Social

Financial Planners’ Integrity Shown By Actions More Than Designations

CFP logoBefore you engage a financial planner, you want to be sure that person has the skills and integrity to represent your best interests. For years I’ve recommended using fee-only planners who hold the Certified Financial Planner (CFP) designation.

I’ve held the CFP designation myself since 1983. I don’t sell financial products or receive commissions. I instead offer fee-only services in a fiduciary relationship with clients that requires putting their interests first.

Yet for the past 15 months, I have been battling with the CFP Board of Standards over my right to describe my practice as “fee-only.”

According to a policy adopted by the CFP Board several years ago, CFP’s cannot call themselves “fee-only” if they or a “related party” receive any “non-trivial economic benefit” from a financial services company. I assumed this didn’t apply to me until I discovered last year that the Board considered real estate firms to be financial services companies.

At the time I held a 50% ownership in a family real estate brokerage firm. I wasn’t actively involved in managing the firm and had not sold real estate or received commissions from such sales for a decade. I did receive a $150 monthly salary from the firm and had been paid one dividend in 20 years.

I notified the CFP Board that I could be in violation of their policy. I inquired into their definitions of “non-trivial economic benefit” and “related party.” I asked whether an irrevocable trust or a relative could own the real estate company if I resigned all my positions with it.

For the next 10 months I attempted to get the answers to these two questions. I encountered nothing but confusion, contradictions, and broken promises. It slowly became apparent the CFP Board was as unclear about the application of their policy as I was. Yet I was aware that they could begin an action against me at any time.

I was reluctant to take the drastic step of giving up the CFP designation I had long taken pride in. But I was unwilling to describe myself, inaccurately, as a “fee and commission” planner.

In an attempt to address the Board’s concerns, I halted my $150 salary from the real estate firm, began the transfer of ownership of the firm to my wife’s trust, resigned all my duties with the firm, and offered to cease referring clients to the real estate firm.

After many frustrating phone calls, considerable media attention, and a “cease-and-desist” letter, the CFP Board and I eventually came to a solution.

The Board agreed the actions I had taken would satisfy them that the real estate company is no longer a “related party.” I can keep my CFP designation and continue to call myself a “fee-only” planner.

I’m glad about the outcome. Yet this experience has left me disillusioned. The CFP website states that CFP professionals are required “to put your interests ahead of their own at all times and to provide their financial planning services as a “fiduciary”. . .” Yet the CFP Board continues to allow CFP’s to sell financial products on commission, as long as no “financial planning” is part of that specific transaction.

This results in confusion for clients, a high potential for conflict of interest, and a muddying of the ethical standards that the CFP designation is supposed to represent.

Would I still recommend, to find a fiduciary financial planner, that you look for the CFP designation? Probably, but only as a starting point. Before you assume any advisors represent your best interests, look beyond their designations. What matters more is the integrity demonstrated by their actions.

Share Button
Print Friendly, PDF & Email

, ,

3 Responses to Financial Planners’ Integrity Shown By Actions More Than Designations

  1. jerry December 1, 2014 at 9:50 am #

    Congrats on lengthy resolution with CFP Board.

    The Board has created a ‘slippery-slop’ as clear as mud for clients.

  2. Rick Kagawa December 1, 2014 at 10:14 am #

    Very good to hear that you have the solution with the CFPr Board. Your CFPr was important to you by how hard you worked to maintain the mark. The CFPr board has a strange sense of what a “unrelated party” means.

    As you know, I am fee based financial planner. It is good of you to say that the integrity is not compensation based. Fiduciary standard is the same no matter how you get paid.

  3. Dick Wagner December 1, 2014 at 11:38 am #

    Rick,

    Congratulations on achieving a satisfactory result. I have a pretty good idea how hard you worked to make it so.

    Thanks for hanging in there. Hopefully, CFP Board has learned something from all this as well. Aalthough it probably isn’t very happy with its visibility overall, this is the kind of decision from which it can build.

    Dick