Wealth management

SEC REQUIRES HEDGE FUND REGISTRATION: The Securities and Exchange Commission now requires hedge funds to register as investment advisors. Under the ruling, hedge funds will not have to register their individual funds. Rather, they have to provide basic information about the firm and are required to hire a chief compliance officer. Also, hedge fund firms are now subject to random inspections.Exceptions to the registration mandate include funds with less than $30 million under management, which will not have to register, although funds with $25 million or more are eligible for registration. Hedge funds that "lock up" their investors' money for two or more years or refuse to take new money can also avoid registration. The two-year loophole was meant to protect private equity and venture capital funds from getting caught up in the rule, but some managers invoked the exception to avoid registration.

In the current age of more stringent ethics codes and increased burdens on compliance officers, the level of compliance awareness in financial advisory firms has ratcheted up to new heights.During 2005, audits revealed that almost 80 percent of firms have some sort of conflict of interest not disclosed fully and fairly, with a majority of those issues centering on compensation streams - how and by whom the financial advisor is compensated.

It's not just the Baby Boom generation that is heating up the markets for financial planning and wealth management. Across the industry, the software is getting tighter, more polished and more capable.Driving these changes are four basic trends:

The Office of Thrift Supervision approved an application from H&R Block Inc. to organize a federal savings bank in Kansas City, Mo.

New York's Attorney General filed a $250 million fraud suit against H&R Block Inc., accusing the tax prep giant of steering hundreds of thousands of clients to investment retirement accounts with costs higher than what they would earn back.

Bankruptcy filings rose 10 percent last year, to a record 1.78 million, according to figures released by the federal court system.

Three consumer credit reporting agencies announced that they have created a new credit scoring system to simplify the loan process for lenders and borrowers.

The most sweeping changes to federal bankruptcy law in over a quarter century went into effect in October 2005. Distressed businesses and their creditors face new challenges, and comprehensive pre-bankruptcy planning will now need to be undertaken by debtors to ensure a successful reorganization.CPAs can play an integral role in this planning process.

NASD ENFORCEMENT CHIEF STEPS DOWN: Barry Goldsmith, the enforcement chief of brokerage regulator NASD, will step down in March to return to private law practice, and his deputy James Norris was named as his acting replacement. Goldsmith, 56, will become a partner at law firm Gibson Dunn & Crutcher in Washington, a firm known for its securities practice. Goldsmith joined NASD, then known as the National Association of Securities Dealers, a decade ago. As enforcement chief, he led investigations into initial public stock offerings by big securities dealers and conflicts of interest involving research analysts, as well as mutual fund and hedge fund misconduct - including overseeing penalties against Merrill Lynch and Wells Fargo.According to NASD, the number of new enforcement actions under Goldsmith reached record levels, from 975 in 1995, to 1,399 in 2005. Fines collected rose to $127.5 million in 2005, from $5.3 million in 1995.

Business owners may face a number of issues when confronted with the death, disability or retirement of an employee, partner or shareholder.Some of the dilemmas they face may include paying off business debts, having sufficient funds to pay estate taxes, leaving behind a stable operating business, and preserving the value of the business assets for heirs or family members.

TREASURY, IRS FINALIZE ROTH 401(K) RULES: The Treasury Department and the Internal Revenue Service have issued final regulations regarding Sections 401(k) and 401(m) related to designated Roth IRA contributions.Roth contributions were added to the code by the Economic Growth and Tax Relief Reconciliation Act of 2001, and are effective for taxable years beginning after Dec. 31, 2005.

Over the next decade, the majority of the 79 million Americans girding for retirement will begin to withdraw from their savings. This group is more likely to live longer, control their investment decisions, and be more active than any generation in history. These facts lead to the conclusion that setting up retirement spending plans is likely to become a service demanded of every financial advisor.The number of variables complicates the task.

Personal financial records are a necessary part of our lives, but it's easy for clients to get overwhelmed by the volume of papers.According to the New York State Society of CPAs, the beginning of the year is an excellent time to get financial records in order. Here is some advice to help clients determine what they should keep and what they should purge.

The Roth 401(k) contribution option, even with almost five years of advance warning, is taking a while to catch on.Reports are that fewer than 20 percent of eligible 401(k) plans now have them, with the rest sticking with tried-and-true pre-tax deferral contributions. If field data is accurate, however, this tepid reception is about to change. When employers, especially those also wearing the hat of the highly paid employee, begin to run the numbers, Roth 401(k) accounts are looking very attractive. This view is especially true following the recent release of favorable final regulations on Roth 401(k) contributions.

MORNINGSTAR TO PURCHASE IBBOTSON: High-profile investment research and products provider Morningstar will buy privately held Ibbotson Associates - an asset allocation service concern - for $83 million. The deal is expected to close in the first quarter of 2006. Morningstar said that it would retain the Ibbotson brand and is currently in the process of assembling a transition team."Ibbotson's expertise in asset allocation and Morningstar's expertise in security selection and investment research is a powerful combination," said Joe Mansueto, chairman and chief executive officer of Morningstar, in a statement. "Our companies share many similarities, and we have a firm commitment to helping investors reach their financial goals."

Consumer-driven health plans?The plans loom large in strategic decision-making for employers. Most firms have heard of the plans by now, and feel compelled to think about offering one to their employees. Health reimbursement arrangements are the most commonly implemented plan, but the newly available health savings accounts are generating plenty of interest, too.

Factors such as changes to estate tax laws and the initial wave of retirement for the Baby Boomers will bring a year of significant change for financial advisors and their clients.According to a survey conducted by Impact Technologies Group Inc., a provider of financial sales software for the banking, capital markets and insurance industries, its annual industry trends forecast for 2006 predicted that action by the federal government to change the tax code and reform or repeal the estate tax will have the most impact on how advisors handle their clients' financial plans.

CPA Wealth Provider, the magazine for CPAs who are now in, or want to enter, the financial planning world is in its fifth year and as each issue goes by, the call for financial planning gets even louder. Now, according to a new report from Spectrem Perspective, a strategic consulting firm that specializes in the retirement markets, what are called "Barely Boomers" requires advisors with a broad range of skills.

Practitioners who have been adding tax planning services to their basic preparation are taking an additional step to extend their practice into year-round financial planning."There's a natural progression from tax preparation into financial planning," said Stephen Parezo, media manager at Fiducial.

Planning for college expenses is becoming a central focus for families as the costs of higher education continue to skyrocket.Exorbitant price tags that may approach $50,000 per year are making headlines, as parents and their financial advisors look for solutions that don't delay retirement or limit a student's future. Advisors subsequently have devised a combination of savings plans, tax strategies and admissions planning to minimize the impact of pricey college expenses on families' financial plans.