Planners have taken note of the fact that clients with incomes of $1 million or more were twice as likely to be audited by the IRS in 2011 than they were in 2009. Several say they are taking steps in anticipation of still greater vigilance on the part of the agency.

"We've noticed a significant increase in the last couple of years in audits," says Jeffrey Thomasson, founder of the second-largest RIA in the country, Oxford Financial Group, in Carmel, Ind. "It's causing the advisor community here in the Midwest to be much more intentional about the advice they give to clients in making sure everything is documented appropriately."

In Los Angeles, Jeff Fishman, founder of JSF Financial Planning, says he hasn't seen a notable increase in audits in recent years but thinks that could change. "Statistically, you've got to expect there's a greater likelihood," the planner says. "If anything, it illustrates why it's important to be cautious."

Some of the increase in audits of high-net-worth individuals is due to a drop in the number of taxpayers with $1 million or more in income to declare, a change likely due to the downturn in the economy. In 2009, the IRS audited 6.42% of the 441,715 returns filed by this demographic. That percentage jumped to 12.48% of a total 291,831 returns last year, according to the agency's report on its 2011 enforcement.

With historically high $5 million exemptions on both federal estate and gift taxes set to expire next year, Thomasson has seen this heightened scrutiny from the IRS in both of these areas of his clients' annual returns.



Guardian Life Insurance is actively recruiting hundreds of business professionals looking for a new line of work. Guardian Life will be hiring more than 800 financial representatives "by targeting and recruiting career-changers as part of its distribution force recruitment strategy," according to a company statement.

"Even before the economic downturn, many of Guardian Life's financial representatives came to us after successful careers in other industries," says Meg Skinner, the company's chief distribution officer. "We welcome career changers and experienced professionals who may have recently experienced a downsizing or who are working in unfulfilling jobs where their skills are undervalued."

Guardian Life is one of a notably large number of insurance industry employers hiring during the economic downturn. The rise in demand for qualified sales reps is driven in part by a rise in demand for more secure and reliable financial products that are not as adversely affected by an unstable economy.



Financial services industry groups are ready and willing to help the Department of Labor do a formal study of the potential impact of a redefinition of fiduciary responsibility. Several trade organizations recently wrote a letter to the agency indicating their interest in the project.

In the joint letter, representatives from the Financial Services Institute, the Financial Services Roundtable, the Securities Industry and Financial Markets Association and the American Council of Life Insurers thanked the Labor Department for asking the groups for help in developing a regulatory impact analysis of a proposed change to the way the department has long defined the term fiduciary. "We hope this expanded analysis will help provide appropriate direction to the department as you develop the re-proposed rule," the groups wrote in the letter.

The Labor Department withdrew its original rule in September after the industry groups objected to it strongly. As written, it would make getting even basic IRA advice too expensive for most U.S. workers, they claimed.

FSI President Dale Brown expressed his group's satisfaction with the Labor Department's request for assistance from the industry. "We are pleased the administration wants to learn more about our industry so that they can make an informed decision in the future," he said in a statement. "Hopefully, we can meet soon and get started on the process."



Wedbush Securities has launched a new social media initiative for financial advisors, investment bankers and equity traders. The initiative encourages them to use Twitter, LinkedIn and Facebook to boost their respective books of business.

Many advisory and financial services firms have been slow to embrace social media for a variety of regulatory and technological reasons. But Wedbush wants its advisors and traders to engage in conversational dialogue with current and prospective clients rather than defaulting to canned responses that might keep a compliance officer happy but don't take full advantage of all that social media can offer.

"We want our team to be truly 'social' with their networking. By offering a more organic approach, their personalities will show and allow them to truly connect with people," Natalie Taylor, Wedbush's vice president of marketing, said in a statement. "Each area of our firm markets a different service to a different audience. ... Limiting customization only prevents the Wedbush brand from accelerating into a market with a communication reach that spreads faster and further than we've ever seen."

Wedbush is working with Socialware, an Austin, Texas-based developer of social media middleware that provides advisors with a framework for using these sites in a compliant manner and offers tips to help them take full advantage of this new communications channel within the bounds of industry regulations. In 2010, the firm launched a Private Shares Trading Group that focuses on the research and trading of social media companies for accredited investors.



With performance under par, hedge fund managers got smaller year-end bonuses for 2011, according to the Hedge Fund Compensation Report. The average cash compensation in 2011 was $311,000, up only slightly from 2010 and supported by a larger increase in base pay, according to the report, based on data collected from hundreds of hedge fund managers and employees.

Hedge Fund Compensation Report did not break out figures for average base salaries and bonuses, but there have been reports of Wall Street bonuses declining by 30% to 40%. In 2011, only 16% of hedge fund managers said they delivered double-digit returns, down from 45% in 2010. Another 22% said they expect their fund to decline 10% or less, up from 3% who expected these declines the year before.

"Given the drop in fund performance this year, hedge fund professionals fared pretty well," says Publisher David Kochanek. "Except for only a few positions in the firm, increases in base pay more than covered the lower bonuses."

With performance waning, compensation declining and redemptions on the rise, some hedge fund professionals think they see upcoming layoffs. While roughly one in four hedge funds is looking for research analysts, virtually no other hiring is going on in the industry.

In the face of the belt-tightening going on in the industry, 44% of the hedge fund executives polled said they are happy with their compensation packages. "We've seen this before," Kochanek continues. "When the investment job market tightens, professionals report more satisfaction with their pay. Their focus changes from greener pastures and moves to becoming content with where they are. And, among hedge fund employees," he continues, "there might be good cause for celebration - that is, celebrating that they don't work for one of the big banks."

Hedge funds that participated in the survey included: Bank of America Merrill Lynch, Barclays, Citi, Deutsche Bank, HSBC, JP Morgan Chase & Co., RBC, UBP Asset Management, UBS and Wells Fargo Alternative Strategies.

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