Tags: CFP Board | fiduciaries | financial planning

CFP Board of Standards has been on a campaign to warn consumers about bogus advisors who get certifications that are largely marketing ploys. Yet the CFP Board’s own rules about when CFPs are required to act as fiduciaries—and only offer advice in the best interest of clients—exempt CFPs from a duty to act as fiduciaries in most client engagements.

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Even bolder, CFP Board on March 27 released a consumer guide in which it singled out the “Senior Certified Advisor” (SCA) designation and issued a warning to consumers: “The fact is that there are more than 170 known designations and certifications used by financial professionals,” CFP Board said in a statement. “Many of them are little more than marketing tools, with no real education needed —much less an exam—to ‘earn’ them.” (While there is no Senior Certified Advisor designation, incidentally, there is a Certified Senior Advisor designation.)
 

If CFP Board is serious about creating a licensing body that has credibility with consumers, it must first clarify its own rules, which essentially exempt CFPs from owing a fiduciary obligation in many—if not most—client engagements.

The CFP Board rule exempting CFP practitioners from acting as fiduciaries is spelled out in a video published on CFP Board’s website. The video, accessible by clicking on the picture below, is part of a series of multimedia presentations provided by CFP Board to guide practitioners in applying CFP Board’s Standards of Professional Conduct.

According to the CFP Board video, CFPs are required to act as fiduciaries only when they performing financial planning for a client. Financial planning is defined so narrowly, however, that most CFPs can easily avert owing a duty to act as a fiduciary to clients.

As the video on CFP Board’s website indicates, if a CFP is advising on a single subject area—like estate planning, college planning—a CFP is able to avoid owing a fiduciary obligation to a client. A CFP practitioner is, thus, allowed to sell clients products that pay commissions through a broker-dealer.
 

In contrast, a fiduciary cannot be paid on a commission basis. Commissions create an incentive to sell products, and to sell the products with the biggest commissions. So the CFP Board's rule provides CFPs with a huge out from always acting as fiduciaries.

Understandably, CFP Board cannot summarily decree that CFPs can no longer accept commissions. It would gut the business model of many, if not most, CFPs. It would also, arguably, not be in the best interest of consumers or advisors, but that's beside the point.

However, as CFP Board aligns itself with NAPFA and FPA in the Financial Planning Coalition, it is embracing a single fiduciary standard for registered reps and fee-only advisors. That position seems contradictory to CFP Board's own policy? 

If CFP Board wants to be a credible protector of financial consumers, can it embrace a position effectively exempting many of CFPs from owing clients a fiduciary duty by allowing them to sell products? It’s a difficult issue. Do you think CFP Board is doing the right thing? What's the better way?
 

Tags: broker-dealers

National Financial Partners Corp. (NYSE: NFP), an ambitious independent broker-dealer, today announced that it has entered into a definitive agreement with Madison Dearborn Partners, LLC, a private equity investment firm, to sell NFP for $1.3 billion in cash.

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Founded in 1999 and headed Jessica Bibliowicz, the daughter of former Citigroup chairman Sandy Weil, NFP ambitiously purchased 90 advisory firms within three years of being founded. It went public in 2003 and its stock topped $58 a share in 2006.

Shareholders will receive $25.35 a share, according to a press release, which slightly lower  than its initial public offering price 10 years ago. Advisors were paid for their equity in their firms with shares in NFP stock. Some advisors that sold their firms to NFP and that still hold the stock are likely to be happy to cash out but disappointed that the company never realized its potential.

Tags: competitors | custodians | Schwab

Charles Schwab’s gathered $43.4 billion in net new assets in the first quarter of 2013, a 9% annualized organic growth rate, and it opened 244,000 new brokerage accounts, up 2% year-over-year. But the growth rate in its advisory programs for retail investors, which compete with advisors, is much stronger.

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According to a Schwab news release, client assets enrolled in advisory solutions totaled $135.9 billion at month-end March, including $15.6 billion managed in our Windhaven portfolios, up 15% and 51%, respectively, from a year ago. How good is that? Darn good!
 

With the Standard & Poor’s 500 index showing a total return of 13.9% in the 12 months ended March 31, 2013 and bonds, as measured by the S&P/BGCantor 7-10 Year U.S. Treasury Bond Index (TR), returned 6%. So a broadly diversified portfolio gained about 9% in 2012. So the increase in assets of 15% in Schwab’s retail advisory solutions represented about a 6% net increase in assets over the total return on a diversified portfolio. This happened in a period when investors were still showing net redemptions from stock mutual funds.

Schwab’s Windhaven Portfolios saw an astounding 51% increase in assets compared with the 9% return on a broadly diversified portfolio. Windhaven, which has a $100,000 minimum and charges 0.95% AUM on accounts of $500,000 or less, offers investors a choice of three broadly diversified index exchange-traded funds (ETFs) and “dynamically adjusts portfolio allocations, striving to capture growth in rising markets while attempting to reduce exposure in declining ones.”

The financial advice business is comprised of fragmented professional groups that don’t know each other very well, which is making for an awkward coming together being foisted on them by market forces. For example, the large body of knowledge from the American College, which has its roots in the insurance business, is largely unexploited by Certified Public Accountants who hold the Personal Financial Specialist (CPA/PFS) designation, yet CPA/PFSs, CLUs, and ChFCs all advise on estate planning strategies. Certified Financial Planners have a body of professional knowledge distinct from Chartered Financial Analysts, yet they both make their living principally by charging for investment advice. All of these professional groups are converging but are not very good at talking to each other about it.
 

Point is, cross-pollination of ideas among financial advisor professional groups is mmore important than ever because the business and profession has just come through the financial crisis, which has enormous regulatory changes at a time of technology and communication unpheaval.

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While more knowledge-sharing across different segments of the financial advice profession would be beneficial to advisors and consumers, the different provinces of the financial advice business are fiefdoms. AICPA, CFP Board, IMCA, CFA Institute, American College each has its own governing body, staff and bureaucracy, and political dynamic. Each fiefdom would say it provides the best designation for consumers seeking financial advice, which arguably keeps them fragmented.

Sean Walters, CEO of Investment Management Consultants Association, sits atop one of the most strategically situated vantage points for observing the profession, and he’s talking about the challenges and crosscurrents he sees at an A4A webinar tomorrow at 4 ET. IMCA serves a diverse membership: 29% of its members are CFPs, 9% are CPAs, 5% are ChFCs, 2% are CFAs, 11% are CPWAs and 79% are CIMAs.

Walters says investors trust advisors less, but expect more. Meanwhile, government regulation is adding to the burden on RIAs and broker/dealers, as rules slowly coming down from the Dodd-Frank Act are being implemented. The competitive dynamic advisors face is shifting while the movement to make the financial advice business a profession is being reshaped. To understand what’s going on, join us for this session.