"Commission-only" planners could be next group out of pay compliance

About 900 CFP holders could run into trouble if their firms earn fees in mirror image of fee-only scrape

Sep 25, 2013 @ 3:42 pm

By Dan Jamieson

commission-only, cfp board, fee-only, compensation
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CFP holders who describe themselves as “commission-only” could face their own issue with misrepresenting how they're paid under CFP Board rules — a mirror image of the tiff the board has caused among fee-only planners.

About 900 CFP holders are listed as commission-only on the Certified Financial Planner Board of Standards Inc. database. A review by InvestmentNews showed that these commission-based registered representatives work at the wirehouses, several regionals and a number of independent-contractor broker-dealers.

While the listed reps may limit themselves to commission business, their firms don't. All the major firms run investment advisory businesses and earn fees, as do many insurance companies and smaller broker-dealers.

But under CFP Board guidelines, it appears that self-described commission-only CFP holders who are affiliated with firms or related parties that earn fees should describe themselves as receiving both commissions and fees.

Likewise, the board has been clear that CFPs cannot call themselves fee-only if they're affiliated with a firm that earns commissions, even if the planner does not receive any commission income.

The commission-only description creates a disclosure problem similar to the fee-only description, said Brian Hamburger, founder of MarketCounsel LLC, a compliance consultant.

“This is the other side of that” fee-only issue, Mr. Hamburger said.

Dan Drummond, spokesman for the CFP Board, declined to comment specifically about commission-only CFPs, noting that the board has reached out to all of the nearly 69,000 CFP holders to inform them of their disclosure obligations.

Mr. Drummond added that the board's own analysis shows that “only a small percentage” of CFP holders may be incorrectly identifying their compensation method.

But if commission-based planners have to describe themselves as fee-and-commission, “they'd be misrepresenting themselves to the public [because] they're really commission-only,” said one CFP holder, who asked not to be identified.

The CFP Board “really needs to be focusing on what the consumer is paying,” said Rick Kahler, founder of the Kahler Financial Group Inc., a fee-based RIA.

Mr. Kahler said the CFP Board recently told him to describe his compensation as fee-and-commission because he is a shareholder in a separate family-owned real estate business that earns commissions.

“I haven't sold real estate for 10 years,” he said. “If I have to tell the world I am fee-and-commission, that is more dishonest than saying fee-only.”

Mr. Kahler said he would continue to call himself a fee-only planner and drop his CFP designation if necessary.

“Branding myself as fee-only is more important than having a CFP,” he said.

Mr. Hamburger, however, doesn't see a problem with the CFP Board's policy on compensation, at least with the larger firms.

Clients using a fee-based wirehouse adviser, for example, contract with the wirehouse, not the adviser, Mr. Hamburger said, and the firm earns commissions and other revenue from the client, which should be disclosed as both fee and commission.

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