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SEC Commissioner Questions the Benefitsof an Adviser SRO.In remarks before a conference of investmentadvisers last month, SEC Commissioner LuisAguilar was critical of calls for creation of a selfregulatory organization to oversee advisers. Whileacknowledging that the SEC resources arecurrently inadequate to effectively overseeadvisers, Aguilar suggested an adviser SRO was an“illusory” way of dealing with resource issues.Because an SRO would have significant trainingand start-up costs and would likely pay highersalaries as a private sector entity, resources wouldbe better allocated directly to the SEC, accordingto the Commissioner. Saying that the SEC shouldnot “outsource” its regulatory obligations, Aguilaradded that it is “the only securities regulator withthe necessary experience in dealing with aprinciples-based regime. In fact, the SEC hasadministered this regime for over 70 years. Noother regulator or SRO has this experience – noris any other entity directly accountable to thepublic.”Labor Department and SEC to Look atTarget Date Funds.Do you have clients in target date funds? TheDepartment of Labor and the SEC haveannounced a joint hearing to examine the fundswhich allocate investments among various assetclasses and automatically shift the allocation tomore conservative investments as a “target” dateapproaches. The June 18 hearing is expected toexplore how fund managers determine assetallocations and changes to asset allocations,including glide paths, over the course of a fund’soperation, and how they select and monitorunderlying investments. Disclosure of risks toinvestors is also expected to be a focus of thehearing. In February, Sen. Herb Kohl, D-Wisc.,wrote to the SEC and Department of Labor askingthem to look into risks related to target date fundsand consider whether regulations are needed.12b-1 Fees Back in Focus for the SEC.In testimony before a subcommittee of the SenateAppropriations Committee, SEC Chairman MarySchapiro disclosed that she has directed staff toprepare a recommendation on whether to makechanges to Rule 12b-1, which allows mutual fundsto use fund assets to pay expenses includingpromotions, distributions, and brokercommissions. Noting 13 billion in 12b-1 feeswere generated in 2008, Schapiro said that it wastime for a “comprehensive re-examination” of therule and fees. “If issues relating to these feesundermine investor interests, then we at the SEChave an obligation to step in and adjust ourregulations,” Schapiro added. In a 2007 survey,FPA members indicated that 12b-1 fees are anappropriate form of compensation that should bepreserved, but recognized that improveddisclosure requirements could be beneficial.FINRA Adopts New Disciplinary DisclosureRules.On May 13, 2009, the SEC issued an orderapproving, on an accelerated basis, FINRA’srequested changes to forms U4 and U5. The mostimportant changes were:1) Revised questions on the forms tomore accurately reflect the most recentchanges to the definition of statutorydisqualification;2) Required disclose of arbitrations orcivil actions where claims of salespractice violations are made against anagent, even if the agent is notspecifically named in the action; and3) Raised the monetary threshold thattriggers a reporting requirement onsettled cases from 10,000 to 15,000.Apparently, there has been some confusion aboutwhat was required to be disclosed under statutorydisqualifications. The new language is intended tomake the requirements clearer. This change willnot go into effect for 180 days to allow firms to gothrough their records and make any necessarychanges to pre-existing disclosures. The other twochanges are prospective, agents will not have to goback and amend their records. However, FINRAwill go back and revise disclosures for older casesso that those cases that settled for under 15,000will no longer appear on BrokerCheck.Federal Tax IssuesPresident’s Tax AgendaOn May 11, the Obama administration provided acomprehensive description of its priority taxproposals for the coming fiscal year. In what isoften referred to as the Treasury Green book, theadministration laid out its plans for addressingtax code changes. Several proposals of interestare: Modifying the estate tax rules on valuationdiscounts Requiring taxpayers using GrantorRetained Annuity Trusts (GRATs) to hold thetrust for a minimum of 10 years; limiting tax rateat which itemized deductions can reduce tax

liability; and requiring businesses to file a Form1099 to report payments made to a corporationfor services totaling 600 or more in a calendaryear.FPA Benefits at a GlanceSenate Finance Committee ReleasesOptions to Pay for Health Care Reform.A report from Senate Finance CommitteeChairman Max Baucus, D-Mont., and rankingRepublican Charles Grassley of Iowa outlinespotential revenue raisers to pay for overhaulingthe nation’s health care system. Some of theoptions include: limiting the existing income taxexclusion for employer-provided health insurance,limiting pre-tax contributions to FlexibleSpending Accounts (FSAs), limiting the deductionfor medical expenses in excess of 7.5 percent ofadjusted gross income (AGI), and imposing“lifestyle” taxes on alcoholic and sugary beverages.For more information, pleasebdozier@dozierconsulting.netemailtoFPA Quick links: Join http://www.FPAnet.org/Membership/Individual/Renew http://www.FPAnet.org/Membership/JoinRenew/Refer a colleague pdate Profile file/PlannerSearch (member) PlannerSearch (consumer) omapps/search.cfmCareer Center - http://careers.FPAnet.org/FPA Store http://www.FPAnet.org/FPAstore/Annual Conference http://www.FPAAnnualConference.org/Virtual Learning Center http://www.FPAnet.org/Learn/VirtualLearningCenter/ 12 Free continuing education credits with theJournal of Financial Planning online exam – a 300 value An annual subscription to the Journal ofFinancial Planning – the FPA’s official, peerreviewed monthly publication – a 90 value! Solutions – a bimonthly, FPA members-onlypublication, offers ideas and concepts to helpimprove the efficiency and profitability of yourpractice. Complimentary quarterly practice managementCD’s, containing cutting-edge presentations fromleaders in the financialplanning profession. FPA This Week – FPA’s weekly e-newsletter,which brings you updates on FPA happenings andcurrent industry events. Regular updates, through FPA’s governmentrelations efforts, on changes and current trends incompliance and regulatory requirements thatcould affect the way you do business. Opportunities for networking with your peersand mentors across the country, via an onlinecommunity or face-to-face at nationalconferences. Access to unmatched educational programsincluding national meetings, self-study courses,and virtual sessions through FPA’s VirtualLearning Center at discounted rates. Substantial members-only discounts onpractice management and client marketing tools,education products, continuing education examsand more. Affiliation with a local chapter in your region. Opportunities for giving back to the professionby helping consumers in need with pro-bonofinancial planning assistance. Access to FPA’s Online Practice ServicesCenter, which includes a compilation of resources,business ideas, practice management techniques,products, services, and partnerships to supportyou in creating the kind of practice you desire. Reduced tuition rates to CFP Board-Registeredprograms, free assessment tests and CFP reviewmaterials at reduced rates.In addition, the Middle TN chapter provides youwith networking opportunities, CE at chaptermeetings, annual Educational Symposium,opportunities to give back to the community, andmuch more!

For more information on how to become an FPAmember, please visit the national website atwww.fpanet.org.Screening Funds Using MorningstarAdvisor WorkstationBy Sam H. FawazWith so many mutual funds and exchange tradedfunds (ETFs) on the market to choose from, anessential exercise for any planner is to figure outthe best way to “screen” out the desirable fundcandidates from the undesirable ones. Regardlessof the tool used to help with the screen, you mustcome up with the desired characteristics of thefunds you intend to invest in (i.e., the screencriteria) and design the layout of the desired datapoints to compare. In this article, I share with youthe current approach that I use to decide on theequity funds to use in client portfolios.While I use Morningstar Advisor Workstation(MAW), most of the concepts I describe hereapply to other versions of Morningstar productssuch as Principia and branded versions of AdvisorWorkstation. This article assumes that you arefamiliar with using these products and will skipover the detailed “how to use the software” parts.If you don’t subscribe to one of the Morningstarresearch products, a surprising amount of freedata and a screening tool are available via theconsumer Morningstar site andhttp://morningstaradvisor.com to help youconstruct a “manual” screen. Regardless of theresearch tool you use, I’ll collectively refer to themas MAW for simplicity’s sake.Let me say up front that MAW is a “webified”version of the Microsoft Windows and disc-basedMorningstar Principia research tool. As such, ithas more than its fair share of idiosyncrasies. Tocall them annoying is putting it mildly and beingkind. From non-expandable frames to keystrokesthat don’t work in normal Windows fashion, it canbe maddening at times to maneuver through theapplication. Since it’s a hosted product, it can alsobe sluggish at times. And since it is accessible viathe web, the absence of a good connection canstop your work in its tracks. But not having toinstall monthly updates and having current dailydata is pretty nice.Setting up the ScreenTo set up the screen, I first have to choosebetween mutual funds and ETF’s. Because ofdifferences in their structures, you cannot create acombined screen of mutual funds and ETF’s. Butbecause of their similarities, I really wish theywould make this possible in a future release tomake comparisons easier. In this article, I willfocus on mutual funds, though the concepts andcriteria are very similar for ETFs.In MAW, I construct my initial screen byspecifying the following criteria (Tools, Search ByCriteria ):1. Morningstar Category: You must firstspecify the type of fund you’re looking for,be it large cap growth, small cap value,mid-cap blend, etc. This narrows the fieldof 25,000 funds considerably.2. Brokerage Availability: Of course, youwant to ensure that the funds you arescreening for are available at your brokeror custodian. If you have more than onecustodian, then you must set up thescreens separately for each custodian sinceMAW does not allow for multiplecustodians in the same screen. I’m notsure if any of the other tools allow multiplecustodians with an “or” statement, so tryand see if it works for you. This limitationshould be on their short list to fix forMAW.3. Percent Rank Category 5 Yr (Month End):Your choices here are to select month endor current values. For comparability andcompatibility, I like (prior) month endvalues. You may prefer to add orsubstitute the Percent Rank Category 3 yror 10 yr depending on which asset categoryyou are screening and your desired timeperiod. The percent I use here is less thanor equal to 25 (the top 25%), but Isometimes increase it up to the top 50% ifthe number of selected funds in the screenis too low.4. Net Assets MM: To eliminate newlycreated funds and those with little

traction, I screen for funds with 50million or more in total assets. If thenumber of funds from the initial screen istoo high, I increase the criteria up to 100million or more.5. Lifecycle: To keep the asset categoriespure, and because I don’t care to uslifecycle funds, I set this criteria to “No.”6. Distinct Portfolio: To eliminate duplicateclasses of the same funds (i.e., the samefunds with differing expense ratios and feeschemes), I set this criteria to “Yes”. If thedesired selection conflicts with yourpreferred fund type, you can search for thecorresponding fund later.7. Optional Criteria:a. Front Load or Deferred load: I setthese criteria to equal zero.b. Closed to new investments: I setthis criterion to equal “No”c. Minimum Initial Purchase: I setthis to less than or equal to 10,000 and adjust as necessary.d. Manager Tenure: I set thiscriterion to a minimum of 3 to 5years or more.The above criteria should be adjusted to producethe initial number of funds you want to work withdepending on whether the screen results in apopulation that is too many or too few. You mayhave other criteria that are important to you, sofeel free to add those in.Morningstar Summary Report LayoutNow that you have your search criteria specified,MAW will display your screened funds withvarious columns of data based on one of severalpredefined views or layouts. You can chooseamongst the predefined layouts or construct yourown custom layout.Your custom layout will need to be constructed byselecting “Custom” from the View menu in MAW.Make sure that you save the layout for future useonce you’ve selected the below listed columns.Also, ensure that you save each of your finalsearch results as a List (select all funds, click onFile, Save selected items as list.)The columns that I use are presented in the ordershown below. You should add other data columnsthat are important to you, but you are limited to30 columns of data in MAW:Fund NameFund TickerMorningstar CategoryTotal Return 12 Mo (mo-end)Total Return 3 Yr Annualized (mo-end)Total Return 5 Yr Annualized (mo-end)Total Return 10 Year Annualized (mo-end)% Rank Category 12 Mo (mo-end)% Rank Category 3 Year (mo-end)% Rank Category 5 Year (mo-end)% Rank Category 10 Year (mo-end)Morningstar Risk 5 YrMorningstar Return 5 YrInformation RatioDownside Capture Ratio 5 YrUpside Capture Ratio 5 YrBear Market Rank %Turnover RatioBeta 3 YearBeta 5 YearStd Dev 3 yearStd Dev 5 YearTax Cost Ratio 3 YrTax Cost Ratio 5 YrAnnual Report Net Expense Ratio12b-1 CurrentManager TenureTotal Assets MMAs you can see, there are far more data pointspresented in the summary report than were usedin the screen criteria. This is where we get downto the nitty-gritty of the funds and decide whetherto reduce or expand the population from theinitial list of funds generated by the screen.Reducing the Population & Selecting FundsHere’s where the real work begins as you use yourjudgment, experience and preferences to narrowdown and eliminate fund choices from your list.Using any of the above criteria, you can tighten orexpand the range of options allowable in yourfinal list of funds. I usually print out the list andstart highlighting and crossing out the funds thatmeet or don’t meet all of my unspecified(unscreened) criteria.

MAW has the capability to calculate a categoryaverage that you can include in your list of funds.It can also calculate an average of the funds you’vescreened (selected). You can use these figures tohelp further weed out underperforming funds.Thank you to ourmeeting Sponsors!In the end, your final selected funds shouldinclude those that meet all your criteria. In somecases, some of your favorite funds might not meetall the criteria of your screen. But sometimes thescreen just can’t capture some intrinsic measuresof why a fund remains a good choice, so yourjudgment is required when making your finalchoices. As long as you are using a screen todocument your fund choices, then you should alsodocument why you continue to use the “nonqualifying funds” for compliance reasons.Eric Austin404.831.1269Be sure to review the Morningstar pages for yourfinal candidates and read the analyst commentsand other important criteria. Compare theexpense ratios which can help you decide betweentwo similarly performing funds. If you’reinvesting for taxable and non-taxable accounts, besure to select the funds with the appropriate taxcost and turnover ratios for your purpose.And now that you are done, it’s time to set up asimilar screen for other asset classes, ETFs orbonds. You can usually save and re-use much ofthe search criteria and, of course, the layout youjust set up. Yep, more fun!If you have any feedback or suggestions forimprovement on this approach, please be sure toshare your comments with me. I’d love to hearfrom you.Sam H. Fawaz, CFP , CPA works with YDreamFinancial Services & Solutions in CantonMichigan and Franklin Tennessee and has beenhelping clients and financial planners withfinancial planning & technology solutions forover 20 years. He has been writing about tax,financial planning and technology solutions forover thirteen years. He can be reached via email at hf@ydfs.com or at (734) 447-5305 withany questions. You can follow Sam on hisTwitter microblog athttp://twitter.com/themoneygeek or at his blogat http://themoneygeek.com. His companywebsite is at http://www.ydfs.comEmily JamesCommunity Relations Coordinator615.507.2686Paul W. Stovall, CFP 615.966.5251paul.stovall@lipscomb.eduHugh Black615.545.5520

2009 Board of DirectorsChairmanKris J. Kinslow, CFP , CLULincoln Financial aul W. Stovall, CFP Lipscomb e PresidentWilliam R. Welborn, CFP Waddell & mSecretaryH. E. (Buddy) Wootten, III, MS, CFP , CLUInnovative Financial Group615.385.3867 ext. 121buddywootten@hotmail.comTreasurerBryan S. Jones, CPA, CFP CPA Consulting Group615.322.1225Bryan@cpacg.comCareer DevelopmentDr. John T. Lee, CFP MTSU615.898.2528jtlee@mtsu.eduCorporate SponsorshipShannon Buckner, CFP SunTrust Private Wealth Government RelationsS. Brad Dozier, JD, CPA, CFP Capstone Financial, d T. Howell, CFP , ChFC, CLUCapital Financial yan P. Fay, CFP SunTrust Bank615.748.4364bryan.fay@suntrust.comProgramsPaul C. Hayes, JD, CPA, CFP Waller Lansden Dortch & Davis615.850.8466phayes@wallerlaw.comProgramsJerry Moore, CFP , CIMAAmerican Century Investment ic RelationsDr. W. Fred Kendall, CFP Belmont lic RelationsFanci Worthington, CFP fanciw@gmail.comSymposiumVance P. Lahey, CFP Ameriprise Financial -At-LargeW. Douglas O’Rear, CFP O’Rear & es.comDirector-At-LargeMichael S. Flanagan, CPA/PFS, CFP Wilson Bank & ional Membership CommitteeRobert V. Bolen, CFA, CFP Bolen Dodson & Associates615.242.3808bob@bolendodson.comFor additional information please contact ourchapter administrator at 615-473-1450 orfpamidtn@bellsouth.net.We hope to see youat the July 15thChapter meeting!

CFP Certification Program: DATES: September 8th, October 20th and December 1st TIME: 5:00-7:00pm LOCATION: Massey Business Center, 4th Floor RSVP: (615) 460-5554 For more information, please contact Lindsey McCullough, Program Manager, at (615) 460-6546 or Lindsey.mccullough@belmont.edu. Government Relations Report SEC Proposes New Audit .