As state regulatory, tax battles loom, FPA is establishing statewide organizations to counter threat

The Financial Planning Association is aiming to help build dozens of statewide organizations that could help counter the looming threats of state taxes and poor state regulation, said the organization’s new president-elect in an interview yesterday.

Paul Auslander, who was named to the evolving three-year term on Friday, said two states have embraced the idea already. The FPA of Florida is rebranding itself as the Florida Financial Planning Association, he said; and California planners are working on a similar concept.

“We’re setting up state organizations as we speak,” he said, adding that he believes it’s possible 20 states may have such organizations set up by the end of next year. Auslander was selected by the FPA’s board to succeed Marty Kurtz, who will be president in 2011 and will go on to be chairman the following year.

State organizations could fight some key battles in the near future, as increasingly cash-strapped states look for new sources of revenue, said Mark L. Prendergast, CFO and director of Tax Strategies at Inspired Financial in Huntington Beach, Calif. He’s one of the new slate of FPA board members chosen on Friday.

The eventual power the state organizations may wield is unclear, but many professions have extremely powerful state organizations set up to counter and influence state regulation. In offering aid to such organizations in the financial planning profession early on, the national FPA is building influence. But the organization is not doing away with the local chapter model.

An FPA spokeswoman said, “We are not moving to a single state chapter concept, this is simply an organizational effort to marshal the influence of chapters within a state.”

Prendergast ticked off issues of critical importance to planners and advisors that might arise in the states, including a sales tax on services, a transaction tax on securities, or regulatory issues arising from the transfer of RIAs with $100 million or less from SEC to state oversight.

Auslander helped lead the effort in Florida in 2008 to defeat a proposed tax on services. “I had visions of our members being led away in cuffs,” he joked. “They don’t even know how to collect sales tax.”

State power grab

Auslander, an advisor since 1980, started out in the insurance channel, working for Newark, N.J.-based Mutual Benefit Life. He rapidly shifted into financial planning.

In 1989, he went independent. The revenue of his firm, American Financial Advisors, is split fairly evenly between the fees on its $185 million of assets under management and financial planning services, which he charges separately for.

He is becoming an FPA leader at a time of unprecedented change in the industry, when the regulation of the entire profession of financial planning actually seems a possibility. The implementation of financial reform left the future of regulation for financial planners up in the air, but a new cohort of Republican lawmakers sweeping into office makes expansion of national regulation, which the FPA has favored, less likely, Auslander says.

The flip side of that coin is that the states – which have already made a major power grab in bringing regulation of nearly 4,200 RIAs under their umbrellas – are more likely to regulate financial planning. See What advisors should know about the switch to state oversight.

On the thorny issues of the fiduciary standard and how it should be applied to broker-dealers, Auslander says that he sees himself as a peacemaker, because he knows both sides of the business– and that there’s a window of opportunity to play that role. In the past year, he said, he’s seen the broker-dealer community move closer to the idea of operating under a fiduciary standard.

“The f-word is in use,” he said. “It’s being talked about Merrill Lynch and Raymond James.”

“Sometimes I walk out of meetings .. with SIFMA and others, thinking I just left a Kumbaya situation.”

Auslander stopped short of advocating for a strict fiduciary standard, however, taking a more pragmatic view. “It’s never going to be perfect,” he said. “You had the wild west for a long time. We want to get to the point where if your mother calls and says ‘I just hired a financial planner,’ you don’t freak out.”

FINRA a changed organization

He said he believes FINRA has the inside track on regulating RIAs. That idea doesn’t bother him. “It’s not your grandfather’s FINRA anymore,” he said.

The tumultuous environment has brought challenges to the FPA.. The industry’s biggest organization with 24,000 members and an annual budget of $13.1 million is also its broadest umbrella group, with members ranging from fee-only planners to insurance brokers and bank advisors.

It lost 10% of its members over the past two years, in part because of the economy and in part because of controversial stands the organization took favoring the fiduciary standard. See The industry’s largest association has plenty at stake. The bleeding has been staunched over the past few months, the organization reported, as new members have begun stepping up to replace those leaving the organization.

The FPA is in the midst of a big branding campaign, which Auslander said would be followed by a consumer campaign emphasizing how people can handle their debt burdens.

But, he said he believes the FPA as an umbrella organization is in a strong position in an environment in which business models seem to be migrating together. “The targeted groups are the ones at peril, not us.”

Ellen Turf, the CEO of NAPFA, one of the industry’s most targeted groups with a membership consisting of fee-only financial planners, said NAPFA has been growing at a rate of 10-15% a year “at a time when many other organizations are losing members.”

“I think there’s space for all,” she said.

The other new FPA board members are:

Samuel J. Gallucci, executive director and director of Financial Planning Initiatives at Morgan Stanley Smith Barney in Jersey City, N.J.; Archibald R. Hoxton IV, president of Hoxton Financial Inc. in Shepherdstown, W. Va.; Julie Littlechild is founder and president of Advisor Impact in New York City; Keith A. Loveland, founder and consultant of Loveland Consulting in Minneapolis, Minn.; and James Tissot, CFP® is writer, editor, instructor and president of Prism Planning Inc. in New York City.