NAPFA’s CFP-only move puts CFP Board in hot seat

NAPFA is attempting to cut through the clutter of advice credentials by requiring new members to be certified financial planners. That, in turn, has put the spotlight on the granter of that designation, the Certified Financial Planner Board of Standards Inc.

The National Association of Personal Financial Advisors announced Tuesday that it will recognize only the CFP designation as of Jan. 1. Current members who do not hold a CFP mark can maintain their status. New members can have an array of credentials as long as a CFP is one of them.

The CFP Board administers the education, training and ethics requirements for the more than 67,000 CFP mark holders in the United States. Some in the industry expressed concern about making the CFP Board their profession’s standard-bearer.

“I hope NAPFA’s move spurs the board of directors of the CFP Board to strengthen requirements that all CFP certificants adhere to fiduciary standards of conduct at all times when providing financial planning or investment advice to their clients, without exception,” Ron Rhoades, assistant professor of business at Alfred State College, wrote in an e-mail. “Without a continued evolution embracing fiduciary standards more fully, I fear the CFP Board would cease its leadership in this area, and the mark will not achieve its possible premier status among both professionals and consumers.”

The CFP certificate is granted to financial advisers across business models. As Mr. Rhoades noted, there are CFP mark holders who are registered representatives and those who also engage in insurance sales, where a suitability, rather than fiduciary, standard, is applied to most activities. But when a CFP is doing financial planning, regardless of business model, he or she must act in the best interest of clients, according to Kevin Keller, chief executive of the Certified Financial Planner Board of Standards Inc.

“When they’re providing financial planning services or material elements of the financial-planning process, our ethical standards hold them to a fiduciary standard of care,” Mr. Keller said.

The CFP Board has imposed a fiduciary standard on CFPs since 2009. The Dodd-Frank financial reform law gives the SEC the authority to promulgate a regulation that would require brokers to meet a fiduciary standard. The agency has not yet proposed a rule.

Mr. Rhoades was in line to become the NAPFA chair next year until it was revealed in August that his firm, ScholarFi Inc., had committed a compliance violation by failing to timely file registration papers with Florida state.

The CFP Board had its own ethical setback recently, when chairman Alan Goldfarb, director of wealth management at Weaver Wealth Management, and two members of the group’s ethic commission, resigned over alleged violations of CFP standards.

In a webinar last week, Mr. Keller said that CFP rules prohibit him from revealing details about the incident before a hearing next spring. He added that the CFP Board’s quick response shows that it takes all suspected ethical violations seriously.

Lauren Locker, NAPFA chairman and founder of Locker Financial Services LLC, said that the organization’s embracing the CFP designation will provide clarity for consumers confronted with an “alphabet soup” of credentials for investment advisers.

“You know a lawyer is a JD,” Ms. Locker said in an interview. “You know a doctor is an MD. So, financial planners should be CFPs because that’s different than a broker.”

She used an analogy with the medical profession to illustrate how NAPFA is working with the CFP Board to set a common standard for financial planners.“There’s a clear difference between someone who does acupuncture and someone who is a doctor,” Ms. Locker said. “That’s what we’re trying to clarify for the consumer.”

The new rule won’t have a big impact on NAPFA, which has 2,400 members. Everyone who has joined the organization since 2010 has held a CFP certification.

Nevertheless, the American College of Financial Services criticized NAPFA for supporting a “monopoly” on credentials.

“While the NAPFA organization is limited in scope, we feel a move by any group to restrict legitimate professional education is a disservice to consumers and to the profession,” Keith Hickerson, senior strategy consultant at The American College, wrote in an email statement. “Designations such as ChFC – which has more educational requirements than CFP – or rigorous marks such as CPA, CFA and others are highly valuable and represent considerable expertise that can benefit clients.”

Michael Kitces, a partner at Pinnacle Advisory Group Inc. and publisher of the Nerd’s Eye View blog on the investment-advisory sector, supports NAPFA’s move. He said that it makes the CFP the baseline for all other credentials.

“This doesn’t mean there’s only one designation,” Mr. Kitces said. “It just means there is only one minimum designation. I would imagine this would put pressure on other organizations to embrace CFP as well.”

The Financial Planning Association also is praising the NAPFA decision. It adds momentum to FPA’s effort to promote the theme of “One Profession, One Standard,” which it emphasized at its annual conference in San Antonio earlier this fall.

“It’s something that’s good for financial planners overall, as more groups coalesce around the CFP mark as the standard for financial planners,” said Lauren Schadle, FPA executive director and chief executive.

The FPA, however, has no plans to require its membership, now about 24,000, to hold the CFP mark.

“We have non-CFPs who are members of the organization, and that will always be,” Ms. Schadle said. The group does require a planner to hold a CFP certificate to be included in its planner-search system online.