Rick Kahler was the first certified financial planner in South Dakota. He may soon become an ex-CFP.
Mr. Kahler is contemplating giving up his CFP mark because of Certified Financial Planner Board of Standards Inc. rules that categorize him as a commission-and-fee adviser. He insists he's fee-only. He owns a share of his brother's real estate company in Rapid City, S.D., but says he does not mingle that business with his advisory firm.
“It is ridiculous to label me as receiving a commission when I occasionally receive a
dividend from a company for which I am not a salesman,” said Mr. Kahler, president of Kahler Financial Group Inc.. “They've made a mess of this whole thing.”
The controversy over compensation designation has rocked the CFP Board over the last week and has CFPs questioning the organization's “fee-only” definition.
CFPs can describe their compensation as fee-only if they're paid only via fees and are not affiliated with any financial firm that charges a commission. If they have a connection to such a firm, even if they don't charge their clients commissions, their compensation is deemed “commission and fee.”
On Sept. 20, the CFP Board temporarily removed the fee-only description from website profiles of about 8,000 of the nearly 69,000 CFPs. The CFP Board made the move after it learned that many dually registered advisers and those who work for wirehouses were claiming fee-only status.
The organization told CFPs to review the definition of “fee-only” and restore it, if it fit their practice.
The CFP Board approach to the question differs from that of the National Association of Personal Financial Advisors, a group of about 2,500 fee-only advisers. NAPFA allows its members to own up to a 2% stake in a financial services firm that charges commissions.
“If you have a small-business interest in a bank or brokerage, I don't think that's going to impact your incentives with clients,” said Hilary Martin, a financial adviser at The Family Wealth Consulting Group. “If you're compensated only with fees, then you're fee-only.”
An affiliation with a broker-dealer is crucial to many advisers. Tina Florence, a partner at Lane Florence LLC, said that the advice part of her business is “not a commission product.”
“I don't need a CFP. I do need a broker-dealer, but I want my CFP,” said Ms. Florence, who was removed from the CFP Board's Disciplinary and Ethics Commission last year for an alleged compensation violation.
“I'm not giving it up. I worked too hard for that,” she said.
'Some ambiguity'
Alan Goldfarb, managing director of Financial Strategies Group LLC, stepped down as CFP Board chairman last November when the organization filed a compensation misrepresentation case against him.
He maintains that he was tripped up by the combination of a straightforward fee-only description with the board's broader definition of “compensation.”
“There is some ambiguity in the system, and its needs to be cleaned up,” Mr. Goldfarb said. “It's hard to be accused of something and found guilty if there is ambiguity in the rules.”
Sheryl Garrett, founder of the Garrett Planning Network, agrees that any vagueness is a problem.
“We as an industry need to flesh this out and come up with concrete standards that are consistent across the industry,” she said.
The CFP Board hasn't said that it will modify its definition of “fee-only.”
It has been working for several weeks to elevate compensation disclosure guidelines, according to CFP Board spokesman Dan Drummond.
“We're erring on the side of the consumer and providing clarity,” he said. “We've done a lot of things to aid compliance.”
Still, the temporary removal of the fee-only description from the CFP Board website shocked many CFPs, who question the board's management style.
“I'm really disappointed by the CFP Board's reaction,” said James Wilson, owner of J.E. Wilson Advisors LLC. “The way they've handled it has just made it worse.”
The process seemed knee-jerk to many.
“I understand what the CFP Board is trying to do,” said Roger Wohlner, an adviser at Asset Strategy Consultants LLC.
“I'm not sure they handled it in the best way,” he said. “It strikes me that a lot of this is reactive, not done in a thoughtful, planned mode.”
The CFP Board's crackdown on its definition of “compensation” over the past year has been a reaction to enforcement cases that have mired it in controversy, according to the targets of those cases.
In March 2011, the CFP Board filed a case against Jeff and Kim Camarda, managing members of Camarda Financial Advisors LLC, for defining themselves as fee-only when an arm of their company, Camarda Consultants LLC, sells insurance.
Suit against CFP Board
The Camardas were found in violation of CFP Board rules. This year, they filed a suit against the board.
The CFP Board's moves against Ms. Florence and Mr. Goldfarb were related to the Camarda case, Ms. Florence said.
“They were trying to head off the Camardas from filing a lawsuit,” she said. “Investigations were opened immediately. We were never given the opportunity to change our profile information the way that thousands of CFPs were just given.”
The compensation dispute arose from his case, Mr. Camarda said.
“Had we not stood up and refused to be unjustifiably smeared, I don't think any of this would have come about,” he said. “Our sense is that they decided they were going to publicly damage us to pursue some murky agenda of their own.”
Mr. Drummond denied that the CFP Board went after Ms. Florence and Mr. Goldfarb to legitimize their actions against the Camardas.
“We follow a process of investigating all allegations of rule violations, irrespective of the existence of a lawsuit or the threat of a lawsuit,” Mr. Drummond said. “Our intention is to protect the public, not to try to avoid litigation.”
