Fiduciary no more? What RIAs can tell clients after new rule

Can RIAs tell clients they’re fiduciaries?

That the SEC had to furnish an answer this week — to a question about a status quo never before in doubt — is another sign of the upheaval generated by the commission’s new Regulation Best Interest rules package.

The latest flap developed over language contained in the introduction to Form CRS, a disclosure document that the SEC will require advisors and brokers to provide clients. The wording prompted alarm that it could specifically prohibit the use of the term fiduciary.

Wealth managers voiced their concerns on Twitter and elsewhere. TD Ameritrade’s Skip Schweiss, after spotting the word “eliminating,” tweeted a screenshot of the controversial regulatory phrasing.

Bloomberg News

The SEC said “we are substantially revising our approach to disclosing standard of conduct and conflicts of interest to make this information clearer to retail investors, including … eliminating the word ‘fiduciary’ and requiring firms — whether broker-dealers, investment advisors or dual registrants — to use the term ‘best interest’ to describe their applicable standard of conduct.”

“There it is,” Schweiss, who runs TD Ameritrade Institutional’s retirement plan business, tweeted. “RIAs will not be able to use the word ‘fiduciary’ to describe the standard of care they owe clients.” A spokesman for TD Ameritrade said Schweiss was not available for further comment.

In the investment advisory and law professions, fiduciary refers to the legally binding requirement to put a client’s interests before those of her planner or lawyer.

Asked about the disclosure language, the SEC provided the following statement assuring RIAs they can indeed call themselves fiduciaries: “Investment advisors are fiduciaries, recognized and regulated as such by the commission. Recent commission action does not prohibit investment advisers from calling themselves fiduciaries.”

Though the rules package was passed June 5, revelations are still forthcoming as industry insiders digest its more than 1,400 pages.

The regulator has faced a barrage of criticism from consumer advocates and some advisors over its Regulation Best Interest rules package, which included the aforementioned Form CRS as well as new regulatory guidance and interpretation. Critics have lamented that the rules fall far short of what they deem necessary investor protections. They’ve also accused the SEC of gutting RIAs’ fiduciary duty by amending requirements to permit advisors to satisfy their obligations through disclosure alone. Regulation Best Interest, which is not a fiduciary standard, relies heavily on disclosure to satisfy its requirements.

Wall Street firms and lobbying groups have generally supported the SEC.

The commission provided additional detail on the intent behind the controversial language to the Investment Adviser Association, which requested its own clarification: “Advisors may still use the term ‘fiduciary’ in [client relationship] Form CRS to further elaborate on the duties owed to their clients, for example when discussing conflicts of interest,” the association’s spokesman, Herb Perone, quoted the commission as saying in a release it circulated.

Had the SEC banned use of the word, that could have lead to a constitutional challenge, says Ron Rhoades, director of the financial planning program at Western Kentucky University.

“Commercial speech can be regulated,” he says, “but it is still protected under the First Amendment.”

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CFP? CPA? Financial advisor’s clients don’t understand industry credentials

Clients want their advisors to have the right credentials. They just don’t know what those credentials are.

A disturbingly high number of clients can’t name a single financial planning-related certification, according to a survey published in May by the Investments Wealth Institute. When asked which ones they recognized, “60% of them couldn’t come up with anything,” says Sean Walters, the institute’s CEO. “These are advisory clients,” Walters adds — not members of the general public who may not be familiar with credentials needed to become a professional planner.

Yet a majority — 75% — say formal designations would be somewhat or very important in their choice of a potential planner.

The findings illustrate a hard-to-swallow fact for advisors who studied for months or years to pass the CFP exam or similar tests: Educating clients about the value of those qualifications is as important as having the acronyms pasted after their names on business cards.

The survey’s findings match advisor Jamie Bosse’s experience. Clients seem to respect her RFC and CFP designations. “Having the letters behind your name adds credibility to you automatically,” she says, “but on the flip side, they don’t know what they stand for.”

That’s why it’s important to take the time to explain them, Bosse says. She mentions her CFP designation and opens a discussion about the fiduciary standard to which she is held.

Even if they don’t recognize credentials, clients say they want their advisors to keep learning about their field — 47% said their planners should continue their professional education.

The CFP is the most well-known advisor credential — but that is not saying much. Just 15% of respondents named it when asked for types of advisor designations, according to the survey.

Low awareness of the titles makes it easier for clients to get confused by them. Advisor Brenna Baucum, a CFP, has seen it play out in client meetings. She recalled how, during a client meeting about taxes, they mistakenly believed she was an accountant. “You’re a CPA too, can you do my tax returns?” they asked.

The awareness of the CFP credential is getting better, says advisor Brenna Baucum, but “it’s certainly a challenge to differentiate” it from other credentials.

Photo from the H Group

She is less concerned about being mistaken for an accountant than a less-well-trained professional in her own field.

“There’s no bar you have to pass to call yourself a financial advisor,” says Baucum, who has been a planner for six years and a CFP for four years. “The term implies experience and training, neither of which are required.” But the two are considered the same “in the public eye,” she says, along with investment advisor.

“Honestly, it was disturbing how quickly I was able to call myself an investment advisor,” she says. While earning her Series 65 took just a few months, earning her CFP took two years of work experience in addition to passing the CFP Board’s exam and disclosing information about her finances, career and background.

The awareness of the CFP is getting better, she said, but “it’s certainly a challenge to differentiate” it from other credentials. “I want people to know those two things are very different,” she says.

Of the roughly 1,000 respondents to the survey, 48% had investable assets between $1 million and $5 million, 35% had between one-half million and $1 million, and 18% had $5 million or more.

The Investments Wealth Institute has 12,500 members, four-fifths of whom are financial planners split between brokerage firms, independent firms, regional broker-dealers and banks.

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Steven Merrell, Financial Planning: Do I still need a fiduciary?

In last week’s column, I wrote about the SEC’s new regulation for investment advisers and broker-dealers called Regulation Best Interest, or Reg BI for short. I discussed how Reg BI will require broker-dealers to elevate their advice from a “suitability standard” to a “best interest” standard. In other words, it will no longer be good enough for brokers to recommend investments that are merely “suitable” to your particular situation. Instead, brokers will need to make recommendations that are your “best interest” — a standard that more closely approximates the fiduciary standard, at least in theory.

Since I have long advocated for working with financial advisers who are legal fiduciaries, Reg BI raises an obvious question: Is the fiduciary standard still important or a “best interest” mandate good enough? For several reasons, I still believe most investors are better off working with an adviser who is a fiduciary.

In the world of retail financial advice, there are two basic operating models: the product sales model and the fee-for-service model. The product sales model is the most common, though the fee-for-service model has been gaining popularity in recent years.

Under the product sales model, financial firms hire representatives to sell financial products. These products can take many forms including individual securities, insurance products, mutual funds and more. Many of these financial firms are large institutions with national brand recognition like brokerage firms, banks, insurance companies, mutual fund companies or even some financial planning companies.

Fee-for-service firms, on the other hand, are usually small, independent advisers though some national-scale advisers are beginning to emerge. Under the fee-for-service model, advisers get paid to provide a service — usually financial planning, financial advice or investment management  — much like a CPA gets paid for providing accounting services or an attorney gets paid for legal services. And like CPAs and attorneys, fee-for-service financial advisers do not sell financial products. They are fiduciaries and operate under the fiduciary standard.

Think how strange it would be if your accountant or attorney earned revenue from a third party for selling you some kind of financial product. That would be a clear conflict of interest and would violate the fundamental nature of your relationship. So it is with financial advice and services. A product sales professional is fundamentally conflicted — even if he ostensibly puts your best interest first.

The picture gets a little muddled when product sales companies pretend that they are fee-for-service advisers. The success of the fee-for-service model in recent years has prompted many brokerage firms to offer something called “fee-based” advice. Fee-based advice means the broker is allowed by his broker-dealer to charge you a fee for serving your account, sometimes in lieu of commissions. However, the broker and his firm may still be getting paid by a product company to put you in their mutual fund or other investment. In other words, they collect from you and from a third party. Can you see the inherent conflict? Reg BI will require better disclosure of those kinds of conflicts, but I say work with a fiduciary and avoid the conflict altogether.

Fiduciaries also bring other benefits. For example, fiduciaries tend to be much more oriented toward long-term client relationships. When they make a recommendation, you can generally expect the fiduciary will be there with you as the recommendation plays itself out. Fiduciaries also tend to be very transparent about their business and their recommendations.

Although Reg BI will not become effective until next June, you can begin having it work for you right now. When you next meet with your adviser, ask her how Reg BI is going to change how she operates. Ask her how she makes money, including commissions, revenue sharing and 12b-1 fees. You may find that Reg BI opens the door to some very interesting discussions.

Steven C. Merrell is an investment adviser and partner at Monterey Private Wealth Inc., in Monterey. Send questions concerning investing, taxes, retirement or estate planning to Steve Merrell, 2340 Garden Road Suite 202, Monterey 93940 or

NBA star Tony Parker to lead sports division of Minneapolis-based financial planning firm

Tony Parker knows how to pivot.

Last week, the NBA All-Star announced his retirement from an 18-year career spent mostly at the San Antonio Spurs, where, as point guard, he drove the team to four championships. This week, he joined the Minneapolis-based financial-planning firm NorthRock Partners as president of its sports, artists and entertainment division.

“At age 19, I had to find my own lawyer, tax guy and financial planner,” he said in an interview. “I want to help athletes and entertainers benefit from my experience.”

NorthRock, which also has offices in Seattle and New York City, will add a San Antonio office for Parker.

NorthRock’s founding partner Rob Nelson described Parker, 37, as “one of the most prepared athletes I’ve ever met.”

“He’s well-read and entrepreneurial,” Nelson said. “We anticipate doubling the size of our [sports and entertainment] business with Tony in a leadership role.”

How RIAs can beat brokers after SEC regulation best interest

Call it a land grab: Starting next year, brokers will be able to claim valuable territory that RIAs have had to themselves for decades. Now that the SEC has passed its Regulation Best Interest rule, brokers will be able to market themselves as serving their clients’ best interest — an entitlement previously reserved for RIAs.

Fiduciary advocates have raised alarms about the new rules: Since brokers sell investment products on a commission basis, investors might be exposed to heightened abuses, they say. They add that the commission has gutted the key market differentiator for RIAs.

Still of Creative Planning’s “Bad Broker” ad that ran during the NCAA’s March Madness basketball tournament this year. It is believed to be the first national advertisement of its kind for an RIA. Credit: Creative Planning.

As a result, RIAs must create a new narrative for themselves, says Allan Slider, founder of FeeOnlyNetwork.

“Get out ahead of the forthcoming broker advertising blitz. You want to inform [the public] and remind them what brokers are,” he says. “It’s coming down to you versus them.”

Slider and Knut Rostad, co-founder of the Institute for the Fiduciary Standard, co-hosted a webinar in which they offered strategic advice for RIAs. Both provide consulting, research or advocacy for advisors who do not charge commissions. They were joined by Impact Communications founder Marie Swift.

They urge RIAs to:

1. Use new language. RIAs should stop calling themselves fee-only and refer to their practices as commission free — while also noting that they are not brokers.

2. Take your campaign to social media. Swift urges advisors to order customized T-shirts, like the one she mocked up recently with the catchphrase, “Relax, I’m not a broker.” Then RIAs should post pictures of themselves wearing the shirts on Twitter, Instagram, Facebook and elsewhere, she says.

Impact’s Marie Swift designed this T-shirt with a message aimed straight at brokers. Credit: Impact Communications.

3. Comment on broker industry ads. “This is two-way social media at its finest,” Slider says. He urges RIAs to take photos of brokers’ advertisements, post them on their own accounts and point out that firms like these take commissions. He also notes that RIAs can comment directly under the brokerage industry’s ads on Facebook and Twitter.

4. Check with compliance first. Clear social media posts with your legal team before publishing them, Slider says. Planners can stay on the right side of compliance by being factual, as opposed to accusatory or contentious, he says.

5. Support state regulators. When financial regulators, like those from Massachusetts, seek public comment on proposed rules to counter the SEC’s move, RIAs should promote these requests on social media and use them as an opportunity to get their own messages out there, says Swift. “It’s going to help you be more discoverable,” she says.

6. Sign fiduciary oaths. The oaths, such as one provided by the Committee for the Fiduciary Standard, demonstrate RIAs’ commitment to serving their clients’ interests ahead of their own.

7. Be passionate. “Be loud and proud,” Swift says, and remind clients what RIAs provide: Transparency about fees, reduced conflicts and disclosures of any conflicts. She adds that while the new SEC laws are a cause for consternation for RIAs, they are also a “golden opportunity” for advisors to build their brands.

Swift points to one of the highest-profile advertising campaigns to emanate from any RIA thus far. It included the “bad tailor” television spot run by one of the largest RIAs in the country, Creative Planning, during the NCAA’s March Madness men’s basketball tournament.

The ad shows a tailor refusing to take a customer’s measurements before selling him a suit.

“Trust me, our suits fit,” the tailor tells the bewildered customer.

At that moment, another man emerges from a dressing room in a suit jacket with sleeves down to his knees.

In the wake of Reg BI’s passage, Creative Planning plans to mount more advertising like this, Peter Mallouk, Creative Planning’s CEO, tells Financial Planning.

Due to Reg BI, Mallouk says, “It’s become much easier for a broker to mislead a client. Ultimately, I think RIAs need to quit talking about if they are a fiduciary or not and make it clear to clients that they don’t own their own investment products.”

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Addepar launches mobile app for high-net-worth consumers

The latest mobile app is designed to help clients access portfolio information — like asset allocation and performance — right in the palm of their hands.

That’s if the advisor’s clients are in the ultrahigh-net-worth crowd.

Addepar, a portfolio management software platform, launched its first mobile application with an emphasis on giving UHNW investors the opportunity to look at their portfolios in real time. The average well-heeled client could have waited weeks for portfolio information while advisors entered the data by hand, says Addepar CEO Eric Poirier.

“The answer to the client is almost always late and it’s almost always wrong as well,” says Poirier.

Founded in 2009, the Mountain View, California-based fintech manages data for over $1.3 trillion in assets. Addepar aggregates portfolio, market and client data.

The Addepar mobile app gives clients specific information about the investment portfolio, like asset allocation and performance, according to the company.

The app also gives clients access to the aggregated data, while previously, the advisors were the primary users of the technology. The app is currently available on the iPhone only.

According to Financial Planning’s tech survey, less than 1% of advisors surveyed use Addepar as a portfolio management tool.

Poirier says the purpose of the app is to give investors quick answers to quick questions, such as, how did their portfolio perform in the given week, how did market events affect their assets or what is their net worth?

The mobile launch expands Addepar’s reach beyond the advisor to the client, Poirier explains. Both the client and the advisor have access to the app, though the advisor is more likely to use their desktop for day-to-day work, he adds.

Mobile apps are expected to create the most change in the wealth management industry, 40% of advisors told Financial Planning in the survey. But wealth management apps struggle to satisfy customers and were ranked last in a J.D. Power study of 10 trades. Mobile advisory platforms are likely to have an outdated look.

The Addepar app aggregates portfolio, market and client data.

Poirier agrees that wealth management apps struggle to be adopted but says these trends were kept in mind for development. Addepar’s app is designed to be intuitive, even for those who aren’t technologically-advantaged, he said.

Another key feature of Addepar’s app is security.

“There are a number of security concerns when you’re manually logging into portals and emailing excel sheets around,” Poirier says. Addepar directly sources data from banks over encrypted channels. The app also has a two-factor authentication and advisors can enable turnkey access to their clients.

In addition to serving family offices and RIAs, Addepar is focusing its growth on serving the wealth management division of banks, in particular Morgan Stanley. The fintech company works with more than 350 firms.

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Travis Credit Union hosting financial planning seminars for young adults

With adulthood comes financial responsibility. Once they move out of their parents’ homes — or possibly sooner — young adults will have to deal with paying bills, budgeting and managing credit. I

Well, Travis Credit Union has just the workshop for you.

TCU will be hosting a series of Mad City Money seminars over the next three months in multiple cities ranging from Vacaville to Merced. The seminars for individuals ages 14 to 24 will allow participants to become immersed in the concept of financial planning so they can be prepared to pay those bills and manage those incomes.

Each participant will be given a temporary identity, including an occupation, marital status, number of children, salary, debt and more. They will visit nine merchants in the fictional Mad City to select housing and transportation while purchasing both necessary and desired items. Think of it like Monopoly with a focus on financial management rather than real estate. Along the way, participants will learn about the importance of budgeting, savings and using credit.

The first event in Solano County will be from 12:30 to 4:30 p.m. Friday in the General John F. Gonge Community Room at TCU’s Vacaville headquarters, 1 Travis Way. The remaining events in the county will be from 10 a.m. to 2 p.m. June 29 at the Suisun City Salvation Army Kroc Center, 586 E. Wigeon Way; 12:30 to 4:30 p.m. July 24 at the Solano Community College Vallejo campus, 545 Columbus Parkway; and from 12:30 to 4:30 p.m. Aug. 2 again at the TCU headquarters.

To register, go to

Council OKs 2019-2020 financial plan

The city’s budget for the upcoming fiscal year was approved this evening by council and gives the planning and development department $50,000 to plan for housing demolition.

The windfall for the department was announced by City Manager Joseph Scherer who prior to the financial plan’s unanimous approval said the cost of the city’s liability insurance “came in much less” than anticipated. He said the savings was to be put in the demolition line for the department.

Planning and Development Director Kelly Lasky had stated at the start of budget work sessions earlier this year demolition was one of the department’s most pressing needs.

As it ended up, Lasky received funds for a full-time administrative assistant, which she had said at the start of the process was another pressing need, although at the time she had requested a part-time employee.

“We ask for additional demolition money on a regular basis,” she said following the meeting.

The money is expected to cover the cost of around four houses. She said the department will prioritize which structures are addressed based on several factors including the severity of damages and how much of an imminent danger a dilapidated structure poses. “We hope it will make a difference.”

The  $16,809,139 budget has been on display at city hall and on the city’s website since May 22. A public hearing two weeks ago drew no speakers. The financial plan does not include a tax increase and does not use fund balance.

In his report to council Scherer said, “A new fiscal year is a good time to look ahead to the possibilities and challenges that can be taken on in the upcoming year. There are a host of challenges that face all local governments in the 21st Century — delivering services; lack of finance; managing staff; engaging citizens; forming new partnerships and rapidly evolving technologies and socio-economic demographics.”

Scherer said while some challenges, such as the economy, crime rates and improving infrastructure are similar no matter the size of governing bodies, “one major principle in the city’s budget development was to help ensure the decisions city council makes financially are going to continue to help the city be sustainable as an organization for many years to come.”

The city manager said, “A well-prepared municipal budget must offer a plan for providing effective and cost-efficient services to the citizens. This is reflected by a budget document that presents the convergence of public policy, financial oversight and operational accountability.

“Our fiscal year 2019-2020 budget is more than a line item allocation — it provides practical approaches to both short- and long-term priorities.”

The city’s priorities are numerous, he said. “ … The city’s responsibility is to address many of these priorities through services provided. The struggle to meet these  priorities is balanced with economic realities — there are not sufficient financial resources to fund every need.”

Said Scherer: “We face increasing citizen demands and expectations with leveling or decreasing revenue. And on top of that we have a dedicated staff that doesn’t want to tell the public there aren’t enough resources to meet those expectations.

“Our administration tries to address this through tools of transparency, good communication, honesty and really inviting people in to make sure they get their questions answered.”

Well-managed budgets, he said, “also provide our employees with this satisfaction that they’re contributing directly to the community’s overall health and well-being. While the challenges are many, we look forward to serving the citizens of Roanoke Rapids with the most effective and cost-efficient services we can provide.”

The flawed advice being peddled about saving for retirement

Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.

The flawed advice being peddled about saving for retirement
Contrary to what many retirement investors think, clients can expect investment returns through compounded growth as long as they don’t lose from a market downturn, according to this article on MarketWatch. “The ‘power of compounding’ only works when you do not lose money,” an expert explains. “When imputing volatility into returns, the differential between what investors were promised (and this is a huge flaw in financial planning) and what actually happened to their money is substantial over long-term time frames.”

A college town may be the perfect place to retire
A college town can be a great place for retirees to relocate, as it may offer a lower cost of living that can help them stretch their savings, according to this article on MarketWatch. Living in a college town also allows access to various events and cultural activities, people of diverse backgrounds, retailers, restaurants and easy access to healthcare services. There may also be job opportunities for retired workers.

The 401(k) mistakes you may not realize you’re making
One of the mistakes 401(k) participants are making unconsciously is not contributing enough to get the employer’s matchy, according to this article on Motley Fool. Many also fail to account for the fees they need to pay when picking investments within the plan. Borrowing or taking early withdrawals from the plan can also be a bad move, as workers will miss out on compounded growth on the investments.

Will lower earnings next year reduce clients’ Social Security retirement benefit rate?
Some seniors who intend to continue working past their full retirement age at a lower wage won’t see any reduction in their Social Security benefits, according to this article on Forbes. Retirement benefits are computed based on the worker’s highest 35 income years. While the benefit will not be reduced even if their income drops, it could still increase if they make more than they did in those top 35 years.

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Kaufman Hall Financial Planning and Strategic Consulting Recognized with No. 1 Ranking in Black Book Research Survey

Clients recognize industry-leading strategic planning, performance improvement and healthcare consumerism advisory services as key differentiators

CHICAGO, June 18, 2019 /PRNewswire/ — Kaufman Hall, a leading provider of enterprise performance management (EPM) software, data, and management consulting services, announced today that Black Book Research rated Kaufman Hall’s Financial Planning and Strategic Consulting practice tops of its recent Healthcare Management Consulting rankings.

Recognized as a leader in management consulting, Kaufman Hall has helped healthcare providers with strategic planning, mergers and acquisitions, performance improvement, and capital management for more than 30 years.

“This recognition from Black Book Research validates our long standing success in helping organizations drive transformational cost structure change and strengthen competitive positioning, while navigating the changing healthcare landscape,” said R. Wesley Champion, managing director and CEO of Kaufman Hall.  “Our fantastic team of consultants has a keen understanding of the marketplace and the transformational leadership necessary to achieve tangible results. This number one ranking is a reflection of our exceptional team and their work as a trusted partner in our clients’ on-going efforts to enhance healthcare in ever-changing times.”

Black Book, the healthcare IT research firm, collects data for their rankings from clients of enterprise planning consulting services and subsequently identified vendors with the highest core competencies.

“Kaufman Hall management consultants bring an energy and level of experience necessary to help hospitals and health systems navigate their most complex, enterprise-wide challenges, and that was demonstrated in the survey results,” said Doug Brown, managing partner, Black Book Market Research LLC. “Calls for corporate accountability and transparency are at an all-time high, so it behooves healthcare finance leaders to look for the resources a practice like Kaufman Hall offer.”

Kaufman Hall management consulting offers strategic planning, financial planning, merger and acquisition consulting, capital planning, and consumer strategies to more than 1,000 healthcare organizations. Its advisory services help leaders understand the financial impact of their strategic and tactical decisions.

In addition to this recognition, Kaufman Hall Software’s Axiom Cost Accounting and Decision Support, and Contract Management software were also ranked first in their class. For more details see Black Book’s announcement press release.

About Kaufman Hall
Kaufman Hall provides a unique combination of software, management consulting and data solutions to help society’s foundational institutions to realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.

Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; cost transformation; treasury and capital markets management; and mergers, acquisitions, partnerships, and joint ventures.

Kaufman Hall software includes the Axiom Software Suite, providing sophisticated, flexible performance management solutions that empower finance professionals to analyze results, model the future, and optimize organizational decision making. Solutions for long-range planning, budgeting and forecasting, performance reporting, capital planning, and cost accounting deliver decision support, reporting, and analytics within an integrated software platform. Kaufman Hall’s Clinical Analytics empower healthcare organizations with clinical benchmarks, data, and analytics to provide a higher quality of care for optimized performance and improved patient outcomes.

Press Contact:
Philip Anast
Amendola Communications (for Kaufman Hall)
Phone: 312-576-6990

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