Groups try to define a fee-only adviser

Financial planning groups will try to mend a rift over how to determine who is a fee-only investment adviser at a meeting in Chicago this week.

The gathering of the leadership of the Financial Planning Coalition is not being convened specifically to deal with differences over the definition of “fee only,” but the issue will be on the agenda.

The coalition is made up of the Financial Planning Association, the National Association of Personal Financial Advisors and the Certified Financial Planner Board of Standards Inc.

CFP Board disciplinary actions over the past few months have brought renewed attention to the different definitions of fee-only followed by NAPFA and the CFP Board. Up to 5% of NAPFA’s members who also are CFPs could fall out of compliance with the CFP Board.

“We’ve had different definitions for a while, and we’re working very vigorously to get them together,” said NAPFA Chairman Linda Leitz, co-owner of It’s Not Just Money Inc. “The organizations understand the urgency and are working to resolve any semantical differences. It’s in the best interest of the consumer to have a unified profession.”

In the wake of a case against its former chairman, Alan Goldfarb, for misrepresenting his compensation, the CFP Board clarified in an Aug. 7 webinar that fee-only means an adviser’s compensation is based solely on fees charged to a client. If advisers are affiliated with an insurance firm or a broker that takes commissions — even if the advisers don’t charge their clients a commission — then the adviser’s compensation is deemed to be “commission and fee.”

In addition, the CFP Board in August removed “salary” as a way that an adviser can describe his or her compensation on the CFP website.

2% stake allowed

NAPFA allows its members to own up to a 2% stake in an insurer or broker. On its website, NAPFA says that a fee-only planner “is compensated solely by the client, with neither the adviser nor any related party receiving compensation that is contingent on the purchase or sale of a financial product.”

“We are working with NAPFA to ensure that NAPFA members who are CFP professionals comply with our rules,” said Marilyn Mohrman-Gillis, the CFP Board’s managing director of public policy and communications.

She downplayed the divergence between her group and NAPFA over how advisers are paid.

“There’s a strong relationship between the two organizations,” Ms. Mohrman-Gillis said. “There is no tension or division or split.”

In the meantime, the FPA has changed its compensation definition to align it with the CFP Board’s.

“Our definition is congruent with their definition while this conversation is ongoing, because we don’t want to put our members at risk,” said FPA president Michael Branham, a financial planner at Cornerstone Wealth Advisors Inc.

Questions over definition

The “fee-only” definition has vexed the CFP Board recently. Not only was it central to the case involving Mr. Goldfarb, it also is at the heart of a lawsuit against the CFP disciplinary board by the Camarda Wealth Advisory Group. Jeffrey Camarda and his wife, Kimberly Camarda, are disputing that they misrepresented their compensation as fee-only.

In addition, a former member of the CFP Board’s disciplinary and ethics commission, who resigned last fall along with Mr. Goldfarb, has blasted the board for what she says is an unfair disciplinary process.

Tina Florence, a principal at Lane Florence LLC, faced charges of misrepresenting her compensation, similar to those against Mr. Goldfarb.

Never reviewed charges

But Ms. Florence now claims that she had no opportunity to review the charges last fall before being asked to resign by CFP Board chief executive Kevin Keller and Michael Shaw, managing director of professional standards and legal.

“There were very significant deviations [from board policy] in how our situations [were handled],” Ms. Florence said. “Decisions were made at the highest level that they have still not explained.”

Ms. Florence also takes issue with the board’s statement last fall that she resigned when presented with findings of a special investigative committee.

“They were asking for my resignation before any material was provided to me,” she said.

Individuals are ineligible to serve on the disciplinary and ethics commission if they are subject to any disciplinary action or under investigation by the CFP Board or any regulator, said Dan Drummond, a spokesman for the CFP Board.

When Ms. Florence was reminded of these provisions, she resigned her position as a commissioner, Mr. Drummond said.

Ms. Florence privately settled her case in May, and her record with the board remains untarnished.

She said the board should solicit comment about its interpretation of what constitutes fee-only compensation.

“They’re moving in the direction of a significant compensation policy that impacts thousands of practitioners without the benefit of comment or input,” she said.

SIX-YEAR-OLD POLICY

The current definition of “fee only” has been in existence since the spring of 2007, Mr. Drummond said, and a recent notice to CFP holders about the issue reiterated existing policy.

The CFP Board denied that these cases have anything to do with the departure of Rex Staples, the CFP Board’s director of investigations. Mr. Staples was scheduled to leave the organization Friday, about 16 months after he arrived.

Mr. Staples did not respond to a request for comment.