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NASD Allows Brokerage Clients to Get Web-Planning Tools

Brokerage firms may soon be able to offer their clients interactive "investment analysis tools," thanks to a proposal from the NASD to roll back its long-standing policy forbidding the use of such products.

"It essentially would allow the use of these tools, subject to certain important protections for investors," said Tom Selman, NASD SVP.

Brokerages could use existing investment analysis tools, or create their own. Typically, the software would crunch information such as an investor's age, financial situation and investment objectives to develop statistical outcomes. It would let brokerage clients see, for instance, whether a certain investment approach will let them retire in 10 years with an income of $100,000 per year. The results would have to show a range of probabilities, however, based on variables such as the performance of the economy over the life of the investment.

Financial advisers and funds have long offered such automated tools to their customers. But the NASD was concerned that such tools violated its principle that brokerages should not predict product performance. That rule is why brokerage ads contain so many disclaimers, for instance.

Among the safeguards that the NASD wants are:

1) Disclosure of the entire range of possible outcomes, giving both downside risk and upside gain;

2) Disclosure of the universe of investments considered and a statement that other investments not considered might have characteristics similar to those that the tools analyze;

3) Explanation of all material assumptions in a clear and understandable manner; and

4) Disclosure of whether the tools search, analyze or in any way favor certain securities and the reasons for such selectivity.

Samuel Hull, a CFP with Northstar Financial Planning in Bedford, N.H., believes it's a mistake to give brokers a prognosticating tool without requiring additional training. "As CFPs, we go through a thorough education program in order to be licensed," he said. "I'd wonder whether these same safeguards apply to these other folks."

To Hull, a fee-only planner, it's another example of "folks trying to get on our turf." And it just creates confusion for customers, he added. "The CFP Board of Standards will have a statement to make on this, I'm sure," he said.

Although the board declined to comment on the proposal, a spokesperson said it was monitoring the topic. When asked whether the board was concerned about brokers encroaching on planners' turf, the spokesperson said that since many registered reps and brokers are obtaining their CFPs, it's hard to tell whether the decision would be a competitive disadvantage for planners as a group.

The proposal can be viewed on the NASD Web site at