IDA programs. Participants are tasked with saving $2,000 over three years, an amount that is matched by $4,000 in philanthropic funds. The money can be used toward funding a home purchase, higher education or retirement. To qualify, though, participants must attend a series of personal finance and money management workshops. With the CFP Board grant, PCV will be able to offer the program to workers at several additional companies.

PCV research suggests there is a strong demand for financial literacy training among employees at its portfolio firms. A 2003 survey found that 89% of respondents said that "assistance with saving for the future" was among their critical needs. That need can be especially acute, since some 73% of current IDA account holders have household incomes of less than $30,000 a year. "A regular criticism of IDAs is that the poor don't have money to save," Schafer says. "But people in our IDA program do have weekly pay checks-and that puts them in a position to save. What they need is the financial knowledge to save effectively."

PCV provides that knowledge by organizing workshops that cover everything from opening a checking account and preparing a personal budget to understanding a credit history and applying for loans. There is also an asset workshop series to help people plan for financing a home purchase, further education or retirement once their IDA is active. Where necessary, the workshops are offered in multiple languages-English plus Spanish, Cantonese or Vietnamese-and are open to all employees, regardless of whether they are participating in the IDA program.

Many IDA participants are from ethnic minorities, a fact that sometimes highlights cultural differences that need to be addressed. "Many participants have a lack of trust in banking services," Shafer says, "and have stayed outside the banking system without realizing the costs. They are not aware, for example, that instead of paying someone to cash their pay check, they can be earning interest on that money at a bank. For a lot of people, the IDA is their first experience of successfully managing their finances."

PCV hopes that by the end of the three-year period, 75% of participants will have reached their investment goals and 100% will have improved their financial literacy. In the process, the program will have provided participants with valuable lessons in wealth creation while demonstrating a new way to connect with these hard-to-reach populations. That's an outcome that's too good not to be true.

PCV's financial literacy workshops include presentations by local CFP® professionals. If you're interested in becoming involved, PCV would love to hear from you.

Read more about projects receiving funding through CFP Board's 2006 Financial Planning Grants program.

More than a year has passed since Katrina, Rita and other hurricanes devastated the Gulf Coast, but many affected by the storms are still in the process of recovery. The Financial Planning Association (FPA) has long been involved in coordinating assistance to those affected by the hurricanes, and FPA is currently administering a grant program for financial planners who suffered damage to their businesses due to hurricanes.

FPA will distribute grants in the form of gift cards redeemable at Office Depot for business supplies to applicants who are approved by a volunteer committee of FPA members. Some $30,000 for the program was raised by the Foundation for Financial Planning with the help of contributions from FPA members. While the amounts available are relatively modest, the fund was designed to offer an expression of support by the financial planning community to its colleagues and help them on their way to recovery.

Financial planners whose residences or businesses were located in counties or parishes declared federal disaster areas may request a grant application form from Jonathan Sprague, FPA's Manager of Pro Bono Services, at 800-322-4237 ext. 7183.

The application deadline is October 27, 2006.

Board of Governors to Review Comments on Exposure Draft of Proposed Revisions to CFP Board's Ethical Standards

CFP Board thanks the hundreds of individuals and the many organizations that submitted comments on the Exposure Draft of Proposed Revisions to CFP Board's Code of Ethics and Professional Responsibility and Financial Planning Practice Standards. The 60-day comment period ended on September 25, 2006, and CFP Board's Board of Governors will consider the comments at its October 2006 meeting to determine what further action to take with the proposed revisions. CFP Board appreciates all those who took the time to consider the Exposure Draft and share their comments and concerns. That valuable input will help CFP Board ensure that CFP® certification continues to remain a standard of excellence for competent and ethical financial planning.

CFP Board Creates Development Department

As the recent Warren Buffett gift to the Gates' foundation highlights, private philanthropy is exploding. Fortunately for CFP Board, two of the three most popular causes foundations fund are education and financial self sufficiency-two areas vital to the promotion of financial planning. CFP Board has therefore created a Development Department to attempt to capture some of this funding. Keith J. Soressi, recently CFP Board's Director of Education and Examination, has agreed to lead the Development Department, which will seek out and secure funding for activities that promote CFP Board's mission.

One of the Development Department's initial activities is to assemble data reflecting the influence that CFP® certificants have in providing benefits to the public. One particular project will involve the review of lists of top financial planners and advisers compiled by business publications to determine the percentage of listed individuals who hold CFP® certification. The lists might be those of investment advisers, brokers, financial planners, insurance professionals or any other financial services area in which CFP® certificants practice. The goal is to show that the CFP® certification helps insure excellence in any financial services field.

If you are aware of city magazines, national magazines, newspapers or online publications with such lists, we would appreciate being notified about them or sent a copy. The more lists we have, the more powerful the resulting data will be. Please send information about lists or copies of lists by e-mail to mail@CFPBoard.org or by fax to 303-860-7388. We expect that quantitative information like this should prove to be convincing data for grant applications and also useful data for CFP® professionals to use in their practices.

CFP Board Disciplinary Actions

CFP Board recently announced public disciplinary actions against the following individuals' rights to use the CFP® certification marks:

• Christopher E. Cabri, CFP® (Charleston, South Carolina): Letter of Admonition
• Cynthia M. Couyoumjian, CFP® (Tustin, California): Letter of Admonition
• Kelly L. Diestler (Oneida, Wisconsin): Suspension for One Year and One Day
• Kelvin William Gold, CFP® (Phoenix, Arizona): Letter of Admonition
• Thomas C. Hock, CFP® (Schnecksville, Pennsylvania): Letter of Admonition
• Robert L. Keys® (Portland, Oregon): Letter of Admonition
• Steven D. Klein (Lynbrook, New York): Revocation
• David Edward Marcinko (Norcross, Georgia): Revocation
• David M. Rivkin (San Diego, California): Interim Suspension

Regional Trademark Education Initiative to Focus on Seattle Area

Last month CFP Board released an updated Guide to Use of the CFP® Certification Marks and introduced a regional Trademark Education Initiative, which began concentrating CFP Board's trademark review and enforcement activities in the Atlanta, Georgia area.

The initiative will next focus on the Seattle, Washington area. CFP® certificants in the Seattle area may be contacted by CFP Board staff during the next month for a review of the use of the CFP® marks in their business materials.

While the educational initiative will focus on one region at a time, CFP Board has found that it often discovers trademark misuse outside the area of primary focus, which means that CFP® certificants throughout the United States may be contacted about trademark issues. To ensure that your use of CFP Board's trademarks complies with the updated guidelines, we encourage you to review our recently updated Guide to Use of the CFP® Certification Marks.

If you have a question about proper usage of CFP Board's trademarks, CFP Board's Trademark Department is available to answer your questions or review materials. Questions, materials and comments may be sent by e-mail to Compliance@CFPBoard.org or by fax to 303-860-7388.

TRADEMARK TIP:
 

The CERTIFIED FINANCIAL PLANNER™ mark must always be presented in ALL CAPITAL letters. A SMALL CAP font, which leaves the letter at the start of each word large but reduces the size of the other letters in each word, may also be used for the CERTIFIED FINANCIAL PLANNER™ mark.

Results Released for July 2006 CFP® Certification Examination

Score results for the July 2006 CFP® Certification Examination were recently released to exam takers. The 10-hour, two-day exam was conducted at 50 sites nationwide. Of the 3,041 individuals who sat for the July 2006 exam, 58 percent passed.

The CFP® Certification Examination covers nearly 100 topics based on periodic studies of the job knowledge necessary to practice financial planning. Similar in concept to the bar examination for licensed attorneys and the exam for licensed CPAs, CFP Board's CFP® Certification Examination requires full integration of knowledge covered in CFP Board's financial planning topic list.

The next exam will be held November 17 and 18, 2006 and will be the first exam to cover the 89-subject topic list created as a result of the 2004 Job Analysis Study.

Participate in the Standard Setting Meeting for the CFP® Certification Examination

Would you like to help shape the CFP® Certification Examination and earn up to 12 CE hours for your CFP® certification renewal requirements? Have you been looking for an excuse to visit Denver during the prime post-holiday ski season? If so, CFP Board invites you to participate in the Standard Setting Meeting for the CFP® Certification Examination.

What is the Standard Setting Meeting?

CFP Board uses Standard Setting Meetings to set the passing standards appropriate for the CFP® Certification Examination. The 2004 Job Analysis resulted in updates to the topic list which forms the basis for the exam, and these updated topics are being tested for the first time in November 2006. CFP Board is seeking a committee of volunteer CFP® certificants to take the latest CFP® Certification Examination to assist in setting the passing standard that will be used as a benchmark for all exam administrations until the next Job Analysis. CFP Board's exam administrator, Thomson Prometric, will train participants to rate the questions and determine characteristics that constitute the minimum level of competency that a financial planner must have when seeking the CFP® certification.

Information and Logistics

Date:        Friday and Saturday, January 5 and 6, 2007
Time:        7:30 a.m. to 5:30 p.m.
Location:  JW Marriott, 150 Clayton Lane, Denver, CO 80206
                (303-316-2700)
Deadline:  Friday, December 22, 2006

A full breakfast and lunch will be provided on both days, as will dinner on Friday evening. CFP Board will reimburse participants for reasonable out-of-pocket expenses associated with travel to the Standard Setting Meeting, and participants who attend the entire meeting will receive credit for 12 CE hours.

Only CFP® certificants in good standing with CFP Board can participate.

How to Sign Up

Simply send an e-mail to exam@CFPBoard.org and let us know you would like to attend the Standard Setting Meeting. Space is limited to 25 participants and will be filled on a first come, first served basis. Be sure to include your CFP Board ID number and your contact information in the e-mail.

If you have any questions, please contact Theresa Bartlett, Senior Manager, Examination, at exam@CFPBoard.org.