With the Olympics in full swing, I am reminded of what the great U.S. and Montreal Canadian hockey goalie, Ken Dryden, said after he retired ” It is true that when a career ends, it deposits a player into middle age”  Apparently, FINRA is putting middle agers and retiree advisers on notice that with it’s new suitability and know your customer rules that took effect a couple of weeks ago that it will not make the same mistakes with Gen X and their 45 million strong  that it has made with baby boomers stunned by days like yesterday when stocks showed early signs of another flash crash before rebounding. Simply put the new rule 2111 expands broker-dealer suitability obligations thorough expanding rule 2310 covering buy and sell decisions but also recommendations to “hold.” Could that be as a result of the fact that most retail investors are doing exactly that and holding because market volatility caused by a “black swan” secular bear market? So when FINRA defines an investment strategy as a “call to action” doing nothing now falls in that category.  This could be a very prudent move if as in 1981 and 1954 stock values fall and represent an even more attractive value than they did in March 2009. This is not  2009 and through this tepid recovery, Bonds look like the next bubble especially if Milton Friedman is right as history has dictated that all inflation is monetary. In summary, where are the warnings about Bonds and the impact on principal if rates rise as they did in the 70s but then again in 84, 87, 94 and 2003. A prolonged rise in rates could wipe whats left of consumer confidence off the map and endanger stocks as well.

Because the rule exempts the discussion of basic investment concepts, including estimates of future retirement income needs, this an excellent time to solve for Income needs rather than Assets as many wirehouse brokers do.  This is evidence by the fact that according to the Investment Company Institute, 50% of all income planning needs still including building assets and then liquidation of income on a tax disadvantaged basis jeopardizing the opportunity to assure one’s self of an income for life. Running out of income is a saver or investors number one fear and will be for the next 50 years so Rule 2111 provides a great opportunity for the advisor to align the adviser’s suitability standard with a fiduciary obligation and move the client closer to “doing something” which is only done when confidence is restored.

Right now, according to Jason Zwieg, in today’s Wall Street Journal, investors are doing nothing. Ad visers in all channels of distribution need to be reminded that doing nothing now still constitutes an obligation to do something in documenting all decisions even if it means putting money under the mattress. Advisers can’t be like Yogi Berra and let their clients come to a fork in the road and take it without justification and validation. Many Investment Advisor Broker-Dealer advisers while lambasting buy and hold and modern portfolio theory are not justifying the decision to purchase an annuity and hold it regularly. This new rule should be a warning shot across  the bow of every adviser’s practice, especially if they sell annuities. There are some great software resources out there that solve for income and can be used to justify active management including the Retirement Analyzer from several Digital Marketing Orgnizations and Field Marketing Organizations.

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