How CFP Board’s New Directors Signal Major New Initiatives

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#OfficeHours with @MichaelKitces Video Transcript

Welcome, everyone! Welcome to Office Hours with Michael Kitces!

Today I want to talk about what I think was a under-appreciated announcement last month: the CFP Board has elected several new members to its board of directors as part of its annual process.

Now, this alone is not new. The CFP Board elects new members to its Board of Directors every year, and for most of our industry association groups – groups like FPA and NAPFA – there's really not that much focus on new board members. Selections may signal some internal shifts in the organizations, but, generally, it's comprised of members of the organization who are practitioners, and there aren't a lot of surprises.

The CFP Board, on the other hand, is a bit different. It's a larger organization with more diverse stakeholders – so breadth of board members actually matters more to balance perspective and stakeholders. They're not literally a representative government structure, but it's important to evaluate the diversity of CFP Board's Board of Directors, and what types of views are being represented at the highest level of leadership.

It's also notable because CFP Board's bylaws actually have an explicit requirement that at least two board members have to be public members who are not CFP certficants (and in fact, not part of the financial services industry at all). In theory, their role is to provide a consumer public's perspective on whether CFP Board is on a reasonable track or not in fulfilling its vision and mission. But from a practical perspective, these outside public members are often leaders of other organizations who can provide connections and strategic relationships to outside partners.

The Rising Role Of National Brand Advisory Firms [Time - 1:39]

In this context, the recent announcement for CFP Board's latest additions to Board of Directors are quite notable. The first interesting additions to the upcoming 2017 slate of board members are Doug King and Jack Brod.

For those of you who may not be familiar, Doug King is the CEO of Cetera Advisor Networks, which by rep count, is one of the 10 largest independent broker-dealers. Jack Brod is the head of the Financial Advisor Services Group at Vanguard that works with RIAs, and previously led Vanguard's Retail Advice Business (the predecessor to what we now know as the $40-billion digital advice platform called Vanguard Personal Advisor Services).

What's significant about these gentlemen is that they represent what I would call the "large firm financial planning" interest. They are both CFP certificants, but substantially different than virtually all the other CFP certificants on CFP Board's Board of Directors, who are almost all practitioners with independent advisory firms. These gentlemen are from large firms, and in executive leadership (rather than practitioner) roles.

In one regard, I think that's actually a good balance. A lot of CFP certificants are in large firms, and not just in the independent channels. They too should have some representation within the CFP Board's Board of Directors. But on the flipside, this says to me CFP Board is really taking the needs and demands of CFP certificants at large firms seriously.

I think the addition of Vanguard to the CFP Board is especially notable. This was historically an asset manager, and now Vanguard is represented on the Board of Directors of the CFP Board. As I've written in the past, I think we're seeing Vanguard in a transition right now, that will ultimately make them one of the greatest threats to independent advisors.

That's right. I actually said they're a threat. Not because they're a bad company. To the contrary, it's because they're a very good company with a great brand – organized as a mutual owned by its investors, and possessing no profit motive. In the past, they used their size, scale, and that lack of profit motive to create incredibly low-cost solutions for consumers and advisors (and there has been a lot of advisor adoption!). But more and more, they are an investment advisory firm, along with the retail divisions of Schwab, Fidelity, and increasingly TD Ameritrade as well.

In other words, suddenly Vanguard doesn't just make products for advisors – they compete with advisors! And if you doubted this shift of Vanguard from asset management into financial advice, the fact that they would put one of their principals up to the CFP Board's Board of Directors should be a pretty clear indication of their direction going forward (in case the hundreds of CFP certificants already working in their personal advisory services platform wasn't enough to persuade you!).

I think the good news of this transition is that in a few years, we're going to see firms like Vanguard become the backbone of the standard financial advisor entry-level career track. Just as in the accounting world, you join one of the big accounting firms, and you work there for a couple of years before deciding what to do with the rest of you career... I think we're going to see the same thing out of firms like Vanguard, Schwab, and Fidelity, where you go there to start your career track, and then decide later where/how to transition your career.

And I think CFP Board is recognizing this shift as well, with the addition of Vanguard to the Board of Directors. But that's a major shift, both for the CFP Board, and for Vanguard!

The Next Stage Of The CFP Board's Public Awareness Campaign? [Time - 4:50]

The next noteworthy additions to the CFP Board's Board of Directors are Susana Duarte de Suarez, who runs a global communications firm called Media Moon Communications, and Dane Snowden, who is the Chief of Staff for the NCTA, which was the National Cable Telecommunications Association, and is now the Internet & Television Association.

Basically, these are folks in the business of media, PR, and communications. Kind of an interesting thing, since as you may recall, CFP Board takes about $10 million of our collective certification dues every year for a public awareness campaign, after they put through an 80% increase to do it back in 2011.

At the time, as many of you may recall, that was a really controversial decision to make such a large fee increase. I was actually very strongly in favor of the public awareness campaign, as the CFP marks really don't mean much until the public understands what they are. And it's the CFP Board's job to communicate that message. Historically, I think they relied too much on FPA, NAPFA, and other groups to beat the drum about the CFP marks. I think it was a good thing that the CFP Board took up the initiative for itself.

Furthermore, the most recent tracking data that we have says that the public awareness initiative is really working. There has been a material increase in public awareness of the CFP marks. The total brand awareness for CFP marks now, amongst the mass affluent, is actually approaching the CPA license, which is some amazing progress.

But then what do you make of an organization that's spending $10 million a year on a public awareness campaign, and then brings on to its Board of Directors a director of global communications firm and an executive at a media association? I think what we're going to see is a new stage of a public awareness campaign in the next year two.

That doesn't necessarily mean dues will be increasing or anything. And I know there's some distrust of the public awareness campaign. But I still think this is a good thing. It could just be coming up with new ideas and new directions on where to deploy that $10 plus million a year, especially given that the original public awareness campaign was really meant to target just a subset of mass affluent clientele. So maybe the CFP Board is going to broaden the message and expand their public awareness campaign, with their decision to specifically bring folks from the media industry into the Board of Directors?

Laying The Groundwork For Potential State Licensure Of Financial Planning? [Time - 7:14]

The last new addition we have to the CFP Board's Board of Directors, is Denise Voigt Crawford, who previously was the Texas State Securities Commissioner for 17 years, and also a former two-time president of the NASAA, the North American Securities Administrators Association (the membership group for state securities regulators).

So what does it mean when the CFP Board starts building a relationship with the former leadership of state securities regulators? I think what we're seeing is some of the groundwork getting set for a new advocacy initiative – specifically, to make a push for state regulation of financial planning professionals.

Notably, lobbying for financial planning isn't new. There was a lobbying effort for regulation of financial planning a couple of years ago, after the financial crisis. It was a push for federal regulation, and the Financial Planning Coalition was lobbying to get recognition of financial planning into Dodd-Frank Legislation. Unfortunately, all the Financial Planning Coalition actually got was Sections 913 and 914 of Dodd-Frank, which basically raised the question whether investment advisor exams should be increased, and ordered a study about whether consumers are confused about the overlap between investment advisors and brokers.

The conclusion of Dodd-Frank was RIAs definitely need to be examined more. And the RAND Study concluded that virtually no consumers have any idea that there's a difference between fiduciary investment advisors and brokers to a suitability standard. But now, five years later, there's barely any measurable movement on increasing advisor exams. And the RAND Study is basically dead. No movement for federal regulation of financial planning. The best we got was DoL fiduciary, which only came because the SEC wasn't acting and doing their own job!

So now, the questions that are now raised, if you still want to continue to moving forward the regulation of financial planning and becoming recognized for the financial planning services we provide (instead of just the products that we happen to implement) is... who should be allowed to hold themselves out as a financial planner, how do we limit those who aren't really financial planners from holding out as such, and what's the path forward for doing so? State regulation is a potential path.

The reality is that this will be a difficult path. No regulator likes to cede power. One of the primary challenges to getting federal regulation is that neither the SEC, nor FINRA, nor other regulators, want to let go of their oversight roles.

But that's why I think the potential for state regulation may actually be better than federal regulation. It's messier because we have to work across lots of states, and I don't know very many RIAs out there right now that enjoy the process of registering in new states every time you cross the de minimis limits on the number of clients in that state, but it is a path to regulation.

However, since regulators don't like ceding their power, then the only path, realistically, is that we have to work with state securities regulators. Perhaps to integrate financial planning advice under investment advice or as an extension of investment advice for state securities regulators. In that context, the CFP Board's Board of Directors adding Denise Voigt Crawford, a former State Securities Commissioner and former president of the North American Securities Administrators Association, makes sense.

I do want to be clear. I don't think this means the state regulation initiative is happening immediately or imminently. Most of us are still digesting the consequences of DoL fiduciary, which hasn't even hit yet! But I think you're seeing some of the groundwork be laid in place. Given that the push from the Financial Planning Collation for federal regulation of financial planning seems to be dead at this point, the fight for state regulation may be what looms next.

And I think it's important to note that ultimately, this can be a real positive for us as financial planners. I know that nobody likes more regulation, but recognize that the point of pushing for regulation of financial planning is not to add more layers of regulation – it's actually to subtract them! It's because the way we work right now, where you're regulated by which products you implement... so if I use insurance, I need an insurance license, and if I use securities, I need a securities license, and then if I give investment advice, I need an investment advisor's license... that's actually a horrible way to regulate financial planning. Our current framework sucks. The potential, at least, is that regulation that's actually built for financial planning advice could be better, simpler, leaner, and more relevant to what we actually do as financial advisors in the real world!

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So we'll see what really happens in the coming years, but I think we're about to see some major shifts coming from the CFP Board, from gearing up for large firms, to gearing up for the public awareness campaign to go to a new stage, and also gearing up for what could be a fight over the next 10 years around state regulation of financial planning.

In fact, I think the biggest caveat is simply whether all the CFP Board's stakeholders will be ready to come along. After all, the organization still has its own issues to address around its lack of transparency and lack of accountability (particularly around their process for changing what are known as the 4Es: education, exam, experience, and ethics requirements). And, the reality is, for regulators in particular to recognize and honor what the CFP Board has done, the CFP Board needs to operate more like a regulator itself, which has a public accountability process. Which means the CFP Board needs to actually make "public comments" open and public for everybody to see, and major changes of any of the 4Es should have to be initiated only with stakeholder input.

But nonetheless, progress moves inexorably forward, and I think we're going to see some potential shifts coming soon from the CFP Board as it positions for the coming decade.

So I hope that helps a little as food for thought in looking at the new slate of the CFP Board's Board of Directors. This is Office Hours, Michael Kitces, 1:00 p.m. East Coast Time on Tuesdays. Thanks for joining us today and have a great day, everyone.

So what do you think? Are the additions to the CFP Board's Board of Directors an indication of the coming rise of large firms? Are we about to experience the next stage of a public awareness campaign? Will state licensure be the path forward for financial planning regulation? Do you have any concerns about the new directors? Please share your thoughts in the comments below!