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CFP Board Aims to Fix Its Fee-Only 'Mistake'

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Saying "We made a mistake," the CFP Board announced two initiatives on Wednesday aimed at resolving advisors' incorrect fee-only disclosures on its website.

"We could have done a better job," acknowledged Ray Ferrara, chairman of the CFP Board of Directors, in a meeting with the editors of Financial Planning. "We were not as proactive as we should have been" in looking at the compensation disclosures on the site, he added.

The CFP Board ran into trouble last year when Financial Planning disclosed that hundreds of CFP-certified wirehouse and other advisors were describing their compensation -- "incorrectly," as Ferrara noted -- as "fee only."

In response, the board abruptly ordered a major overhaul of its web listings of advisors, briefly removing fee-only as a choice and requiring all advisors who had used the term to restipulate their compensation.


The new initiatives are aimed at preventing a repeat of the problem, said Ferrara and Kevin Keller, the board's CEO. The first is what the board is calling a "systematic review" of the information that advisors make available through the website's Find a CFP Professional tool. Although Keller declined to comment on the frequency of the spot checks, he said they would involve both risk-based "data analysis and hand checking," and would compare compensation information on the CFP Board website with public sources such as regulatory filings and firm websites.

If the spot checks turn up inconsistent compensation information, the board said in its announcement of the changes, "the CFP Board will conduct further review that may lead to an investigation."

The second initiative allows firms to create companywide blacklists that would preclude employees who are CFP certificants from identifying themselves as "fee only." (Keller originally said the board would be reaching out directly to firms to make the option available; a board spokesman later clarified that the board would only respond to requests from firms.)

Asked why firms might want to create such a restriction, Ferrara cited a "potential reputational harm" to firms whose employees were mislabeling themselves. In the wake of last year's revelations, both Morgan Stanley and Merrill Lynch told their advisors to stop using the fee-only descriptor.


The new initiatives do not include any other changes to the CFP Board's rules on compensation disclosure, which means a split with NAPFA remains on the definition of fee-only. Under NAPFA's guidelines, advisors may own up to 2% stakes in other financial services firms, including those that take commissions such as broker-dealers or banks.

New NAPFA members must also be CFP certificants.

Yet under CFP Board rules, any advisors who have even a minor stake in a commission-generating entity cannot define themselves as fee-only -- something that is implicit in membership in NAPFA.

NAPFA and CFP Board executives estimate that the double bind affects 100 to 125 of NAPFA's 2,500 members. NAPFA chief Geoffrey Brown recently told Financial Planning that a group aimed at resolving the issue is expected to conclude its deliberations "very soon," and Keller and Ferrara both said the board is working individually with affected advisors.

But Ferrara acknowledged that there was a conflict that could make those advisors vulnerable to the CFP Board investigation if any complaints were lodged against them.

"Some may say, I'm just going to give up my CFP designation," he acknowledged.

But to truly be fee-only, advisors have other options for giving up commission trails and other proscribed compensation, he said. "There is a way to get rid of that business; there is a way to sell that business and not be in conflict," he said.


While the board continues to advocate for a uniform fiduciary standard, Ferrara also stood behind the board's position that a CFP advisor could promise fiduciary care regardless of compensation model -- and even though the board was not proactively enforcing the standard of care. "My personal belief is that the suitability standard doesn't reach the fiduciary standard," he said.

The board does not actively enforce the fiduciary standard unless it receives a complaint from a client, another CFP or member of the public, he said: "We do not audit, we do not examine. ... Our goal is to help the CFP professional be compliant in the first place."

But at the same time, he argued, CFPs could provide a fiduciary standard of care even "when we sell commission-based insurance products" -- and that the threat of board discipline was enough to keep advisors upholding the standard.

Apparently referring to the ongoing lawsuit by two Florida planners against the board, he said, “Look at what people go through to avoid a public sanction from the CFP Board.”

This story was updated on June 3, 2014.

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