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Catching Dolphins in a Net Meant to Stop Sharks

Shark-briefcaseIntegrity. Trustworthiness. A commitment to clients’ best interests. These are all essential qualities for any advisor you entrust with your financial affairs.

One clue to financial planners’ trustworthiness is the certifications they hold. Designations such as CFP® (Certified Financial Planner) and Chartered Financial Consultant (ChFC) require adhering to certain professional standards and codes of ethics.

The organizations that maintain these standards safeguard the integrity of their professional designations and especially the well-being of consumers who seek out their members’ services. Yet sometimes, their well-intentioned attempts to protect consumers can backfire.

The CFP® Board recently adopted new rules meant to prevent financial planners from calling themselves “fee-only” while still receiving commissions by selling financial products through separate companies. Now, CFP®s and members of their families can no longer own an interest in financial service companies that earn commissions if they wish to brand themselves as “fee only.”

This would be good, except the Board has cast its net so wide that it is catching the dolphins along with the sharks. It defines “financial service company” too broadly, including real estate firms, mortgage companies, and property management companies. It also illogically focuses on what clients could pay and what the planner could receive, rather than what clients do pay and what the planner does receive.

I have a minority interest in and occasionally receive dividends from a real estate brokerage and a property management firm. While I do maintain a license as a real estate broker, I am not active in the business. Because I could potentially receive a commission for selling real estate and because I do receive dividends, I’ve been told by a representative of the CFP® Board that I can no longer call myself “fee only” and must advertise myself as a “fee and commission” financial planner.

This would dishonestly insinuate I sell mutual funds, life insurance, or annuities. “Fee-only,” which to consumers means I sell no financial products, is much more accurate.

I’ve received calls from other CFP®s affected in similar ways by the new rules. One is a young fee-only planner who does not sell any financial products or own a portion of any company that does. Yet he recently married a woman who owns a minority interest in her family’s property casualty insurance company. She holds an insurance license but does not work in the business. Because she, a “related party,” could legally receive commissions, her husband can no longer hold himself out as a “fee-only” CFP® and must list himself as a “fee and commission” planner.

If a financial planner’s clients pay only fees and do not purchase financial products like mutual funds, insurance, and annuities from a related company, the CFP® Board needs to designate the planner as “fee only.” The same applies to planners who maintain financial services licenses (as those in Illinois must if they give insurance advice) but do not receive commissions. The CFP® Board should not consider companies that offer services unrelated to financial planning, such as selling and managing real estate or originating mortgages, as financial services companies.

I understand and fully support the CFP® Board’s intent to stop those unethical advisors who were abusing the brand of “fee only.” Yet the Board’s rules in their present form will only devalue the CFP® designation.

It appears the only way I can continue to honestly advertise my practice as “fee-only” is to terminate as a CFP®. What’s most important for me is to be seen as a fiduciary planner, working with integrity in the best interest of my clients. I won’t dishonestly brand myself as a “fee and commission” planner to keep my CFP® designation.

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