Colorado revisions to financial planning guide don't quiet a critic

Colorado regulators revised guidance that outlines concerns they have about financial planning fees, but the changes haven’t assuaged critics.

The Colorado Division of Securities edited its Ongoing Financial Planning Guide and posted the new version earlier this week. The document outlines compliance shortfalls the agency has seen in fee-for-service models — such as subscriptions and retainers — and offers best practices for investment advisers to ensure their fees align with their work for clients.

The agency modified the document after receiving several comment letters from financial planning organizations and practitioners.

Critics asserted the original version was biased toward the business model in which investment advisers charge fees based on assets under management. They said it would foist a regulatory burden on advisers who use a different approach to charge clients with modest assets who wouldn’t meet AUM minimums.

In a letter responding to the comments, the agency denied that it is requiring more evidence of what fee-for-service advisers have done to earn monthly or other periodic fees.

“In both fee models, the staff would have serious concerns and would seek further information if the adviser charged only for ‘availability,’” the response letter states. “Staff recommends AUM advisers also create and maintain sufficient documentation and work product to evidence client meetings and other tasks to monitor clients’ accounts and investments.”

In the guide itself, the agency said that “staff has serious concerns that an adviser that charges clients solely for availability can meet their fiduciary duty. Generally, fees should only be charged for work that has been or will be completed, though the reasonableness of fees is based on the specific facts and circumstances.”

Michael Kitces criticized the original guidance. He said the changes make “a lot of positive progress” in how language surrounding adviser availability and deliverables. But he still has qualms about its overall focus on emerging fee structures.

“Advisers who provide ongoing planning for an AUM fee don’t appear to be subject to this guidance,” sad Kitces, co-founder and executive director of the XY Planning Network, a group of fee-for-service financial planners. “We are concerned that it still does not treat ongoing financial planning under an AUM model the same as it does under a subscription model.”

Regardless of the model, financial planners must show their work for clients in order to justify their fees, said Jeff Eaby, chief examiner in the Colorado Securities Division.

“We’re trying to make clear that in the staff’s view, an ongoing financial planner has an obligation to monitor the client’s plan, update it periodically and make a determination that the services are still appropriate for the client,” Eaby said.

Another criticism that the modified document tries to address is that it effectively serves as a rule for Colorado planners. They said the state issued it without appropriate notice and comment.

Eaby disputed that characterization.

“The overall goal of the revision was to make clear this was just staff’s best practices recommendations,” he said.

The Colorado guidance comes as state regulators across the country are wrestling with new fee models. The North American Securities Administrators Association also is working on guidance.

The Certified Financial Planner Board of Standards Inc. submitted a comment letter to Colorado but did not have an immediate reaction to the changes.  

“We appreciate that the Colorado Securities Division considered our comments, took the time to respond to them in a letter, and made some revisions to the guidance,” Maureen Thompson, CFP Board vice president of public policy, said in a statement. “We will carefully review the revised guidance and look forward to the opportunity to engage in a discussion with the division in the near future.”

The Financial Planning Association, which also submitted a comment letter, did not indicate whether Colorado addressed its concerns.  

“We appreciate they made revisions,” FPA President Dennis Moore said in a statement. “We also appreciate their desire to meet with us once we have had an opportunity to fully review and consider the changes that were made."

The Institute for the Fiduciary Standard supports Colorado’s guidance and does not believe it’s biased toward the AUM model.

“Most of what they’re doing, properly understood, is reasonable,” said the institute’s president, Knut Rostad. “All fee-only advisers should be as transparent, clear and simple as possible in communicating their total fees, expenses and services.”

Colorado is one of the first states to weigh in on fee-for-service models. Its guidance is set for now.

“We don’t anticipate further revisions at this time,” Eaby said. “But we welcome discussions with the industry.”

Colorado and other states will definitely hear more from Kitces.

“We don’t think the end of the national discussion is in Colorado,” Kitces said. “They’re just one of the first states to issue guidance.”