New CFP Board chairman stands firm on fee-only definition, sets goals for group's growth

Stance puts organization at odds with NAPFA

Feb 6, 2014 @ 12:38 pm

By Mark Schoeff Jr.

CFP board, fee-only, NAPFA
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The new chairman of the Certified Financial Planner Board of Standards Inc. doesn't intend to change how the organization identifies a fee-only planner.

“At this point, we think our rules are clear and we have the definitions that are in place,” Ray Ferrara, who was appointed last week, said in an interview. “They're the ones that we're working with at the present time. The board will make its own determination as to what's the best thing to do on a going-forward basis.”

The CFP Board, which grants the CFP designation and upholds its educational and ethical requirements, has been embroiled in enforcement cases and other controversies about its fee-only definition for more than a year.

Under CFP rules, investment advisers can use the fee-only designation only if they charge fees for advice and are not affiliated with any financial services business that charges commissions — even they don't collect commissions themselves. The CFP Board asserts that the rule helps protect investors.

The National Association of Personal Financial Advisors, an organization made up of fee-only planners, allows its members to own up to 2% of a financial company that charges commissions. About 5% of NAPFA's approximately 2,500 members run afoul of the CFP Board's rule. NAPFA now requires new members to hold a CFP mark.

Mr. Ferrara distinguished between the CFP Board, a certification body, and NAPFA, a membership organization.

“It's okay to have different definitions because we have two entirely different purposes,” said Mr. Ferrara, president and chief executive of ProVise Management Group.

NAPFA has called for a dialogue between the CFP Board and the planning sector over the fee-only description. A NAPFA spokesman was not immediately available for comment.

Michael Kitces, director of research at Pinnacle Advisory Group, criticized NAPFA for what he characterized as its acquiescence in the debate, which spiked last year when the CFP Board removed the fee-only label from 8,000 CFPs listed on its website and asked them to review the definition before resetting the term.

“I don't understand how they can be silent,” said Mr. Kitces, publisher of the Nerd's Eye View blog. “That's both a

conflict for the organization and a dramatic abandonment of its leadership on the fee-only term.”

The CFP Board is not under any particular pressure to change its fee-only definition, Mr. Ferrara said.

“The compensation issue is not top-of-mind for the vast majority of the CFP professionals,” Mr. Ferrara said. “They're worried about their clients; they're worried about keeping their competence up through continuing education; they're worried about finding others to work with to help them grow their business.”

Growth also is a priority for the CFP Board, according to Mr. Ferrara. It wants to increase the number of CFP certificants to 81,000 by the end of 2017, up from approximately 69,000 today.

Doing so will require convincing financial-planning college students to sit for the CFP exam after they graduate. A study last year showed that they tend to bypass the test.

“Many of them are being advised to wait to take the exam later,” Mr. Ferrara said. “I can't think of a better time for them to be taking the exam than as soon as they're finished with school.”

Next week, the CFP Board will conduct a program in Boston with Fidelity Investments designed to help faculty from about 20 financial-planning programs understand potential career paths for investment advisers.

The student pipeline is critical to meeting the 81,000 goal, according to Diahann Lassus, president of Lassus Wherley & Associates.

“The reality is that we've not yet reached a point where people looking to get into financial planning automatically assume they need the CFP the way students studying accounting assume they'll have to sit for the CPA exam,” Ms. Lassus said.

While the CFP Board is seeking new certificants, it also is seeing many retire.

“There is some question of whether they can grow new CFP certificants to replace the retirees and increase the head count,” Mr. Kitces said.

Another way the CFP Board is trying to attract more certificants is through its multimillion-dollar advertising campaign. It will spend $10 million — financed by higher CFP renewal fees — on the effort this year. It launched its newest ad on Monday.

“When a consumer walks into the adviser's office and asks: 'Are you a CFP?' and the adviser says: 'No,' perhaps they'll get a message when the person doesn't come back,” Mr. Ferrara said.

Wendy Laidlaw, vice president of R.M. Davis Inc., said that paying higher renewal fees for the awareness initiative is a worthwhile investment.

“A sophisticated campaign does not come cheap,” Ms. Laidlaw said. “If we want the long-term benefits we're looking for, we need to be willing to pay for it.”

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