The Certified Financial Planner Board of Standards Inc. will review the information planners post on its website to ensure that they're using accurate compensation descriptions.
In an email on Wednesday to the nearly 70,000 CFP certificants, the organization said that it will compare the pay details in planners' profiles to information about their compensation available in regulatory filings and on firm websites.
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The review, set to begin in the next couple of weeks, is the CFP Board's latest response to controversy surrounding its compensation definitions. If the planners are found to be using a compensation label inappropriately, it will lead to a further review and potentially an investigation by the CFP Board enforcement arm.
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The board is also giving firms that receive commission income the option of blocking their financial advisers from identifying themselves as “fee-only” on the CFP Board website.
�(See also: Blogger Kitces stokes debate over CFP Board compensation definitions)
Last year, the board temporarily removed the “fee-only” description from the profiles of 8,000 planners on its website, after it found that some wirehouse representatives and others were claiming fee-only status instead of “commission and fee” under CFP Board rules.
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The board told those who had the “fee-only” description scrubbed to review the CFP Board rules and reset their definitions. About 3,500 CFP certificants reclaimed “fee only,” while about 1,000 changed to “fee and commission.”
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Now the board is going to make sure that planners are accurately representing themselves. Ray Ferrara, chairman of the CFP Board, likened the situation to a police officer issuing speeding citations. �
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“Maybe you got a warning ticket the first time,” Mr. Ferrara, president and chief executive of ProVise Management Group, said in an interview at InvestmentNews headquarters in New York on Wednesday. “But there won't be any warning the second time.”
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The organization should have been monitoring its site more closely, Mr. Ferrara said.
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“We could have done a better job,” he said. “Going forward, we are going to do a better job.”
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Harold Anderson, president of Parkshore Wealth Management and a CFP certificant, said that the CFP Board's move will help protect his fee-only status and different! iate himself from other advisers.
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“I'm in favor of what the CFP Board is doing because in any emerging business, you have to self-police,” Mr. Anderson said. “I want clarity for that designation, so that the public knows what fee-only is.”
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The CFP Board is mired in a lawsuit involving Jeffrey and Kimberly Camarda, Florida planners who are suing the organization over disciplinary action involving compensation description.
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A former CFP Board chairman, Alan Goldfarb, also was publicly admonished for inaccurately describing his compensation on a Financial Planning Association website. He disputes that he did anything wrong and resigned.
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The review of the CFP Board website will be done randomly using risk-based analysis, according to CFP Board officials. About half of CFP mark holders have a profile on the CFP Board's website. It's not clear how many of those entries will be scrutinized.
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“I promise you, it will not be an insignificant amount,” Mr. Ferrara said. “It will be meaningful.”
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The board is not setting out to punish certificants, according to CFP Board chief executive Kevin Keller.
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“Our goal is to help people be in compliance, not to catch them doing it wrong,” Mr. Keller said.�
The CFP Board's definition of “fee-only” has become a point of contention among CFP mark holders. Under CFP rules, an adviser can be called “fee-only” only if he or she receives compensation solely based on fees and does not take commissions and is not affiliated with a firm that does.
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The definition conflicts with a definition the National Association of Personal Financial Advisors uses for its membership. The organization, comprised exclusively of fee-only advisers, allows its members to own up to 2% of a firm that charges commissions.
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Mr. Ferrara acknowledged that many planners have criticized CFP compensation rules as too restrictive.
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“That's not an issue for us to resolve! ,” ! Mr. Ferrara said. “That's an issue for them to resolve. Our mission is to protect the public and to make sure there is clear and accurate disclosure.”
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Although it's not going to negotiate over its compensation rules, the CFP Board is talking to certificants about the issue.
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“The board is listening,” Mr. Ferrara said. “It doesn't mean the rules are the same forever and ever. [But] there's no discussion at the board table today about changing the rules.”
Some industry experts, such as Michael Kitces, director of research at Pinnacle Advisory Group, weighed in on the CFP Board's action on social media.
Doesn't fully resolve issues, but @CFPBoard taking some positive steps on enforcement of compensation disclosure. pic.twitter.com/zRezOXCsx2
— MichaelKitces (@MichaelKitces) May 21, 2014
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