By Hal M. Bundrick
NEW YORK (MainStreet) ¿ How your financial advisor is paid shouldn't be a mystery. And if that advisor is a Certified Financial Planner, it won't be. At least, that's the goal set by the board of Certified Financial Planners as it works to define the compensation structure of the investment advisor industry ¿ and guide its membership to full fee disclosure.
Just over three weeks ago the board removed the "fee only" designation as a compensation method in its "Find a CFP Professional" search engine. The temporary move was made to allow certificants time to review the validity of their claim as a fee only advisor before reclaiming the compensation method. CFP certificants can choose from "Commission and Fee," "Commission Only," "Fee-only" or "Salary."
The backlash from brokers, registered representatives and insurance agents who cannot claim the "fee only" compensation method was swift and boisterous. After wrestling with the issue since, Kevin R. Keller, CEO of the CFP board of directors has issued a statement to its membership on the matter.
"We temporarily removed ¿ for two business days ¿ the "fee-only" compensation field from our "Find a CFP Professional" search tool and added a link in the search tool to our compensation definitions," Keller says in the statement. "We then communicated directly with the CFP professionals who previously selected "fee-only" and asked them to update their profile after reviewing our rules and definitions. We took this action to protect consumers from potential misinformation on our website."
According to the CFP compensation disclosure standards, a CFP professional may describe his or her practice as 'fee-only' "if and only if, all of the certificant's compensation from all of his or her client work comes exclusively from the clients in the form of fixed, flat, hourly, percentage or performance-based fees."
Keller says the CFP Board has devoted "significant effort" to providing certificants with guidance in understanding and complying with the compensation disclosure standards.
"We must remain committed to the goal of providing the public with clear and transparent information about how clients pay for the services they receive from CFP professionals," Keller says in the statement to CFPs. "I am sure you would agree that the public needs financial advice now more than ever and that lack of trust in the financial services industry is a huge barrier to the public seeking the advice they need. A significant factor in creating the mistrust is inadequate disclosure of potential incentives to provide conflicted advice."
Advisors holding the CFP certification must adhere to the CFP Board's Standards of Professional Conduct regarding fee disclosure. "CFP Board is business and compensation model neutral," Keller says. "We believe that CFP professionals can provide ethical services under any compensation arrangement. They just need to fully disclose those compensation arrangements to their clients in terms the client can easily understand. We believe that our definition of "fee-only" is a clear, common sense and plain-English explanation of this compensation method."
--Written by Hal M. Bundrick for MainStreet