Early CFP Board Leader Says Future of Certification in Jeopardy

The CFP Board’s strategy of punishing some certificate holders over compensation disclosure issues in what critics charge is an arbitrary manner threatens the future of the CFP designation, according to one of the early leaders of the board who also chaired its disciplinary commission.

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Comments (8)
I am sorry, but I could not disagree more with the assertion that this whole "problem" arises from an inappropriate definition of "fee-only".

The term is pretty clear on its face. Simply put, does a financial professional receive compensation - directly or indirectly - from another source as a result of the recommendations made to clients or is their only compensation coming in the form of a full-disclosed fee paid by the client? That is not unclear, that is not inappropriate, that is not ambiguous. It is a bright line. Yes or no.

Obviously receiving direct compensation from outside sources is not permitted if you wish to be fee-only. There are some areas that become difficult to define when it comes to indirect compensation. NAPFA has a whole set of rules on this very subject. I don't know about any other rules but I know the CFP Board views differently the so-called "2% rule" that is part of NAPFA's rules relating to indirect compensation. But there is real benefit in being able to claim you are a "fee-only" provider and so financial professionals have become very creative in trying to structure indirect arrangements to get around the rules. I happen to have served for years on the NAPFA committee that looks at these innovative arrangements and interprets them under NAPFA's rules and provides clarifications or initiates rules changes if necessary.

I also think it is an overstatement to suggest that fee-only practitioners custodying assets with Schwab or Fidelity have a "prohibited" relationship with someone benefiting from commission income. You'll have to elaborate on how that could possibly be so because I don't see it. If Schwab or Fidelity is paying something to the advisor - and we have heard of cases that create problems under the rules where a custodian will pay cash to an advisor to transition their business to that custodian - then maybe there is an issue. But if the client is paying 100% of the advisor's fee and there is no remuneration from the custodian to the advisor, you have to explain to me how that is a problem for someone who is "fee-only".

Similarly, I think it is disingenuous to suggest that a professional speaking at a conference to share the benefit of their expertise is somehow a problem. Professionals have outside work and outside involvements beyond the work they do for clients. As long as the work they are doing has no impact on the work they do for clients, how is it a problem for them to claim the "fee-only" designation? If, for example, a fee-only advisor manages an apartment complex on the side and is paid compensation that is a percentage of the gross rents of the apartment complex for his work as manager, does that pose an issue for his claim of "fee-only" status? Of course not. It has not impact of any kind on the work he does for clients. So I do not understand the thought that speaking at a conference - even if the conference sponsors provide some remuneration for that work, as many do - is an issue for a fee-only advisor. You'll have to make that case to me.

Frankly, this interviewee is a dual-registrant. I think one thing has become pretty clear as far as how people feel about the CFP Board's actions - the truly fee-only people applaud it and the rest of the financial "advisory" world doesn't like it for one reason or another. To me this is just another dual-registrant finding something to say about why they don't like this move. I, on the other hand, say "well done!"
Posted by Tom B | Wednesday, September 25 2013 at 10:19AM ET
This idiotic distinction between commissions and fees is exactly that -- idiotic. People work and they get paid for their work. How they get paid is relatively immaterial. Do I get a salary? Do I get paid hourly? Do I charge a fee? Do I receive a commission? WHAT DIFFERENCE DOES IT MAKE? I get paid.

Afraid to tell the public how much you make? That, to me, seems to be the real problem.

Commission-based stock traders get paid on both ends -- BUY and SELL. No buying and selling? No income. Mutual funds sellers get a one-time commission, and maybe quarterly trails (oh how FINRA and the SEC agonize over internal rates of return and the effect of a 1% 12(b)1 fee). Fee-based "planners" and "advisers" collect a fee as long as a client has assets under management. AUM value goes up through no effort on the part of the adviser, the adviser's compensation goes up. AUM value goes down, adviser still gets a fee, although a bit smaller. What exactly is the client who does not actively trade his stock holdings, who buys and holds, but rarely sells, no-load mutual funds or ETFs, actually getting in return for an annual 1% fee? A cute Christmas letter to let him know his adviser hasn't croaked during the year?

I don't question what my doctor gets from my HMO the two or three times in a year that I might see him, and I don't much care about the $25-$27 capitation fee he is paid. He went to medical school and he deserves to be paid.

I don't question what my auto mechanic charges to change the brakes on my SUV because I cannot do that work myself.

I use the self-checkout at WalMart and Sam's Club because anyone can scan barcodes. It's not "skilled labor" as the UFCW labor union would have the world believe.

I know when I can handle certain legal issues on my own and when I need a skilled and licensed attorney to represent me.

If the investing public were really educated properly, most of what they allow their advisers to do for them for a fee or a commission or both, they could actually do on their own through an account at Charles Schwab, TDAmeritrade, or any number other no-frills brokerages. And the commissions or fees they rack up in a year probably wouldn't come close to the 1% fee on AUM they currently pony up.

You fee-only people have a terribly inflated sense of self-worth. Your clients fuel your net worth. What will you do when the CFP designation becomes a stigma instead of a badge of honor? Your board has already shot you in one foot. Better start hopping so the other one becomes a moving target that's a bit harder to hit.
Posted by Max H | Thursday, September 26 2013 at 11:09AM ET
Well said, Max H. It's always nice to see another adult around here. This "fee-only" thing is taking on a life of it's own, and it's not a good one.

The way it's promoted to the public does a real disservice. It seems to guaranteed the perfect adviser, who is all-knowing, can do no wrong, is immune to all temptation, comes with his/her own halo, is appointed by God to protect the people and vanquish the evil "commissioned" advisers, and only a fool or an idiot would work with anyone else.

It's a bit ironic that they run around calling those who earn commissions evil, when probably half their client base wouldn't exist if it weren't for those dastardly commissions.

Are they saying that no human is above doing evil in the face of a commission check? Even their realtor or sales-people clients? Or is it that they know THEY couldn't resist the temptation, and they project their own ethical failing on everybody else?

The fact is, you're either honest and competent or you're not. How you get paid is irrelevant. A fee-only adviser with a CFP is just as capable as anyone else of making a stupid recommendation, losing their client's money, or creating a dumb financial plan that will fail to meet the client's needs. And to suggest otherwise is a huge ethical breech.

If you chose to wear "fee-only" as some sort of super-hero costume, that's your choice. But why don't you try practicing some of your much-vaunted superior ethics, and stop telling the people that your cape means you are superior to everyone else, that your advice is superior to everyone else's, that you are the only ones who give a rat's behind for your client's welfare, that everyone else is a crook out to rip them off.

That would be real honesty.
Posted by Marc S | Saturday, September 28 2013 at 11:46AM ET
"the truly fee-only people" may applaud the actions of the CFP Board... those who watch hundreds of fee-only planners flagrantly violate the law by engaging in the business of insurance without a license in the over 30 States that require licensure are sick and tired of being berated and called names because they provide such advice legally as licensed professionals.

For those who live in States that either don't require appointment by insurance companies and allow for fees without "production", that's terrific for you and please don't add to the confusion by seeking to comment on this topic because unless you live in a State that requires licensure, you just don't understand. For those who live in the many States the DO require licensure for charging such fees, STOP BREAKING THE LAW!!

I can see the next lawsuit against CFP Board coming directly from the powerful insurance industry. After all, they do compete for the same investment dollars as investment advisers and with the baby boomers reaching retirement, this competition will become even more intense. Investment advisers can't do a thing once money goes to an annuity with multiple year surrender penalties, so they call the product inappropriate and the insurance salesman a thief for earning a commission even if the product is appropriate.

I can see black clouds on the horizon. The CA Dept. of Insurance is slowly warming to the idea of finally prosecuting hundreds of individuals, mostly NAPFA and other fee-only planners for breaking the law. This is thanks in part to the increase in criminal penalties, which now stand at $50,000 fine and 12 months in jail as well as loss of all licenses and registrations in CA. Oh and BTW, for those who cross border with clients in CA, that goes for you too!

I've seen numerous cases recently of fee-only planners trying to hide in the reeds by getting a life agent license, never appointing themselves with an insurance company and thinking they're covered. Note to them... YOU'RE NOT and the CA DOI is looking at you too. Remember, if you hold a producers license there must be an intent to use it for the purpose intended. If you're not appointed and actually producing... guess what Res Ipsa... and the law requires you surrender that life agent license in CA

There are many other reasons I can think of that could cause the CFP Marks to fail if the Board keeps doing what they are doing, this compensation disclosure storm in a tea kettle however, is not one of them.
Posted by Nigel T | Saturday, September 28 2013 at 11:55AM ET
I think that Mr, Makin may have been a bit disingenuous when he alluded that a simple custody arrangement, where the custodian is the client of the planner, could lead to issues. The custody agreements which I have seen from Schwab, TD, Fidelity and Pershing all seem to contain clauses to that effect. Furthermore, having a BD as a client for a speaking engagement does not constitute employment nor a related party.

However, I think that Tom B is being equally disingenous when he feels that "true" fee-only planners embrace the actions of the CFP Board. There seems to be sufficient documentation that NAPFA is livid over the incident and the realization that a good number of its members may be in violation, and that NAPFA itself clearly is not a fee-only organization. It is amazing how you can say that 98% is equal to "only", a lesson learned by Ivory Soap and there 99.44 percent purity - never indication a totality as "only" does.

It is clear that in its history, the CFPBPOS has basically shrugged off its responsibility to the public and knowingly and willingly allowed too many people to misrepresent their compensation.

Further, as indicated by Nigel T, too many planners, with the knowledge of both the CFPBOS and NAPFA, have wilflully violated insurance laws.

As a consumer, it is a disappointment that an oorganoization that pruports to be for the public good, fails miserably. The IRS should strip them of their tax status.
Posted by Consumer A | Saturday, September 28 2013 at 12:26PM ET
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