The Law Office of Ryan P. Smith, PLC

The February 2010 issue of SmartMoney magazine notes that Congress continues to debate whether to change the law to hold financial advisors to a fiduciary standard of care.  (See Is Your Broker Putting You First?)  As noted in previous posts, FINRA’s Mea Culpa & More On The Proposed Fiduciary Standard and Initial Thoughts on the Proposed Fiduciary Standard for Brokers, this is one of the more important issues that Congress is considering as it overhauls the financial regulatory scheme in the wake of the 2008 crash.  What I found notable about the SmartMoney article was its report that SIFMA – the brokerage industry’s trade association and leading opponent of the change – prefers a proposal that revises the fiduciary standard for financial advisors and investment advisors.  If this is accurate, then implementing a fiduciary standard appears to be a given at this point.  Again, we will have to wait and see.  (February 5, 2010)

“Aunty Entity” from Mel Gibson’s post-apocalyptic tour de force Mad Max Beyond Thunderdome was not a securities regulator.  I suspect, though, that had she been one, her reaction to the unexpected failure of the Reserve Primary Fund would have been similar to the reaction she did have to those who broke the rules in Bartertown – “Bust a deal, face the wheel”.

First, as background, money market mutual funds – or “money funds” or “money market funds” – invest in very short-term, high-quality debt instruments and are, usually, very liquid and maintain a $1.00 share price.  Many treat money market funds as the functional equivalent to a savings account or other bank product; however, the big difference is money market funds are not FDIC-insured.   The Reserve Primary Fund was among the more notable casualties of the 2008 credit crunch as its deteriorating portfolio caused it to “break the buck” (its $1.00 share price), creating severe issues for its investors.

The securities industry faced the wheel – so to speak – for the Reserve Primary Fund in the form of new rules governing money market mutual funds that the SEC announced last week.  The new rules impose more stringent requirement on the maturities and credit qualities of the securities that money market funds can hold in their portfolios.  The rules also require managers to “stress test” their portfolios for certain events such as interest rate changes, mass redemptions, etc.  As with any regulatory reform, time will tell whether these changes will prevent another “buck breaking”.  However, at first blush, this appears to be a good start.  Confidence must continue to be restored to our markets.  (February 3, 2010)

With each passing day, the so-called “social media” applications – Facebook, Twitter and LinkedIn – become more and more a part of our collective day-to-day existence.  Have you ever “friended”, “fan’d”, “linked” or “followed” someone or something?  Do you know what a “virtual drink” or a “virtual hug” is?  Have you “tweeted” some thought or news item?  If so, you are just one of tens of millions that log onto these sites on a regular basis.

FINRA, the brokerage industry’s self-regulatory body, seems to agree and recently published Regulatory Notice 10-06 to guide firms and their financial advisors in using this technology.  In short, FINRA views these applications as 21st century methods to do what firms and brokers have been doing for decades to generate business – advertising, recommending investments or making public appearances.  As such, the existing rules, and specifically NASD Rule 2210 govern firms’ and financial advisors’ use of the social media applications.  More specifically, static content, such as a blog or certain fixed content on these sites, are considered advertisements and must be approved by a registered principal before being used with the public.  Interactive content, such as an appearance in an online chat or seminar, are also supervised but do not require registered principal approval prior to use with the public.  Friending, tweeting and linking, oh my!

(Please forgive the shameless plug, but you can fan, follow or link to this Firm.  See the home page for more details.) (January 29, 2010)

Did you know that the Hampton Roads Chapter of Operation Homefront helps soldiers and their families located throughout the Commonwealth outside of the D.C. Metro area?  It’s true.  Please read the Operation Homefront Hampton Roads brochure to learn more about the good things that this Chapter does for our military community and how you can help.  (January 25, 2010)

Money doesn’t talk, it swears.  ~Bob Dylan, “It’s Alright, Ma (I’m Only Bleeding)”

Two recent articles – Thomas Anderson’s Target-Date Funds Reset Their Sights (Kiplinger’s Personal Finance, January 2010) and J. Alex Tarquinio’s The Great Fund Disappearing Act (SmartMoney, January 2010) – caught my eye as, together, these describe a mutual fund industry that is in a state of some flux.  Anderson reported that the industry is making various changes to “target-date” funds.  Readers will recall that these are funds for investors who have “targeted” certain years(s) in which they will redeem their investments.  For example, a “2030” fund is for investor who wants to hold their investments until 2030.  The 2008 market downturn exposed the fact that many so-called “2010” funds held investments that were too aggressive for investors seeking to redeem their investments in 2010, only two years’ time.  Tarquinio reported that some fund companies are quietly eliminating some of the poorer performing mutual funds, choosing to merge them with their stronger performing funds.

Is this the fund industry gnashing its teeth, cursing at the situation before them?  Is Dylan right?  It is unlikely here.  From where I sit, it would be irresponsible for the industry to simply ignore the events of 2008 and fail to make needed adjustments.  Similarly, these are reminders for investors that they too must keep an eye on their investments and determine whether any adjustments are necessary.  As evidenced above, what one held in 2008 may not be the same as what one holds in 2010.  (January 22, 2010)

Part I of our series mentioned a number of different benefits that the Department of Veterans Affairs (DVA) offers to our nation’s veterans who have been injured or to the families of those who have been killed in service.  To paraphrase the late, great newscaster Paul Harvey – here is the rest of the benefits story.  The DVA also offers a wide range of benefits that are not necessarily linked to service-connected injuries.  These include home loan guarantees, various forms of life insurance, burial benefits, vocational rehabilitation and employment, and educational benefits (the GI Bill).  In particular, Congress recently modified the GI Bill to permit a service member to transfer her educational benefits to her spouse or children.  (See Lankford, Kimberly, Now the GI Bill Is for Families, Too, Kiplinger’s Personal Finance (Feb. 2010).)

My practice and this L’awful Prose blog will focus primarily on compensation issues; however, I invite you to review VA Benefits In Brief for additional information about these other benefits and how to access them.  (January 18, 2010)

Every now and again I come across something that gives me pause for thought.  From Professor Steven Gillers of New York University’s School of Law (from Financial Crisis 2008: Where Were the Lawyers? in the January 2010 issue of Washington Lawyer magazine):

Most American lawyers are not trial lawyers.  They are counselors or advisers, operating where there is no judge and no adversary.  No one is watching.  And there may never be.  Then, the temptation is to push the limits, sift the language of the law, find hidden meanings.  Now, our social understanding is that law is not endlessly pliable in this way.  But the problem is this: It can be made to be because law, after all, is only a language and language is pretty pliable.  In the hands of a creative, motivated lawyer, with a demanding client, the language of the law can have astonishing elasticity.  Through interpretation, the rule of law can be turned into what it is not.  A fine exercise perhaps if you are interpreting Shakespeare or Kafka.  But not for law.

As a veteran of numerous arbitrations and other proceedings, I can attest to the fact that most trial lawyers do not parse the meaning of words — such as, for example, is — to the proverbial “n-th” degree.  Their stock in trade is different and their focus is different.   Well done, Professor.  (January 16, 2010)

For the past few years, I have read the Wall Street Journal online to keep abreast of current events.  (No dead tree version for me, thank you.)  Did you know that the Journal’s “Personal Finance” section contains a number of very useful “How-To” guides that address fundamental issues involving investing, credit, insurance and related topics?  Better still, one can access these guides from the free portion of the site.  Readers of the “L’awful Prose” blog know that I support efforts to improve personal financial literacy – and to that end, have been involved with the Virginia Jump$tart coalition – so this is fantastic.  Could it be that the Wall Street Journal  is partly the Main Street Journal?  Visit http://online.wsj.com/public/page/news-personal-finance.html and decide for yourself.  (January 11, 2010)