Advisers support CFP Board scrutiny of compensation definitions but still worry about fee-only labels

React to plan to compare pay details in planners' profiles to information about their comp available in regulatory filings and on firm websites

May 21, 2014 @ 4:43 pm

By Mark Schoeff Jr.

Investment advisers support a move this week by the Certified Financial Planner Board of Standards Inc. to ensure that advisers are accurately describing their compensation on its website, but they continue to have concerns about pay definitions.

In an e-mail on Wednesday to the nearly 70,000 CFP certificants, the organization said it will compare the pay details in planners' profiles to information about their compensation available in regulatory filings and on firm websites.

The review, set to begin in the next couple of weeks, is the CFP Board's latest response to controversy surrounding its compensation definitions. If a planner is found to be using a compensation label inappropriately, it will lead to a further review and potentially an investigation by the CFP Board enforcement arm.

The board is also giving firms that receive commission income the option of blocking their financial advisers from identifying themselves as “fee-only” on the CFP Board website.

“I think it's phenomenal,” said Julie Casserly, president of JMC Wealth Management. “There is so much confusion [among consumers] about who does what in our industry. The more clarity we can bring to that, the better.”

George Papadopoulos, owner of an eponymous advisory firm, supports the CFP Board's decision to scrutinize pay labels.

“I think it's a positive step,” Mr. Papadopoulos said. “They should have been doing it all along.”

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(See also: Blogger Kitces stokes debate over CFP Board compensation definitions)

Last year, the board temporarily removed the “fee-only” description from the profiles of 8,000 planners on its website, after it found that some wirehouse representatives and others were claiming fee-only status instead of “commission and fee” under CFP Board rules.

The board told those who had the “fee-only” description to review the CFP Board rules and reset their definitions. About 3,500 CFP certificants reclaimed “fee only,” while about 1,000 changed to “fee and commission.”

Now the board is going to make sure that planners are accurately representing themselves. Ray Ferrara, chairman of the CFP Board, likened the situation to a police officer issuing speeding citations.

“Maybe you got a warning ticket the first time,” Mr. Ferrara, president and chief executive of ProVise Management Group, said in an interview at InvestmentNews headquarters in New York on Wednesday. “But there won't be any warning the second time.”

Harold Anderson, president of Parkshore Wealth Management, said that the CFP Board's move will help protect his fee-only status and allow him to differentiate himself from other advisers.

“I'm in favor of what the CFP Board is doing because in any emerging business, you have to self-police,” Mr. Anderson said. “I want clarity for that designation, so that the public knows what fee-only is.”

It's important that the CFP Board is getting help from financial firms in controlling the use of compensation definitions, said Dan Candura, president of PennyTree Advisors.

That will stop some of the problems that had been emanating from wirehouses.

“This is a really cooperative effort by large firms to make sure their folks are in compliance,” Mr. Candura said.

The board is not setting out to punish certificants, according to CFP Board chief executive Kevin Keller.

“Our goal is to help people be in compliance, not to catch them doing it wrong,” Mr. Keller said.

The highest profile example of the ongoing pay controversy is a lawsuit involving Jeffrey and Kimberly Camarda, Florida planners who are suing the organization over disciplinary action involving compensation description.

The board has no intention of settling the case at this time, Mr. Ferrara said, because “it matters to the public, it matters to the profession.”

It also is becoming costly. The CFP Board declined to say how much it had spent on the case so far, but it acknowledged in court papers that it has racked up 2,000 attorney hours and 200 paralegal hours reviewing documents. Industry experts have estimated the cost for those hours at up to $400,000.

“I'm not happy that a part of my [CFP] dues goes to pay for ongoing legal expenses,” Mr. Papadopoulos said.

Mr. Candura, a former board member, supports fighting the suit.

“They're doing what they should do, which is defend the marks,” he said.

The CFP Board's definition of “fee-only” has become a point of contention among CFP mark holders. Under CFP rules, an adviser can be called “fee-only” only if he or she receives compensation solely based on fees and does not take commissions, nor is affiliated with a firm that does.

The definition conflicts with a definition the National Association of Personal Financial Advisors uses for its membership. The organization, comprised exclusively of fee-only advisers, allows its members to own up to 2% of a firm that charges commissions.

John Frisch, president of Alliant Wealth Advisors, is fee-only, but he thinks the CFP Board definition is too restrictive.

“Having some wiggle room in the definition would be helpful,” Mr. Frisch said. “They'll never come up with a definition that satisfies everyone.”

The CFP Board is listening to objections, Mr. Ferrara said. But it isn't discussing changes.

“That's not an issue for us to resolve,” Mr. Ferrara said. “That's an issue for [certificants] to resolve. Our mission is to protect the public and to make sure there is clear and accurate disclosure.”

Mr. Papadopoulos, a NAPFA member, supports the CFP Board's pay nomenclature.

“I wish everybody agreed to a definition of fee-only that is accepted across the industry, so that we don't keep messing around with the definition of what fee-only is,” he said.


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