Certified Financial Planner Board of Standards Inc. officials said Wednesday the organization’s decision to remove descriptions of CFPs’ compensation from a consumer website is a result of its focus on raising the advice requirement for the credential.
When a stronger fiduciary standard for the CFP mark goes into force on June 30, CFP certificants will be expected to act as fiduciaries whenever they provide financial advice. Under the previous rule, CFPs were only fiduciaries during the financial planning process.
On Monday, the CFP Board sent a letter to all certificants announcing that compensation descriptions, such as fee-only, commission-only and commission and fee, would be scrubbed from the LetsMakeAPlan.org website.
The letter said the terms were “not helpful to consumers” and that clients should instead ask prospective advisers how they are paid.
CFP Board Chief Executive Kevin Keller said the organization is emphasizing how CFPs work with their clients, not how they generate revenue.
“It’s about fiduciary, not about fees,” Mr. Keller said in an interview. “That was the driving reason and what was behind the decision the board made. This is part of the natural evolution of not focusing on how a person is paid but the professional obligation they commit to in the way they deal with their clients.”
The CFP mark is business-model neutral, meaning that investment advisers, registered representatives and insurance sales professionals all can hold it. More CFP professionals accept some form of sales-related compensation than those who do not, according to Leo Rydzewski, CFP Board general counsel.
“In recognition of this … the new code of standards said that any CFP professional, regardless of their compensation method, is capable of acting as a fiduciary whenever providing financial advice to a client,” Mr. Rydzewski said.
Under the standard, CFPs are required to tell potential clients how they make money.
“It’s better to have that conversation than to provide sound bites, a short few words [on a website] that describe that compensation method,” Mr. Rydzewiski said.
Geoffrey Brown, chief executive of the National Association of Personal Financial Advisors, criticized the CFP Board’s move to scrub compensation descriptions.
“NAPFA strongly believes that the fee-only model is the most independent and objective compensation method available to the public,” Mr. Brown said in a statement. “By making this change and removing [the fee-only search] capability, the CFP Board is essentially saying that all compensation models are the same, thus doing the public a disservice.”
Jeff Burke, founder of 7th Street Financial, said that with “a movement to fee-only advisers,” it didn’t make sense for the CFP Board to remove an “easy-to-read data point” from its website.
“While it is still a best practice for any consumer to get further details on how an adviser is compensated, the formulas may be complicated and confusing for the client to truly understand what they are paying, which is something the CFP Board should be protecting consumers from,” Mr. Burke wrote in an email.
Ashlee deSteiger, founder of Gunder Wealth Management, said losing the fee-only description on the CFP Board website will make it harder to distinguish herself from advisers who fudge the term.
“It’s been a challenge holding myself out as fee-only in a sea of ‘fee-based’ planners who think they are ‘fee-only,’ when they actually are not,” Ms. deSteiger wrote in an email. “But if they aren’t CFPs, no one really questions them.”
Ryan Mohr, founder of Clarity Capital Management, said the CFP Board is providing less transparency about compensation methods. “There is a difference, and people need to be aware that difference,” Mr. Mohr said.
Mr. Keller said he has heard mixed reactions from CFPs, with most of the opposition coming from those who are fee-only. He said the board chair who approved the removal of the compensation descriptions, Susan John, was a two-time chairwoman of NAPFA.
“The right ‘F’ word is fiduciary, not fee-only,” Mr. Keller said.
In 2018, there were about 500,000 searches conducted on the Lets Make A Plan site, Mr. Keller said. About 6% of those queries were filtered for “fee-only.”
Mr. Brown said that in 2019, there were more than 2.6 million visits to NAPFA’s Find an Advisor site. NAPFA is an organization made up of fee-only advisers.
“This traffic validates that many consumers are interested in searching for advisers using a compensation-based filter,” Mr. Brown wrote in an email.
The CFP fiduciary standard will go into effect on June 30. That's the same day the Securities and Exchange Commission begins enforcing Regulation Best Interest, its rule to raise the broker advice standard above current suitability.
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