The Certified Financial Planner Board of Standards Inc. is putting a renewed emphasis on compensation disclosure in the wake of a disciplinary action this year involving its former chairman.
Next week, the organization will send the roughly 68,000 CFP mark holders a notice “regarding the importance of accurate compensation disclosures,” according to a webinar today hosted by CFP Board officials. It also is revamping the search function on its website to narrow the possible forms of compensation an investment adviser can select to describe how he or she is paid.
Currently, the four options are commission, commission and fee, fee-only and salary. As of Aug. 15, the CFP Board will drop “salary” from its Find a CFP Professional search tool. The “salary” description doesn't accurately reflect how a client pays an adviser, according to Marilyn Mohrman-Gillis, managing director of public policy and communications for the CFP Board.
In the
webinar, Michael Shaw, the CFP Board's managing director of professional standards and legal, said that CFPs must take into account several dimensions of compensation when reporting it.
“You need to look first at how the client is paying for services and to whom the client is paying,” Mr. Shaw said.
Fees from a client to a CFP and to a third party, such as a broker-dealer or insurance company, and fees paid to a CFP from a third-party must all be disclosed as compensation. For instance, if a CFP's employer receives 12(b)-1 fees, the CFP has to indicate that he or she receives commissions. In addition, pay from referral agreements also must be disclosed.
The CFP Board does not audit compensation disclosures, but it does investigate allegations of inaccuracies. One such case resulted in the CFP Board sending a letter of admonition to Alan Goldfarb, a former CFP Board chairman, in April.
The CFP Board's disciplinary panel found that Mr. Goldfarb misrepresented his compensation first as “fee-only” and later as “salary” when he was with the registered investment adviser Weaver Wealth Management LLC. The panel wrote that Mr. Goldfarb was also a registered representative and part owner of a broker-dealer that “received or were entitled to receive compensation such as commission and 12(b)-1 fees.”
Mr. Goldfarb resigned as CFP Board chairman last fall. He disputed the claims but did not appeal. He left Weaver late last year to form his own firm, Financial Strategies Group LLC in Dallas.
The CFP Board stressed that it gives mark holders latitude in the ways they're paid.
“We don't dictate any particular business model or compensation model,” Mr. Shaw said.
