'Healthy discussion' with CFP Board, FPA and NAPFA leads to list of questions and answers.
Different definitions of “fee-only” were discussed by the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and NAPFA last week, and while no conclusion was reached, the CFP Board will have the last word.
“It was a very healthy discussion,” said Geoffrey Brown, chief executive of the National Association of Personal Financial Advisors, referring to a meeting of the Financial Planning Coalition in Chicago last Tuesday. “Everyone came away from it with an understanding that we would be working toward coming up with a common set of definitions for all compensation, 'fee-only' being one of them.”
It isn't exactly a negotiation, according to the CFP Board.
The groups agree that their aim is to strengthen consumer protection by defining clearly how an investment adviser is paid. The CFP Board, however, is the body that determines the requirements for financial planning certification.
“This is not about us changing,” CFP Board chief executive Kevin Keller said in an interview. “FPA and NAPFA fully support the CFP Board as the standard-setting body, and we're working to facilitate their compliance with our standards.”
Describing compensation
Within the next couple weeks, the CFP Board will send to its certificants a document designed to help them understand how to describe their compensation.
The CFP Board is compiling a set of frequently asked questions that have cropped up since an early-August webinar and a follow-up notice distributed at that time to the nearly 69,000 CFPs. The FAQs also will be posted on the CFP Board's website.
The organization has renewed its focus on compensation disclosure in the wake of recent enforcement cases, including one against former CFP Board chairman Alan Goldfarb, that centered on advisers' misrepresenting their compensation as fee-only under the CFP Board's definition of the term.
“The FAQs are designed to provide guidance within the limitations of facts and circumstances,” Mr. Keller said.“Our efforts are toward helping people comply, so that when the public sees CFP after [an adviser's] name, they know that person is meeting high ethical standards and that they've met competency standards.”
'Commission and fee'
The CFP Board defines fee-only as an adviser deriving compensation only from charging fees to a client. If the adviser is affiliated with a broker or insurer that charges commissions — even if the adviser doesn't charge clients a commission — the compensation is deemed to be “commission and fee.”
The CFP Board's definition differs from that used by NAPFA. The organization allows its members to own up to a 2% stake in a financial services company, which means that they can be affiliated with a firm that charges commissions and still use the fee-only designation.
Fewer than 100 of NAPFA's 2,400 members might find themselves out of compliance with the CFP Board's definition of fee-only, Mr. Brown said.
“We've aligned ourselves with the CFP designation, and we will work with our partners to resolve the situation,” he said.
NAPFA last year implemented a requirement that new members hold the CFP mark.
The relationship between the groups is strong, despite the compensation differences, Mr. Keller said.
The three compensation designations that the CFP Board uses are “fee-only,” “commission and fee,” and “commission only.” The organization recently dropped “salary” as a term an adviser can use to describe compensation on the CFP Board's website.
The FPA also has eliminated “salary” as a compensation option.
“There are many different, complex ways folks can be compensated,” Mr. Keller said “If you're fee-only, you and the firms you're affiliated with are fee-only.”
