NAPFA forces resignation of Bert Whitehead, vocal compensation committee member

Association says move related to leak of confidential research, not adviser's criticism

Mar 5, 2015 @ 1:44 pm

By Jeff Benjamin

The National Association of Personal Financial Advisors has taken swift action against a public challenge to its fiduciary standard related to compensation, asking veteran adviser Bert Whitehead to resign his post on the association's compensation committee.

On Feb. 19, shortly after making public his opposition to the practice of charging lower fees for cash and some bond allocations, Mr. Whitehead, founder of Cambridge Connection Inc. and an eight-year member of the compensation committee, resigned. A day earlier, NAPFA board chair Robert Gerstenmeier of Gerstenmeier Financial Group had asked for the resignation.

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

But NAPFA chief executive officer Geoffrey Brown said Mr. Whitehead's ouster was a board decision resulting from his sharing with the media in late January research he did for the committee.

“The decision had nothing to do with the substance of what Bert wrote, he simply did not uphold the nature of the committee's work,” Mr. Brown said. “The board lost confidence in his ability to meet the demands of his assignment on the compensation committee.”

Mr. Whitehead was not operating on the committee under any kind of formal confidentiality agreement, but Mr. Brown said “confidentiality was expected.”

Even though Mr. Whitehead's letter directly challenged the controversial policy used by some advisers of charging lower fees on cash and bonds, Mr. Brown said the “call to action and the substance of the letter was not a factor” in the resignation request.

Mr. Whitehead, who has a long history of pushing for higher fiduciary standards for advisers, said being asked to resign “wasn't a crushing blow,” but he stands by his position that setting fee structures based on a client's asset allocation is a blatant conflict of interest.

“If you've got a horse in the race, you can't tell people how to bet,” he said. “I think the content of what I wrote sort of galled them. I think they think I leaked it to the media before the committee meeting, even though I sent it to the committee a couple days before I shared it with anyone else.”

Mr. Whitehead's memo was the result of a committee assignment to analyze certain aspects of NAPFA's compensation rules and guidelines. According to Mr. Brown, the analysis should not have been made public.

Compensation committee chair Bill Prewitt, founder of Charleston Financial Advisors, said the fiduciary or compensation rules at NAPFA have not been changed as a result of Mr. Whitehead's memo, but “insights are always taken into account.”

Mr. Brown went a step further by suggesting that some of Mr. Whitehead's proposals related to tighter fiduciary standards “will probably be incorporated in some way, shape or form in the ultimate report,” which he described as a body of guidance for the membership.

The central issue of the now infamous memo was based on an increasingly popular practice of cutting assets under management fees for low-yielding allocations. It is a practice that Mr. Whitehead has seen increasing since the financial crisis, when yields on cash-related investments have been pushed to historic lows.

But, while some advisers justify the practice as doing the right thing for clients, others see it as potentially tempting advisers to move money into riskier assets in order to earn a higher fee.

From Mr. Whitehead's perspective, cutting fees for cash allocations is just the most recent example of where conflicts of interests can crop up.

“This is all the kind of stuff (President) Obama is talking about in terms of conflicts of interest among financial advisers,” he said.

Mr. Whitehead's public and aggressive push for higher fiduciary standards is not new.

In a 2011 opinion piece, he cited a half dozen examples of in which fee-based advisers can easily get tripped up by conflicts of interest.

“Getting people to move their 401(k) assets so you can manage it and charge an advisory fee is a perfect example,” Mr. Whitehead said Thursday. “It's a huge advantage for advisers to talk you into it because the adviser benefits a lot.”

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