The CFP Board is removing a tool on its letsmakeaplan.org website that let visitors search for financial advisors by their compensation models.
Potential investors and prospects will no longer be able to find whether an advisor is a fee-only advisor, an advisor who operates under a commission model or a combination of both.
The move was quickly condemned by some observers who saw it as a step backward in terms of advisor transparency, a value the organization has traditionally espoused.
The board, which grants the coveted Certified Financial Planner's credential to advisors who undergo a lengthy education process and examination, has grappled with controversy in the past over disclosures about its advisors' disciplinary records and business models.
“After all the scrutiny that the CFP has received for incomplete and inaccurate information on their website, this feels like they are just giving up,” said Nicole Boyson, a professor of finance at Northeastern University. “Ideally, the CFP would perform a careful review of their website and include accurate information about fees charged. Instead, they are relying on the potential customers to do this work.”
In a letter to CFP professionals sent yesterday evening, the board asserted that the three compensation method categories in the search tool (commission-only, commission and fee and fee-only) were “broad enough” to describe the compensation categories that financial planners use, but were not specific enough to help clients understand the advisors’ business.
“We believe the best way for consumers to select their financial advisor is to have a conversation with the prospective advisor,” the letter read.
The board also updated the “Questions to Ask Your Financial Advisor” section on the letsmakeaplan.org site to make them more easily accessible. The site is used by potential consumers to search for CFP professionals in a variety of categories.
The CFP Board and its website came under scrutiny after a July 2018 Wall Street Journal investigation found that thousands of CFPs did not disclose disciplinary, customer or regulatory incidents on their record to the board, information that was therefore absent from planners’ profiles on the CFP site.
In response, the board created a task force, pledging to better cross-reference the advisors’ data with FINRA BrokerCheck and the SEC IAPD database profiles.
In an interview with WealthManagement.com earlier this year, new CFP Board Chair Jack Brod pledged that the board would review and amend many of its governance policies by the end of 2020 upon recommendations made by the task force, which released its report in November.
The CFP Board released updates to its Code of Ethics and Standards of Conduct, which included a fiduciary mandate financial planners should adhere to when providing financial advice to clients (the new standards were passed last October, with June 30 being the first compliance date).
Don Trone, the CEO and co-founder of 3Ethos, a fiduciary consultant, questioned how the new announcement worked in relation to the board’s fiduciary standard.
“Fiduciary is based on transparency,” he said. “Here you have on one hand, the CFP Board coming out with their fiduciary standard, and yet they come out with this letter that takes away some of the transparency.”
Knut Rostad, the director of the Institute for the Fiduciary Standard, argued that removing the search tool for compensation removes a (mostly) reliable objective criterion and would make it more difficult for consumers to identify whether an advisor is fee-only.
“The small minority of fee-only CFPs is thrown together with dually-registered, who both use fees and commissions,” he said. “I haven’t heard their explanation, but one logical conclusion might be that the CFP Board thinks it doesn’t matter whether a CFP only gets fees or gets fees plus commissions.”
Tim Welsh, the president of Nexus Strategy, said the change was the sign of a “lack of leadership” at the CFP Board, and that the move should concern the approximately 30,000 CFPs in independent RIAs.
“The CFP is the gold standard for financial advice and advisors. That implies in their own code of ethics to put their client interests first,” he said. “I think they also have a broad set of designees that span every model from wirehouse, bank, to independent RIA, so I think this is a way to appease the other 50,000 CFPs in the sales model.”
In a statement, the CFP Board noted that the Board of Directors had voted to remove the compensation method search tool from the site in June 2019, and asserted that only 7% of searches on the "Find Tool" requested information about how planners are compensated. The board argued that the board had always been compensation and business-model neutral, and asserted that with its new conduct standards, "the appropriate 'F' word is 'fiduciary,' not 'fees.'"
"Make no mistake: consumers have a right to know how they are paying for products and services, and how a CFP® professional (and a CFP® professional’s firm) is being compensated. A misrepresentation of compensation method violates CFP Board’s Code of Ethics and Standards of Conduct and merits enforcement action in appropriate circumstances," the statement from the Board read. "In CFP Board’s new Code of Ethics and Standards of Conduct, CFP® professionals are required to describe to clients how they are compensated before or at the time of engagement."
In the letter, the CFP Board wrote that planners participating in the “Find” search tool on the site who had previously reported a compensation method type would continue to find that information in the public profile section on their account. The letter said the information would be moved to a separate section of their accounts at a later date.
Previously the CFP Board had pursued sanctions against financial planners with a CFP certification whom the Board deemed had inaccurately referred to their practice as “fee-only.”
In 2013, two Florida-based advisors filed sued against the board after they were sanctioned for calling themselves fee-only advisors; the CFP Board eventually persevered in that case in the U.S. Court of Appeals in October 2016.
