Investment Advisers

ANNAPOLIS -- A classic legislative turf battle brought stockbrokers, insurance agents and certified public accountants to a Senate committee yesterday to argue for regulation of "the other guy."The fight pitted the three groups not only against one another as each asked to be exempted from state securities regulation, but also against independent financial planners, who called for "a level playing field" -- meaning regulation of everybody.Under existing law, anyone who is an investment adviser must be regulated by the Maryland Securities Division and make certain disclosures to the state.

You might assume that all investment professionals must act in the best interest of clients. Wrong. Decades-old securities laws have set different standards for financial professionals. Investment advisers who are paid for their advice on securities must put you first. Brokers, who earn commissions on stocks, bonds and other products sold, just need to make sure an investment is suitable — a much lower legal threshold. The Securities and Exchange Commission is finally taking a hard look at whether this double standard should continue.

ANNAPOLIS -- A classic legislative turf battle brought stockbrokers, insurance agents and certified public accountants to a Senate committee yesterday to argue for regulation of "the other guy."The fight pitted the three groups not only against one another as each asked to be exempted from state securities regulation, but also against independent financial planners, who called for "a level playing field" -- meaning regulation of everybody.Under existing law, anyone who is an investment adviser must be regulated by the Maryland Securities Division and make certain disclosures to the state.

It would be nice if Bernie Madoff's 150-year prison sentence would scare straight any financial adviser who ever thought of duping a client. But that's not likely. While most advisers are honest, there will always be some who will betray clients' trust for a quick buck - or billion. Last year's stock market crash devastated portfolios, causing many investors to realize they could use the help of a professional. Unfortunately, it coincides with the Madoff scandal and other high-profile cases of suspected fraud.

If you want to be a barber in Maryland, you need to demonstrate that you can cut hair. But if you want to offer investment advice for a living, you don't need to show that you know the difference between stocks and bonds.That will change next year.Maryland and other states that license investment advisers in January will begin requiring would-be advisers to answer questions about the causes of inflation, annuities, the risks and benefits of bonds and stocks, and how certain investments or strategies will respond in a healthy or sluggish economy.

The Maryland attorney general's office announced yesterday that it has levied a record amount of fines against the PaineWebber Inc. brokerage firm and an affiliate for failing to register some employees as investment advisers as required by state law.PaineWebber and its Mitchell Hutchins Asset Management Inc. affiliate agreed to pay the state $180,000 in fines and costs and agreed to resolve violations of the Maryland Securities Act, according to Attorney General...

Tuesday, 1 p.m.Senate Budget and Taxation Subcommittee on Public Safety, Transportation, Economic Development and Natural Resources, Room 400, James Senate Office BuildingBudget Hearings: Department of Economic and Employment Development, Maryland Economic Development Corp., Department of Licensing and RegulationSubcommittee On Health, Education and Human Resources, Room 100, James SOBBudget Hearing: Maryland Biotechnology Institute and Sea GrantHouse Economic Matters Room 150, Lowe House Office BuildingHB 127 Investment Advisers -- Definition; HB 957 Real Estate Brokers -- Licensing Exception; HB 1132 Registration of Retail Service Station Dealers -- Extension of Conversion Moratorium; HB 1196 Maryland Securities Act -- Investment Advisers -- Registration; HB 1249 Investment Advisers -- Definition and Exemptions; HB 1398 Maryland Securities Law -- Exempt Securities and Transactions; HB 1405 Maryland Securities Law -- Revisions and Corrections; HB 1406 Maryland Securities Act -- Fees and Penalties$Wednesday, 1 p.m.Senate Judicial Proceedings, Room 300, James SOBSB 408 Construction Contracts -- Losing Bidder Entitled to Damages; SB 439 Job-Related Drug Testing -- Requirements and Confidentiality of InformationHouse Economic Matters, Room 150, Lowe HOBHB 792 Maryland Small Business Development Financing Authority -- Small Business Surety Bond Program; HB 814 Financial Institutions -- Interest-Bearing Accounts -- Calculation and Accrual; HB 954 Maryland Defense Diversification...

WASHINGTON -- Securities and Exchange Commission Chairman Arthur Levitt yesterday endorsed a bipartisan Senate bill aimed at reducing state regulation of mutual funds, investment advisers and companies' securities offerings.Levitt's testimony at a Senate Banking Committee hearing gives impetus to a bill that congressional aides predict will sail through the Senate after a committee vote in the next few weeks.A similar House measure with some additional sections favored by Levitt and Wall Street groups is expected to pass later this month.

IF YOU WORK with a financial planner, some valuable new disclosures will be coming your way. Thanks to a law just passed by Congress, plus a new initiative by state regulators, you'll be able to learn a lot more about the person who guides your investment decisions.The new rules cover investment advisers. That doesn't mean stockbrokers. You already have access to a stockbroker's background and disciplinary history, just by calling your state's securities commission.vTC Investment advisers manage your assets or advise you on how to manage them.

WASHINGTON -- The United States and Japan reached a broad accord yesterday to open a range of Japanese financial markets to foreign competition, allowing U.S. investment firms for the first time to vie for the right to manage nearly $1 trillion in Japanese pension funds.The accord was reached just hours before Japan's first Socialist prime minister, Tomiichi Murayama, landed in Washington for a meeting with President Clinton today.Wall Street brokerage houses and investment advisers have complained for years about a web of government regulations and corporate relationships that froze them out of the world's second-largest pool of pension funds.

You're looking for someone to help manage your life savings in retirement. Surely an adviser with a "senior" designation, like a registered super-duper senior consultant, must be up to the job, right? Not really. There are all sorts of designations cropping up. Many of them have the word "senior" in them, implying that the person has expertise in the needs of older investors. But too often these designations are meaningless marketing tools used to earn the trust of older investors who are then pitched high-cost, unsuitable investments.

If you're looking to hire a financial planner or adviser, you're making a decision that likely will affect your entire life. And the vast array of choices can make the decision mind-boggling. Anyone can call himself a financial planner, says Jack Waymire, author of Who's Watching Your Money? So don't assume that having a certain title ensures skill or expertise. You also want to be objective - don't let a planner or adviser's personality or sales skills affect your decision. You want to objectively consider three factors: credentials, ethics and business practices.

Robert Hooper Smith, an investment adviser in Baltimore and a skilled watercolor painter, died of complications from prostate cancer April 10 at the Gilchrist Center for Hospice Care in Baltimore. He was 78. Born in Baltimore, Mr. Smith graduated from the Calvert School in 1938. He then attended the Middlesex School, a boarding school in Concord, Mass., but left in 1944 to join the Navy. He entered the Naval Reserve in 1945 and served as a pharmacist's mate third class in East Coast military hospitals until he left the service in 1947.

ONLY 213 YEARS after the New York Stock Exchange's founding, the government has added regulation requiring many brokers to say this before they take your money: "Our interests may not always be the same as yours." No kidding! Besides enjoying commissions on stock and bond trades whether or not the trades help your portfolio, brokerages often receive what amount to legal kickbacks from sellers of mutual funds, variable annuities and other products. A broker might be tempted to sell you a mediocre fund with a big referral fee instead of a great fund with no fee. No, his interest is not the same as yours.

Allegations that American Funds arranged improper sales deals with brokers are posing a quandary for financial advisers, who have helped make the Los Angeles firm the nation's most popular mutual fund company in recent years. After 17 months of revelations that have rocked the fund industry, some advisers say it's difficult to find high-quality companies that haven't had their reputations sullied. "Quite honestly, where else do you go?" asked Emerson Fersch, a principal at Capital Investment Advisers in Long Beach, Calif.

Americans sometimes fib about how long it takes them to get to work, their weight, their age, their drinking habits, how much TV they watch and whether they ate dessert last night. So it's hardly a stretch to accept that they would fib to a financial adviser about their income, savings or investments. Maybe they don't want anyone else to know their business. Maybe they want to seem like high rollers. Maybe they can't be honest with themselves or anyone else about how much money they're capable of saving or investing.

A number of readers faced with choosing from nearly 4,000 available mutual funds have asked where they can get help in addition to this newspaper's weekly listings.Some readers, interested in using investment advisers to select mutual funds for them, want to know how to pick the "best" ones. Others, willing to do their own research, asked about magazines that provide data on funds.Investment advisers. Of the 18,000 investment advisers registered with the Securities and Exchange Commission, a high percentage offer advice on mutual funds.

The Securities and Exchange Commission told a top Maryland pension official that Nathan A. Chapman Jr. violated federal law when he permitted money managers he supervised to invest state pension funds in his own companies, newly released documents show. Carol Boykin, the pension system's chief investment officer, wrote in a March 19 memo that the SEC regards the purchases of Chapman stock as breaking a securities law, the Investment Advisers Act. "I was told by the SEC that these transactions were a violation of fiduciary duty according to section 206 (an anti-fraud provision)

INVESTORS learned some painful lessons in the last few years, from the importance of diversification to the discovery of a host of conflicts of interest on Wall Street. Or did they? Tech stocks came roaring back into favor earlier this year, as did the volatile emerging-markets stock sector. And independent stock research firms - those that don't derive revenues from investment banking business - have failed to catch on. Investor complaints to the National Association of Securities Dealers ticked up again last year after declining steadily since the bursting of the Internet-stock bubble in 2000, and arbitration case filings surged 16 percent last year.

CHICAGO - Morningstar Inc., a U.S. research firm used by 3 million investors to decide what mutual funds to buy, said yesterday that the Securities and Exchange Commission is investigating the company for publishing incorrect performance data for a fund. The SEC may sue the firm, founded 20 years ago by Joseph Mansueto, for violating securities laws, Morningstar said. The company said it overstated the returns of the Rock Canyon Top Flight Fund from March 12 to March 23. Morningstar said the regulator may be concerned with how long it took to correct the information.