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Your Money: Financial Advice for Those With Hummingbird Nest Eggs

Brokerage firms have been making these sorts of moves for years, and Merrill is notorious for a leaked memo in the late 1990s that discouraged “charity work” for clients with less than $100,000 in assets — “poor people,” as the memo put it.

That patrician view is probably a minority one: if the people who run Merrill Lynch felt that way, they wouldn’t be doing what they’re doing now, which is trying like mad to figure out a way to service those smaller accounts profitably.

But Merrill’s decision to tell its brokers that they might not get paid if they persisted in working with such people reflects one of the sorriest truths of the financial services industry: Nobody has figured out a way to consistently give large numbers of people reasonably priced financial advice across all areas of their life and to do so in an ethical manner.

The case of Merrill — and its effective opposite, a start-up called LearnVest — is instructive in part because it reflects how the world of managing money has changed since Merrill Lynch first started hanging shingles on Main Streets all over the United States.

Charles E. Merrill & Company opened for business nearly 100 years ago, and the company (along with Merrill’s current owner Bank of America, interestingly enough), resolved to serve Main Street, not Wall Street. Charlie Merrill put it this way, according to the 1994 book by my colleague Joe Nocera, “A Piece of the Action.” In it, he quotes Mr. Merrill as writing the following: “A new guild has sprung up in the [investment] banking profession which does not despise the modest sums of the thrifty.”

Many brokerage firms have backed away from that sort of stance in recent years. An old saw in the industry notes that the little old lady with the diminishing balance who hounds you when her dividend checks arrive late takes up five times as much time as a 50-year-old millionaire.

Besides, you make more money serving richer people. So the big firms (and thousands of smaller operations and individuals) fight hard over the 1 percent and then siphon off a small cut of their assets each year through fees and other revenue mechanisms.

Everyone else ends up at Charles Schwab or Fidelity and pays roughly $1,500 to $3,000 if they want a full financial plan with advice on insurance and mortgages and other things beyond investments.

A few years ago, Citi took a bold step with its myFi service that aimed to provide just that sort of holistic guidance from bank branches. But it introduced the service at one of the worst economic moments since World War II, and the bank shuttered myFi when it did not succeed quickly enough for its tastes.

Nowadays, a thrifty Merrill customer with modest sums is told to use a service called Merrill Edge. And Merrill is taking its best shot at attracting and keeping them (and eventually) upgrading them to a real broker), given that it believes that there are 28 million households with $50,000 to $250,000 in assets.

The people who service them are called Financial Solutions Advisors. There are more than 500 of them in bank branches and the company will hire 500 more in 2012. There are currently about 800 F.S.A.’s working in call centers as well.

The company (to my great surprise) could not say how many of them were certified financial planners, the sort of people trained to look at a client’s whole life before making investment recommendations.

If Merrill isn’t tracking this, it’s tempting to conclude that the company doesn’t make the credential (and holistic advice) a priority and that all it wants to do is push investments. Still, Merrill does the right thing and encourages people to earn the certification by covering classes for F.S.A.’s who want to become certified financial planners.

Dean Athanasia, the executive who oversees Merrill Edge, said that any good investment advice had to be holistic by its very nature. “If you have a mortgage and debt, then you need to factor that into the consideration of your planning for the future,” he said. “You can’t just look at assets.”

The Merrill Edge investment account costs a flat $125 each year if you are working with an F.S.A., though the company will also manage a portfolio for you for 1 percent of your assets annually. As for the underlying mutual fund fees, the firm collects “the appropriate fees based on our agreement with the firm and the prospectus.”

Anyone working this way needs to ask their adviser for a plain-English explanation of how much money, if any, Merrill stands to collect in any way, shape or form now or in the future, based on the mutual funds it selects for you. And if any of you have asked an F.S.A. for a collection of low-cost Vanguard or similar funds, I’d be curious to hear what the reaction was.

On compensation, Merrill appears to be doing the right thing, meanwhile; advisers earn a salary plus incentives based on the amount of assets they gather and manage, whether it’s in bank savings accounts or in mutual funds or other investments.

The most curious thing about my conversation with Mr. Athanasia is that he didn’t once mention personal budgeting.

Tags: Advice, Financial, Hummingbird, Money, Those

Obama Asks Congress for Powers to Trim Government

Mr. Obama called on lawmakers to grant him broad new powers to propose mergers of agencies, which Congress would then have to approve or reject in an up-or-down vote.  If granted the authority, he said, he would begin pruning by folding the Small Business Administration and five other trade and business agencies into a single agency that would replace the Commerce Department.

The White House estimated that the consolidation would save $3 billion over 10 years and result in reductions of 1,000 to 2,000 jobs. The savings is a mere rounding error in the $3.7 trillion annual budget, but the numbers may be less important than the message that Mr. Obama wants to cut wasteful spending.

“No business or nonprofit leader would allow this kind of duplication or unnecessary complexity in their operations,” Mr. Obama said to an audience of small business owners at the White House. “You wouldn’t do it when you’re thinking about your businesses, so why it is O.K. for our government? It’s not.”

By putting the onus on Congress to provide authority for streamlining the government, Mr. Obama is seizing a core Republican issue — the inexorable growth of the public sector in recent decades — and trying to turn it to his advantage. Even his language was reminiscent of Mitt Romney, the Republican presidential front-runner, who says he would use his experience in business to make government more efficient.

It is not clear whether Congress, where much of Mr. Obama’s legislative agenda has languished, will go along with this initiative. Republicans were immediately skeptical, suggesting that the White House was more interested in honing its re-election message than in reducing the size of government.

Even Democratic leaders expressed misgivings about folding the Office of the United States Trade Representative, a stand-alone agency with just 277 employees, into a large bureaucracy, saying it could harm American trade policy.

“Making it just another corner of a new bureaucratic behemoth would hurt American exports and hinder American job creation,” said Senator Max Baucus, the Montana Democrat who is chairman of the Senate Finance Committee, in a statement with Representative Dave Camp, the Republican chairman of the House Ways and Means Committee.

Despite regular vows by presidents to overhaul government — Mr. Obama made one in his State of the Union address last January — few have followed through. Those who did, like Richard M. Nixon, often met with failure. Scholars have mixed feelings about such reorganizations, with some arguing that they rarely lead to lower headcounts, more effective departments or savings.

“My gut tells me those benefits will end up being much smaller than advertised, and the costs much larger,” said Steven M. Teles, a political scientist at Johns Hopkins University, pointing to the time wasted during the consolidation and the changed political dynamic between the agencies and Congress.

But experts on government efficiency applauded the initiative, saying it was overdue, and some analysts said it made sense to combine agencies involved in business development, foreign investment and trade promotion into a single department with the mandate to promote American exports.

“If you look at American exports, it’s dominated by big business,” said Daniel W. Drezner, a professor of international politics at Tufts University. “If you want small and medium enterprises to get more involved in exporting” — a goal of the Obama administration — “having small business and the trade office in the same agency makes sense,” he said. “So this could be a boon for that.”

Mr. Obama emphasized the confusing tangle of agencies that businesses face when they seek help from the government. To illustrate the problem, he gestured toward a screen behind him that showed the dozens of Web sites, offices and customer service centers, many with overlapping functions.

This article has been revised to reflect the following correction:

Correction: January 13, 2012

An earlier version of this article contained an incorrect count of the people who work at the Office of the United States Trade Representative. It has 227 employees, not 277.

Tags: Congress, Government, Obama, Powers

Ex-S.E.C. Official Settles Conflict-of-Interest Case

WASHINGTON — A former enforcement official for the Securities and Exchange Commission who was accused of blocking or closing at least three investigations into the activities of the Stanford Financial Group, which the authorities claim was a $7 billion Ponzi scheme, has settled civil charges brought by the Justice Department accusing him of violating conflict-of-interest rules by later representing Stanford before the commission.

John M. Bales, the United States attorney for the Eastern District of Texas, announced Friday that the former official, Spencer C. Barasch, who from 1998 to 2005 served as the enforcement director for the S.E.C.’s Fort Worth regional office, had agreed to a civil settlement that would result in payment of a $50,000 fine.

That is the maximum fine for a violation of federal conflict-of-interest rules, but it is much less than the punishment Mr. Barasch would have faced had the Justice Department pursued a criminal case. The civil settlement ends for now any further criminal investigation of Mr. Barasch. A separate civil case involving Mr. Barasch continues at the S.E.C.

Paul Coggins, a lawyer representing Mr. Barasch, said the case was settled “to avoid the expense and uncertainty of protracted litigation.” Mr. Barasch’s actions after leaving the S.E.C. “were expressly permitted by the postemployment statute,” Mr. Coggins said. “At no time has he compromised his honor or ethics, and we vigorously dispute any suggestion to the contrary.” Government officials said at a Congressional hearing last May that Mr. Barasch was the subject of a criminal investigation into his work for Stanford, which was also the subject of much of a 150-page report by the commission’s inspector general issued in March 2010.

That report found that Mr. Barasch frequently discouraged or halted further investigation into Stanford Financial by S.E.C. staff members, and that he subsequently represented the firm in talks with S.E.C. officials about other or continuing investigations.

The S.E.C. is continuing its own attempts to reach a separate civil settlement with Mr. Barasch, people close to the commission said. Such a settlement could include an extended or permanent bar from work before the commission.

H. David Kotz, the S.E.C. inspector general, said in a statement Friday that the Justice Department settlement “sends a strong message that former federal officials cannot abuse the public trust by attempting to profit personally from matters on which they worked as government servants before joining the private sector.”

Mr. Bales said that the case demonstrated that the S.E.C.’s ethics program worked, because commission lawyers had told Mr. Barasch that he was barred from representing Stanford Financial on agency business. “Today’s settlement demonstrates that we will hold those that shirk their professional responsibilities accountable for their conduct,” he said.

According to the Justice Department’s settlement, Mr. Barasch denied any wrongdoing. He said that he lacked the unilateral authority to close or hamper an investigation, and that he received “directives and pressure from his superiors in Washington” to devote his office’s resources to financial and accounting fraud rather to Ponzi schemes.

Mr. Barasch also denied that he had been told he was permanently barred from representing Stanford Financial. In December 2006, he billed the firm about $6,500 for service and expenses.

R. Allen Stanford, the founder of Stanford Financial, is scheduled to go on trial on Jan. 23 in Houston.

He is charged with 21 federal criminal counts of defrauding investors, who were encouraged to buy certificates of deposit at a Stanford bank in Antigua. Instead of being invested, federal officials say, much of the money went to finance Mr. Stanford’s lavish way of living.

Tags: ConflictofInterest, ExSEC, Official, Settles