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.