CFP Board yanks fee info from website. A bow to reality or caving to big money?
By eliminating the compensation disclosures on advisor pages of its investor-facing website, the CFP Board killed a feature that previously has gotten it into hot water and helped make it the target of a lawsuit filed by two planners.
Previously, in order to appear on the “Let’s Make a Plan,” find-an-advisor website, CFPs were compelled to select fee-only, commission or commission and fees to describe their compensation model.
Now, no such designation appears on an advisor’s page.
The move has exposed the CFP Board to criticism that it is, once again, kowtowing to the interests of banks and wirehouses.
“The CFP Board has been under pressure from some of their constituents to remove that information,” says Brian Hamburger, founder of MarketCounsel and Hamburger Law Firm, who says he helped instruct current board leaders on the definition of “fee only” about a decade ago in his capacity as consultant.
According to Hamburger, large firms don’t want prospective customers to know that the driver behind much of the financial advice they sell is the commission income they and their advisors receive on investments like mutual funds or insurance products.
“The only reason why I could see [the board] doing that is shame,” says Hamburger.
Asked for a response to Hamburger's comment, a spokeswoman for the organization said CFP professionals are still expected to adhere to its standards, and that includes an "obligation to provide compensation information to a client prior to or at the time of engagement."
CFP Board CEO Kevin Keller further insists that client-first fiduciary treatment is possible under any of the three compensation models and that the board remains “neutral” as to which one is best for clients.
“There are conflicts in all compensation models,” he says, adding that the change on the website won’t impact the board’s policy of disciplining CFPs who inaccurately market their services as fee only elsewhere.
It’s a stance, Keller says, that goes to the board’s reasoning behind removing the compensation information — in order to focus debate on the broader issue of fiduciary treatment of clients. The board made the decision to cut the disclosures the first part of last year, he says.
The board has received praise for enacting heightened fiduciary requirement for CFPs, which goes into effect June 30. The SEC downgraded its definition of fiduciary service when it passed its Regulation Best Interest.
“As we work to have financial planning emerge as a more bona fide profession, the focus needs to move beyond the compensation to the commitment the planner makes to his or her clients,” Keller says, “and, as a CFP, that commitment is to act as a fiduciary.”
Hamburger calls that argument a nonstarter.
“That’s like Zillow taking the price off the house. It’s not just taking off one piece of data,” he says. “It’s a big piece of information that consumers need to determine if it’s even worth their time to sit down with a financial planner.”
Hamburger adds that in making this move, the board is ignoring that commissions are one of the largest drivers of conflicts of interests in the planning industry. Fraud and theft motivated by commission sales regularly propel cases brought by the SEC, FINRA and the Department of Justice.
Others disagree with Hamburger and argue that the board’s decision to abandon the disclosures is a matter of practicality. Simply put, the board cannot determine with confidence whether or not CFPs’ declarations about their compensation are accurate, says Mercer Bullard, a professor of law at the University of Mississippi, who sat on a task force the board convened last year to address problems with its public representations.
“You don’t want to be in a position where people are thinking you are making representations unless they have been fully vetted,” Bullard says. “That has been quite a task when it comes to the details of a planner’s compensation.”
The board’s decision to stop publishing compensation disclosures was in keeping with the broad thrust of recommendations the task force made, Bullard says, to address revelations reported by The Wall Street Journal that the board was allowing CFPs with poor disciplinary histories to report that they had clean records on the board’s own website.
The task force, which was highly critical of the board’s enforcement structure and leadership under Keller’s tenure, recommended sweeping changes to its management practices.
Indeed, in 2013, a Financial Planning investigation showed the CFP Board had been knowingly allowing hundreds of CFPs who work in wirehouses and take commissions to inaccurately declare their practices as fee-only on its website.
The board later acknowledged its mistake and instituted reforms to improve the accuracy of the reporting.
Disagreeing with Bullard, Ron Rhoades, director of the financial planning program at Western Kentucky University, says reviewing a planner’s mode of compensation is an important screening step. Clients need the information when deciding whether to meet with a prospective planner, he adds. Any effort to avoid similar public misrepresentations about compensation does not justify the board’s decision to remove this critical piece of consumer information — even if the accuracy of that information cannot be perfectly vetted.
“I fail to follow the logic here,” Rhoades says. “The CFP Board cannot guarantee anything. It cannot guarantee that when I took the CFP exam many years ago, I did not have my identical twin brother (if I had one) … take the exam in my place.”
He adds that the board’s decision to require a higher level of fiduciary service for its CFPs enabled it to step into a leadership gap that opened up when the SEC, in his opinion, capitulated to big money interests by downgrading the legal meaning of fiduciary care.
With its new move, Rhoades says the board is backsliding
“I’m very disappointed,” he says. “For the CFP Board to basically abandon what it has done for over a decade and retreat from offering consumers transparency in the type of compensation an advisor might be paid I think is just a huge step backward for the CFP Board and for consumers.”
Describing the move as a “doozy” of a mistake, the Institute for the Fiduciary Standard called on the board to reverse it immediately.
“I don’t know why they did it,” says Barbara Roper, head of investor protection at the Consumer Federation of America.
Roper sat on the committee that revised the board’s standards of conduct. She continues to sit on the board’s Standards Resource Commission, which is producing case studies to help CFPs comply with the new standards. She says she was not informed of the move before it was taken.
“Compensation is one of the most important factors investors should consider when choosing who to rely on for financial advice,” Roper says, “Not because we think there is one perfect compensation model for everyone, but because how you pay for advice is significant. It relates to the conflicts of interest that are present.”
It’s impossible to discuss fiduciary treatment of clients without discussing an advisor’s business model, Roper says.
“This for us is right up there,” she says. “In some ways, it’s more important than fiduciary duty. It is, ‘What are you doing to limit your conflicts of interest? How significant are the conflicts of interest in your business model?’”
The board has done a poor job of communicating its reasoning behind making the change, Roper says. The board informed CFPs of the change in an email, but did not issue a press release on the matter.
Overall, the board needs to rethink its position on compensation, in Rhoades’ view.
“The CFP Board has long had this compensation neutral philosophy,” he says. “I believe they need to get away from that. They need to recognize that economic incentives matter. When you have conflicts of interest that are pervasive and systemic they impair good financial advice.”