You probably know that the CFP Board is going through a hard reexamination of its policies on compensation, apparently spurred by the Alan Goldfarb enforcement action which many of us are still hoping will be explained in plain english. What we know for sure is that you can no longer say that you are compensated by "salary," even if you are.
This actually closes an enormous compensation disclosure loophole that still exists in other countries–like Australia and the UK–which have forbidden those who hold themselves out as advisors to take commissions. The large sales organizations there have put everybody on salary, but they still track what their "advisors" sell to their customers. At the end of the year, these sales professionals are granted a bonus whose size is suspiciously similar to what their former commission revenue would have been.
I don't think this fully addresses what some are calling "the Goldfarb issue," where an advisor's ownership stake in a larger entity, which does take commissions, means that some of that revenue is flowing into his/her pocket. (What if I own Merrill Lynch stock? Would I have to say I collect commissions?) And it leaves unclear the question of 12(b)-1 fees for advisors who are no longer selling A-share mutual funds. Those trail commissions are actually characterized as fees by the SEC. The CFP Board, in the equivalent of a private letter ruling, recently stated that advisors who haven't received any commissions over the past 12 months can describe their compensation as "fees." Do those trail commissions (aka fees) count in this calculation?
The larger question is whether the method-of-compensation disclosure is really meaningful. I know advisors who collect only fees, except that they handle the term insurance needs of their clients, and are fiduciary enough in their dealings to qualify as saints. On the other end of the spectrum, I remember attending a conference and running into a former high-ranking IAFP board member who sold every garbage tax shelter he could badger his broker-dealer into approving. He announced proudly that he was fee-only now. That is to say, he worked with a TAMP and had become a full-time asset-gatherer. In his habits and behavior toward clients, very little had changed since his tax-shelter sales days.
I think we all know the endgame here. Doctors don't take commissions for selling products; neither do attorneys, dentists, veterinarians or any other profession that is supposed to operate in the public interest. That is the destination of the financial planning profession: fees for service, fees for expert advice, no sales activities. There are already a lot of advisors who fit this definition, and a lot more who are well along the evolutionary path to get there, and those who once took commissions will tell you (with a fervor that you don't see from people who have always been fee-only) that it totally changes your thinking when you no longer have a sales agenda.
The CFP Board cannot afford to take the lead on this issue and alienate at least half of the people who hold the CFP mark. It CAN encourage, through its disclosure requirements, the CFP community to evolve a bit faster toward a fee-for-service structure. Similarly, the FPA, greatly diminished in size and revenues since its founding, can ill-afford to put principles ahead of cash flow. The AICPA cannot require its members to eschew commissions because most states specifically allow it.*
That leaves NAPFA, whose leadership saw this evolutionary process long before anybody else, and which has more experience in parsing the compensation issue than any of the other players. I think in the next couple of years, NAPFA will be providing important thought leadership on the intersection between fiduciary and compensation. How, exactly, DO you define the compensation of somebody who happens to be invested in a company that earns commissions? Should the asset gatherers like the former tax shelter salesman be accorded true professional status? If not, then by what objective criteria would you deny them? Should advisors who are mostly fee-only, in the later stages of their professional and compensation evolution, be considered true professionals? If so, then what is your standard for admission? Peer review? The speed of their evolutionary progress? Additional disclosures?
Meanwhile, I know advisors who have never joined NAPFA because its mission was to advocate for a fee-only compensation structure at a time when they were earning commission revenue. Many of them are now fee-only, which is a kind of admission that NAPFA was right.
If you fall into this category, I would recommend that you join NAPFA and help all of us engage in this important dialogue, not as a way to throw rocks, but as a way to provide the clarity that other organizations–with their own conflicts of interests–can't afford to explore.
If fees are indeed the future of the profession, then the issue now is: how do we get there with the least trauma, the least confusion, and the fewest confusing messages to the public and the profession itself.
*Note of clarification to the AICPA's position on receipt of commissions by members. In 1990, the Federal Trade Commission (FTC) sued the AICPA for restraint of trade for restricting CPAs to hourly compensation only. In its settlement, the AICPA agreed to allow most methods of compensation with some restrictions. The majority of states ultimately followed the AICPA settlement, as they typically do with most AICPA standards. However, regardless of the relaxation of compensation methods required by the FTC settlement, members are required to adhere to the AICPA Code of Professional Conduct and the important elements of ethical behavior that apply to all client relationships. Critically, acting with objectivity, competency and integrity are requirements of every CPA member engagement and the CPA member is required to avoid or terminate any engagement that cannot be performed with appropriate objectivity such that professional judgment is not impaired.