More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Yesterday, the National Association of Personal Financial Advisors (NAPFA) announced that effective Jan. 1, 2013, it will only accept CFPs for full membership in the fee-only organization. Those full members are known as NAPFA-Registered Financial Advisors; other levels of membership include provisional member and sustaining/retired member.
Here’s how the NAPFA press release explained the group’s move: “The NAPFA National Board recognized the need to support the emerging profession of financial planning by rallying around a singular professional designation in the same way the public trusts that those holding a CPA, MD, or JD are meeting education, training, and ethics requirements. NAPFA’s decision can be viewed as an important consumer issue in an environment where the public is bombarded by an alphabet soup of designations that only professionals can be expected to understand.”
Pardon me for scratching my head. Not normally at a loss for words, the only comment I can come up with is that it’s a curious move, at a curious time, for purportedly, a curious reason.
Let’s start with that curious reason. Alphabet soup? Really? Yes, I get that there are a lot of “advisor” designations out there—too many in virtually everyone’s view. My confusion, however, stems from the fact that at least since 2010, NAPFA only accepted planners with one of two designations as registered members: the CFP, and the AICPA’s Personal Financial Specialist (PFS). So it’s not like this latest pronouncement is any great leap forward in the quest for fewer financial designations.
Even more puzzling, it’s a big slap in the face of the only other (than NAPFA) organization in comprehensive financial advice with arguably higher standards than the CFP Board. Accountants not only have more stringent educational requirements, but more rigorous testing, and more importantly, higher ethical standards. For instance, the AICPA Code of Professional Conduct requires all CPAs including PFS designees to not only “put their clients’ and the public’s interests first,” but to have integrity (defined as “doing what is just and right”), objectivity (“the obligation to be impartial, intellectually honest, and free of conflicts of interest”), and independence (which precludes “relationships that may appear to impair a member’s objectivity…”).
The AICPA Code puts it this way: “Integrity requires that service and the public trust not be subordinated to personal gain and advantage. Objectivity and independence require that members be free from conflicts of interest in discharging professional responsibilities. Due care requires that services be provided with competence and diligence.”
Yes, I’m aware that despite these high standards, some 20 years ago the AICPA was persuaded by Herb Vest and then others to allow CPAs to become FINRA-licensed brokers, despite the conflict of interest that created between their clients and the BDs they were registered to represent. Unfortunately, as we’re all aware, the CFP Board is no better on that front, and is, if anything, even more conflicted: the majority of CFPs also hold securities licenses.
More to the point, the CFP Board—and consequently, many CFPs—is also more in conflict with NAPFA’s own code of ethics. Unlike NAPFA-registered advisors, CFPs aren’t required to be compensated directly and solely by their clients (through fees), nor to avoid or mitigate their conflicts of interest, nor required to act as a fiduciary at all times while engaged as a comprehensive financial planner, nor from charging commissions, nor from receiving referral fees, or being affiliated with a business that engages in the sale of financial products (any one of these offenses would get you bounced from NAPFA faster than a Kardashian sister can dump a new boyfriend).
Finally, yes, I get the need for a single financial advisory profession, with a single designation (and have written about just that many times over the years). The problem is that the CFP Board seems a lot less interested in creating such a profession than NAPFA does. By limiting its membership solely to holders of the CFP designation, NAPFA appears to be focusing more on the process of financial planning than on bona fide professional standards.
One can only hope that NAPFA is planning to use its influence as a co-member of the Financial Planning Coalition to move the Board in the direction of greater professionalism.