Blogger Kitces stokes debate over CFP Board compensation definitions

In taking organization to task, commentator says virtually all advisers fall under 'commission and fee' label

Mar 13, 2014 @ 12:29 pm

By Mark Schoeff Jr.

The way that the CFP Board categorizes financial adviser compensation makes it nearly impossible for an adviser to be deemed fee-only, according to a popular blogger who is almost single-handedly stoking the debate.

In a 4,360-word post on his blog this week, Nerd's Eye View, Michael Kitces said that the Certified Financial Planner Board of Standards Inc. defines compensation so expansively that almost every financial planner must be labeled as “commission and fee.”

Under CFP Board rules, a planner can be fee-only only if he or she generates revenue through fees and doesn't charge commissions and isn't affiliated with a firm that could charge commissions. The group's compensation categories also include commission-only.

(See where the new CFP Board chairman stands on the fee-only definition.)

“When nearly all advisers must use the same compensation disclosure label of 'commission and fee' to define a wide range of actual compensation structures from 0% commissions to 100% commissions, the very purpose of compensation disclosure begins to lose its meaning, value and clarity for the public that the CFP Board purports to serve,” wrote Mr. Kitces, director of research at Pinnacle Advisory Group.

In an interview, Mr. Kitces said that he is emphasizing the issue because the leading financial planning membership organizations – the Financial Planning Association and the National Association of Personal Financial Advisors -- are standing back. Both have indicated that the CFP Board, as the certifying body, determines compensation rules.

“This needs to be fixed,” Mr. Kitces said. “I really don't know why they are silent on this issue. The CFP Board insists there is no problem, and NAPFA and FPA have said they're going to let the CFP Board act first. I can't do this all by myself – nor should I.”

In his blog post, he outlined six scenarios in which advisers in disparate business models all would have to label themselves as fee-and-commission. Mr. Kitces' post generated a strong reaction on social media.

One of those who tweeted in support was Alan Moore, founder of Serenity Financial Consulting.

“Now there's even more confusion because how [advisers] are paid is not relevant,” he said in an interview. “It's how they could get paid. It adds layers of complexity.”

The CFP Board has been embroiled in court and disciplinary cases involving compensation definitions for more than a year.

The organization didn't respond to a request for comment about Mr. Kitces, but officials addressed the issue in a webinar Thursday.

“We have a definition around fee-only, and we believe our definition is very clear,” said Ray Ferrara, chairman of the CFP Board and president of ProVise Management Group. “We all here at the CFP Board understand what the word 'only' means, and it's hard to make it any clearer than that.”

William Sweet, president of Stevens & Sweet Financial, endorsed Mr. Kitces' point of view, calling the CFP Board's approach to compensation definitions “a little silly.”

The group is “enforcing the letter of the law rather than the spirit,” Mr. Sweet said. “I would prefer if the focus of the CFP Board was on ensuring that all financial advisers adequately disclose their source of compensation and all potential conflicts of interest rather than on categorizing the type of compensation offered.”

The CFP Board is blurring the lines between fee-only and commission-charging advisers, said Randy Bruns, a private wealth adviser at HighPoint Planning Partners.

“We're painted with the same broad brush, and I don't know if that's fair to the client,” he said. “It doesn't create a clear picture for the client of how different the advisers are in this case.”

The biggest problem is that the commission-only category could diminish within the CFP Board's framework, Mr. Moore said.

“I'm not aware of anybody who could claim commission-only based on how they're defining compensation,” he said. “I don't believe there's going to be a commission-only category at this point.”

An adviser who is fee-only — and remains so under the CFP definition because he charges clients a flat fee of $4,500 annually — supports the CFP Board's effort to parse compensation.

“It is worthwhile to delineate those who have an opportunity to earn commissions and those who don't,” said James Osborne, president of Bason Asset Management.

“If you'd like to be fee-only, it's not difficult to be fee-only,” he said. “It's fairly easy to be in a position not to earn a commission.”

There are benefits and drawbacks to each of the fee models, advisers said.

The bottom line is that investors know what they are paying for and why.

“The most important thing is that investors understand the exact cost of the engagement, are getting what they believe to be a fair level of services for that cost and that their financial plan accurately accounts for that cost,” Mr. Bruns said.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


Here are 3 ways the DOL fiduciary rule has affected 401(k) advisory practices

Fred Barstein, founder of The Retirement Advisor University, explains why the old way of doing business is dead no matter what happens with the regulation.

Latest news & opinion

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

Cadaret Grant acquired by private-equity-backed Atria

75-year-old owner Arthur Grant positions the IBD for the 'next 33 years.'

SEC advice rule seeks to tighten reins on brokers

The proposed rule puts new restrictions on brokers, but it is still unclear how strongly the SEC is clamping down.

SEC advice rule hearing updates

Commission says a lot of work ahead, public will have 90 days to comment.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print