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Restoring Leadership

I'm sure everyone reading this has been following the profession's dance with definitions over who, exactly, is and is not "fee-only." Should we allow people who offer financial planning advice for a fee to have a separate division, operated by other individuals, that accepts term insurance commissions, and still call themselves fee-only? Should advisors who take no commissions, but who own up to 2% of a larger firm that takes commissions (in at least one case, a family real estate business) be allowed to say they're fee-only? Or not?

Bigger picture, should people who do not accept commissions for their advice be told that they cannot hold themselves out as fee-only because of their affiliations?

It seems to me that devoting all this time and attention to these fine details of fee disclosure is a bit ridiculous in a world where there are much bigger disclosure challenges to be solved. Brokerage salespeople and asset-gatherers routinely pose as professional financial advisors. The investing public is given no guidance to tell the difference between somebody who sells cash value insurance policies for a living and a professional advisor. Even in the profession, we are not sure who is an asset manager, primarily, and who is a financial planner, primarily. The 2% debate is a bit like warning the public about the chances they might accidentally get bumped by a tuna when they're swimming in waters infested with a variety of sharks and piranha.

But we ARE engaged in this debate, like it or not, and I find myself drawn more to the consequences than the finer details of the arguments. One consequence is a not-so-subtle shift in power over who leads our debate over these issues.

If I'm looking at the various organizations and associations, and ranking them in order of how concerned they are with protecting the consumer and creating a true professional standard, I put the National Association of Personal Financial Advisors at the top. NAPFA's mission, from day one, is to create a space where conflicts of interest are kept to a minimum. Even non-NAPFA members have benefited from its pioneering of the AUM revenue model, and its early focus (later adopted by the other organizations) on the fiduciary concept.

Importantly, this is not just about fees. NAPFA's membership criteria not only include the fee-only mandate, but also a broader requirement to pledge, in writing, to act as a fiduciary on behalf of clients, and to hold the CFP designation as a minimum professional credential.

The CFP Board falls somewhere below this standard. In terms of consumer protection, well, the organization has embraced and even courted brokerage reps into the CFP community, with no visible effort to determine whether they're mostly selling in-house products or gathering assets for revenue-sharing separate account managers. I know a few Million Dollar Round Table insurance salespeople who tout their CFP designation when they close sale after high-commission sale, and there is nothing in the CFP Board's rules or culture that prevents this. Please don't get me started on how the Board provided amnesty when told that a lot of brokers (and others) were mistakenly calling themselves "fee-only" on the organization's own consumer-facing web environment.

If the CFP Board is truly interested in protecting the public, then it should require every CFP certificant to sign NAPFA's fiduciary oath, regardless of corporate affiliation. That isn't going to happen.

Moving down the list, we're still wondering when the Financial Planning Association will follow through on the solemn promise that was made to ICFP members who questioned the merger between their ICFP and the IAFP. They were assured that the CFP designation would become an FPA membership criterion. Meanwhile, more troublingly, the organization has shown no interest in drawing a distinction between clever sales agents and professional advisors, much less excluding the former from its ranks. The FPA's embrace, as its top sponsor, of a top seller of life insurance by agents who call themselves financial planners, or the refusal to honor its commitment to limit membership to CFP advisors, will not win it any fiduciary standard awards.

Which brings me to the consequence that I'm concerned about. Of these organizations, NAPFA is the profession's clear leader in pioneering consumer protection issues and professional standards. Not everybody needs to conform to those standards, of course, but NAPFA keeps raising the bar, and the profession has consistently moved toward wherever the organization has reset that bar. This has been a healthy factor in the profession's evolution since the 1980s.

But now, recently, it looks like some of NAPFA's power to set standards is eroding. The organization recently revised its membership rules to conform to the CFP Board's definition of "fee-only." It was effectively forced to do this, because in order to be a NAPFA member, you have to be a CFP certificant in good standing; in effect, any CFP Board requirement going forward becomes a NAPFA requirement as well.

I'm wondering whether NAPFA will be able to continue taking the lead in professional and consumer protection issues when it is held captive to the standards imposed by the CFP Board.

What do I propose? If I were on NAPFA's board, I would push for a decision to decouple its membership standards from the CFP Board's certification requirements. NAPFA could require its members to pass the CFP exam (or the PFS) plus gain the experience requirement. This would require its members to be properly educated in financial planning, but not force NAPFA and its members to jump through every accreditation hoop that the CFP Board dreams up. Perhaps, in future negotiations, the two organizations could revisit this decoupling, and as a precondition, NAPFA leaders might ask the CFP Board to require its broker members to sign that fiduciary oath.