The CFP Board is trying to clarify what one of its instructors calls the opaque compensation disclosure process that tripped up former Chairman Alan Goldfarb and lead to his resignation.
At a webinar Wednesday, the board announced it is reducing the number of options that planners can choose from when disclosing compensation models on the CFP board website.
Going forward, planners must pick one of three options: commission only, fee-only or commission and fee. The board removed a fourth choice: salary. Goldfarb was sanctioned for unclear compensation disclosures on the separate FPA website; he had used first fee-only and then changed that selection to salary. In its sanction, the board said he could have received commissions, because of his relationship to his employer.
THREE COMPENSATION 'BUCKETS'
The webinar instructors announced that the board has released a new, simplified four-page compensation disclosure guide. The board has said it will send a notification out to all of its 68,000-plus certificants about the importance of accurate compensation disclosures.
When disclosing compensation, planners need to keep in mind three compensation "buckets," explained Michael Shaw, one of the webinar's instructors and managing director of professional standards and legal for the board. The three potential components are:
- compensation from clients to CFP professionals
- compensation from clients to related parties (such as planners employers)
- compensation from a related party to a CFP professional
All three buckets need to be taken into account, he said.
The webinar emphasized that CFPs must accurately disclose their compensation on all public websites, public search engines and public disclosure forms, such as the SECs Form ADV.
Shaw touched on one issue specifically related to the Goldfarb case. Even if a planner has never received a commission but, thanks to the structure of his firm, theoretically could receive one, he must check fee and commission, Shaw said.
And according to the 53-slide PowerPoint presentation used in the webinar, CFP certificants must take into consideration compensation received by related parties such as an employer -- even if that compensation does not flow directly to the planner.
For example, if a CFP professionals employer receives 12b-1 fees" -- the fees that mutual funds pay to brokers who sell them -- "the CFP professional must consider the 12b-1 compensation when disclosing his/her compensation, the Board said. In that circumstance, a CFP professional must disclose that he/she receives commissions.
The session was hosted by Rex Staples, director of investigations at the board; along with Shaw, it included Philip Fazio, a member of the boards ad hoc disciplinary and ethics commission, and Adam Zajac, adjudicatory counsel. The board said roughly 600 people attended the webinar.
GOLDFARB MATTER PROMPTS CHANGE
The board acknowledged that the Wednesday webinar, and the related change in disclosure options, were tied to the high-profile sanction of Goldfarb. The Alan Goldfarb matter, which resulted in a public letter of admonition for misrepresentation of his compensation, has brought increased attention to CFP Boards compensation disclosure rules, Marilyn Mohrman-Gillis, the boards managing director of public policy and communication, wrote via email in a statement attributed to the entire board. The email represents the greatest elaboration the board has offered on the subject to date.
After careful analysis, CFP Board determined that our Find a CFP Professional search tool does not provide an accurate and understandable description of how the client will pay the CFPprofessional, she continued. To facilitate better consumer understanding, we are removing the Salary option from the Find a CFP Professional search engine on our websites, effective August 16, 2013. This decision to remove Salary from the Find tool was motivated by our desire to provide consumers with clear and understandable descriptions of the compensation arrangements being offered by CFP professionals to enable them to make an informed choice.
Andrew P, a planner in the Midwest who attended the webinar but declined to give his last name for fear of reprisals from the board, said he found the information to be useful overall. But, he added, It sure seems like a webinar Alan Goldfarb would have found useful a while back.
Goldfarb said as much himself. It would definitely been helpful to have had this information and interpretation earlier, he said.
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