Advisors should never use the term “fee-based” to describe their business. Writing on his Scholarly Financial Planner blog, Ron Rhoades outlines the narrow scope in which advisors can legitimately claim to be “fee-only,” but says that using the term "fee-based" is “intentionally misleading." Instead, advisors who receive fee revenue and commissions should identify as either "fee-and-commission-based" or "commission-and-fee-based," depending on which revenue stream is greater. "The omission of "and-commission" in either instance, is an attempt to obfuscate and gain the consumer's trust inappropriately," he writes. "And hence in my view constitutes deceit under federal and state securities laws."
The stock price of Twitter popped 7 percent in after-hours trading after CEO Dick Costolo announced he was leaving the company, so he clearly was a liability, right? Well, the stock price has since settled back; it's worth asking what happens to stock prices in the wake of CEO departures, excluding retirement. A group of researchers found a modest .5 percent additional return to a share price upon the announcement of a CEO's resignation from poorly performing companies, but that's because the share price rose 6 percent on average in the weeks prior, indicating investor anticipation (Caveat: These are French researchers studying French companies, and it came out in 2000, but there is surprisingly little research on this.) Not surprisingly, firms that name an external manager to replace poorly-performing CEOs see greater returns immediately following that announcement than firms that announce an internal candidate will take over, meaning Twitter should look beyond its nest for the next leader.
San Antonio Spurs forward Tim Duncan isn't playing in the NBA Finals for the first time in three years. Instead he is in federal court fighting the financial advisor he is suing for more than $1 million. The advisor, Charles Banks, wants portions of the suit regarding Duncan's investments in hotel and winery businesses to go to arbitration in California, while the tussle over his investments in a sports merchandising company must be held in Colorado. Duncan sued Banks in January claiming the advisor "committed egregious breaches of his trust," specifically regarding a $6.5 million loan Duncan made to Gameday Entertainment, a sports merchandising and facility management firm.
Of course financial advisors are always putting their customers' interests first, at least that's what their clients believe. In a new LIMRA Secure Retirement Institute survey, close to 4,000 clients were asked to judge their advisors on five criteria: Always puts my interests first; recommends products that are suitable for me; gathered sufficient information about my finances before offering advice; understands my financial situation; and provides "excellent value" for the cost of their service. For all five criteria, nine in 10 respondents agreed with those statements.