After giving his interest in a family real estate firm to another family member, a well-known South Dakota financial planner can again call himself a fee-only adviser under the rules of the organization that grants the certified financial planner designation.
Rick Kahler, owner of Kahler Financial Group in Rapid City, S.D., gifted his 50% share of Prudential Kahler, a real estate company, to his wife, who will keep it in her
trust. Mr. Kahler also resigned from Prudential Kahler. Mr. Kahler's wife has no connection to his investment advisory firm. His brother owns the other half of the real estate business.
Mr. Kahler will not receive any financial benefit from the real estate firm and also will refrain from referring advisory clients to the company.
After taking those steps, the Certified Financial Planner Board of Standards Inc. sent Mr. Kahler an email on Nov. 12 saying he was in compliance with the group's compensation disclosure rules and definitions and could describe himself as “fee only.”
The decision resolves one of the highest profile compensation-description disputes that has embroiled the CFP Board over the last two years.
Both Mr. Kahler and the CFP Board had agreed not to discuss the matter while the two sides were reviewing the situation.
The process of coming into compliance with the CFP Board compensation rules has been frustrating for Mr. Kahler, who previously threatened to give up his CFP mark. He's satisfied with the resolution.
“I think the outcome makes sense,” Mr. Kahler said in an interview. “It's something I proposed very early on. I'm sad about all the drama it took to get to this point.”
The CFP Board said that it gives compliance direction “based on the facts and circumstances of each case,” whenever a CFP asks for help in interpreting the organization's rules.
“Mr. Kahler approached CFP Board with various proposals so that his business model could be in alignment with our Standards of Professional Conduct, allowing himself to refer his compensation as 'fee-only,'” the CFP Board said in a statement. “We then provided guidance on what changes he would need to make to his ownership structure to be in compliance with our standards. Ultimately it is up to the CFP professional to determine whether they will follow the guidance provided. Under no circumstances was this a negotiation.”
Under CFP Board rules, advisers who are affiliated with a firm that charges commissions, such as a brokerage, cannot call themselves fee only, even if the advisers only charge their clients fees for their services. The group has been reviewing compensation descriptions on its website.
Some planners questioned whether the resolution is consistent with CFP Board rules against affiliated parties receiving commissions.
“It's hard to believe a wife is not an associated person,” said Alan Goldfarb, managing director of Financial Strategies Group.
Mr. Goldfarb is a former CFP Board chairman who had to resign in 2012 because the board said he was out of compliance with its compensation definitions.
In another controversy, two Florida financial planners filed a lawsuit against the organization after it brought a case against them for improperly using the fee-only description.
Mr. Goldfarb said he is “really happy for Rick” that his dispute has been settled. But he complained that he didn't get the benefit of a similar resolution.
“If you're going to bend the rule this way, let's bend the rule this way all the time,” Mr. Goldfarb said. “I'm still concerned about the lack of transparency. There's been inconsistency in how they've handled the situations over the years.”
Michael Kitces, director of research at the Pinnacle Advisory Group and publisher of the blog Nerd's Eye View, also is scratching his head.
“The conclusion from the CFP Board absolutely mystifies me,” Mr. Kitces wrote in an email. “In what world is a spouse not a related party? The CFP Board's decision in this flies directly in the face of all the prior rulings and statements they have been making on this subject for the past two years.”
The fact that Mr. Kahler has found a way to hold on to his CFP designation and his fee-only status is a win for him, said George Papadopoulos, owner of an eponymous investment advisory firm.
“I think Rick got a good deal out of this,” Mr. Papadopoulos said. “This was much ado about nothing. Both sides could have settled this a long time ago and saved us all the public back-and-forth that went on.”
Resolving his situation doesn't entirely calm the compensation-description waters, Mr. Kahler said.
“There's still a lot of confusion,” Mr. Kahler said. “Maybe there's some clarity linked to a small part of the CFP population that finds themselves in a similar position to me. My hunch is there is a lot of ambiguity that remains around compensation policy.”
Addressing compensation on a case-by-case basis can lead to different outcomes, Mr. Goldfarb said.
“There's a lot of stuff up in the air that's never been decided,” Mr. Goldfarb said. “Depending on who handles a case, it may be decided one way or another — and that seems unfair.”
