the torchA p u b l i c a t i o n o f G I R A R D S E C U R I T I E S

in this issue

New brand identity reveals Girard’s legacy

Highlights from the 2011 National Educational Conference

2011 Top Ten Girard Advisors

Winter 2012

In this issue

Looking Forward, Looking Back

GL BALThe New Core

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Susie Woltman TietjenCEO/PresidentGirard Securities, Inc.

2011 was a good year for a lot of reasons. We will be recalling several of these in this magazine—which now has a fresh face and a new name—The Torch. Also, for those of you who attended the National Education Conference, you’ll have a second opportunity to re-visit the great experience that it was.

In fact, be sure to mark your 2012 calendar for October 18-21 because plans are already in place to make next year’s event even more spectacular than this years!

The highlight of the year for us was the creation of the Girard brand and a logo that symbolizes that brand. Girard’s history and my family’s history in the business are unique. We are a company with a strong foundation of loyalty built through a common vision and a commitment to family—the family given to us and the family born from our partnership. We felt it was important to have a logo that captured all that makes Girard great. Our new brand and logo were received with rave reviews.

You have probably noticed that we have launched a new and dynamic website. We think it is one of the best in the industry. I’m convinced this will make you feel proud to be a part of the Girard team and deliver increased confidence to your clients.

2012 will be an exciting year for Girard. We will be celebrating our 25th year as a registered broker/dealer and our 10th year as a dually registered broker/dealer and investment advisor. The early days, compared to today, were simple. We’ve grown significantly since then and are stronger today because of the challenges we have faced. Though we still face tough regulatory and economic times, I’m more excited than ever about our future. It’s an honor and a privilege to lead this great organization and I know that together we can accomplish great things…as none of us are as strong as all of us.

Thank you for being a part of our team.

Introducing a New Logo

Shifting to Fee-Based in 2012

Changes Ahead for Operations

In the Family with Girard

2011 National Educational Conference

Selling the Girard Brand

New FINRA Suitability Rules

AAA-Rated Firms Are Disappearing

New Branding

In 2011, Girard Securities introduced a new brand designed to reflect a new era in the company’s history. In an address at the National Education Conference in October, President/CEO Susan Woltman Tietjen expressed her thoughts as she unveiled the firm’s new logo:

“It is important for Girard to be ever-evolving, always growing and continually staying ahead of the curve. We need to seek out the next and the new.

Smart companies look to the future. They predict and project. They anticipate hurdles and prepare new paths. This is the daily goal of the home office as I know it is also yours who are on the front lines. There couldn’t be a better, stronger and more loyal group of advisors than you.

To capture this new forward-thinking approach, we felt we needed something that would clearly communicate the

attitude and energy that we have for the coming decade at Girard. The best way to do this is with a symbol and so we brought in one of the nation’s top branding firms in the financial services arena.

Over the years Jamison Advertising Group has worked with such prestigious companies as Time Inc., Home Depot, eBay, The US Olympic Committee, Avis and Hertz. In our industry their client list has included such

names as PaineWebber, AIG, Union Bank, LPL and Royal Alliance.

The end result of their efforts is spectacular from a design standpoint but we’re also so pleased that it accurately reflects who we are as a company. The entire executive team feels that this new image, and our new attitude, will fast-forward us into the future—a very bright future for everyone.”

A New Logo.A New Attitude.A New Era.

The flame speaks of the legacy we have inherited as a firm. It reflects the passing of the torch from one generation to the next. It also speaks of the rich traditions and history and experience that we share with integrity.

The torch is a symbol for victory, education and a beacon for dark times. It enlightens our paths. It sits atop the Statue of Liberty, burns as an everlasting memorial, and is the flame of unity for the Olympic Games.

The blue tones that comprise the flames are a token to the colors of our past but are now brighter, fresher and bolder than before. They overlap each other as a reflection of togetherness.

The base that is the source of the flames is solid and firm and represents the immovable and unchangeable principles upon which we are built. The three sides represent honesty, loyalty and integrity.

And the name is now simply Girard. This is how we are known both in the industry and among our clients and so we are embracing it. It states emphatically: We are Girard and we are proud.

A Few Words from Susie Woltman-Tietjen“This is the beginning of a new era in the history of Girard. One in which every advisor will play a critical role. To support you, we have surrounded ourselves with the ‘best of the best’ and our extremely low turnover rate underscores the fact that our employees feel the same way about you as I do about them. As a team, we anticipate making a mark in the financial services industry.”

Shifting Gears in 2012 Making Sense of Transitioning Your Business to Fee-Based

70% of advisors say they prefer a fee-based structure

40% Increase in revenue and profit for fee-based advisors

$14 billion Annual revenues generated by fee-based advisors

$4 billion Annual profits generated by fee-based advisors

Chances are, you’ve thought about switching to a fee-based business before. Maybe you have colleagues who are fee-based and you’ve wondered if the consistency of a steady stream of income could improve your own practice. Here’s the bottom line: there’s never been a better time than now to make the switch.

An increasing number of financial advisors are shifting from commission structures to fee-based pricing, making it the

n There are now more than 19,000 fee-based financial advisors, up nearly 40% since 2005.

n Fee-based financial advisors now generate $14.3 billion in revenues, up nearly 40% since 2005.

n Fee-based financial advisors earn $4.2 billion profits, up nearly 40% since 2005.

Building Equity in Your BusinessA book of business with significant recurring revenue is more valuable than one made up predominantly of transaction-heavy clients.

For instance, one study revealed that while commission firms sold for an average of approximately $298,000 during 2009 and 2010, fee-only firms commanded an average sale price in excess of $960,000.

The Process: Practices to ConsiderHere are a few strategies used by advisors making the transition to fees.

Adopt a fee-based mindset: Managing a fee-based practice has little to do with selling, but much to do with managing money. Offer clients an open menu of different money managers, investment styles and

fastest-growing area of the $2.4 trillion managed-account industry. For the last two decades, the dominant compensation model in financial services has been assets under management (AUM) and according to a recent research from Cerulli Associates nearly two-thirds of advisors surveyed employed a fee-based revenue model.

Trends Driving ChangeAdvisors are drawn to fee-based pricing not only because it promises stable revenue, but because it

has the potential to attract a more affluent client base. Among households with more than $500,000 in investable assets, nearly 70% of recent survey respondents said they prefer a fee-based approach rather than a commission-based structure.

Fee-Based Advisors in ActionA recent Tiburon report took a comprehensive look at this fast-growing industry segment. Among the findings it included were the following facts:

asset classes. Stay up-to-date on the latest retirement, college and estate planning resources, and make them available as a value-added service to clients. Above all, think long term and stay focused on client retention.

Leverage Technology for Competitive Advantage: The Girard Asset Management Account (GAMA), provides the entire infrastructure you need to operate virtually any type of fee-based practice.

A state-of-the-art program available to all Girard advisors, GAMA offers research, model portfolios, and internet-based performance reporting. GAMA also offers practice scalabilities, greater efficiencies and increased control.

Whether you manage client portfolios yourself (GAMA Choice) or outsource to an institutional money manager (GAMA Premier), a GAMA account will ensure that all necessary tools and resources are available to you.

Points to Remember

• Most advisors expect to increase their fee-based business as a percentage of their overall revenue in coming years.

The fee-based pricing structure is the fastest growing segment in the industry.

• Advisorsaredrawntofee-based pricing by the stability of fee revenues as well as the prospect of attracting a more affluent client base.

• Abookofbusinesswithsignificant recurring revenue is more valuable than one made up predominantly of transaction heavy clients.

• TheGirardAssetManagement Account (GAMA) provides advisors with an integrated, flexible platform that can help you effectively and efficiently grow your fee-based business. It offers you a set of portfolio construction, monitoring, and tracking tools to help you manage your book, target clients, and grow your fee-based business.

Responding to changing times, many independent financial advisors have increased their commitment to a fee-based business model by recruiting more fee-based clients.

Girard can help. If you would like to discuss how to move to a fee-based business in 2012, or simply increase your existing fee-based structure, please don’t hesitate to contact me at (858)622-2140 ext. 216 or jrogers@girardsecurities.com.

by Jason Rogers, Executive Vice President, National Sales & Marketing

The Operations Department is focused on our people, our processes and our technology. To better fulfill our goals, we felt that it would be best to make two divisions within Operations.

Introducing New Divisions

The first of our new divisions is Brokerage Operations which is responsible for everything related to clearing firm operations. This includes cash management, check writing, transfers and margin.

The second is Broker Relations. This division is responsible for everything related to new business processing (new accounts) and Girard Access, our technology platform. Our financial and organizational commitment to Girard Access were the drivers for creating this division. Today our business processes and technology intertwined and we needed a division dedicated to supporting you in this area.

Division Leaders

In addition to creating two new divisions, we created two new middle-management positions to

lead them. Girard has very talented employees and we were able to promote two of them to be division leaders. Claire Maurer has been promoted to Assistant Vice President of Broker Relations and Dominick Zizzo has been promoted to Assistant Vice President of Brokerage Operations.

Claire has been with Girard since 2004. She has a Bachelor’s degree and the Series 7 and 24 licenses. Claire is our resident Girard Access subject matter expert. She also has an in-depth knowledge of brokerage and non-brokerage business processing. As AVP of Broker Relations, Claire will mentor the new accounts staff and play a key role in providing Girard Access training and education to the organization.

Dominick has been with Girard since 2006. He has a Bachelor’s degree and the Series 7 and 24 licenses. Dominick is a subject matter expert in clearing firm operations. As AVP of Brokerage Operations he will oversee all aspects of brokerage operations and serve as mentor to the operations staff. Also, he will serve as our clearing firm liaison.

Operations

New Faces andChanging PlacesChanges Ahead

for Operations Reorganization and Realignment Highlight Expanded Division

Along with the creation of two new divisions, we re-aligned the operations staff. Tim Kaiser moved from New Accounts to Brokerage Operations, reporting to Dominick. Tim joined the firm in February of this year and did a fantastic job of handling the New Accounts department while Claire was on maternity leave. Tim has his Bachelor’s degree and is currently working on his Master’s degree. In March he will begin the process of obtaining Series 7 and Series 24 licenses.

Justin Aubrey, who has been our lead Cashier since 2010, has taken on some NFS clearing operations duties. Justin has been a very dedicated and loyal employee who has done well as our cashier. We are pleased to be able to offer him the opportunity to take on more responsibilities.

John Silva has decided to move his family to Redding, California. John worked at Girard for almost 8 years, and prior to that at WS Griffith as well as Sentra/Spelman. He truly has

been part of our family for many years and, though it’s sad to see him go, we have new people in place.

In the spring of this year, we brought on Susan Guinn from a temporary agency. With prior broker dealer experience, excellent computer skills, and many years in customer service at a loan corporation, she was a good fit with Girard. Unfortunately at that time we didn’t have a permanent position open for her…but fortunately for us now we do. Please welcome Susan in New Accounts.

In September Catherine White, a longtime employee, quit to work on her Master’s degree and spend time with her husband Cale before he deploys to United Arab Emirates (UAE). She held various roles in the firm from receptionist to Trading. Once again we were fortunate to find another highly qualified person to fill her role. In October we hired Sarah Scorgie as a Trading Assistant/ Operations Specialist.

Tim Kaiser Justin Aubrey

Sarah ScorgieSusan Guinn

Claire Maurer Dominick Zizzo

by Connie Cook Waitman, Chief Operating Officer & Executive Vice President

In the Family Girard people at work

Halloween Madness at the Home OfficeThis year we were invaded by a ghoulish collection of creatures who inhabited our offices on Halloween. Costume winners were Sarah Scorgie (Most Creative) who came dressed up as a pregnant Claire, her co-worker, complete with a baby (and stuffed pug).

Houston and Cheryl (Funniest) transformed themselves into an Amish couple while John Silva (not pictured) captured the prize for “Scariest” he came as a character from the movie “The Strangers.”

Houston Goddard Elected to Prestigious PositionHouston Goddard, Girard’s CCO/General Counsel, was recently elected by his peers to a position on FINRA District 2 Committee. District Committees serve an important function in advising FINRA on industry trends of regulatory concern and providing input on the practical impact of FINRA’s regulatory programs. Committee members also serve the important function of serving as hearing panelists in FINRA disciplinary proceedings. Girard would like to congratulate Houston on this prestigious position, it’s well deserved.

Who Doesn’t Love Cute Babies?The Girard family grows!

Bode Maurer Son of Claire and Bill Maurer Born July 13, 8 lbs, 20 inches

Layla Guinn Daughter of Susan and Noah Guinn. Born July 17 9.2 lbs, 20.75 inches

Five-Year Service Anniversary Employees

Christmas Party Snaps

Rear, Left to Right: Carrie Van Herweg, Cheryl Appleby, Jason Rogers, Susie Tietjen, Greg LaRiccia, Jacklyn McCray, David Morrocco, Connie Goodell, Marcos Latorre, Dominick Zizzo. Seated: Left to Right: Connie Waitman, Claire Maurer, Jessica Lane, Gary Galarpe.

Stella Elizabeth Schuster Born October 7, 17lbs, 19 1/2 inches. Stella is the daughter of Girard advisor Jena Schuster and her husband Jett ... and we hear Stella has a very proud big brother, Mason!

Jessica Lane Rocks TriathalonOn October 16, Jessica survived the elements, conquered her fears, and completed the SheROX Triathalon. In just one hour and 48 minutes she swam a half mile, biked 12.4 miles, and ran 3.1 miles. Clearly her years of persistence have paid off.

Employees of the YearCheryl Appleby and Karla Abiodun were selected as the 2011 recipients of The Tina Lane Memorial Employee of the Year Award. The awards were given out during the Awards Dinner on the final night of the National Education Conference.

Connie Geldbach was recognized at the NEC for being a hero for her battle with idiopathic pulmonary fibrosis and for successfully surviving a complicated lung transplant. Connie is the wife of long time friend, and Girard advisor, Art Geldbach as well as the mother-in-law of Girard advisor Mike Keeler.

A Difficult Diagnosis

During the awards ceremony, on the final evening of the conference, Susie Woltman Tietjen recounted Connie’s story of how she received the horrible diagnosis that her persistent cough and breathing difficulties were due to a virus that was causing her lungs to slowly harden.

The doctors told her that she would eventually suffocate to death because there was no cure for the disease.

The only hope for quality of life was a lung transplant—a risky procedure that has no guarantee of success.

Pressing Forward

In spite of receiving this devastating news Connie chose to “ignore the condition” as long as she

could. She and Art led a very active life, travelling around the world including Antarctica. Living each day to the fullest, they patiently waited for a lung to be available that was a match for Connie.

The wait for a lung was long and twice she was called to UCLA only to find out that the lung the doctors thought would be a match was not viable.

In spite of the failed transplant attempts, she never gave up and never lost hope and eventually a lung was found that was viable. The transplant was successful, although there were a few times when they weren’t sure she would make it.

In Recognition of Courage

Susie also recognized Connie’s husband Art, their daughters and their families for their courage and never-ending support through the difficult journey and for enduring what was an emotional roller coaster. Not only did Girard recognize her at the awards dinner, the company donated money in Connie’s name to the UCLA Fund for Lung Transplantation.

Rep Recognition Rep Recognition

John Delaney Honored as First Spelman & Co. Financial Advisor

Connie Geldbach Recognized as a Hero

Girard Chairman, Richard Woltman, recently recognized Girard advisor John Delaney as the first rep to join Girard’s predecessor firm, Spelman.

Dick, who you all know as a gifted speaker, took everyone back to the late ‘80s when Spelman was first acquired.

He and Kaye had purchased Spelman with a dream of building a boutique fixed income broker/dealer…and a goal of slowing down the pace of their lives. However, in the months following the acquisition, there was a stock market correction which was then followed by a bond market correction. They soon found themselves wondering how they were going to survive in this challenging environment.

About that time John Delaney approached Dick about joining Spelman. As you might imagine, John was welcomed with open arms and the building of Spelman began. Over the years more reps came and eventually Sentra Securities was joined with the firm. Girard came alongside to provide fixed income support to their advisors and the rest, as they say, is history.

by Susie Woltman-Tietjen, President and CEO

As a show of his appreciation to John Delany, and his wife Mary, Dick presented them with a beautiful Steuben crystal piece called “The Bridge.” As he presented it to them—who were totally and utterly surprised—he said the piece represented

“John was welcomed with open arms and the building of Spelman began. Girard came alongside and the rest is history.”

“the bridge between the Woltman Family and the Delaney Family.”

Girard appreciates and honors all of those individuals who have helped pave the way for the success we enjoy today.

Connie and Art Geldbach

Connie Geldbach receives special recognition at the Girard Securities 2011 National Education Conference

John Delaney accepting the very special Steuben “The Bridge” award at the Girard Securities 2011 National Education Conference

Rep Recognition Rep Recognition

Special Recognition to Newcomer John Mata

2011 Top Ten Girard AdvisorsCongratulations to the following top producers who excelled in the past year.

1. Mike Kiley

2. Bonnie Wusz

3. Rhonda Ferguson

4. Joe Vizzini

5. Chris Gleason

6. Mark Hill

7. Porter Landreth

8. Wayne Williams

9. Pam Dumonceau

10. John Simon

John joined Girard in September and generated $71,000 in commission in his first two weeks. He has also recorded similar transactions each month since then and has now set a record for the most business done by a new advisor in the history of Girard.

Coast-to-Coast Coverage

John is CEO of Integrity Wealth Management and specializes in working with aviation professionals. Over the years, he has helped pilots and other individuals with retirement wealth planning. With home offices in the Houston and Los Angeles markets, and more than 20 satellite branches, IWM covers the country from coast to coast.

He has also devoted his career toward educating both investors and advisors

on how to build wealth and manage markets through changing economies. John is recognized as an innovator of investment strategies for challenging markets and utilizes years of experience to develop optimal, sophisticated solutions that meet client needs and goals.

The Foundation of Family

John explains: “I have taken great pride in my accomplishments by building strong relationships with clients through ongoing

John Mata

Girard is proud to announce that Pam Dumonceau, President of Consistent Values, Inc. has been selected for the

Girard Advisor Recognized as Five Star Professional

commitment and communication. Family is inspirational in grounding a successful foundation and I bring these family values to all of my business relationships.”

Congratulations John on a job well done. We’re proud that you are part of the team!

third year in a row as one of Denver’s Five Star Wealth Managers. ColoradoBiz magazine surveyed consumers and financial services professionals to find wealth managers in the Denver area who score highest in overall satisfaction. An Elite award, the final list of the 2011 Five

Star Wealth Managers is a select group, representing less than 4 percent of licensed financial advisors in the area.

Five Star Professional surveyed over 73,000 high-net-worth households and more than 8,500 registered financial services professionals in the Denver

Pam Dumonceau

area. Participants were asked to evaluate only wealth managers that they knew through personal experience.

Pam has been in the financial services industry since 1983 and joined Girard in 2010.

Bonnie Wusz Rhonda Ferguson

Joe Vizzini Porter Landreth

Wayne WIlliams John Simon

Girard National Education Conference Reaches New HeightsBanners proclaiming “No Limits: Climbing New Heights Together” greeted attendees of the 2011 Girard National Education Conference and the theme turned out to perfectly capture the excitement and opportunities that the event delivered. With record-breaking attendance and non-stop activities, feedback was universal that it was the “Most Valuable Conference” ever.

From October 20-23, at the Omni Hotel in San Diego, participants were challenged to reach new levels in the coming year and responded with enthusiasm. Discussions of “Climbing New Heights” filled each day as new ideas and emerging trends were presented with the goal of growing businesses in the coming year.

Attendees enjoyed three days of quality speakers, reconnecting with old friends, networking, breakout sessions, a technology café, sponsor exhibits—and fun!

In the spirit of the theme, keynote speaker Brent Bishop, with the aid of National Geographic, took everyone on an expedition to the top of Mt. Everest. Once the summit was reached, all advisors recognized that by working together there are truly “no limits” to what can be accomplished.

NEC Award Winners

Chairman’s Club 750,000+ in GDCMike KileyBonnie WuszRhonda FergusonMark HillWayne WilliamsRobert Wolfe

Jim KuntzDoug CharlesPorter LandrethJoe Vizzini

Director’s Club $500,000-$750,000John SimonBob LeeChris GleasonHank KochanMike KeelerJena SchusterPam DumonceauStan BartnickTim Redmond

President’s Club $350,000 - $500,000Neal SlafskyPeter DeSantisMike JarvisGary ShemanoMatt BearyMike OwensGreg CooleyRoyce RuthKevin Murphy

Top Producer of the YearMike Kiley

Office of the YearMike Keeler and GFS & Associates

Investment Advisor of the YearJim Kuntz & Mark HillPacific Wealth Management

Equity Producer of the Year Doug Charles

Fixed Income Producer of the YearDon Foster

New Office of the Year Asset OneTom Baumer Erwin BuckPam DumonceauPorter LandrethJoe Vizzini

Employees of the Year Cheryl Appleby and Karla Abiodun

The Faces and Places of the 2011 Girard National Education Conference

Girard has a very special and unique culture and it is one that is lacking (and desirable) for many advisors in their current situation. With that in mind, we are currently developing a national recruiting campaign to solidify Girard’s position and promote the firm’s many advantages in the broker/dealer marketplace.

Selling the Brand National recruiting efforts gearing up and producing results

Rachael Thompson, Recruiting Director, and Scott Tietjen, Director, Corporate Marketing and Communications.

by Rachael Thompson Recruiting Director

An Enthusiastic TeamNot only am I very excited to be a part of Girard’s new recruiting movement but, additionally, I’m pleased to have the opportunity to work with Scott Tietjen. For those of you who have met Scott, you know what an outgoing, optimistic, positive individual he is. If you’ve ever talked to him over the phone, you can tell he’s smiling! I can’t think of anyone who is better suited to make recruiting cold calls than Scott!

Building Branch Offices

For the past few months, I have been working closely with several Girard offices that have expressed an interest in recruiting to their

branch. We discussed their unique situation and what they could bring to the table for a potential new advisor looking to join them.

Taking that into account, we created mailers that were then sent out to locations within a small radius of their office. Scott and I have also begun a follow-up call campaign to support those branches. 2012 is going to be a fantastic year for Girard!

We are proud to have added 21 new advisors and over $3.7 million in GDC to Girard between July and December.

Please welcome these new advisors for 2011: Dave AllredHeide BeckerPeter BellefountaineDavid Berka

Jonathon BlumenthalPaul BrownHeather BuckridgePeter ChenRyan CranerJohn CrosierGerald DeitzJames DonahueAhmad ElashgarBruce FickenBruce FitzsimmonsJames FlemingJohn FrancoThomas GaetnerMorgan GoughRichard GreeneHeather HackettMiles HunsakerMartin HurlburtCharles HurtgenLarry JacksonJeanne KeshishianBrett KeshtkarLori KoehnJohn LauKeith LehnherrAmy Ley

Bart LiaChad LovelandBryan MarshallJeannette MartensJohn MataMichael MatriseDixie MunseeMatt OwensMichael PalmerWade PerryDavid PetersonJeff ReddickDominic RiceBrandon RossMark RulemanMarrk SachsMelisa SanchezCary ScheerJoshua SmithRance SwifordCraig ThompsonJoe TrabaEric TweedenDerek WinnScott WoodringJames Wright

Recruiting

A Closer Look at Clients Understanding how the new FINRA Suitability Rule affects you

by Houston Goddard Chief Compliance Officer & General Counsel

As part of the consolidation of the rules of the NYSE and NASD, FINRA has created two new suitability rules. New Rule 2090 is Know Your Customer, and new Rule 2011 is Suitability. Both become effective on July 9, 2012. To comply with the requirements of the rules, NFS and Pershing have revised their new account forms to ask additional suitability questions. FINRA Regulatory Notice 11-25 discusses the new rules and

their requirements. Several significant topics addressed by the Notice include:

Authority of Person Acting on Behalf of Customer As part of the new Rule 2090, the “facts ‘essential’ to ‘knowing the customer’” specifically include an understanding of “the authority of each person acting on behalf of the customer.” FINRA states that this element is satisfied by the firm: (1) knowing the names of any persons authorized to act on behalf of the customer; and (2) understanding the specific

limits on that person’s authority.

One can easily see how even good-faith mistakes in this regard could lead to significant issues if an authorized person is mistakenly allowed to engage in investment transactions that exceed the scope of their authority. FINRA notes that some firms may make the decision not to do business with customers that seek to qualify the scope of authority of persons acting on their behalf.

Updates to Account Information As part of the new Rule 2111, FINRA has added additional, express factors for members to consider in making suitability determinations. The old suitability rule only specifically mentions financial status, tax status, and investment objectives. The new rule reiterates those factors and adds

age, other investments, experience, time horizon, liquidity needs, and risk tolerance.

Firms expressed concern that FINRA would require them to update all account documents to include these new factors. In Regulatory Notice 11-25, FINRA responded that Rule 2111 does not require firms to update all customer account documentation, and in fact does not contain any explicit documentation requirements.

A Risk-Based ApproachInstead, the suitability rule allows firms to take a “risk-based approach” to the documentation of suitability determinations. In providing examples, FINRA makes it clear that the extent to which a firm needs to “evidence” suitability determinations generally depends on the complexity of the security or strategy involved and/or the risks involved.

New factors for consideration in the suitability rule include an investor’s “liquidity needs,” “time horizon” and “risk tolerance.” These terms are not defined in Rule 2111, but FINRA did provide some guidance in response to firms’ requests. FINRA noted that the terms are to be “understood commensurate with their meaning in financial analysis,” and offered the following “guidelines”:

Liquidity Needs: “The extent to which a customer desires the ability or has financial obligations that dictate the need to quickly and easily convert to cash all or a portion of an investment or investments without experiencing significant loss in value from, for example, the lack of a ready market, or incurring significant costs or penalties.”

Time Horizon: “The expected number of months, years, or decades [a customer plans to invest] to achieve a particular financial goal.”

Risk Tolerance: “A customer’s ability and willingness to lose some or all of [the] original investment in exchange for greater potential returns.”

Many firms were interested in whether the same person or entity with multiple accounts at a given firm could have different investment profile factors for different accounts. FINRA answers in the affirmative, but recommends that the firm expressly document the diverse intentions of the customer among the accounts.

Going further, FINRA states that “a firm could not borrow profile factors from the different accounts to justify a recommendation that would not be appropriate for the account for which the recommendation was made.” In other words, if a customer has a conservatively-profiled account and an aggressive-risk account, the firm cannot borrow the profile from the aggressive-risk account in order to justify risky transactions in the conservative account.

Neither the new Rule 2111 nor Regulatory Notice 11-25 addresses the fact that an asset allocation strategy may involve holding a basket of conservative and more risky investments in a single account. Here again, appropriate documentation of the strategy being employed will be helpful if suitability questions later arise.

Important Definitions

Different Accounts, Different Profiles

FINRA further drives the point home by stating that while compliance with suitability obligations “does not necessarily turn on documentation,” if the suitability basis is not self-evident, “FINRA examination and enforcement concerns will rise with the lack of documentary evidence for the recommendation.”

Thus, while wholesale re-papering of accounts may not be required, Regulatory Notice 11-25 makes it clear that the more documentation in a customer file exhibiting a consideration of the suitability factors—particularly with complex or risky products and strategies—the better position the firm will be in upon a subsequent examination. The same holds true if a firm is later faced with defending a customer-initiated suitability claim.

Nature of a “hold” recommendation The new suitability rule applies to recommended investment strategies and emphasizes that the

term “strategy” is defined broadly and includes, for example, an “explicit recommendation” to hold a security or to continue with a strategy.

In response to inquiry as to the ongoing nature of a firm’s obligations in the event of a hold recommendation, FINRA notes that the new rule doesn’t change the long-standing application of the suitability rule “on a recommendation-by-recommendation basis” and that the focus remains on the suitability of a recommendation at the time it was made.

FINRA also reiterates that absent an agreement, course of conduct or a unique situation, a “hold recommendation would not create an ongoing duty to monitor and make subsequent recommendations.”

New FormsWe will be modifying our new account forms to comply with the new rules. Please watch upcoming eNews for more details.

Headed Toward Extinction? Rating agencies are dialing down to the last of the AAAs

The AAA rating, once a standard and common designation, has recently proven to be rapidly disappearing as world markets continue in their state of turmoil.

Risk & Ratings

by Gary Galarpe Senior Fixed Income Trader

Clients Seeking SafetyInvestors have become increasingly risk-adverse in recent years and no one can blame them given the volatility of the current global financial and political environment. In addition to the European sovereign debt crisis and unrest in the Middle East, investors are wary of emerging market bubbles, U.S. government paralysis, and a potential double-dip outlook. Some investors have even decided to withdraw from the markets while others have sought the relative safety of

highly-rated corporate and sovereign securities.

Standard & Poor’s defines a “AAA” rated issuer as “an obligor that has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest issuer credit rating.” Moody’s assigns a AAA rating to “obligations judged to be of the highest quality, with minimal credit risk.”

A Rare SpeciesAs the ratings agencies have come under fire in recent years, no one can argue that the AAA rating is becoming increasingly rare. Over the past twenty years the number of

companies with the highest rating has fallen from sixty to only eight. High profile companies that have recently lost the top grade include Berkshire Hathaway, General Electric and Toyota.

The news does not improve for government issuers. In the not-too distant past, sovereign debt was considered a risk-free proposition. Events in Europe and the highly controversial budget battle in the United States have drastically challenged that view. Out of 127 sovereign nations covered by S&P, only eighteen have a AAA rating.

Top Performing CompaniesThe remaining eight companies are leaders in their respective industries, have a global presence, and sport healthy balance sheets. Exxon Mobil is the world’s biggest oil refiner, while Imperial Oil is an integrated energy company that is 70% owned by the Canadian government. Microsoft is still the world’s largest software company. Johnson & Johnson is a consumer health and medical devices giant. Automatic Data Processing is the premier

(continued)

Corporate

Exxon Mobil (NYSE: XOM)

Microsoft (NASDAQ:MSFT)

Johnson & Johnson (NYSE: JNJ)

Imperial Oil (ASE:IMO)

Automatic Data Processing (NASDAQ:ADP)

MTR Corp (HKG:HK:66)

ST Engineering (SIN:SG:S53)

SMRT Corp (SIN:SG:S53)

Sovereign

Australia Isle of Man

Austria Liechenstein

Canada Luxembourg

Denmark Netherlands

Finland Norway

France Singapore

Germany Sweden

Guernsey Switzerland

Hong Kong United Kingdom

A View of the Last of the AAA’s

payroll-outsourcing firm. MTR and SMRT are mass transit operators in Hong Kong and Singapore. ST Engineering provides engineering and consulting services in over 100 countries.

These eight highly respected companies

have a combined market value of nearly $900 billion, cash in excess of $100 billion, and long-term debt just under $35 billion. Additionally, these companies have an average dividend yield of 2.90% and have outperformed the S&P 500

by a healthy 10% return with half the volatility over the last three years.

A Cautious OutlookThe outlook for these companies in the short-to-medium term remains positive. Four of the U.S. companies have recently had their credit rating

re-affirmed by Standard & Poor’s, while the three companies based in Singapore and the lone Canadian company have significant financial backing by their AAA rated governments.

Extinction (continued)

The Disappearing AAA’s

AAA Corporate Bonds CUSIP Description Coupon Price Maturity YTM Ratings

478160-AX-2 JOHNSON & JOHNSON 1.200 101.631 05-15-14 0.531 Aaa/AAA/AAA

478160-AY-0 JOHNSON & JOHNSON 2.150 104.415 05-15-16 1.132 Aaa/AAA/AAA

478160-AW-4 JOHNSON & JOHNSON 2.950 107.151 09-01-20 2.053 Aaa/AAA/AAA

478160-AZ-7 JOHNSON & JOHNSON 3.550 111.319 05-15-21 2.217 Aaa/AAA/AAA

594918-AF-1 MICROSOFT CORP 0.875 101.008 09-27-13 0.321 Aaa/AAA/AA+

594918-AB-0 MICROSOFT CORP 2.950 105.855 06-01-14 0.590 Aaa/AAA/AA+

594918-AC-8 MICROSOFT CORP 4.200 114.475 06-01-19 2.104 Aaa/AAA/AA+

594918-AH-7 MICROSOFT CORP 3.000 104.729 10-01-20 2.403 Aaa/AAA/AA+

594918-AD-6 MICROSOFT CORP 5.200 122.392 06-01-39 3.870 Aaa/AAA/AA+

607059-AT-9 MOBIL CORP 8.625 151.945 08-15-21 2.550 Aaa/AAA/AAA

For the Lipper Fund Awards 2011 - Asset Class Group Award, fund groups with at least five equity, five bond, and three mixed-asset portfolios in the respective asset classes are eligible for a group award. The lowest average decile rank of the three years’ Consistent Return measure of the eligible funds per asset class and group will determine the asset class group award winner over the three-year period ended 12/31/10. In cases of identical results, the lower average percentile rank will determine the winner. 46 firms were eligible for this award.

Past performance is no guarantee of future results.

Before investing, consider the fund’s investment objectives, risks, charges, and expenses. For a prospectus, or summary prospectus if available, containing this and other information, contact your investment professional or view online at mfs.com. Please read it carefully.

Advisors: To learn more, visit mfs.com/lipper or call 1-800-343-2829.

MFS Fund Distributors, Inc.

OuTperfOrmeD All OTher lArge cOmpAnies

AchieveD sTrOng risk-ADjusTeD reTurns

DelivereD AcrOss All AsseT clAsses

MFS #1

2011 Lipper Fund Award winnerOverall Large Company over 3 years across asset classes

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save the dateOctober 18-21, 2012

The Girard National Conference at Rancho Bernardo Inn