Executive Summary
In recent months, the CFP Board has been getting a lot of attention regarding its compensation disclosure rules and its definition of what constitutes "fee only" for financial planners. What started with the public resignation of then-Board-chair Alan Goldfarb - later publicly admonished for his improper disclosure of "commission and fee" compensation - has led to a notice to members, an "educational" webinar, and a series of increasingly problematic news stories, from the schism between CFP Board and NAPFA's definition of fee-only, to negative comments from former DEC members, and most recently a "breaking" news story that the CFP Board's website was allowing hundreds of wirehouse advisors to declare themselves "fee only" in direct contravention to the CFP Board's rules. As a result of this latest article, last Friday the CFP Board converted all of its more-than-8,000 "fee-only" advisors to a compensation disclosure of "None Provided", forcing them to affirmatively re-declare themselves to be "fee only" in compliance with the current rules.
Yet the also-recent announcement that Florida CFP certificants Jeffrey and Kimberly Camarda were suing the CFP Board regarding their own alleged compensation disclosure improprieties make it clear that in truth, the CFP Board's recent struggles are not so recent after all. In point of fact, it appears that the CFP Board has been dealing with this issue since early 2011, and only now, 2.5 years later, has it finally culminated to the breaking point where everything is coming to light. Along the way, it appears that the CFP Board has tried to act with integrity, in a manner consistent with its original Camarda ruling... except, unfortunately, given how problematic the original precedent actually was, sticking to the ruling is just compounding the problems further and further.
Advisors in good faith have acted on the reasonable assumption that they cannot be "entitled to" compensation that no client has ever actually paid, such that it doesn't necessarily matter who the advisor works for... what matters is what the client actually pays (and only then, if a commission is paid, should we be trying to evaluate to what person or entity the compensation was paid and the related parties involved). If the ultimate intention of the CFP Board is to truly change the compensation disclosure rules to what they are now - after recognizing it's a deviation from what the rules have been! - such alterations need to occur through a public comment process that allows the stakeholders to have a constructive role in the discussion. At this point, it seems time for the CFP Board to take a step back, acknowledge that - intentional or not - its current interpretation of the rules is in fact a material change from how the stakeholder community may have intended them when the rules were last changed in 2008, as evidenced by the sheer number of advisors who have been "out of compliance" simply by trying to disclose what their clients actually pay.
Unwinding The Sequence Of Events
As more and more facts and details come to light, it becomes increasingly clear that the struggles the CFP Board has been having since the very public resignation of then-Board-chair Alan Goldfarb last November due to an allegation that he was improperly disclosing his compensation (for which he was subsequently found "guilty" and publicly admonished in June), were in fact just the tip of a much larger iceberg lurking beneath the surface.
In reality, as was recently made clear by the public lawsuit that Jeffrey and Kimberly Camarda filed against the CFP Board, the issue appears to date all the way back to early 2011, when a local competitor of the Camardas filed a complaint against them, alleging that because they owned both a "fee-only" firm (Camarda Advisors) and a commission-based insurance agency (Camarda Consultants), they were improperly disclosing their compensation by claiming Camarda Advisors was fee-only. The Camardas were notified by the CFP Board of the complaint in March of that year, and after going through the CFP Board's disciplinary process in November, were found in violation of the CFP Board's practice standards regarding compensation disclosure, and told in March of 2012 that their penalty would be a public Letter of Admonition. The Camardas appealed under the CFP Board's appeals process, but in January of 2013 the CFP Board Appeals Committee upheld the original ruling. In response, the Camardas filed suit against the CFP Board, placing a hold on the public Letter of Admonition, and claiming that the CFP Board failed to properly follow its own rules and guidelines, and that it did not exercise reasonable standards of due process and fairness. (For further detail, see Notice of Filing J. Camarda Affidavit - 01-15-13- Clay County FL, and the follow-up Camarda Complaint - 6-10-13 - Washington DC {where the CFP Board is based}.)
While all of this was unfolding, the CFP Board apparently recognized that there were at least some parts of its process that did need to be addressed and improved. In April of 2012 (which is just a few months after the Camarda hearing and just weeks after their "guilty" ruling) the CFP Board created a new Director of Investigations position and hired Rex Staples, who had previously spent 7 years as general counsel at NASAA. At the time, CFP Board indicated that the position was created simply due to the rising volume of complaints and enforcement actions it was managing given the growing base of CFP certificants; in retrospect, it's hard to believe that the timing was coincidence. Especially given that in the first 12 months following Staples' arrival, the CFP Board created its first "Sanction Guidelines" and also issued two significant revisions to its Disciplinary Rules and Procedures and also its Appeals Process (in addition to another series of changes that took effect just as Staples was arriving). In viewing the details of the revisions, several appear to align almost perfectly to aspects of the disciplinary process that the Camardas criticize in their suit.
As a part of the Camarda's defense - in addition to their criticisms about CFP Board's process - they pointed out that their arrangement where a "fee-only" advisor also has an ownership interest in a commission-based entity is not uncommon in the realm of financial services. In fact, they noted that many well-known leaders in CFP community had similar business structures, including several members of the Disciplinary and Ethics Commission (DEC) itself and the CFP Board's own board of directors. Accordingly, as the CFP Board stood pat on its original decision in the Camarda case, the natural outcome was for it to investigate these similar scenarios. There is some debate about whether the Camardas issued a formal complaint to trigger the investigations, or if the CFP Board simply took the matter upon itself to maintain appearances that they were acting in a consistent manner; nonetheless, these investigations ultimately resulted in the public resignation of Goldfarb and two members of the DEC, a subsequent private letter of admonition that went out to at least one of those resigned members (Tina Florence, as has come to light by her own subsequent public statements), and a public letter of admonition for Goldfarb himself.
For the CFP certificant community at large, the Goldfarb ruling was the first public awareness of the precedent that had been underway since Camarda, where a CFP certificant may be deemed "commission and fee" by merely having a financial interest in a commission-based entity (such that they could be "entitled" to commissions), regardless of whether any clients ever actually paid a commission to that (or any) entity in the first place. As discussed previously on this blog shortly after the ruling, the potential scope of the CFP Board's interpretation could have very significant ramifications on a broad base of the CFP certificant community, as their definition of "fee only" differed from NAPFA, and a quick search of the CFP Board's own "Find a CFP Professional" tool highlighted a large number of advisors at various wirehouses and broker-dealers who would not be in compliance with the "fee only" definition (not to mention those on FPA's PlannerSearch, where the Goldfarb incident originated).
In realizing that there may be a large number of CFP certificants who were not aware of this interpretation of the rules - though the CFP Board maintained it was simply a consistent reading of the Practice Standards as publicly adopted in 2008 after the last round of revisions - the CFP Board put forth a Notice to Members and also held a public webinar to help educate certificants about how to properly comply. However, the notice to members and associated webinar simply highlighted the broad impact of the current interpretation of CFP certificants. In the immediate aftermath, NAPFA acknowledged that approximately 5% of its own membership might be ineligible to claim they were "fee only" under the CFP Board's rules.
At this point, the news on CFP Board began to accelerate. A week later, the public announcement of the Camarda lawsuit broke in the industry press. Days later, Director of Investigations Rex Staples resigned from the CFP Board less than 18 months after his arrival, in what was claimed to be an entirely unrelated personal decision of Staples', though the timing of his departure makes it difficult to believe it was purely coincidental. (However, given that the Camarda lawsuit had largely occurred before Staples' arrival, it's not entirely clear what the connection might be.) In the weeks that followed, the story of ex-DEC member Tina Florence (one of those caught up in the Camarda complaints) became public, as Florence suggested that the CFP Board "punished" her by asking for her resignation and finding her guilty of a private-censured compensation disclosure violation amid fears of losing the Camarda lawsuit.
And then last Thursday, Financial Planning magazine broke a story pointing out that there were (still) 486 advisors at various wirehouses who were claiming they were "fee only" on the CFP Board's own "Find a CFP Professional" tool on their Let's Make A Plan website (an issue this blog specifically warned about 2.5 months ago); while the CFP Board maintains that it can only investigate matters once a complaint is received and doesn't have audit/random examination capabilities, the growing pressure led the CFP Board on Friday to convert every "fee only" advisor on their website to show "None Provided" under their compensation disclosure, and issued a notice to all "fee only" members that they would need to update their compensation disclosure on the CFP Board website to reinstate their "fee only" disclosure (presumably, after the certificant thoroughly reviews his/her compensation and the current rules to ensure that he/she really should be claiming to be "fee only").
The action does at least ensure that advisors who now report they are "fee only" have voluntarily done so, after the recent CFP Board's compensation disclosure educational notice and webinar, implying that if any CFP certificants are found out of compliance with the rules at this point, the CFP Board will likely investigate complaints, and potentially sanction accordingly if any improprieties are found. Notwithstanding this, however, over the weekend Jason Zweig of the Wall Street Journal highlighted the discrepancy that CFP Board was, up through Friday, continuing to allow a large number of advisors at broker-dealers to claim they were "fee only" even if they worked for an employer that generates revenue from commissions.
Acting With Integrity But Bound By Bad Precedent
The Zweig article perhaps highlights the greatest problem inherent in the CFP Board's steadily unfolding compensation disclosure debacle - that the CFP Board has interpreted that merely working for an employer or having any related party that could generate revenue from a commission means the advisor is "entitled to" commission compensation, even if the reality is that no client of the advisor's ever has in fact paid a commission to anyone, ever (related party of otherwise). This interpretation was what led directly to Goldfarb's public letter of admonition - as he had a broker-dealer "related party" in which he owned a 1% interest that required him to be "commission and fee" even though none of his clients ever actually paid a commission - and similarly, the core issue in the Camarda case was that they owned a fee-only firm and a commission-based insurance agency (though technically, we still don't even know whether any client of the fee-only firm ever actually paid a commission to the related party).
Yet the fundamental question remains: how exactly can an advisor be "entitled to" a particular form of compensation if the client has never actually paid it in the first place? Shouldn't the starting point be to determine whether the client has paid a commission, and then determine whether the advisor was, directly or indirectly via a related party entitled to a non-trivial benefit from that commission, such that the proper disclosure would be "commission and fee"? After all, if the mere fact that a commission "could" be paid to a related party invalidates the "fee only" label, it also means that every advisor whose compensation disclosure is "commission only" is similarly running afoul of the rules. What financial services firm today isn't at least capable of charging a client a fee, and if any/every financial services firm COULD charge a client a fee of any sort, then every "commission only" advisor should actually be "commission and fee" as well, even if no client has ever actually paid a fee!
To the CFP Board's credit, it does appear to me that the organization has tried hard to act with integrity at every step along the way of this process. I suspect it genuinely believed that, at the time, it was taking a reasonable (and not new/unique) interpretation of the rules in the Camarda case. And once that precedent was set, it felt there was no option but to honor that same precedent in the cases of Florence and Goldfarb (and perhaps others that resulted in private censures we don't know about). And given that those precedents were in place - especially with the publicity of Goldfarb - the CFP Board felt that it had to get more proactive in alerting and educating advisors about how to honor the compensation disclosure rules, resulting in the aforementioned Notice to Members and the public webinar. And once it became clear that a large number of (wirehouse and other broker-dealer) advisors still weren't in compliance with the "fee-only" compensation disclosure rules, the CFP Board issued its "grand reset" of compensation disclosure on its website on Friday to ensure that the only advisors who claim to be "fee only" have done so with a conscious effort in light of the current rules.
Each of the steps above seems entirely reasonable, except for the unfortunate fact that it all rests on what appears to be a very problematic precedent - the viewpoint that advisors can be "entitled to" compensation that no client has ever paid in the first place. At some point, as it became clear that dozens, hundreds, or perhaps thousands of "fee only" advisors may be out of compliance with the rules, the CFP Board needed to stop and recognize that, intentional or not, its interpretation of the Practice Standards regarding compensation disclosure have deviated materially from the interpretation of those rules as they're practiced by CFP certificants themselves. As seems clear from how advisors are actually disclosing their compensation, the guiding philosophy is not what clients could pay, but what clients do pay and only then to look at who could directly or indirectly benefit from it. I have no doubt that the overwhelming majority of advisors working at broker-dealers who labeled themselves as "fee only" on the CFP Board's website (and who may still label themselves as "fee only" on the FPA's PlannerSearch tool!) really are compensated solely by fees from their clients, notwithstanding the employer where they happen to hang their hat; the same is true of a number of large RIAs who have worked on a fee-only basis with their clients for decades, and are likely still fee-only, even if it just so happens that their business is now partially owned by a bank or holding company that also happens to own other "related" entities that generate commissions. The question is not what kinds of compensation an advisor's employer's parent-holding-company's other entity's employees' compensation happens to be (yes, the rules are that ridiculous right now); the question is what a client pays in the first place to compensate their advisor (albeit directly or indirectly)!
The bottom line is that the CFP Board may not have thought their ruling in Camarda - reinforced with Goldfarb - was a material deviation in their path, but when the outcome is claiming that this "isn't" a change while simultaneously creating such a furor and finding thousands out of compliance (including a former leader like Goldfarb who actually spent years serving on the very Disciplinary and Ethics Commission that ultimately convicted him under the [new] precedent!), it's time to take a step back and recognize that at some point along the way, we've gone too far down the wrong road.
Where Does CFP Board Go From Here
So given the current environment, where does the CFP Board go from here?
It seems the first step is that the CFP Board needs to acknowledge that its current interpretation of the compensation disclosure rules (and the associated penalties it is doling out for noncompliance) may have "unintentionally" been a deviation from the current version of the Practice Standards as adopted in 2008. While the idea that an advisor must be independently owned and unaffiliated in any way to any entity to qualify as "fee only" is an interesting and healthy discussion to have, it is clearly not how CFP certificants practice today, and it's hard to believe that this is what we as CFP certificant stakeholders collectively believed that we were signing up for when the Practice Standards were adopted after their last revisions. (After all, if it was really believed that this is how the rules were going to work all along, the stripping of "fee only" compensation label from advisors at wirehouses and broker-dealers should have happened 5 years ago when the rules were adopted, not last Friday in response to an media news story!!).
From there, the CFP Board should announce that it is putting a hold on investigating compensation disclosure issues for a few months while these issues are sorted out (to avoid having any genuinely innocent advisors unwittingly harmed by potential malicious complaints under today's questionable rules!), and issue a provisional new rule "clarifying" that advisors can only be "entitled to" compensation that a client has actually paid in the first place (and once paid, the CFP Board can investigate whether the compensation resulted in a non-trivial direct benefit to the advisor or indirect benefit via a related party, such that the advisor should be disclosing "commission and fee" compensation).
Once a provisional ruling is issued, the CFP Board should declare that it will revisit its recent rulings in light of the updated interpretation. This may well result in a public pardon of Alan Goldfarb (as his case appears to sadly meet the scenario where, although he happened to hold a small financial interest in a broker-dealer, none of his clients ever actually paid anything to that broker-dealer, which means Goldfarb didn't benefit from commission compensation any more than he would have by owning Bank of America/Merrill Lynch stock in his brokerage account!), while in the case of Camarda the outcome is unclear (as there is still no public clarity about whether any Camarda "fee only" client ever actually paid a commission, or not) but it can at least be evaluated appropriately (if the Camardas are even willing to accept a "re-trial" from CFP Board at this point!). To say the least, it seems unfair that the CFP Board knowingly "reset" the compensation disclosures of a large number of advisors on its website last Friday who were technically out of compliance with the Practice Standards, without pursuing an investigation against them, yet publicly admonished Alan Goldfarb for a similar (or even lesser?) infraction without allowing him to first take corrective action.
In the meantime, the CFP Board needs to get its compensation disclosure rules back out to the CFP certificants in a new rulemaking process, with a fresh round of public comments. If we ultimately end out with the CFP Board's current "fee only requires independent ownership" ruling, so be it, but such a rule needs the buy-in from the stakeholder community to have the legitimacy it needs (and to avoid having the issue just continue to snowball further down its current path given how different it is from the way many "fee-only" CFP certificants practice today). Alternatively, perhaps the CFP stakeholder community, and the CFP Board working productively with the Financial Planning Coalition, can come up with ever better, clearer compensation disclosure rules that will be more productive than the "old" or "current" rules we're struggling with now. But the only way to get there, in a manner the stakeholder community can support, is through an open public comment process, just as the CFP Board uses any other time it is enacting a change in its rules.
Ultimately, this ongoing debacle may also require a review of the Disciplinary and Ethics Commission and its processes as well. Hopefully, the legacy of Rex Staples and the rules implemented during his time as Director of Investigations will help to resolve many/most of the issues raised in the Camarda complaint. Yet at the most fundamental level, the real question is how the DEC could issue a ruling so materially different from the current practice of CFP certificants that the issue could compound to the point that it has in the first place. Five years ago, shortly after Kevin Keller arrived at the CFP Board, the majority of the then-members of the DEC engaged in a mass resignation in protest to changes that were being implemented. In fact, one of the issues the DEC members specifically raised in their letter explaining why they resigned was the new inclusion of a member of the CFP Board staff in DEC proceedings to 'help ensure that the Practice Standards are interpreted in a consistent manner' which the resignees were concerned could allow CFP Board staff to have undue influence on the DEC's decisions. And sure enough, the Camarda complaint suggests that this CFP Board "counsel" person was in fact influencing the DEC and led them to the current conclusion, rather than serving as someone who could point out the broad-reaching ramifications of the DEC's prospective decision and head off this problematic precedent at the pass! (Which means, ironically, that the concerns of the resigning DEC members in 2008 may have been right, even though the structure actually should have been even more effective in preventing the exact bad-precedent problem that occurred!) On the other hand, it's worth noting that technically, the rulings against Goldfarb and Florence were actually from an Ad Hoc DEC that was separately assembled because of their positions of leadership in the organization; while the process helped to ensure an unbiased review of the matter (given Goldfarb and Florence's personal relationships with the standard DEC), it also meant that their particularly sensitive case was heard by a panel that was significantly less experienced and familiar with the nuances of the Practice Standards and their potential interpretation and consequences.
The bottom line, though, is simply this: the CFP Board appears to have gotten itself trapped by trying its best to act with integrity in honoring a precedent that never should have been set in the first place. For some inexplicable reason, the CFP Board has failed at numerous points along the way to recognize the far-reaching implications of the interpretation it was taking, where advisors can be "entitled to" compensation that no client has actually paid, and that what clients actually do pay is not even a legitimate defense to validate an advisor's compensation disclosure. By stepping back from its decision, recognizing that it should be interpreting its rules in a manner consistent with the actual practices of financial planners, and then engaging in a public process to evaluate whether the rules should actually be changed to this "new" definition, the CFP Board can realign itself with the stakeholder base that it is unwittingly alienating. In the end, compensation disclosure is an absolutely crucial aspect of being recognized as a profession, and the issues of compensation, ownership, and independence deserve all the public recognition and disclosure they can get; but ultimately, CFP Board still needs to recognize that disclosing the compensation an advisor receives has to start with what a client actually pays in the first place.
“which means Goldfarb didn’t benefit from commission compensation any more than he would have by owning Bank of America/Merrill Lynch stock in his brokerage account!” –
Great point Michaell! (and not one to be overlooked). What % constitutes enough ownership to put a “fee-only” advisor in the cross hairs of this interpretation. Does it matter if it’s in a brokerage account or not? The questions could, and are likely to, continue. Clearly the Board has taken a wrong turn down an incredibly slippery slope.
I suppose an analogy to the Goldfarb situation might be a fee-only advisor who happens to own shares of publicly-traded stock of, say, LPL Financial. Is such an advisor not entitled to call herself fee-only because she owns a firm that accepts commissions?
This whole situation has put a blackness over a certification that is supposed to mean something. The quicker the board gets it’s ducks back in a row and everything is settled — or fixed — the better.
Often I have read articles about what is going on and thought — this article’s message is very confusing and why has “this or that” happened?
I can only wonder how confusing the debacle has been to any investors who are up on current events.
Transparency as well as consistency is so important; especially in an industry that is and has been evolving.
I agree with most of your article except the fact that we aren’t sure that any of the Camarda clients paid a commission to their insurance company. Really?
If you have any % of direct ownership in a company that receives a commission from someone you call a “client” or a “customer,” you are not fee only. This is just like the brokers that tell clients, “Yeah, fee only and fee based are the same thing.” Nothing could be further from the truth.
If I own a publicly traded bank stock that has a BD as part of its core business, this has no bearing on whether someone is fee only or not.
Seems that the water is getting muddier by the day.
Chris,
I agree entirely with your statement “if you have any % of direct ownership in a company that receives a commission from someone you call a “client” or a “customer,” you are not fee only.”
The point is that right now, no one has been able to demonstrate that a single client of the Camarda’s fee-only practice actually paid a commission to anyone in any way, or if their ownership of their insurance agency was as separate as the broker-dealer stock in my S&P 500 index fund. The same was true of Goldfarb, despite the fact that he actually did try to show that NO CLIENT EVER PAID A COMMISSION in the first place (not to him, not to a related party, not directly, nor indirectly).
The minute there’s a demonstration of a single “fee-only” client who paid a commission, and that commission directly or indirectly provided a non-trivial benefit to the advisor or a related party, the advisor is not fee-only. That’s what I’ve been saying all along. But that demonstration has not been made in the Camarda case as far as I’m aware.
Simply put, the violation should not be based on what interests an advisor happens to own that aren’t related to how the advisor conducts business anyway, it should be based on what their clients PAID and then to see whether/how the advisor directly or indirectly benefitted. Produce a client who paid a commission, and the case gets very clear, but we’re not there (yet?).
– Michael
Michael, I have been following this situation closely, and I have to say, your article is spot on! I’m not a CFP, and my perspective is more that of a potential client. I can’t figure out why the CFP Board is making such an issue of how planners are eligible be compensated rather than how their clients pay them. If I was looking for a financial planner, my only concern would be whether or not the CFP would make commissions on his recommendations TO ME. Any income he makes that doesn’t affect what I pay him would be irrelevant (and too much information).
You make an excellent point about how the Board is interpreting the rules differently than thousands of CFP’s and that it needs to stop its movement down the road only it has taken and acknowledge the wisdom of the masses. And, absolutely, Goldfarb’s sanction should be rescinded, now that the Board has simply (and privately) instructed all of those other thousands who interpreted the rules the same way Goldfarb did that they just need to update their profiles according to the new interpretation of the rules.
Thank you for such a comprehensive look at this situation. And a double Thanks for applying common sense to the issue.
Why not have fee-only be as restrictive as the CFP board requires? What’s wrong with calling your compensation “fees and commissions” in those cases you describe and then explaining to clients that they will (likely?) not pay a commission and why.
If you want to be fee-only, then avoid all the entanglements, otherwise explain the entanglements. Isn’t that more in the public interest?
Also, if those clients who “never paid a commission” end up paying a commission (for getting insurance, for example) would the firm track that and then change the disclosure?
What about a CFP who inherits his parent’s vested insurance commissions? Or one who has an IRA that owns a fund that invests in the stock of a brokerage firm? Or one who recommends an insurance agent that reciprocates with a referral?
The answer is: Nobody cares! Well, nobody except the few that use “fee-only” as a marketing tool to obfuscate their naïveté.
Michael, great article-thanks for taking the time to put it together. I would only slightly disagree with one point. You are giving the benefit of the doubt to the board about their intentions and actions. My experience has tainted me to think this is more of a cover up, when a high profile member of staff leaves and there is no comment (Mr. Staples) it usually is due to a payment. It will be interesting to follow the money. The overlooking of the wirehouse CFP’s use of fee only is rather large, and stands out as a double standard. What about any person sanctioned publicly or privately in the last 2-3 years what will happen to them? I am not one of the affected but this debacle seems about fee generation for the board. The current board has a bad feel toward it’s members unless you work for a wirehouse. The next bomb to drop in this type of situation it usually pay/salary for staff or directors, I bet the fees generated from this situation have allowed for healthy raises.
The CFP has created a distinction, the fee-only advisor, without a difference, to anyone except NAPFA. There is nothing inherently noble in a fee-only arrangement; and there is nothing inherently evil about a commission, or a fee and commission arrangement, so long as it is fully disclosed to the client. Neither the CFP nor the Securities and Exchange Commission (SEC) seem able to regulate their fee-only charges properly. However, ala Madoff, look for the most furious bout of hand-washing since Pilate at the CFP.
The underlying subtext here is the desire of Registered Investment Advisors (RIA) , the CFP and the SEC to hold all financial advisors of whatever kind to a Fiduciary Standard. By doing this forcibly, through legislation and regulation, the objective is to force all asset management activity back under the Advisor Act of 1940; call it the “anti Merrill-Lynch Rule”.
The brokerage industry moved to “asset management fees” in lieu of commissions under the so-called “Merrill Rule” many years ago. The RIAs, the CFPs, and it would appear, the SEC, want their football back. There are several good regulatory reasons why financial advice should be rendered under a fiduciary standard, and as many equally good reasons why financial transactions should be supervised by a separate body under a suitability standard. The quality of pure advice is very difficult to measure, and the operative paragraphs are probably never reduced to writing, hence the “prudent man rule” and other nostrums. Said advice also must presumably be implemented by some neutral third party, lest our fiduciary come away with unclean hands.
The buying and selling of financial products is like the buying and selling of anything else. The sales take place at a specific point in time, under a specific set of market conditions, and in order to meet certain specific, stated goals of the client. Doesn’t it make perfect sense to require the financial advisor to determine and document the client’s suitability for the transaction at the time of sale, under the watchful eye of a fully staffed Compliance Department, who in turn is supervised by an independent regulatory body? It would be very difficult to determine a breach of fiduciary duty without such documented analysis, without handing the plaintiff’s lawyer the advantage of 20-20 hindsight.
Interesting that this body claims to elevate a group of CFP’s “above” a sales profession simply by making up their own definition of “fees”. When an advisor collects an automated, periodic payment from a client, based on a percentage of the client assets for which the advisor can claim Rep/Broker status, this income is anything but a “fee”. The advisor had to first sell the product (or TPM) into which he placed the client. Then he had to arrange it so the client would never have to write a check to the advisor in order to pay his “fee”. You can call it “fee-based” all day long, but it is clearly not. If the advisor were to write a letter to their clients once a year reminding them how much they had paid their advisor in quarterly “fees”, then ask the client to sign a form authorizing the continuation of these fees, to this group only, I would give the benefit of the doubt. For the rest, “fee-based” is not a fee. It is a charade..
The term fee only does not reflect the client engagement but the planner’s practice. If I charge Michael a fee and yet Sam a commission, then I am hadly a fee only planner – even though Michael may think so.
If I charge only fees and yet my firm is one that derives commission income and I derive benefit from that, through salary, compensation or benefits, I am not fee only.
The problem is that some in the industry ignore the uniqueness that “only” implies and confuses it with almost.