Planner Threatens Suit After CFP Board Order
Widely followed planner Rick Kahler is threatening to sue the CFP Board for ordering him to stop calling his Rapid City, S.D., firm "fee-only."
"I will either drop my CFP or bring a lawsuit against them," says Kahler, founder of Kahler Financial Group, who has been a CFP for 31 years and is a frequent speaker at conferences around the country.
Kahler owns a 50% stake in a family-run real estate firm that occasionally cross-refers clients with his planning practice; it used to pay Kahler $150 a month in salary.
On Tuesday, the board sent Kahler a letter instructing him to "cease referring to your practice as 'fee-only'" by Aug. 1; Kahler shared the letter with Financial Planning.
"Please consider this letter a caution," wrote Michael Shaw, who oversees legal and standards matters for the board, "that if you continue to refer to your practice as fee-only, CFP Board may in accordance with the Disciplinary Rules and Procedures, initiate an investigation."
Kahler claims the board's move is punishment for speaking about his case in a Financial Planning article. "While the [board] will deny it," he says, "I believe it was in retribution for my speaking out."
The letter was in no way, shape or form retribution for any comments made by Mr. Kahler, Michael Shaw, the CFP Boards managing director for professional standards and legal, said in a statement. We have had periodic conversations with Mr. Kahler about his compensation arrangement. We sent him a letter yesterday containing our guidance. He apparently released the letter to the press, which specifically spells out the ongoing concerns we have. As a CFP professional, Mr. Kahler is expected to know, understand and abide by the Standards of Professional Conduct. As long as a CFP professional is associated with a commission-generating business, the CFP professional cannot describe his or her compensation arrangement as fee-only, Shaw said.
Kahler says he has been talking with the board about his situation since August; the board notified Kahler of its decision four days after the article appeared. The board's decision will have a chilling effect on other CFPs who want to discuss their concerns about the board in public, Kahler thinks.
The CFP Board in May announced what it called a systematic review of information that advisors make available through the website's Find a CFP Professional tool, targeting advisors who are using the fee-only label in ways that conflict with the board's rules.
In an attempt to address the board's concerns, Kahler says, he halted his salary from the real estate firm, and has offered to make further changes: transferring ownership of the firm to his wife, ceasing to take a dividend from the firm, ceasing to refer clients between the operations and dropping any planning client who insisted on using the real estate firm.
"I've tried to work with the CFP Board since last August to both understand their rulings and find a way to comply," says Kahler, who received his CFP in 1983 and says he was the first CFP in the state of South Dakota. "I've encountered nothing but confusion, contradiction and broken promises. ... I've been an ardent supporter of the CFP designation. It's sad to become a fatality of friendly fire and an unintended consequence of a poorly constructed policy.
Given the thousands of dollars and hours in continuing education credit that Kahler has invested over three decades, he thinks the board would bear liability for his potential losses for what he describes as changing the rules "without grandfathering in those who have been honest and complied with the rules to that point."
NAPFA MEMBERSHIP AT STAKE
Kahler also could lose his NAPFA membership over the same issue.
That organization decided last month to align its rules for use of the term fee-only with those of the CFP Board, removing a previous exemption for ownership stakes of 2% or less in firms that take commissions. Under its previous rules, which had allowed the exemption, the group appears to have overlooked Kahler's arrangement.
Kahler says he has been honest about his business arrangement from the first and that his planning practice only charges fees. Calling his practice "commission and fee," as the board would require, would be more dishonest than saying fee-only, in his view.
If Kahler goes ahead with the suit, the board will be facing two lawsuits over its efforts to police CFPs for their use of the hot-button term fee-only. Husband-and-wife planners Jeffrey and Kimberly Camarda of Fleming Island, Fla., sued the board last year over a similar issue. In addition to their planning firm, the couple owns an insurance company that, they say, does scant commission business.