As a rule, I don't respond in print to responses to my columns. I had my say, and anyone who takes exception to that (I know it's hard to imagine) can have theirs in a letter to the editor. That seems fair, and it's usually more than enough on any one subject, anyway. The only exceptions I can remember making in my days as an editor were to letters that were so egregiously misleading (I'm thinking back to the limited partnership days, or maybe an insurance company or two) that a clarification to readers was necessary.
I'm going to make an exception again in the case of my NAPFA column last month, but for a new reason: the e-mail response I've received from NAPFA members has been so overwhelmingly supportive and expansive on my theme that I now realize I got only half the story--most importantly, why NAPFA matters anyway.
The NAPFA response to my column comes from chair Jamie Milne, chair-elect Peggy Cabaniss, and CEO Ellen Turf in a letter to the editor (page 14). All three are good people whom I've known for years, and I don't for a minute doubt their sincerity or dedication to what's best for NAPFA. In fact, I'd be inclined to ignore their response as a typical bureaucratic response, except for a few points that came up again and again in e-mails from NAPFA members.
First, let's take a look at those pesky membership numbers. I refer you to the chart contained in NAPFA's letter which is the clearest illustration of the problem that I've yet seen. And as NAPFA members nearly unanimously pointed out to me, the issue goes beyond my befuddlement at not having gotten a straight answer on membership from NAPFA for years.
According to NAPFA's numbers, there are currently 1,264 members. That's consistent with figures I heard at the NAPFA National Conference. It appears to be the number NAPFA currently represents to journalists and others when they ask, as I did: How many members does NAPFA have?
Now, let's look at what's behind that figure. In their letter, Milne et al. say: "Let's make it clear, all individuals associated with NAPFA meet the Fee-Only definition, agree to be bound by the NAPFA Fiduciary Oath, and follow our standards and guidelines." I understand that NAPFA requires a letter from each of these "members" confirming their fee-only status. Yet, I have some difficulty understanding how students, academics, and financial services affiliates can be "fee-only."
Even more troubling, I'm told by NAPFA members who contacted me--and Ellen Turf confirmed it--that only the top two categories--NAPFA-Registered Financial Advisors and Provisional Members--are required to meet NAPFA's standard to offer comprehensive financial planning. That means 285 of these members, 22.5%, don't meet NAPFA's standards, and 26.7% (337) don't qualify as NAPFA advisors.
In fact, NAPFA members told me in e-mails (and Turf confirmed) that only NAPFA-Registered Financial Advisors and Provisional Members are allowed to call themselves NAPFA members, yet when asked, NAPFA itself will cite a membership number that includes all the rest. Is this misleading? I'll let you be the judge, but I will say that the vast majority of NAPFA members who e-mailed think so.
So what, I hear you say. If true, an association fudging its membership rolls to appear bigger is hardly news. Too true. Consider also that one NAPFA member e-mailed to say that you don't even have to have any clients to be a NAPFA-Registered Financial Advisor (that NAPFA would even send you a sample financial plan upon which to model your submission). Can it be that NAPFA is so caught up in a drive to increase membership that its leadership's standards and judgment have been eroded? It wouldn't be the first time, in the financial planning community.
Whatever the reason, the NAPFA membership numbers bother me because they come from NAPFA. Over many years, I've come to the conclusion that most NAPFA members--like me in my own way--have spent their careers battling the obfuscations, quibbling, and downright falsehoods the financial services industry uses to keep clients from understanding what's really going on with their finances.
In my view, anyway, NAPFA has been the bastion of integrity in financial advice: zealously standing for full disclosure and no-nonsense standards for what it means to be paid directly and solely by the client. While much of the advisory community has worked to blur that line beyond recognition, NAPFA has been uniquely clear. So to find out this same organization is playing a little fast and loose with its membership numbers, that it, too, has feet of clay, is disappointing to say the least. Not only to me, but to a large portion of NAPFA members, if my e-mails are to be believed.
The Opportunity for NAPFA
The bigger question, of course, is the one that most readers are undoubtedly asking: Why does NAPFA matter anyway? The answer came in another e-mail from a long-time NAPFA member who wrote: "Compliance for small firms, such as mine, is a real nightmare. I spend at least 10% of my time dealing with all of the recordkeeping. NAPFA and other financial planners must fight to continue to level the playing field in this area."
Let me explain. There is a fight brewing in Washington the likes of which the financial services world hasn't seen in this country for 60 years. The last time we had a sweeping overhaul of financial advice was in the 1930s, which led to establishment of the Securities and Exchange Commission in 1933 and the Registered Investment Adviser Act in 1940.
Today, everyone agrees financial services regulation is a mess: We have the SEC, the NASD, the Treasury Department, the Department of Labor, the AICPA, the CFP Board, and state insurance and securities divisions all looking over the shoulders of "financial advisors," with the lines between their purviews hopelessly blurred and intertwined. Finally, thanks to financial debacles dating back at least to the dot-com crash of 2000, massive change is in the wind.
But change, especially in Washington, is never certain to be good. In fact, with the aggregation of powerful lobbies in Washington--for banking, brokerage firms, insurance, unions, and the AARP--odds are that any changes will not benefit client-oriented advisors, or financial consumers themselves. Indeed, it's entirely possible that independent financial advice will be regulated or legislated out of existence altogether.
Make no mistake, whether you're paranoid or not, they are out to get you. Independent financial advice is no longer merely an annoyance to brokerages, banks, and insurance companies: for some years now it has become a threat. They are dying for a way to get their fingers in your pie, so to speak, or if that's not possible, put you out of business. Within this environment, when Congress feels that it has to do something to "help the consumer," there will be a lot of finger pointing about who the "bad guys" really are. "Unregulated" financial planners are an all-too-easy target.
Such a draconian change doesn't have to come overtly and in fact probably won't, as in a law that renders independent advisors illegal. It will be more subtle, as in a regulatory change that moves independent financial planners under the auspices of the NASD. Or it might be economic, as in raising the regulatory requirements so high as to make independent advice unprofitable. For instance, my SEC-watching friends tell me that soon the Commission will start requiring RIAs to pay for their own independent compliance audits, the same way public companies need independent financial audits. How much do you think that will cost?
What's going to protect financial planners from such an onslaught? In Washington, three things sway decisions: financial might, such as that wielded by brokerage firms, banks, and insurance companies; very large numbers, such as the seven million members of the AARP or the millions in organized labor; and public opinion--for instance, who isn't for protecting the environment or saving Social Security?
Obviously, financial planners aren't in the same financial ball game, or even the same league, as the big institutions. Your numbers aren't going to do it, either (despite one e-mailer who claimed that at its present rate of growth, NAPFA would soon dominate financial planning. It's true that at the current doubling of "membership" every five years, in 50 years, NAPFA would have 1 million members). In fact, one reason why NAPFA's focus on larger numbers is so troubling is because it's the wrong goal at a critical time--like trying to reach the moon by constructing a taller building. No, the 1,264 financial planners in NAPFA, or the 30,000 in the FPA, or the 48,000 CFPs, or even the total 150,000 or so financial planners of all stripes will never be enough to win the day in Washington.
That leaves public opinion. Once upon a time, NAPFA with fewer than 200 members changed the financial services world, by convincing the media and consumers that fees were a better way to pay for financial advice. Today, virtually all financial advisors are paid by "fees" of one kind or another.
Today, we need a similar principle-based "miracle" to convince the media, the public, and the folks in Washington that all financial advice should be required to be client-oriented, fiduciary responsible, fee-compensated, and independent. Who's going to make this happen? The CFP Board is too busy trying to figure out how to make all Merrill and Smith Barney reps CFPs. The FPA has stepped up its lobbying and PR, but its membership may be still too diverse to allow it to effectively make this fight.
Only NAPFA has a membership that stands for all these things today. So it's possible that only NAPFA can lead this fight. It's a fight that has to be won. To survive, independent financial planners have to stand up. I'm afraid NAPFA will have to do it.
Will NAPFA do it? Judging by the NAPFA braintrust's response to my prior column and the e-mails I've received, it doesn't look likely. Not if they've lost their focus on the big picture over a few hundred members. It's one thing to stand for "the public's right to receive unbiased assistance when making important financial decisions," but quite another to launch a campaign that will convince Washington. The future of financial planning hangs in the balance. That's why NAPFA matters.
Bob Clark, a former editor-in-chief of this magazine, sagely surveys the advisory landscape from his home in Santa Fe, New Mexico. He can be reached at firstname.lastname@example.org.