Colorado regulators mulling update to guidance on financial planning fees

Groups like XY Planning Network and the CFP Board view a document from the state's Division of Securities as undermining fee-for-service models.

Colorado securities regulators are considering rewriting some parts of a guidance document about financial planning fees that has set the sector on edge.

In March, the Colorado Division of Securities issued an “Ongoing Financial Planning Guide” that outlines “emerging compliance concerns” surrounding the use of fee-for-service financial planning models, such as subscriptions, fixed or flat fees, and retainers.

The regulator said staff found during examinations of Colorado-registered investment advisers that some advisers were not able to demonstrate the work they performed for clients to align with the fees they charged.

The guidance generated strong pushback from organizations representing financial planners, who said it was biased in favor of advisers who charge a fee on assets under management. They also questioned why the guidance was released without going through a formal rulemaking process.

The division is now mulling changes to the planning guide.

“Nothing’s set in stone necessarily,” said Katie O’Donnell, director of communications and public engagement for the Colorado Department of Regulatory Agencies. “There’s definitely clarification needed.”

The primary confusion about the guide is that some people have equated it with a regulation. That’s not what is, O’Donnell said. It’s meant to provide best practices for fee-for-service advisers.

“It’s a guidance document,” she said. The division wants it “to be clear, even though it’s not [formal] rules. We want to make sure [advisers] are meeting these guidelines that are applicable to whatever model [they] choose.”

O’Donnell said an updated version of the guide would be posted in the next month or so. She didn’t detail what changes might be made.

The revision would likely have to be substantial to satisfy its critics. The division asked for advisers’ feedback, and the planning sector responded forcefully.

The Certified Financial Planner Board of Standards Inc. argued that the guidance would undermine fee-for-service models that allow investors with modest assets to access financial planning without having to meet an asset minimum.

“Our main concern with the guidance is that it reflects an unjustified bias in favor of the asset under management (AUM) fee model,” CFP Board CEO Kevin Keller wrote in a Sept. 12 letter. “With flexible fee structures, the financial planning profession has an opportunity to democratize financial advice so that more people have access to competent and ethical financial advice earlier in their saving and investment years.”

In a July 21 comment letter, the XY Planning Network asserted that the Colorado guidance foists an unfair regulatory burden on fee-for-service advisers. It pointed out that an adviser who charges a client with $300,000 in assets $250 per month for planning services would have to meet the requirements in the guide while an adviser who charges a 1% fee on the $300,000 and promises planning help wouldn’t be subject to the obligations.

“Colorado’s OFP Guide places an undue burden on one type of fee model over others, especially when there may be no substantive difference in the total cost of advice or the actual services provided,” XYPN executive chairman and co-founder Michael Kitces said in a statement.

O’Donnell denied that the Colorado guidance favored AUM over other fee models.

The national organization for state securities regulators — the North American Securities Administrators Association — also is reviewing fee-for-service planning models. It may produce its own guidance or another response in coming months, an effort that is being watched warily by financial planners.

“The touchstone here is the reasonableness of the fees and the services provided for those fees,” Andrew Hartnett, deputy administrator for securities in the Iowa Insurance Division and NASAA president, said in an upcoming InvestmentNews 3 Questions video. “We certainly don’t want to stand in the way of efforts to right-size fee structures to better fit client needs. But we want to make sure that the fees are reasonable and that the services actually performed are in line with the costs.”