CFP board ruling

[bjohnson2345]

Anyone have any comments about the new CFP fiduciary standard being imposed soon? Some wirehouses won't allow their reps to act in a fiduciary capacity so won't that make their reps with a CFP useless?

http://www.cfp.net/aboutus/Standards.asp

[tpondel]

My comment is that advisers need to find a firm that fits with their personal goals. Whether its fiduciary standards or product selection or really anything else, one needs to review what is offered by various firms and pick the one that best matches your needs.

Amber

[bjohnson2345]

What the hell was this answer? You should run for political office.

Hypothetical:
1. I work for a wirehouse.
2. I have a CFP.

Will my wirehouse allow me to use it, considering that they don't allow us to be fiduciaries?

[tpondel]

Bob:
Try this... ask them.

How would we know what your wirehouse will say?

[ManINaSuit]

The CFP's in my town that work for wirehouses just list themselves as not "practicing" CFP's.

[bjohnson2345]

I'm asking for other wirehouse reps to share. You're clearly not one and therefore just taking up space in this thread. Go away.

[ManINaSuit]

I think Bob missed his morning cup of coffee.

Lighten up!

[anonymous]

"but once consumers / Clients realize their interests are secondary or at least held to a lower standard (by some advisors) they will demand more from their advisors."

I know that fiduciaries are legally held to a higher standard. However, I just don't see how this has any real world bearing on the ethics of the advisor. Crooks are crooks. Honest advisors are honest advisors.

[the observer]

There's a myth perpetrated by stockbrokers that they are not fiduciaries, this is not entirely correct. Stockbrokers are fiduciaries the second they step out of their roles as salesmen and begin proffering financial advice that exceeds the basic "know your customer" and product suitability guidelines.

THE PROBLEM is the NASD arbitration panels that absolutely REFUSE to enforce the fiduciary standard in arbitration. The industry representative invariably nixes any chance of getting this standard.

THE SECOND PROBLEM; it's almost impossible to defeat the arbitration clause and actually get these cases into court where they belong so the fiduciary standard would be applied. Courts are impartial, NASD arbitration panels are not.

FINALLY, if each state, the NASD and the SEC would enforce the thousands of pages of very good laws they have on the books, NONE of this would be an issue. INSTEAD they all sit around with their thumbs in their A**ES making new rules and regulations that add cost to our practices (thereby increasing costs to consumers) while failing to enforce either the old or new statutes with any vigor.

THE SOLUTION; make Arbitration binding in cases under $10K and non-binding over $10K where a cause of action for breach of fiduciary duty is alleged that withstands a summary judgment hearing before an impartial Arbiter that is also a judge/mediator. Let those who have a "real" cause of action and are not just filing arbitration to get a settlement take their case to court and face the risk of litigation. It would make both sides think twice, the clients about their shady lawyers tactics of trying to force settlements from B/D's without the broker's consent, and the firms, who allow their people to regularly overstep their competence and authority because they know they have their good old client agreement full of disclaimers and disclosures to back them up.

All this blabber about fiduciary this and that is just noise. There are probably a good 60% of CFP® Certificants that don't participate in, or pay attention to anything the Board says. It's hardly likely, since the Board like all the others is reactive, not proactive, that these majority will change the way they do business, OR, MORE IMPORTANTLY, that they will ever hit the Board's radar. Unless the Board begins making office audit visits..... yeah that'll happen!

Most of this is just plain posturing, and blathering from blatteroons filled with the majesty of their own self importance.

If anyone in this business wants to make a difference in the way a client is handled by any planner, STOP making new laws and start finally enforcing a few of the ones on the books already. Everything else is idiotic.

[eroth322]

My point is that the ethics of advisors won't change, but rather the knowledge / awareness / attitudes of Clients will. As a result, they will take more business to those (at least on the surface) that are required to act in their best interest.

[the observer]

NJ,

If you think the great majority of consumers are going to hear about this in even a small way, I want some of what you're smoking...

NAPFA will stamp their feet, the CFP Board will take out an ad, which some consumers may read but promptly forget and the real legwork in promoting this will be performed by CFP® Certificants in their marketing campaigns.

This is nothing new. CFP® Certificants are the ones who made the marks distinctive and famous in the first place during the entire period of its existence, not the Board of Governors.

The question is, will the greater majority of insurance licensed professionals with B/D affiliation market this as part of their stategy, will they be allowed to, will they even care?

Answer, if they can't or won't market it, it'll just reach the consumers who work with NAPFA planners plus referrals. If they DO care but the B/D's won't play ball, expect either a complete lack of the CFP® Certification reference on the card with everything done verbally from now on, OR, expect to see some defections to the ChFC marks, which could quickly become as distinctive and famous if properly marketed by the American College. Either one of these will hurt the Certification marks and both are dumb, unless the plan is to rid the CFP® Certification marks of properly licensed life agents and brokers, and just hand the marks over to NAPFA, in which case this is indeed a historic day for the Board. They should be congratulated for thinking this through, asking for reams of common sense input in-line with current applicable law, and then going ahead with their own egoistic plans anyway... that's shows a true commitment to their ideal, rather than the law, but then, they've always bent their owns statutes and failed to enforce them when it suits the "ideal", so what's new?

[eroth322]

If it's no big deal then why the big fight. I agree it will not be far reaching in the near-term, but neither was the ML rule - again a big fight. The "Old Guard" doesn't like changing their business, but changes are on the horizon.

[1Way]

Did you notice they don't go into effect until July 08', aren't we going to hear from the SEC by then? YES Will they most likely go to congress and have the law rewritten. YES Will the CFP Board amend the code of Ethics to follow the new Laws. YES. So who cares until July 2008? I have always done what I think is best for my clients, that is what everyone should be doing.

[jitzoe]

It seems that most folks get frustrated when the topic of fiduciary responsibility comes up because of the emphasis of being required to do what is in the best interest of the client. People seem to take exception because they feel they are being accused of not doing what is best for their clients, being unethical, etc. I think it is important to add that part of being a fiduciary is an obligation to disclose all conflicts of interest that may exist.

As a former wirehouse rep who is now an RIA, I can say taking the ethical argument out of the equation, full disclosure and transparency is not something that exists in the wirehouse/insurance world, even if most reps do what they think is best for their clients. If anything, I think this element of full disclosure is critically important for clients and will continue to contribute to the exodus of assets leaving brokerage firms/insurance companies and moving to RIA firms. I also think that if asked, most reps would say that they try to act in a fiduciary capacity for their clients (I know I did when I was at a wirehouse). That being said, having that mindset is still different than being held to the actual standard of accountability.

[ross.lipman]

Ballgame wrote:

> It seems that most folks get frustrated when the topic of
> fiduciary responsibility comes up because of the emphasis of
> being required to do what is in the best interest of the
> client. People seem to take exception because they feel they
> are being accused of not doing what is best for their clients,
> being unethical, etc. I think it is important to add that part
> of being a fiduciary is an obligation to disclose all conflicts
> of interest that may exist.
>
> As a former wirehouse rep who is now an RIA, I can say taking
> the ethical argument out of the equation, full disclosure and
> transparency is not something that exists in the
> wirehouse/insurance world, even if most reps do what they think
> is best for their clients. If anything, I think this element
> of full disclosure is critically important for clients and will
> continue to contribute to the exodus of assets leaving
> brokerage firms/insurance companies and moving to RIA firms. I
> also think that if asked, most reps would say that they try to
> act in a fiduciary capacity for their clients (I know I did
> when I was at a wirehouse). That being said, having that
> mindset is still different than being held to the actual
> standard of accountability.
>

[Fee-Only Guy]

Bob’s original question was about wirehouses not allowing their reps to act as a fiduciary. The problem this creates is that is makes it ok for those reps to sell something that is suitable even if it’s not in the clients best interest. This is a problem for the public because it happens often in this business. Which is precisely why the FPA made such a big deal over the Merrill rule. Some reps will act in their client’s best interest, some will not. Some fiduciaries will act in the clients best interest, and some will not. The distinction is that the fiduciary is legal responsible for those actions whereas the wirehouse rep is not legally held to the standard. So a wirehouse rep with a CFP will have a conflict. The CFP requires him/her to act as a fiduciary while the wirehouse will not allow it. This is a conflict that is likely resolved by either leaving the firm to one that will allow the rep to be a fiduciary, or not using the marks.

I imagine that the wirehouses will eventually cave to the fiduciary issue to some degree. NJ makes an excellent point that many do not agree with. That is that the fiduciary issue is becoming more and more publicized and the consumer is beginning to get wise. This is like a virus, only that it is a good one. Starts out small, but once it grows to a certain point, it will explode and take over. I agree with this, however there are many on this board (that I wonder if they are in fact fiduciaries or not) that do not agree and are not open to the possibility that this will happen. Once about 10% of the consumer base is aware of the fiduciary issue it will then be a very short time until the issue penetrates over 90% of the public. It’s a basic economic s-curve. It may take a while for the public to adopt something new, but once it hits that 10% mark, it then explodes. We see this in all types of things in the market place; automobiles, cell phones, tv, internet, etc. The fiduciary issue is no different in this regard. There are the naysayer’s that will argue this until they finally have to admit they were wrong.

Anonymous, you are right that the fiduciary standard has no real world bearing on the ethics of the advisor. However it has a large bearing on the ethical perception the consumer has for the advisor. Once they know the difference, they will seek out the fiduciary. That advisor they find may very well be a crook or just not a fiduciary. But again the key difference is that the fiduciary is legally responsible for breaches of fiduciary responsibility whereas the non-fiduciary is within legal limits as long as the advice is suitable.

Observer, I agree with you that stockbrokers and other wirehouse reps that are not labeled as fiduciaries are in fact fiduciaries by definition. Any person who occupies a position of knowledge and trust is a fiduciary. It is the laws that don’t enforce this. However, you say that the majority of consumers are going to hear about this even in a small way isn’t that right? I offer the suggestion to you that you may not be seeing what the public is beginning to see. Yes NAPFA stamps it’s feet and CFP board advertises, and it is effective. The message is spreading, and the pace is picking up. Sure the message is not quite far and wide, however you should realize that those spreading the message are in fact making a difference and in the future we are likely to have a financial planning profession where everyone is held to a fiduciary standard whether independent or at a wire house, or fee-only or commission.

NJ I’m on board with you. There is an “Old Guard” of established advisors that just don’t want to see the reality of what the future is bringing. Those who are aware of what is coming down the river will have the advantage. If they don’t want to see it, oh well. You can’t give sight to the blind.

How many wirehouse reps disclose things they are not required to? Ballgame is right. Studies have shown that assets and reps are leaving wirehouses by the droves. When do you ever hear about an RIA going back to the wirehouse? annuity salesman accuses ballgame of not having a moral compass which has nothing to do with what he said. He specifically stated, “taking the ethical argument out of the equation, full disclosure and transparency is not something that exists in the wirehouse/insurance world, even if most reps do what they think is best for their clients.” But one thing is for sure, there is always controversy surrounding the sale of annuities. Why have annuity sales come under such fire by regulators?

[bss]

Bottom line is that the word fiduciary means something very specific in a court of law.

Very few wirehouse reps, if any, can ever be a true fiduciary. There are just too many things that the companies do on a daily basis that conflict with it.
-shelf space arrangements
-deposit programs
-A, B, C shares

The list is endless.

[the observer]

Jeremy,

you write: "I offer the suggestion to you that you may not be seeing what the public is beginning to see. Yes NAPFA stamps it’s feet and CFP board advertises, and it is effective. The message is spreading, and the pace is picking up."

I appreciate your youthful enthusiasm... thinking back to articles written throughout the 1980's and 1990's in many of the trades, the same things were written then. NAPFA has continued to grow from a few hundred to just over a thousand, though most of the growth came when they expanded their membership categories to allow non-comprehensive planners, students and even people who didn't want to be planners, who were let in as supporters of NAPFA ideals. Hardly a resounding success given the number of Registered Investment Advisers and fee planners in America. The membership of the FPA has stagnated when it should have doubled in the past 7 years (at the very least) after the merger and the number of Certificants in the U.S. is only picking up speed thanks to... among other things to the wirehouses and insurance companies who realized their boys needed an edge.

Ballgame hit the nail on the head when he talks about disclosure being key.

NAPFA has focused on "method of compensation" far too long while berating other professionals in a most demeaning manner to the point where many fee-only planners find their methods distasteful. The CFP Board has focused on their "ideals" and ultimate desire to become a quasi SRO, a pipedream when one considers the opposition, and every few years as the Board members change and become disconnected from their stakeholders, they create new regulations and rules that do more damage than good overall, until they are reined in again.

I've said it before and I'll say it again, it's a pity the history of the marks isn't mandatory... the true version, not the Cr*p that the Board sometimes releases in their "educational" courses.

As far as disclosures go, I think companies like Ameriprise do a pretty good job and people STILL open accounts with them because they're stupid. You cannot regulate away the consumer stupid factor.

EXAMPLE: An excerpt fropm the disclosures from an Ameriprise account app:

You understand that Ameriprise Financial and Ameriprise financial advisors are paid in different ways for helping you choose mutual funds, depending on the type of fund, amount invested, and share class purchased. You understand that Ameriprise Financial and Ameriprise financial advisors generally receive reduced compensation when a sales charge is reduced or eliminated, which may influence your advisor to recommend certain funds or classes over others. Information about compensation received by Ameriprise Financial for distributing mutual funds, as well as other information about Ameriprise Financial’s role with respect to those products, is contained in the prospectus and/or Statement of Additional Information for each mutual fund.

Fund families are selected to participate in the Select Group, Associate Group and Other
Fund Group based on several criteria including brand recognition, product breadth, advisor training and wholesaling support, and revenue sharing and other payments we receive. While our advisors may offer, and you are free to choose, funds from the more than 200 fund families we offer, certain aspects of our relationship with the Select Group, Associate Group and Other Fund Group firms create conflicts of interest or incentives for Ameriprise Financial to promote, and for an advisor to recommend, one fund over another fund. Generally, we have a greater incentive to offer Select Group funds than other funds. As further described below, these conflicts and incentives arise from the
marketing and sales support provided to our financial advisors by fund families, revenue sharing payments we receive, our other relationships with fund families, the transaction charges financial advisors pay, and our interest in the sale of RiverSource
Investments family of funds.

The fund families in the Select Group and Associate Group provide education, training, marketing and sales support to our financial advisors. These firms may also reimburse us or our financial advisors for sales meetings, seminars and training events and we may also receive other nominal non-cash benefits from time to time. Under the arrangements with the Other Fund Group families, they either do not
provide these services or do not provide the same level of services to our financial advisors. To be included in the Select Group, Associate Group or Other Fund Group programs, the participating fund families have agreed to pay Ameriprise Financial a portion of the revenue generated from the sale and/or management of fund shares1. Generally, Select Group firms pay revenue sharing at a higher level than do Associate Group and Other Fund Group firms. Each year you hold shares of a particular fund, we may be paid by the fund’s advisor or distributor on those assets held in your account (an “asset-based” payment). In addition, a fund’s advisor or distributor may pay us a fee for the fund shares you purchase during a given period (a “sales-based” payment). As of October 2005, Ameriprise Financial received an asset-based payment of up to 0.50% per year on some or all of the assets managed by the participating fund family for Ameriprise Financial clients and a maximum sales-based payment of up to 0.25% on some or all of the participating fund family’s gross sales made through Ameriprise Financial. These arrangements vary from fund family to fund family and may be subject to change or renegotiation at any time. If a fund family ceases to pay revenue sharing or other fees,
Ameriprise Financial may remove the fund family from the Select Group, Associate Group
or Other Fund Group programs and may cease to offer shares of the funds. Other Financial Relationships. In addition to sales charges, 12b-1 fees2, and revenue sharing payments we receive, the fund’s advisor, distributor or an affiliate may also make other payments to us for certain client services and other account maintenance activities we provide. We receive up to 0.40% per year on some or all assets managed by participating fund families for Ameriprise Financial clients for these services. We provide clients with access to other fund families through our relationship with Charles Schwab & Co., Inc. (“Schwab”) and its mutual fund platform. Schwab passes
onto Ameriprise Financial certain payments it receives from the fund families accessed
through its platform. Ameriprise Financial and its affiliates may have other relationships with some of the fund families whose funds we offer. These may include the fund family acting as a subadvisor to a RiverSource Investments mutual fund, or a fund family managing an investment portfolio
within another Ameriprise Financial or RiverSource product such as a variable annuity. Transaction Charges. Ameriprise financial advisors pay charges on some mutual fund sales, purchases and exchanges (Transaction Charges). Transaction Charges are determined by a variety of factors such as the type of transaction and processing
methodology (online/phone/systematic), account type (fee-based investment advisory
account/transaction based brokerage account), and, in one case, the mutual fund family.
For mutual fund transactions, advisors pay the same rate across all fund families we offer, with the exception of purchases in American Funds. Advisors pay significantly higher Transaction Charges (up to $85 per transaction) on purchases in American Funds.
RiverSource Investments Family of Funds. RiverSource Investments family of funds
(formerly the “American Express Funds”) are sponsored and managed by RiverSource
Investments, LLC, an affiliate of Ameriprise Financial. Ameriprise Financial is the
distributor of the RiverSource Investments family of funds and other Ameriprise Financial affiliates provide administrative, custody and transfer agency services to these funds. Ameriprise Financial and its affiliates generally receive more revenue from the sale of the RiverSource Investments family of funds than from the sale of other funds. Ameriprise Financial receives intercompany allocation payments from its affiliates on revenue generated on the sale of RiverSource Investments family of funds. Employee compensation and operating goals at all levels of the company are tied to the company’s success. Certain employees may receive higher compensation and other benefits based, in part, on assets gathered by the funds of RiverSource Investments.
For additional information on a particular fund’s payment and compensation practices,
please review the fund’s prospectus and statement of additional information (SAI).
1 Janus does not pay revenue sharing to Ameriprise Financial, but does pay a fee of up to 0.25% per year on the assets managed by Janus for Ameriprise Financial clients, which
is described in the Janus prospectus as an administrative services fee. American Funds
do not make revenue sharing payments or pay us administrative services fees. 2 For more information about these charges and fees, please see “An Investor’s Guide to Purchasing Mutual Funds through Ameriprise Financial” at www.ameriprise.com or the fund prospectus.
Ameriprise Financial has a financial interest in the sales of proprietary products that are manufactured by its affiliates. Ameriprise Financial and its affiliates receive more revenue from the sale of some financial products and services, particularly those products and services sold under the Ameriprise and RiverSource Investments brand, than for the sale of other products and services. Ameriprise Financial generally also receives more revenue for securities or products sold in a fee-based account than for those sold with only a sales charge or commission. Higher revenue generally results in greater profitability for the firm. Employee compensation (including management and field leader compensation) and operating
goals at all levels of the company are tied to the company’s success. Management,
sales leaders and other employees generally spend more of their time and resources
promoting Ameriprise and RiverSource Investments products and services. As it pertains to mutual funds, both Ameriprise Financial and your individual financial
advisor are compensated when you buy the fund through Ameriprise Financial. Generally,
your financial advisor receives a substantial portion of the sales charge and distribution
and shareholder service (12b-1) fees paid to the firm in connection with your purchase for
as long as you own your fund shares. Sales charges and 12b-1 fees vary from fund to
fund and from class to class. Ameriprise Financial and the advisor receive more
compensation on fund or share classes that pay higher fees. Ameriprise Financial and the
advisor generally receive less compensation when the sales charge is reduced or waived
completely. Because compensation structures vary by product type, Ameriprise Financial
and financial advisors receive more compensation for sales of certain types of products, such as insurance rather than others.

----

This was just an excerpt and I've yet to see such a comprehensive disclosure from a RIA on his ADV Form. The only thing missing is a free tube of KY jelly. To summarize... these people peddle funds and make a cr*p ton of money at the expense of the client, the client walks into the relationship, as usual, with eyes wide shut, and all the "fiduciary" bla bla in the world isn't going to rescue them, they love the smell of leather furniture and the coffee and kiss a** they get served in the glass and steel towers.

As far as fiduciary meaning something specific in a court of law, it sure does, but 99% of these cases will never see the inside of a courtroom. I won't reproduce it here, but trust me, the Arbitration agreement and lawsuit waiver from Ameriprise is VERY long and IN BLOCK CAPITALS.

[Fee-Only Guy]

bss, as I agree that it is certainly difficult for a wirehouse rep to be a true fiduciary, it’s not to say that they are unable to do what is in the clients best interest. I agree 100% with your point. However, I reference this definition, “A person who occupies a position of special trust and confidence (for example, in handling or supervising the affairs or funds of another).” Even though the company may not allow the rep to be an acknowledged fiduciary, and that current law does not require a fiduciary standard for reps, I argue that they are in a position of trust and confidence. The client is relying on their superior knowledge of the subject and expecting that they will give advice that is in the clients best interest. Therefore, they are a fiduciary. I think the best thing with this Merrill rule overturning that could happen is regulation to make all financial advisors, registered reps, and insurance agents legal liable for breaches of fiduciary duty. This could certainly level the playing field and the debate between the ethical implications of fees vs. commissions, at least a little bit. It might also push out those who do not act in their clients best interest either from fear of prosection, or being caught. Either way, the public would be more protected regardless of whether their advisor is fee-only fee-based, or commission only.

Observer, with all due respect the message about fiduciary responsibility and the growth of NAPFA are not the issue. The fact is that efforts by NAPFA and other organizations such as the media to spread the fiduciary and fee-only message are making a difference. The public IS becoming more aware. This has nothing to do with the fact that NAPFA has not significantly grown it’s membership. Two possibilities for that are a lack of CFP’s who want to be truly fee-only in all aspects of their business, or advisors who are not ready to make the switch. It is commonly known that an advisor switching from a commission model to a fee model will experience a dramatic decrease in revenues in the beginning. Perhaps a lot of advisors are unwilling or unable to give up the commissions on products such as annuities and life insurance. Many people build successful businesses selling annuities (VAman, annuity salesman, ross, etc.) as well as life insurance and there is nothing wrong with that. What it does mean however, if the public does in fact become more aware of fiduciary issues and fee-only, and begins to demand it, there will plenty of potential clients for NAPFA members. It won’t be competitive until others get on the bandwagon, which is what I am trying to do personally. Just getting ready for the wave that’s a comin’.

Yeah those disclosures are there and people don’t see them. We should ask ourselves why? Perhaps it’s because they don’t know what to look for. Is it possible that a potential client of Ameriprise who is familiar with the fiduciary issue could specifically ask about this type of disclosure? Is it possible that now that they know what to look for, they might find it and choose not to do business with Ameriprise?

[the observer]

Jeremy,

I firmly believe the lack of growth of NAPFA has everything to do with the history of the organization and their previous tactics. Please, take a history lesson. You weren't there, you don't know.

[Fee-Only Guy]

I'm not disputing what you say about the lack of growth or the tactics they have used. You are right that I wasn't there and I don't know. But I do know what is happening now, in my time. I see more and more people understanding the fiduciary and fee-only controversy. Whenever the media talks about finding a financial advisor, they nearly always say you should find some one who is a CFP, is a fiduciary, and is fee-only. Whether you agree that this is best for the client or not is frankly irrelevant.

People tend to believe what they hear and see in the media. What I am saying is that it is irrelevant to the proliferation of the fiduciary and fee-only message. The fiduciary and fee-only message being spread by various organizations could theoretically become the preferred method of advisory services for the public. However assuming this potential spread of increasingly aware consumers would not necessarily mean the membership of those organizations such as NAPFA would grow. It just means that more people would know about fiduciary issues and fee-only advisors and tend to seek out those advisors. NAPFA in particular provides a central location for consumers to find fee-only advisors. So basically, more and more people could seek out NAPFA members, but this doesn't make the membership grow. The membership would only grow when advisors who earn commissions are willing to foregoe those commissions and be 100% fee-only in all aspects of their business. If these advisors saw that the demand for fee-only advisors is growing, this would bring more advisors to become fee-only to take advantage of the excess demand. It's basic economics. It happens with all types of products and services.

In addition, the increase in supply of fee-only advisors would eventually approach the demand and would likely cause a downward pressure in the fees for fee-only advisors due to increased competition. This ends up working out best for the public. The eventual reality could be fee-only being the preferred method, and lower costs than we see today. Not to forget this would likely also be the time when many commission product providers would see the need to design new products to suit the increase in fee-only advisors.

This is what I strongly believe is in our very near future. At least over the next ten years I think we will see a very dynamic shift. It happened in the past when stockbrokers shifted from a commission on stock sales to asset based fees. It was a dynamic shift that paved the way for what we are likely to see in the future. All we have to do is look in the past ans see that we have had these types of dynamic changes, and it will happen again.

The fiduciary issue is not going away. That's for sure. People are going to get wise and start demanding to work with fiduciaries. NAPFA is one organization that is trying to spread this message. But just because the message spreads doesn't mean it's membership will grow.

[the observer]

Jeremy,

Two statements from you:

"Whether you agree that this (fiduciary status) is best for the client or not is frankly irrelevant."

"The membership would only grow when advisors who earn commissions are willing to foregoe those commissions and be 100% fee-only in all aspects of their business."

In order for Nirvana to come to this "quasi profession", a number of things need to happen.

1. Hundreds of years of Agency law and precedent would need to be thrown out and re-written to allow an "agent" for one party, to be a fiduciary to another, OR,

2. All 50 States, and of course the insurance companies, would need to allow licensed insurance individuals to offer advice in the business of insurance and make comparative analysis of the terms of conditions of various contracts as they specifically relate to the individual without needing to associate themselves with an insurance company or actually sell the insurance.

3. If either 1 or 2 were ever to come to pass, then insurance companies would then need to reprice all their products and reduce or eliminate premature use charges to meet a new consumer demand.

Let's run through these points:

1. Agency law is not going to change, there must be absolute reliance that an agent will faithfully perform his fiduciary duty to the company he represents by contract. You can't overturn the "definition" of an agency relationship that goes back to English common law established long before the US Constitution was drafted.

2. One of the reasons CA (among other States) has insurance "analyst" licensing is, because it is well settled in law that the interpretation of contracts and their specific application to an individual's rights is the practice of law. The analyst license permits a non attorney to interpret the law of these contracts, a unique power which cannot and should not be handed out to a person not licensed and regulated by a State agency responsible for the business of insurance. You're not going to change CA's mind on this.

3. How could you possibly reprice and drop surrender penalties on fixed insurance products when their very guarantees rely on long term stability and investments in long term treasuries and other bonds. To do so and allow consumers to switch insurance products like shirts would drive costs up not down AND lower returns as companies would have to keep considerably more money in cash reserves to meet rollover demands etc.

Why is all the relevant.... because you can't be a "comprehensive financial planner" without covering the basics and the basics are life, health, disability, long term care, property casualty and liability coverages. Until such planners can produce a license valid in all 50 states, which allows them to offer this advice in a fiduciary capacity, frankly, your comments are irrelevant.

[dp2822]

Excellent point Jeremy and I totally agree! It's time everyone wakes up and takes the sun glasses off.....it's a new world!

[Fee-Only Guy]

Observer, with all due respect, what you said had nothing to do with what we are talking about. I understand your views on fee-only advisors providing insurance advice without a license. Surely change needs to come and I agree. I think that as the fee-only community grows, we might see some progress towards legislative changes. But it is still irrelevant to the point made about fiduciary issues becoming more important to consumers. It's getting out there and there is nothing to stop it. The merrill rule business I think will bring enough heat that people will start to ask more questions. But again, this has nothing to do with the membership growth of NAPFA. Frankly I don't want the membership of NAPFA to grow because I see it as a competitive advantage. But I do want the consumer to understand the fiduciary issue and how a fee-only advisor is different. They will have the choice and I think they will choose fee-only over commissions. This is just my view without a pair of rose colored commission glasses.

[anonymous]

Jeremy,

Your whole post can be easily ripped apart, but you won't get it until you understand and can admit that you have rose colored fee-only glasses.

[ManINaSuit]

I met a CPA once that said he got around the licensing part of insurance planning by "just not charging for it."

He was also a PFS.

[the observer]

Jeremy,

You write: "what you said had nothing to do with what we are talking about."

Then you just don't get it... Insurance is an integral module within any financial plan. Until you can reconcile and codify statutes that are uniform at the federal level, which provide that "financial planners" can provide unbiased fee advice in insurance matters, you CANNOT create a uniform, "fee-only" financial planner concept without half the country's financial planners breaking the law. That is unacceptable. 32 States have these laws and CFP® Certificants should look to their code of ethics, be the very first to comply and NOT openly flaunt the law and commit crimes while calling properly licensed individuals "biased and unable to provide ethical and competent advice".

That's bull**it and your colleagues have no moral, ethical or legal high ground, period.

[Fee-Only Guy]

Still Irrelevant. You are avoiding the obvious. I am not disputing the regulatory issues at all. Yes, as financial planners we need to repect the laws and find ways to provide advice in a legal manner. This is not about offering insurance advice without a license. I see the hurdles, however in my state I am in compliance. Even so I can refer out LI to someone else, whether it be a local agent, a consultant like Ryan Insurance of LLIS, or even anonymous. Not an ideal solution. Someday the industry WILL find a reasonable solution to this. I would postulate that it might have something to do with an exemtion for those who have the CFP, ChFC, and or CLU. Something I'm sure will change but this is not what I am talking about.

The issue is about the PUBLIC gaining an awareness of the fiduciary issues and that there are financial planners out there that offer advice without selling product. The PUBLIC is gaining an awareness of this, albeit slowly, but none the less it is happening. This increased awareness has nothing to do with the growth of NAPFA. Why do you keep avoiding the questions by answering a different question.

[the observer]

Jeremy,

As far as I'm concerned, the issue centers around whether the CFP Board should be allowed to control the usage of the term "fee-only". The answer to this is NO, they have neither the right, nor the regulatory authority to do so. If they seek to prevent me from doing business as a "fee-only" (SEC definition) advisor and threaten my ability to use the CFP® Marks in public practice while allowing criminal planners to continue in their illegal enterprises without revoking their licenses I will fight them in court. A wannabe quasi regulatory body needs to uniformly enforce all their rules, not discriminate so blatantly against their stakeholders by allowing planners to commit criminal acts and keep their licenses while others follow the law, only to have their licenses revoked for doing so. It's that simple.

Otherwise, see my post.

[bss]

Observer,

I will ask this question yet again....

You have said that using the CFP mark does nothing for you in bringing in new clients.

For the 242nd time in a two month period, you again complain here that the CFP Board is harming your business because they say you can't call yourself fee only.

Simple solution--Drop the CFP marks.
The CFP controls your use of the term "fee-only" because YOU INVITE THEM TO.

If something was harming my business to the extent that you complain you are being harmed, I would fix it immediately. I would only hope that my fix would be as easy as yours.....yet you do nothing but complain about it.

I get the feeling that either:
1. You enjoy fighting "authority"--maybe you are reliving the 60's, I don't know.
-or-
2. You are looking for someone to blame other than yourself for "the harm" done to your business. It is much easier to blame some outside force than to blame ourselves for not acheiving our goals.

This story of "look what they are doing to me" continues to replay itself over and over again with you.
I might say that you are fighting injustice for everyone, but I don't see that at all. In all of your LENGTHY posts, you have only written how it hurts ME, ME, ME.

I started this post with a question--but nevermind. I don't care to read the essay that will follow.

[Fee-Only Guy]

Observer. NO NO NO NO NO. You are avoiding the question again. You are going off on tangents that you seem bitter about. The CFP board has every right to the use of fee-only. If you want to use the marks then you have to abide by their rules, regardless of the fact they are not a regulatory authority. You want to use their marks, you gotta follow their rules. Similar to what my parents would say to me as a kid, “you live under my roof so you’ll follow my rules.” Whether I agreed with them or not I had two choices; stay and live by their rules, or go. You want to use the CFP marks and say you are fee-only because you know it’s a marketing advantage which brings me back to my original point that you keep avoiding.

I’ll say it again in hopes that you can follow me this time.

1. Fiduciary issues and fee-only are growing. Albeit a small pace, but none the less growing.
2. The public is becoming more aware of fiduciary issues and fee-only.
3. The publics knowledge in aforementioned issues will create a demand for fiduciaries and fee-only advisors.
4. However, this demand will not necessarily translate to a growth in membership for NAPFA.

Please re-read those 4 points at least three times. Then you can respond to what I am saying.

[the observer]

bss & Jeremy,

be honest with yourselves, neither of you have sufficiently contributed to the profession of financial planning or made the sacrifices I have made to criticize me in a public forum. You blindly follow the Board like little lemmings over the cliff. When the Board invented the lite, you both bent over and said thank you, when the Board decided to change their rules you both bent over and send thank you again. The difference between you guys and me is I don't bend over, it hurts my butt and the jam sandwich I get fed for the favor doesn't make up for it.

bss, when you have something to contribute, other than just nay saying, we'll talk. Just drop me a personal E mail with all your contact details, you know where I am. Oh yeah I forgot, unlike Jeremy who I do communicate with off line, you're just a chicken little

[dan]

Observer:

I'd like to re-iterate bss's question: why don't you just drop the CFP mark? Having a CFP is not required for you to do business, it probably doesn't HELP you do business, and having the mark seems to cause you much more harm than good.

- DDB

[the observer]

DBB, since you're not in the habit of insulting people's professional abilities, I'll answer you question with a question,

if you passionately believe in something, an ideal, an attainable goal, do YOU then drop it and run screaming like a little girl because someone tries to pervert that ideal or goal? Or, do you fight with all your might for what you believe is right?

I have put my money where my mouth is trying to change the Board's direction in the past and succeeded in doing so. I'll do it again if necessary. I don't run like a screaming little girl when confronted. I've also been right on the issues in the past, as proven in the most recent changes to the CFP Board code of ethics taken up by the Board, many of which were recommendations made by me from 2000-2002 when I served as an adviser to the task force on disclosure for the CFP Board.

This is all well documented and proof can be obtained by downloading my comments in pdf format to the Board in this most recent ethics code change. Send me your E mail address and I'll send you a copy if you can't find it on the Board's web site.

The fact that, due to NAPFA's influence, the Board continues to pander and get things wrong when it comes to the issue of placing an emphasis on compensation rather than disclosure and comprehensive continuing education is truly sad. Their decision not to allow stakeholders a vote in deciding who should stand for a place on the Board was cowardly. They claimed voter apathy with turnouts of 150-200. But then, when stakeholders weren't allowed to pick their own candidates, there was never any incentive to vote, so why turn out. De Facto, their decision was a foregone conclusion because they only elect people to the Board who agree with each other. You don't learn anything or move this goal and ideal forward by bending over and kissing the blarney... you move it forward with out of the box thinkers who really want to be there and have something sensible to contribute.

People like Lou Garday and Gary Diffendaffer understood this and made a point to reach out to dissenters, it's a pity the current Board spends its time sitting around agreeing with each other instead of doing more to reach out to the stakeholders. And I don't mean showstoppers like the Santa Monica Board Meeting in a public forum last year on Ethics changes where we all sat around waiting to have a turn, only to find out that we were invited to listen, not share our thoughts. Professionals want to be talked to, not at.

I do not drop the marks because they can and hopefully will have a significant impact on the future of the provision of financial planning services worldwide. My contribution is not to let them sit back in comfort and make all the decisions, but to encourage, cajole, goad, intimidate, and also work together with them to get it right the first time. If the ultimate goal is to create a profession of financial planning, then the ground rules must be written in conformance with current law and changed as current well established law changes.

BTW, we discuss the definition of "fee only", a major concern of mine considering the amount of criminal activity that takes place under this guise... but there are so many other more important issues to discuss.

Finally, how can the Board define fee only without defining "fee"? I haven't got that one yet... and since compensation under many state laws also encompasses commissions based on a percentages, doesn't "fee" need defining?...

Finally, back in the late nineties I published an article in Financial Planning Magazine suggesting the following, more honest definitions to "prevent" consumer confusion:

FEE-ONLY: "A method of compensation a CFP® licensee receives in which an hourly rate, expressed in dollars and established by the licensee, is the only financial or material compensation received by them or any other party."

Commission: "A method of compensation received by a CFP® licensee from any source, including brokerage, custodian mutual fund and insurance companies, which is expressed as a percentage of the sum invested in any type of account including advisor and discretionary accounts."

The latter one received the most criticism, with many fee-only planners E mailing me saying " that this is a more accurate definition of these terms, but would never support such definitions because it would make their "fee-only practice" a commissioned one again"

FINALLY, to measure just how far we've come since the late nineties, let's recall the following decision:

1999 N.D. 215, *; 603 N.W.2d 43, **; 1999 N.D. LEXIS 247, ***

Gilbert Kuntz and Patricia Kuntz, Plaintiffs and Appellants v. Wayne A. Muehler, also known as Dave Montgomery,
and Investment Centers of America, Inc., Defendants and Appellees

No. 990188

SUPREME COURT OF NORTH DAKOTA

1999 ND 215; 603 N.W.2d 43; 1999 N.D. LEXIS 247

"A certified financial planner is not an occupation that requires the specialized knowledge, long and intensive preparation in skills, and scholarly principles underlying such skills typically associated only with professions. See Jilek, at 663; Jorgensen, at 334-35; Tylle, at 441. Under N.D.C.C. § 28-01-18"

Why did the Board drop the ball, allowing this ruling to stand????

Since then we are no nearer to becoming a profession, other than.... the Board is moving nearer to Washington.

They move nearer to Washington, I will continue to try and change the Code of Ethics, just as NAPFA does, to make the Board and our profession more honest about themselves while living within the boundaries of "current" law.

Fault me if you will on this, but "leaders" in a profession don't "give up"... although, I watched many a CEO of the Board come and go after much frustration, so maybe in this profession they do?

[dan]

Observer:

I think I agree with some of what you're saying, namely that the mode of compensation is meaningless, but full disclosure is paramount.

Quite frankly, I don't think the CFP board understands any of this stuff. If they did, then any registered rep of a broker-dealer could not possibly be allowed to use the CFP mark, as it is IMPOSSIBLE for a B/D rep to always act in the best interests of the client (due to selling agreements and selling-away rules).

Imagine if you went to a doctor who knew about a prescription drug that could cure your ailment, but he was not legally allowed to recommend it to you. This is the same issue that a B/D rep faces every day with every client, even if the B/D rep is also an IAR under the B/D's RIA.

As far as I'm concerned, there should be B/Ds, and there should be RIAs, but no overlap. To work in a professional capacity for a B/D would require the existing NASD licenses. To work in a professional capacity for an RIA should require a standardized rigorous education, and a standardized rigorous exam (think law school and the bar exam). A person should not be allowed to function as both a registered rep for a B/D and an advisor for an RIA. Most of the confusion on this issue stems from all of the overlap that now exists (IMO).


- DDB

[the observer]

DDB

you bring up a good point... but the reason behind the double licensing issue is simple and could be simply cured frankly.

Some people need their licenses like babies need a pacifier, BECAUSE, they are frankly frightened of the next step, don't believe 2 years is enough to know whether they will make it on the RIA side and want a safety net. Others like me actually need the B/D connection for another reason, As a sole practitioner I would have to jump through too many hoops and spend too much money trying to establish policies that would meet the SEC guidelines for continuity and emergency plans etc. The indie B/D connection gives me an edge at an affordable price.

What WOULD help many planners is a make up exam on regs rather than taking all the licenses again under the proviso that they were always registered as RIA's if they decide to come back and... for people like me, a simplified method of being able to structure emergency plans/continuity plans/ all the other paperwork/stuff without just decimating the bottom line.

All of this is down to the States and the NASD to work out, and they just don't care about these issues so I think dual registration will be around for a while yet.

[bss]

Observer wrote:

"bss & Jeremy,

be honest with yourselves, neither of you have sufficiently contributed to the profession of financial planning or made the sacrifices I have made to criticize me in a public forum."


Playing the martyr card now?
And above criticism?

PRICELESS!!

[dan]

"Others like me actually need the B/D connection for another reason, As a sole practitioner I would have to jump through too many hoops and spend too much money trying to establish policies that would meet the SEC guidelines for continuity and emergency plans etc."

Could you expand on this? What continuity and/or emergency plan would you be unable to implement if you were out on your own? How are the thousands of other small RIAs handling this issue?

"What WOULD help many planners is a make up exam on regs rather than taking all the licenses again under the proviso that they were always registered as RIA's..."

I don't understand this, either. If you lose your licenses, and have to retake the Series 7 and 66 in 5 years, do you really think this is an undue hardship on you? Spend 5 hours reviewing the material and just take the tests!

"All of this is down to the States and the NASD to work out, and they just don't care about these issues so I think dual registration will be around for a while yet."

Quite frankly, I don't think any of this stuff will change much. The current procedures are just too ingrained in the system.

- DDB

[the observer]

cluck cluck bss... name and number name and number

[the observer]

To my comment regarding costs of doing business DDB, you wrote "Could you expand on this? What continuity and/or emergency plan would you be unable to implement if you were out on your own? How are the thousands of other small RIAs handling this issue?"

DDB, it's not a question of what I wouldn't be able to implement, as previously explained it's really a question of what I'd be able to cost effectively implement. My way's cheaper and easier and if needed, since I spend a month a year in Europe, I get live people to assist my clients who are CFP® Certificant investment adviser reps and have access to their accounts in an emergency. For me, it's a no brainer.

As far as other small RIA's out there go, honestly, I don't know how they do it. Certainly, if they want a life and don't want to spend hours filing papers they'll need to pay for it and probably hire an assistant and pay a company like BH Regulatory for help with their annual filings and regulatory updates, etc.etc.. I don't need any of that. Perhaps some small non-affiliated RIA's could respond and better answer your question?? Perhaps you are one, if so, what does it cost you?

To my comment "What WOULD help many planners is a make up exam on regs rather than taking all the licenses again under the proviso that they were always registered as RIA's..."

You responded "I don't understand this, either. If you lose your licenses, and have to retake the Series 7 and 66 in 5 years, do you really think this is an undue hardship on you? Spend 5 hours reviewing the material and just take the tests!"

It's not a personal hardship for me since I intend to remain affiliated and use RIA fiduciary advisory accounts channeled through a B/D until I retire. However, from the thousands of posts I've read and responded to over the years here in these forums, it appears to be the biggest problem most people who ask where they can park their licenses claim to face... that's all. They just don't want to take the exams again. It's a non-issue for me, I've made my choice, it was an easy one too.

[Fee-Only Guy]

Observer, Why are you avoiding the point I am asking you about? What I said has nothing to do with my contributions to the financial planning profession. I don’t dispute that you have made contributions. The CFP board has their right to require their members to do what their rules are. If someone doesn’t agree, then they have the choice of not being a member. It’s that simple.

NAPFA’s influence is justified. They have a vision and a goal, and like you put it, they don’t want to bend over and take it. They are fighting for what they believe is best for the public. Which again goes along with my point that the public is becoming more aware of these issues. Here is an article about trends in advisor compensation, you should check it out: http://www.producersweb.com/r/smaMag/d/contentFocus/?adcID=b9474e67c1a89ea0c0cf9fd54cb298f1

But still I don’t understand why you are avoiding my questions. I’ll repeat them:
1. Fiduciary issues and fee-only are growing. Albeit a small pace, but none the less growing.
2. The public is becoming more aware of fiduciary issues and fee-only.
3. The public’s knowledge in aforementioned issues will create a demand for fiduciaries and fee-only advisors.
4. However, this demand will not necessarily translate to a growth in membership for NAPFA.

Will you please comment directly on these 4 issues I have presented.

DDB. I agree with you. Brokers sell, IA advise.

[bss]

#5 for The Observer

You say that the CFP Board hurts your business by not allowing you to call yourself fee-only. You continue to "bend over and take it" from them by continuing to play by their rules as if it is a requirement to do business. It is voluntary!

Generally people don't join organizations that they are at extreme odds with.
Can you find no other windmills?

[the observer]

Jeremy, here's a short answer, if you need more, I'll E mail you some old articles of mine on the topic...

1. Fiduciary issues and fee-only are growing. Albeit a small pace, but none the less growing.

Jeremy, First off all, "Fiduciary" and "fee-only" are mutually exclusive and I see no direct compelling relationship between the two terms. Further, if you've read enough of my postings, as well as my open responses to the CFP Board over the years, you should know that I FULLY SUPPORT fiduciary status for any CFP® Certificant in a "financial planning" relationship with a client. What makes the issue contentious is the fact that probably over half of all Certificants don't engage in comprehensive financial planning with their clients. A great number are still not registered as investment advisers. Ask any of these planners and they will uniformly agree their CFP® Certification program of education has improved their knowledge and skill sets, but many of them will disagree on everything else.

2. The public is becoming more aware of fiduciary issues and fee-only.

I do not believe the public is becoming more aware of "fee-only" and "fiduciary", although I do believe that fee-only planners believe this to be so. I do not believe this is where the CFP Board's focus should be directed at this time either, at least, as far as the CFP Board Code of ethics and standards of practice is concerned. The issue should be focused on the following, not necessarily in this order:

A. A "requirement" that those Certificants who hold out as "comprehensive" financial planners actually engage in comprehensive financial planning, and, that they be pro-actively audited to ensure that they meet the legal requirements to provide information in all financial planning subject areas including insurance.

B. A "requirement that all Certificants who hold out as financial planners OR (more importantly... claim to engage in "financial planning"), also register as investment advisers (it's already a requirement, but it's ignored by many) and take on a fiduciary mantel. If you are unclear why I separate financial planner from financial planning, E mail me, I'll give you a complete explanation.

C. The Board needs to require all CFP® Certificants to take 3 hours annually in each of the 6 main subject areas to maintain certification, plus 2 hours ethics. This would total 38 hours each two year period, but would ensure that Certificants actually stay current in all financial planning subject areas, including areas that they don't generally practice in, ensuring Certificants remain competent to practice comprehensive planning, if called upon to do so.

D. REFOCUS their efforts away from "method of compensation" and toward "disclosure". In 2001 I created an expanded disclosure form that EVERY CFP® Certificant could use, including fee only planners and insurance agents. It failed (in committee if you will) because it required fee only planners (the majority on the Board of Governors) to declare whether they would offer insurance advice and if so, provide details on their licensing. Disclosure is also stymied because people like yourself, Jeremy, make demands for full disclosure from insurance agents when the insurance agents couldn't subpenoa the information you desire from their own insurance companies, showing a lack of comprehension of the business of insurance. BTW, full disclosure in the business of insurance on an RIA's ADV Form is, according to the CFP Board, "accepted as meeting disclosure requirements". That's laughable, since you are not required to disclose anything other than the fact that you actually earn commissions on insurance sales. However, you Jeremy, desire a most comprehensive and impossible breakdown from an insurance agent, that's plain ridiculous.

3. The public’s knowledge in aforementioned issues will create a demand for fiduciaries and fee-only advisors.

Not true. Go back to point one... any "financial planner, or person engaging in financial planning, should be a fiduciary in my opinion, there should not be a need to increase demand, it should be a given. As for "fee-only" advisers, all I can say is, not at the expense of allowing comprehensive financial planners in 32 States to openly violate the law. When the CFP Board first allowed modular planning, I opined that Financial planning subject areas (cash flow and budgeting, insurance, tax, investment, retirement and estate planning) were inexorably interrelated and that those calling themselves "financial planners" would be failing in a duty of care owed to the client by not addressing all the subject areas. Nevertheless, modular planning was suddenly O.K. That said, If the Board allows modular planning, whereby a Certified "Financial Plannner" does not need to act as a "financial Planner" then they can hardly claim the high moral ground and demand that I not call myself a "fee-only" fiduciary investment adviser with modular investment advisory clients, while allowing NAPFA planners to break the law in 32 states and still wear that badge of honor, surely?


4. However, this demand will not necessarily translate to a growth in membership for NAPFA.

As previously stated, I know a lot of NAPFA planers who stick around for the lead generation program and nothing else, I know NAPFA planners who came to these boards and openly declared their dislike of previous NAPFA board tactics. NAPFA doesn't grow because they won't accept certain principles that are well settled in law, and they continue to berate other professional license holders, thereby showing a lack of respect that many find offensive. If they would fix their policy concerning unlicensed activities and apologize openly for their past behavior, they'd probably double their membership in short order, particularly since they've long moved away from "comprehensive financial planning" and more towards Modular financial planning as well... Wonder where the CFP Board got that idea???

[the observer]

BSS, you write: "You continue to "bend over and take it" from them by continuing to play by their rules as if it is a requirement to do business. It is voluntary!"

Actually I don't... In the preamble to my 104 page response to the CFP Board code of ethics changes first draft, I introduced myself as:

I hold the following professional licenses: CERTIFIED FINANCIAL PLANNER™ Certificant; Life & Variable General Agent; (California and Arizona) NASD Series 6, Investment Companies and Variable Contracts Representative; NASD Series 7, General Securities Representative; NASD Series 24, General Securities Principal; and Series 63, Uniform Securities Agent, State law. In addition, I am the owner of a CA Registered Investment Adviser offering “fee-only” (SEC Definition) financial planning services.

I don't think anyone on the Board missed the last phrase of my introductory sentence there, or the clear message of dissent? If a letter comes, it comes and I'll challenge it, or, do they also believe there are bigger concerns for people who actually contribute to the process. BTW, how many pages was your response to the first and second draft, may we view a copy? Or did you not contribute?

I learned long ago from a very wise financial planner that you can achieve far more change from within... Since I also believe in the ideal of "one profession, one designation", we all as planners need to contribute to the process, not be carried along by it.

As I always say after every general election in this country where we get a fool for a president... if you weren't one of the only 30% that voted, you haven't earned an opinion, at least, not one I need to listen to.

[bss]

The Observer wrote:

"In the preamble to my 104 page response to the CFP Board code of ethics changes first draft..."

At what point does a genuine concern become a maniacal obsession?

[Fee-Only Guy]

Observer, again WADR, how can you possibly suggest that fee-only and fiduciary are mutually exclusive? That is ludicrous! It is more likely the other way around. Fee-only advisors are RIA’s which are held to a fiduciary standard by law. Commission broker/agents are not held to this standard. The notion that a fee-only advisor cannot be a fiduciary is outrageous and I’m surprised you would say such a thing. An insurance agent who has the obligation to put the insurance companies’ interests first is in conflict, by nature of the relationship, with a fiduciary obligation to the client. This is more an example of mutually exclusive, meaning only one can exist at a time.

#1. You remind me of my father who never answers a question directly. You ask him a question and his answer is not related to the question. Do you think that the issue of fiduciary responsibility and the fee-only compensation model is growing, even if it is a small pace? Yes or no answer please.

#2. Thank you for answering this one. The fee-only message has grown from being virtually unknown about 20 years ago, to now when consumers hear radio advertisements, newspaper, internet, etc. about fee-only and begin to search them out. I see this daily as a member of NAPFA with all of the people submitting information. And this is just those who don’t remain anonymous. I get at least 10 notifications daily for people in NJ, NY, PA, and CA who are actively searching for a fee-only advisor. This is something I see firsthand everyday. So you believe that fee-only isn’t growing, yet more and more consumers are looking to NAPFA to find fee-only advisors.

#2A. Are suggesting that a financial planner who holds him/herself out as comprehensive must do a comprehensive plan every single time? What if the client only wants a retirement plan or asset management? Do they turn the business away? The requirement is that comprehensive planning be “offered.”

#2D. Do you ever wonder why the CFP® Board is focusing on method of compensation? I think it is because they see fee-only as a preferred method to put the interests of the client first over commissions. I am not saying that a commission advisor cannot put the interests of the client first, it just that it is the nature of sales that allows many people to cross ethical lines very easily when compensation is different for different products. All methods have conflicts of some sort, however it seems that fee-only has the least out of them all, and therefore the preferred method. You just seem so hung up on this insurance problem. I feel as though you want to stand up and say, “look they’re all doing it wrong, but me, I’m doing it right!” The CFP designation could easily become a waiver for an insurance license. The SEC already exempts a CFP from taking the series 65 if I am not mistaken? If this happened, then what would you do? Many of your arguments on this issue would fall apart. I disclose all the fees the client pays, including my fee, and admin fees, brokerage fess, etc. A commission agent should do the same: M&E charges, brokerage fees, and yes, commissions. So isn’t it a problem that the insurance companies won’t release this information? What are they hiding? Therein lies the problem. And whether you believe that commissions do not affect cost or not, what’s so wrong with disclosing it anyways?

#3. The media and advertisements show fee-only as having a fiduciary responsibility to the client whereas commission advisors do not. Whether you agree that this is true or not is irrelevant because that is what they client sees. Even the wirehouses advertise and make their reps look like fiduciaries when in fact they are not. They do this because they know the public would prefer someone who is legally obligated to act in their best interests, not the interests of the company. Once a person realizes that their interests do not have come first when working with a commission advisor they will seek out one who does put their interests first. See this is related to my point. You say that NAPFA members in 32 states are breaking the law, however they still wear this “badge of honor.” My point again, irrelevant to the fact of whether it is in fact moral or not, is that this is what the public sees. They want a fiduciary and a fee-only advisor will provide that. This in turn is what drives the increased demand.

#4. Since you don’t seem to think that there will be an increase in demand for fee-only advisors, I guess you wont be agreeing on this one either. I believe there will be an increase in demand for fee-only advisors, in fact I am seeing it already by the number of NAPFA leads that do come in on a daily basis. These are people that are seeking out a fee-only advisor because they are fee-only. How many people out there do you think seek out commission agents because they are commission agents? Few if any I would imagine. By my point is that increased demand for fee-only advisors does not necessarily mean that NAPFA will grow, but I imagine it will anyways.


If you truly can’t see that this is the future, then that’s fine. But I don’t want to be the horse with those side view blockers on, which is why I have chosen this path less traveled.

[the observer]

Jeremy,

You write: "The notion that a fee-only advisor cannot be a fiduciary is outrageous and I’m surprised you would say such a thing."

Sorry, my bad, I was in a hurry yesterday. The sentence should have read "separate and distinct" in that, one can be a fiduciary without being fee only. Perhaps you'd like to reconsider the comments in that light.

To your questions:

#1. No, but it certainly is in the minds of some planners, mostly NAPFA people. Consumers don't have a bloody clue what goes on in our world and they never will because every time they think they have it nailed, someone will invent another cute technique to muddy the waters again. So is the issue growing, again, NO, it's only growing in the minds of a about 1/2 of 1% of the country's financial planners in all probability, which means nothing in the great order of things. And frankly, you claiming these issues are flaming hot burning issues in the minds of "consumers" with absolutely no basis in fact, or without any actual proof is "ludicrous", since you like the word so much.

2 I also have had over 5000 verifiable downloads of my article on the illegal activities of fee-only planners and have picked up two clients this year already who were looking for a fee only planner, needed risk management planning, and then came to me instead. I could have picked up more but I refuse to drive more than 30 miles to see a client, just me and my dislike of trying to get to an appointment on overcrowded freeways. So whatever you're seeing, I see other things and conclude... it's whoever gets there first and properly informs the public as to the law of each state.

#2A. Yes, in fact in my world, a CERTIFIED FINANCIAL PLANNER™ Certificant should have an obligation to engage in "comprehensive financial planning" in all subject areas, if nothing else, just to mitigate his liability. Also, I'm sick of hearing a small number of consumers claim that a CFP® Certificant claims to be a financial planner but REALLY just wants to sell insurance, or manage money, or this or that, or anything else but "comprehensive planning". After all, a CLU or ChFC is probably more qualified to assist in insurance matters and when it comes to money management, even I'd pick a CFA rather than a CFP® Certificant first. People looking for a CFP® Certificant are generally looking for financial planning, they don't really have a bloody clue what they need, or they are tapping around in the dark thinking all they need is one thing, when the reality is, they need something completely different. We are generalists, we can ALL improve our skills after attaining the Certification by continuing our education, most DON'T, they just reinforce their education with living trust books that give them 16 hours of CEU. I could go on for hours, but then the complaints come about the posts being too long, so what's the point. I manage money because I have done a significant amount of additional training to get me where I want to be, I sell insurance because I've been in the business 21 years and have also performed significant training to do the job well. If you had had a decent mentor instead of an idiot, you may well have still been selling insurance yourself, or maybe not because you need the NAPFA leads, I don't need them, everyone has their own business model. Anything else?

#2D No, I've never wondered why, they've always concentrated on method of compensation because the majority of board members come from the NAPFA side of the fence and will continue to do so because it is an oligarchic system of governance, and always has been.

#3 You missed an opportunity to make the point that insurance agents and non-fiduciaries make more money "selling" to consumers than any other branch in financial services because salesmen get the job done. They pro actively seek out clients and live or die by their ability to "sell". If you believe anything is more important than the ability to "sell", be it yourself, or a product, you will absolutely fail in this business. I have worked both sides of the fence and watched incredibly intelligent and qualified people crash and burn while ignoramuses succeed. Fee-only is nothing but a marketing concept, a good one, but still a marketing concept, please stop fooling yourself. A NAPFA "written" fiduciary oath is another great marketing concept, nothing more, nothing less. When people ask me whether I have a written fiduciary obligation I flash them California Statutes, not a piece of paper with NAPFA on the top, it makes them feel better to know there are laws in this State that require me to act as a fiduciary, not just a piece of paper from some voluntary membership organization. Come down from the pulpit, there's still time to learn in the pews.

#4 See comments above re. reading AND digesting a post... What I said was "there should not be a need to increase demand, it should be a given." To expand slightly on this thought which I thought I had spelled out in my last post... CFP® Certificant who engages in Comprehensive financial planning -> requirement to register as RIA -> fiduciary by statute -> higher level of public trust. NOT, NAPFA stamps its feet and writes an article or two, the CFP Board comes up with a couple of flawed definitions and suddenly "consumers are informed", therefore there's growth in demand?! Demand does not need to grow, compliance with the law needs to grow, that's how you protect consumers who, believe me, ABSOLUTELY need protecting from themselves mostly.

As far as your comment: "How many people out there do you think seek out commission agents because they are commission agents?" ARE you KIDDING????? Buddy of mine in Beverly Hills makes an incredible living just selling group and individual health insurance to families and companies, even a small one man operation with 1 employee brings in around $300.00 a month steady commission. Larger cases pay more. My health insurance, life, disability and long term care insurance business is not something I'd want to give up. These people actively seek us out all the time because they can't "BUY', just talk about health insurance with YOU. What do you think I'm going to do, give up the license, break the law, earn a little fee one time while the agent referred in gets the full commission plus ongoing trails, OR, ensure the clients get the absolute best AND earn a fully disclosed commission plus trails... sorry Jeremy, you have got to be kidding. I and many of my fellow CFP® Certificant, Registered Investment Advisers with 20 plus years of building a book of business are not going to change our business model, lose TONS of clients and go to the dark nebulous side where people break the law providing insurance advice for a fee before a licensed agent earns their commission for anyone. WE prefer to stay within the law in CA and these other 32 States.

And finally all this is not irrelevant because I say again, you CANNOT engage in comprehensive financial planning WITHOUT engaging in insurance planning. And you certainly can do business in CA the way you do business in NJ. Until there is a uniform statute, there will never be an agreement and I will continue to operate within the law.

[Fee-Only Guy]

Observer, It was your use of “mutually exclusive” that fired me up on that one. I see what you mean now.

I do not suggest that these issues are flaming hot, just that they are beginning to be noticed by the public. Burning hot in our industry is a different story. It is nearly impossible today to open a trade mag without seeing an article about the fiduciary issue, especially in the wake of the SEC being overturned by the courts for the Merrill Rule. But I do have basis, and that is in being a member of NAPFA and personally seeing how many people search out for a fee-only planner. I think the difference here between you and I is that I have a sensitive radar to these issues, while you dismiss them because you don’t believe it is happening. Yeah I like ludicrous, especially when we are talking about going “ludicrous speed!” it’s a funny word.

I think that a CFP should have the obligation to “offer” comprehensive services. However if the client only wants help in a certain area, than why turn them away, unless of course you don’t want to take the client. I offer comprehensive planning to my clients, however I’m not going to require a comprehensive plan as a requirement of being a client. If someone just wants investment management, I will help them with the caveat that they should do a plan and I would ask for a signed waiver that I have explained comprehensive planning and they have declined. Would you not take a client just because they only want a life insurance policy and they don’t want a comprehensive plan? If all CFP’s were REQUIRED to do comprehensive planning then them a lot of them would have a problem. I never liked selling insurance anyways because I didn’t like the interaction. I could sell it to those who ask, but that is rare. Also, I feel more aligned with what I believe the future will bring to this industry as a NAPFA member. The referrals are nice, but there are other sources for referrals.

Non-fiduciaries might make more money in the short-term, but they don’t have an annuitized income stream and equity in a book of business that could be sold later. I know I need to sell myself, but I’d rather do that instead of selling someone a product. I try to sell myself on my education, experience, ethics, credentials, etc., instead of flashy sales presentations about products. You are absolutely right that “fee-only” is a marketing concept, and a damn good one in my opinion. I want to take advantage of this concept because it just happens to fit well with my ethics and business practices. You agree that fee-only is a good marketing concept and you want to exploit that. But this kind of contradicts you early statement about it’s growth. It’s a good marketing concept because the public is becoming aware of it. I have a legal fiduciary responsibility as well, the fiduciary oath is something that is much simpler to provide than offering state statues. It is a direct promise signed by you that you will be a fiduciary. It makes a person comfortable. There’s nothing wrong with that.

Your #4 is not making much sense and is not consistent with what I am saying. If there were an abundance of fee-only planners, then they would need to increase the demand to meet the supply. I am suggesting that there is a greater demand for fee-only advisors then there is a supply. I am also suggesting, and it’s likely due to NAPFA stamping it’s feet, that the demand for fee-only planners is increasing. This increase in demand creates the need for an increase in supply. This is economics 101. Demand doesn’t need to grow doesn’t make sense. Demand just grows or it doesn’t.

You missed my point about seeking a commission advisor. Sure there is a need to speak with “agents” for particular products and I know those health plans can be lucrative. I’m talking about someone actively and consciously saying I want to find myself a commission based financial planner to help me develop a financial plan. Doesn’t happen. They might fall upon this type of advisor, but seek one out BECAUSE they are commission based, I doubt. You point about not losing tons of clients is why many advisors wont make the switch; they don’t want to give up their insurance commissions. It is also why we are seeing more newer advisors go directly to the fee-only model, we haven’t been rooted in the commissions.

You use your argument of fee-only planners breaking the law to justify your model, which is fine. However, fee-only planners do engage in insurance planning whether illegal or not. Seeing how there is a disconnect between the states, there will likely be change in the next decade to address this problem, because again, the demand for fee-only advisors will only get stronger, not weaker. The commission advisor will slowly go the way of the stockbroker. I bet the stockbrokers tried to fight that one as much as they could too, but they basically died out anyways.

[the observer]

Jeremy, you write "I never liked selling insurance anyways because I didn’t like the interaction. I could sell it to those who ask, but that is rare."

I've always found the best insurance agents sell themselves, their knowledge, their competence and willingness to work together with the client to protect their assets. I personally believe consumers need to "buy" insurance. It's sad that insurance is still "sold" in America today. There are two reasons in my opinion. 1. Many pure insurance agents are just very bad at their job and sit before the client mentally calculating their commission rather than the amount of insurance a client needs, 2. The competent insurance planners have been thrown out with the bath water as organizations, yes, like NAPFA, have berated and made demons of a very important segment of financial planning that is based worldwide on commissions rather than fees. They are punished in the first instance because of method of compensation. Insurance agents need to be judged by the content of their character and the depth of their knowledge, they are not. If Organizations like NAPFA would embrace the concept that insurance agents can be ethical (as many of their members do, who cooperate with insurance agents and brokers, and I've received referrals in the past) then we could refocus emphasis on ensuring only those agents who really know their stuff get to play in the sand box.

You also write: "I think that a CFP should have the obligation to “offer” comprehensive services. However if the client only wants help in a certain area, than why turn them away, unless of course you don’t want to take the client."

Go back to my point about most consumers not having a bloody clue what they really need and use the analogy of the auto mechanic. If my Lexus makes a funny noise in the engine compartment, I take it to the garage and ask my mechanic what's wrong and please fix it. I don't tell him to look at the sprocket next to the dongle and nothing else. It's useless having him fix my sprocket and my wheel falls off on the freeway at 65mph. I have to let him do his thing... and pay for it. We are generalists. We need to look for everything when we look under the hood and see things with a level of expertise that our clients just cannot. We need to understand that the sprocket is only squeaking because the oil pump is going bad and be able to articulate and justify that to the client. Costs a little more, sure, but better than flaming out on the freeway. So, where has my concentration been for many years... finding a bloody mechanic I can "trust" whose service doesn't come with a pot of Vaseline. Hence my opinion that we need to refocus on competence and disclosure over method of compensation AND CFP® Certificants NEED to remain proficient in all subject areas through continuing education. What would happen if my mechanic just worked on Toyotas and never learned that the sprocket has a relationship to the oil pump?

As concerns the marketing concepts we all employ... I've nothing against their marketing concepts when they market themselves. I use much of the same language in my own fee practice. I object to the denigration of another licensed profession by an organized group. There needs to be a refocusing. I've always preferred to work with someone that tells me how good they are and why, rather than how unethical the other guy is... and that's why you need to work with me. BTW, when the conversation starts that way, I generally stop listening, as do many others. NAPFA has a great marketing concept and God bless 'em, but they need to get their members to toe the line or lose credibility with other professionals, just as the CFP Board does.

With regard to the future of insurance you wrote: "Seeing how there is a disconnect between the states, there will likely be change in the next decade to address this problem,"

I just have to completely disagree with you on this. State insurance departments are overwhelmed, understaffed and at the bottom end of the budgetary totem pole. Further, you are expecting the most powerful lobby in the world, the insurance industry, to change their modus operandi worldwide?? Completely unrealistic and it will never happen. The business of insurance is unlikely to change in my daughter's lifetime. Ameritas is but a minuscule fleck on the jacket of the insurance industry, not forgetting, these "low load" policies over time do not demonstrate superior performance.

And Jeremy "The commission advisor will slowly go the way of the stockbroker. I bet the stockbrokers tried to fight that one as much as they could too, but they basically died out anyways."

Where on earth did you come up with that?????????

According to 2007 NASD statistics there are currently 664,095 registered representatives... According to the 2006 National Association of Insurance
Commissioners Annual Report, there are just over 3,800,000 Producer Licensing Records in their Producer Database... There are just over 1,200 NAPFA members and many of those are students, industry affiliates and supporters, not full NAPFA members. Seems to me commissions are alive and well, as is the art of "selling". Perhaps just an other reason we need to refocus on competence, ethics and disclosure rather than "method of compensation"?

[Kevin9]

Observer,

Your patience in dealing with Jeremy is amazing. Then again, you have always been quite professional on this BB.

I stayed out of this discussion, until I read through the thread's the most recent exchanges. Now, I am compelled to add a note.

Perhaps our friends in NAPFA, including Jeremy, need to know that the "fiduciary" oath was not invented by their group. In 1927, The Society of Chartered Life Underwriters developed their oath, which contained the concept of "doing for their clients that which they would do for themselves, in a like situation."

The idea of putting the clients best interests first was not developed by NAPFA.
Nor was it "invented" by The Society. One could make the claim that is has been around since the Bible admonition to "do unto others..."

In the current edition of Advisor Today Magazaine, the Back Page article addresses this situation as well. The author, a former President of MDRT, puts it well. Worth a review.

Keep up the good fight Observer.

Kevin M. Lynch, CFP