Our Interests May Not Always Be The Same

Spring 2007

This quarter’s newsletter title may sound strange to your ears, but since new SEC rules went into effect last year, firms like ours who are “dually registered”, are required to disclose potential conflicts of interest. The term “dually registered” means licensed to sell securities for commissions and to give advice on a fee basis. We have been providing you advice over the years on investments and retirement, estate or some other aspect of life planning based on doing what was right and best for you. We have also disclosed conflicts of interest to you when they have occurred. But the potential of our interests not aligning with yours still existed by the mere fact of our dual registration.

From Dual to Fiduciary

After a number of years of investigating various business models, we decided upon becoming a “fee-only” financial planning firm. The core of our service to you has been in providing financial plans implemented in fee-based solutions. Our desire, with this move, is to remove the confusion that exists around dual registration, simplify our relationship with you and to strengthen our standard of practice to that of a fiduciary.

The definition of a fiduciary would include this statement, “A financial advisor held to a fiduciary standard occupies a position of special trust and confidence when working with a client. As a fiduciary, the advisor is required to act with undivided loyalty to the client.”1 I can think of no better expression of how we want to be viewed by you, than that. Getting there, however, requires a few changes.

The first of these is for Clarus Financial to register with the SEC as an independent registered investment advisor (RIA). Note: We were previously registered with the state of Ohio. The second step is to discontinue our affiliation with FSC Securities Corporation – our broker/dealer. FSC’s primary role in our business was to facilitate the sale of commissionable products. Since we will no longer conduct that type of business, FSC’s role becomes unnecessary.

The other major component of this effort was finding a custodian (the function Pershing fills for many of you) whose business model most closely aligned with ours. After two years of research, we decided upon Schwab Institutional. This is not the “1-800 Talk to Chuck” division, but the largest US custodian serving the clients of independent RIAs. We began opening client accounts there in late 2005 and have found numerous advantages for you that are detailed later in this letter.

Schwab website   So, shortly after you receive this newsletter, you will be receiving a separate mailing from us that will provide you specific details about transferring your accounts to Schwab Institutional. (Those of you already at Schwab will have smaller packets.) Our hope is to complete this transition before June 30th, so your prompt attention and return to us of the materials will be greatly appreciated. As always, we will be here to answer your questions.

Matching up our day to day operations with our desire to become a fee only financial life planning and investment management firm will largely be accomplished through this transition to Schwab. We think that’s how you see us already –this move just makes it so.

So, let’s highlight some of the benefits to you moving to Schwab:

  1. Fewer service fees No IRA fees, no inactivity fees and no trust fees
  2. Compact monthly statements Important account data in 2-3 easy to read pages
  3. Less mail The eDelivery option benefits include:
    • Less mail from Schwab
    • Faster delivery of trade confirms and account statements
    • Lower trading costs (See below for details)
  4. Reduced trading costs
    • Stocks are $19.95/trade, $12.95 if enrolled in the eDelivery program mentioned above and always $9.95 flat for households above $1MM in assets.
    • Mutual funds purchased from the 4,097 Schwab ‘OneSource’ funds have no transaction fees. A large number of our selections of mutual funds are OneSource funds. Mutual funds that are not part of the OneSource platform have a transaction fee of $25.00.
  5. Free dividend reinvestment program The Schwab No-Fee StockBuilder Plan® is available for most US stocks.
  6. Free web access SchwabAlliance.com Through this secure website you can view account holdings and access real time quotes. The site also provides convenient storage of statements, confirms, and tax documents for the current year and 6 prior years.
  7. Schwab Alliance Team If you need to just check on an account balance or order more checks with a quick phone call, the Schwab Alliance team is always there as our back office to handle similar routine transactions.
  8. Electronic delivery of regulatory documents such as proxies, annual reports, class actions and reorganizations can be initiated from SchwabAlliance.com.
  9. Schwab MarketInsight Finally, for those wanting a little late night reading you will have access to Schwab MarketInsight including economic commentary from Liz Ann Sonders, a former frequent guest on Wall Street Week with Louis Rukeyser.

Commentary

It’s worth noting a few news items from the past quarter: Bernanke and Greenspan spoke and markets moved, sub-prime lenders behaved in a sub-prime manner and the Iranians took (more) hostages. February 27th marked the return of the bear. We mentioned in our January newsletter not to be surprised with a 3-10% pullback because the bull market was getting a little long in the tooth. While the Dow Jones Industrial Index did fall greater than 3%, we think the possibility still exists for further ups and downs this year. Meanwhile, back at the economy, inflation remained stable, unemployment continued to be historically low and the GDP grew, all of which reminds me that beyond the ‘noise of the news’ the great story of this American experiment marches on.

Greg Busch

Greg Busch, CFP
Clarus Financial, LLC

1From National Association of Personal Financial Advisors website napfa.org

Registered Representative offering securities through FSC SECURITIES CORPORATION, member NASD/SIPC and a registered broker-dealer not affiliated with Clarus Financial, LLC. Investment advisory services offered through Clarus Financial, LLC, a Registered Investment Advisor.

The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.

Quarterly Newsletters

Enter your e-mail address in the field below and click Sign-up to receive our quarterly e-mail newsletter.



Newsletter Archives

Autumn 2008 »
Maximum Optimist

Summer 2008 »
It’s Déjà Vu All Over Again

Spring 2008 »
March Madness

Winter 2008 »
Year In Review 2007

Autumn 2007 »
Roller Coaster Ride ’07

Mid-Summer 2007 » A Mid-Quarter Briefing From Clarus Financial

Summer 2007 » Mission Accomplished

Spring 2007 » Our Interests May Not Always Be The Same

Winter 2007 »
The Year In Review

Autumn 2006 »
FILL’ER UP

Summer 2006 »
Summer Doldrums?

Spring 2006 »
Presidential Cycle: market indicators for an uncommon 2nd term president