Articles About The Financial Planning Profession

Over the past year, a series of revelations about the CFP Board's compensation disclosure requirements have significantly shifted the landscape in how CFP certificants must explain their compensation to prospective and current clients. While the CFP Board maintains that "nothing has changed" since the rules were formally enacted over 5 years ago, the fact that large numbers of advisors continued to find themselves out of compliance - with another potential shoe soon to drop - suggests that whether the organization admits it or not, the CFP Board has changed the rules of the game.

In fact, the CFP Board's current framework is so expansive in the compensation that must potentially be included, that virtually all advisors in today's environment end out being in one broad bucket labeled "commission and fee", which groups together not only advisors who earn 1% in commissions with those who earn 99% of income in commissions (despite the clear difference in actual business model!), but even renders "commission-only" advisors who earn 100% commission income as "commission and fee" because they work for a firm that "could" generate a fee (along with requiring a number of advisors who earn 100% of income as fees to declare themselves "commission and fee" if they "could" earn a commission as well). The end result: when nearly all advisors must use the same compensation disclosure label of "commission and fee" to define a wide range of actual compensation structures from 0% commissions to 100% commissions, the very purpose of compensation disclosure begins to lose its meaning, value, and clarity for the public that the CFP Board purports to serve.

While the CFP Board maintains that it cannot "fix" or change its rules without a long drawn-out rulemaking process, arguably the reality is that it already changed its rules without such a process to reach the point we're at now. In addition, the fact that the CFP Board eliminated its own "salary" compensation category just over 6 months ago, makes it clear that when it comes to interpreting and adjusting its own definitions, the CFP Board does have latitude to fix its own mistakes. Yet, mysteriously, the CFP Board has yet to be held accountable for the problematic definitions it is now using. With CFP certificant stakeholders reporting behind-the-scenes that they are afraid to speak out for fear of retribution (justified or not), and the FPA and NAPFA apparently abdicating their advocacy roles on behalf of members to take a back seat to the CFP Board, it remains unclear what will finally push the issue. Will someone have to file complaints against a thousand CFP certificants in violation of the CFP Board's own problematic rules, effectively "throwing those CFP certificants under the bus", just to force the CFP Board to pay attention? Will its Board of Directors finally take a more active accountability role to intervene and preserve the enforcement integrity of the organization?

Read More...

Last week, the CFP Board issued a press release announcing that it was transitioning from a paper-based test to a computer-based testing process, in an effort to improve the ease and efficiency of the test-taking experience for CFP certification candidates. The move to computer-based testing will allow the CFP Board to issue preliminary results immediately, offer official results in just 1-2 weeks (down from 5 weeks with the paper-based exam), and dramatically expand the breadth of available testing locations.

Yet in a surprising and dramatic change that was explained as little more than a side "benefit" to the computer-based exam process, the CFP Board also announced that the length of the CFP exam going forward would be chopped by a whopping 40%, from 285 exam questions down to only 170, while the duration of the exam itself is reduced from a 10-hour day-and-a-half exam into a 6-hour single-day exam.

While the CFP Board maintains that this is not a change in how hard the CFP exam really is - i.e., the difficulty of the exam isn't meant to be increased nor decreased by the change, because the (fewer) questions themselves will still be targeted for similar difficulty - the question arises nonetheless why the CFP Board would implement such a change, if the goal wasn't to at least create the perception that the exam will be easier and therefore more appealing to take? Which in turn raises the question - did the CFP Board just lower the standards of the CFP exam and try to make it easier to grow the ranks of CFP certificants?

Read More...

As we begin 2014, a number of issues loom that may have broad impact for advisors in the coming year. Perhaps most significant is the fact that we may finally see some activity on the regulatory front; the next fiduciary proposal from the Department of Labor is targeted for August of 2014, and while the SEC may be taking a back seat on the fiduciary issue and waiting for the DOL to act, the regulator has committed itself to step up oversight (i.e., examinations) of investment advisers, and may even take up the recent SEC Advisory Panel's recommendation to begin levying "User Fees" on RIAs to help fund increased oversight. On the other hand, the CFP Board may also face its own turmoil this way in its ability to oversee CFP certificants, as the challenging Camarda case plays out.

In the meantime, the slow-motion trainwreck that is the advisory industry's demographics problem will continue to play out; the latest Moss Adams study showed that employee advisors are now outnumbering owner advisors, yet the number of advisors available to hire who have capacity for new clients continues to dwindle. While the anticipated mass exodus of retiring advisors has been more like a trickle so far - for a number of reasons - the veteran advisors who remain still cannot solve the capacity of growing firms that need to hire younger advisors to take the lead. In the coming year, the problem is going to become a lot more noticeable.

The third key trend for 2014 will be the continued rise of the "robo-advisor" but with a more nuanced look; while the robo-advisors seem to have exploded onto the scene in 2013, the reality is that by numbers, most of them are still quite tiny (especially relative to the venture capital they raised), and none appear to actually be economically viable and even running at a breakeven pace yet (much less making the return-on-equity profits their funders expect). In the coming year, we'll begin to see which robo-advisors will outpace the others and pull ahead, and many will aim to refine their models; some may even decide that it's more constructive to be a partner with advisors than a competitor, given the reality that most robo-advisors are actually more in competition with online brokerage tools like Schwab and E-Trade than human advisors. At the same time, it may be the heavily technology-enabled advisors - the "cyborg advisors" - who really begin to shine, blending the best of technology and human skills that pulls ahead of both the robo-advisors and the humans.

And in the meantime, the potential for a bear market will continue to loom in the coming year. Whether 2014 turns out to be the next stock bear market - or a rapid unfolding of the long-anticipated bond bear market - remains to be seen. But if 2014 is the next big one, expect the decline to ripple across the industry, as advisors who have rapidly grown their AUM businesses receive a stark reminder of the importance of profit margins to protect against the inevitable revenue declines that come from time to time, as many advisory firms are now so large that they cannot simply grow their way through a bear market with new clients!

Read More...

As financial planning slowly and steadily builds itself towards being an established profession, there has been an increasing focus on the importance of figuring out how to widen the scope of financial planning to reach more of the masses. Although notably, it seems that recent efforts to expand the reach of financial planning services is not purely altruistic; the reality is also that there are simply a lot more CFP certificants around than there used to be, making it increasingly appealing for advisors to seek out new audiences to grow their businesses, rather than compete in the same bloody red ocean of their competition.

Yet notwithstanding the growing desire to reach the masses, financial planners have struggled to extend their services. The promise of the web and the potential efficiencies of technology create the potential to bring down the cost of financial planning and make it more accessible to the masses, even as planners now find that they may soon be in competition with the technology itself seeking to deliver parts of those services directly to the public in the form of "robo-advisors."

However, the reality is that the real inhibitor to bringing financial planning to the masses is not about the use of technology to drive down the cost of delivering financial planning. The real challenge is how difficult it remains to get new clients in the first place, especially given that so many financial planning firms have relatively little cash flow available for broad-based marketing programs. The end result - the real challenge in bringing financial planning to the masses is not about the cost to deliver it, but the incredibly high cost necessary to get those clients in the first place! When we figure out how to bring down the cost to acquire clients, we will figure out how to truly bring financial planning to the masses.

Read More...

In recent months, the CFP Board has been buffeted by criticism of its current compensation disclosure rules - built upon a series of definitions that the CFP Board insists have not been changed since the Practice Standards were approved after a public comment process more than 5 years ago, yet appear to be impacting so many advisors that it's difficult to understand how the current way the CFP Board is interpreting its rules is anything but a change from how things once were.

The key point of dispute appears to revolve around the CFP Board's use of its so-called "3 buckets" approach to determining the types of compensation an advisor receives, which looks at what clients pay to the advisor, to related parties, and how the advisor themselves generate income from their employment and ownership interests. In the process, the definition of what constitutes "compensation" has stretched so far that advisors can now be disciplined for failing to disclose types of compensation that don't actually exist because no client has ever actually paid it to anyone, ever!

Accordingly, it's time for the CFP Board to "clarify" its 3 buckets approach to recognize that the fundamental starting point for all types of compensation disclosure should always be what clients actually pay in the first place. The fact that no client has ever actually paid a commission to anyone, ever, should always be a valid defense for an advisor to claim that they are fee-only (and the same should apply to commission-only advisors whose clients have never paid fees, and who are equally in "violation" of the CFP Board's current rules). By fixing its confused and problematic rule, the CFP Board can start to move past its recent compensation disclosure debacles and move the definitions in line with a clear and logical rule that consumers can actually understand, and eliminate the absurd requirement for advisors to disclose (and potentially be punished for failing to disclose) client compensation that doesn't actually exist!

Read More...

The past several years have been a bit of a rollercoaster for potential changes to the regulatory landscape for advisors. In the aftermath of the financial crisis, there was discussion of imposing a fiduciary duty on financial advisors as a part of the Dodd-Frank legislation, though it was ultimately scaled back to just a study on the issue under Section 913. Given that the study confirmed there was widespread confusion on the issue of standards for advisors, the Dodd-Frank legislation also authorized the SEC to promulgate new rules to lift the standard for advisors to one "no less stringent" than the Investment Advisers Act, though at this point it remains to be seen whether such a "uniform fiduciary standard" will ultimately be issued, the terms of its standards, and what organization will be responsible for it, especially given the Registered Investment Adviser industry's opposition to FINRA as a potential regulator.

In this context, the recent release of FINRA's "Report on Conflicts of Interest" is all the more striking, as discussed in today's guest post by regulatory lobbyist and expert Duane Thompson. In its report, FINRA takes a surprisingly candid look at the conflicts of interest rife within the brokerage industry, suggesting many times that brokers may need to adjust their compliance processes and procedures to fit a standard more consistent with the best interests of the customers.

What's notable about this FINRA report is not merely the details of the conflict of interest discussion itself - for which Thompson provides an excellent summary - but the fact that in writing it, we may be witnessing an historic shift in FINRA's positioning on the issue. After all, if the reality is that a fiduciary standard is inevitable, FINRA risks being made irrelevant altogether if it can't demonstrate that it is capable of regulating financial advisors in a future fiduciary world. Accordingly, while the Report on Conflicts of Interest never actually uses the word "fiduciary" even once, it seems clear that FINRA is beginning to take steps to lift the standards for brokers, likely in no small part to help demonstrate that it is capable of regulating a clients'-interests-first fiduciary standard for advice, as FINRA tries once again to position itself as a future regulator of all financial advisors, albeit under what would be a higher uniform standard than what exists today.

Read More...

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.

Read More...

In recent months, the CFP Board has faced some high-profile cases that have tested its definitions of what it means to be a "fee only" advisor. First there was the incident with Alan Goldfarb, and more recently (though dating back to an earlier incident) a lawsuit filed by Jeffrey and Kimberly Camarda. In both cases, the incidents revolved around situations where advisors were providing services on a "fee-only" basis to clients, but also separately held a financial interest in a broker-dealer and/or an insurance agency that at least "could" potentially generate commissions. Although the CFP Board's current compensation disclosure requirements have actually been in effect since 2008, the cases have highlighted the complex realities of how many financial advisors structure their businesses, and tested where the line should be drawn regarding what does and does not constitute "fee only" compensation.

While it's hard to fault the essence of what the CFP Board is trying to accomplish with its definitions - that advisors should only describe themselves as "fee only" if they truly, solely receive compensation from fees - a broad interpretation that compensation includes not only what is received but what the advisor or a related party are "entitled to receive" has arguably narrowed the interpretation of "fee only" beyond the point it was ever intended. In fact, the CFP Board's current rules appear so tight that they may actually invalidate as much as 5% of NAPFA's own membership.

At the core of the issue is the CFP Board's viewpoint that "commission" compensation should include not only what a client does pay, but what a client could pay to the advisor or a related party. As a result, a wide range of advisors whose clients truly have only ever paid a fee to anyone must declare themselves to be "commission and fee" for the sole reason that someday, somehow, a client could pay a commission to the advisor or a related party (due to a license the advisor holds, or other advisors under the same employment agreement), even if no client ever has, or is even intended to - a standard that's virtually impossible for any but a small subset of independent privately-owned RIAs to meet.

Instead, perhaps it's time for a simpler, more straightforward definition of fee-only compensation - that "fee only" be based not on what a client could pay, but what the client actually does pay. If the client really does pay a commission to an advisor or a related party, then the advisor should be required to describe themselves as "commission and fee" accordingly. But if the client really, truly does only pay fees to the advisor and pays no commissions at all to the advisor or any related party, the advisor is permitted to call themselves "fee only" instead. Or viewed more simply - unlike the CFP Board's current rules, advisors should always be able to rely on the fact that no client has ever actually paid a commission to the advisor or any related party as a defense to calling themselves "fee only," if that is in fact the case.

Read More...

After a sudden resignation last fall, Alan Goldfarb, the former Chair of the Board of Directors of the CFP Board, has been found to have violated the CFP Board's Rules of Conduct for failing to properly disclose his compensation, after he claimed on FPA's PlannerSearch that he was "fee-only" and later "salaried" when in reality a "related party" was eligible to receive commissions from Goldfarb's clients. As a result, the CFP Board's Ad Hoc Disciplinary and Ethics Commission that investigated the matter has issued a public Letter of Admonition for Goldfarb's conduct.

Yet the details of the case suggest that the matter was not as clear as the initially reported findings suggested; Goldfarb's ties to the "related" broker-dealer were through a parent accounting firm that owned both his RIA and the broker-dealer, and Goldfarb himself held only a small 1% equity interest in the firm and was otherwise not compensated. By contrast, even NAPFA guidelines dictate that less-than-2% interests are de minimis, yet the CFP Board declare that because of these related interests Goldfarb should not have labeled himself as "fee only" even though all of his clients in reality only ever did in fact pay him fees through his own RIA.

At a higher level, though, the real issue in the Goldfarb case is that such a strict interpretation of what does and doesn't constitute "fee only" could cause even many large and well-known RIAs to "fail" the test, and renders the definition of "salary" almost moot, and is a problematic reminder of how opaque the CFP Board's adjudication process can sometimes be due to its privacy obligations as a private entity. In addition, taking such an extreme position regarding "fee only" will arguably result in so many financial planners being classified as receiving both commissions and fees - regardless of whether the commissions constitute 0.1% or 99.9% of total compensation - as to render the disclosure relatively useless as a consumer protection. Furthermore, the Goldfarb result also leaves us unclear about where to draw the lines on what constitutes "trivial" or immaterial compensation conflicts, related parties, overlapping ownership of holding company subsidiaries, and complex real-world arrangements that could unwittingly render advisors on the wrong side of the line.

In the end, a strict interpretation of the Goldfarb conclusions about what constitutes "salary" and "fee only" could mean that thousands of current CFP certificants are not complying properly with the rules, and that many need to update their information immediately! But perhaps ultimately, the best outcome for this whole situation is to hope that it can serve as a catalyst for better clarification on the rules for compensation, and an improvement in the transparency of CFP Board's enforcement process to allow clearer *(and better?) precedents to be set for the future.

Read More...

Choosing advanced education as a financial advisor has become increasingly complex over the years, as the proliferation of designations has led not only to a confusion amongst consumers about which are credible and which are not, but has similarly led to uncertainty and frustration amongst advisors trying to identify which programs will add genuine knowledge and educational value and are worth pursuing.

In this guest post, retirement income professor and researcher Wade Pfau shares his perspective on three of the leading most prominent and rigorous retirement income designations - the Certified Retirement Counselor (CRC), the Retirement Income Certified Professional (RICP), and the Retirement Management Analyst (RMA) - as someone who has studied this body of knowledge extensively, and in fact has helped to design curriculum and teach content for several of the programs.

If you're trying to decide whether to pursue advanced education in the specialty of retirement income - and struggling to determine which designation in particular to choose - this should be helpful to you as a starting point for making a decision about which curriculum, program, and sponsoring organization is the best fit for you.Read More...