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Financial Planning > Charitable Giving

Game On

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Now that’s what I’m talkin’ about! It seems that once the FPA got its engine firing on all cylinders, it went straight into high gear. My latest exuberance over the Financial Planning Association comes from a new task force it has formed to explore the regulation of financial planning. A small step, to be sure, but one that indicates the FPA is thinking big–much bigger than anyone else in the planning community these days.

The new task force was initiated by incoming FPA president Jim Barnash: “As it was my time to drive the bus for FPA, I felt that if we’re going to be more of an advocate in the public and political arena, we needed to be more proactive.” Now there’s a word that hasn’t been in the FPA’s vocabulary since, well, maybe ever.

To hear Barnash and FPA group director for advocacy Duane Thompson tell it, the task force is a followup to the suit the FPA filed against the Securities and Exchange Commission over the Merrill Lynch Rule. In its communications with the Commission, the FPA suggested a reassessment of how financial planners are regulated that would include looking at a number of alternatives, including a self-regulatory organization.

The FPA had already taken the step of commissioning an independent study of how planners are regulated, which was conducted by Cornell University law professor Jonathan Macey in 2002, and published in a white paper that is available on the FPA Web site. Barnash and others felt, however, that in the current regulatory environment in Washington, the FPA needed to develop its own position on the matter. “We need to think about what might happen,” Barnash says, “and what we should be prepared to do or suggest.”

The instincts of Barnash, Thompson, and the rest of the FPA board are right on. Regulatory reform is indeed in the air in Washington. The accountants and mutual fund companies have felt it, as have RIAs in the form of an ongoing series of beefed-up, even Draconian, compliance requirements. Moreover, anyone who offers advice to folks who have money in pension funds will be affected by the Department of Labor’s pending fiduciary duty requirements. Are financial planners next?

The current situation under which financial planners are regulated by the SEC, the NASD, the CFP Board, state insurance and securities regulators, and now possibly DOL, was created by other people. With any luck, having planners involved in the new regs will simplify this mess.

The big question is how much muscle the FPA can bring to the fight once the bout begins in earnest. With virtually everybody in retail financial services these days trying to look as much like a financial planner as possible, Thompson, Neil Simon, and their Washington FPA colleagues have to be feeling a little like a prom queen in a biker bar: protecting their virtue from the big boys–the powerful lobbies of the brokerage firms, insurance companies, and banks–may prove to be problematic. Any legislation or reg changes that clearly establish the differences (read: advantages) of financial planners versus other “advisors” in the financial services universe will be fought all the way. “We are definitely the underdog,” says Thompson.

Fortunately, the FPA won’t be going into this brawl unarmed. With unexpected wisdom, the Association has expanded its mission to include a responsibility not only for its members, but for the public as well. Big deal, I hear you say: The CFP Board has been “protecting the public” for years. True. But the Board seems to believe that it needs to protect the public from financial planners, dropping the “self” from a self-regulatory organization, and creating more of an us-versus-them mentality when dealing with CFPs.

In contrast, Barnash and the FPA have become advocates for financial planning, actively emphasizing that financial planners are good for the public. “We have a two fold responsibility,” says Barnash, “to our members and to the public. It’s not in the public’s best interest when they can’t see the difference between financial planners and other kinds of advisors.”

So far, the new position has been paying off, at least with the public. “The press has been giving us white-knight status,” Barnash says. “But we need more recognition by senators and congressmen.” Yes, they do, and former FPA Chairman Dave Yeske’s call for financially invigorating the FPA’s political action committee is a good first step. Moreover, coming down on the side of protecting the public is a powerful stick in Washington, particularly if your bona fides are well-established in the media.

Yet being the good guy doesn’t necessarily give one the upper hand in a town where the powerful financial services lobbies have been thwarting consumer-oriented reform for decades. To succeed in clearly separating professional financial planners from the rest, the FPA is going to have to bolster its case. Fortunately, it looks like there’s time to get their act together. According to Thompson, “An SRO would take an act of Congress. Major legislation such as this would have to go through two committees, and three or four sessions of Congress. My guess is that it could take six to 10 years.”

Of course, that’s barring an unforeseen crisis on the order of the accounting profession’s involvement in the Enron, Worldcom, and Global Crossing scandals. “Congress isn’t great at strategic planning,” says Thompson. “They tend to react to crises. And this could become a crisis that they’d react to.”

Assuming we do have some time before financial advice finds itself in the Washington spotlight, here are a few modest suggestion of how the FPA might increase its chances of playing David to the financial services industry’s Goliath:

  • Pump up the rhetoric. Becoming an advocate for protecting the public is a good start, but good advocates aren’t bashful. Can you say Johnny Cochrane? Financial services is a tough game, and if you’re going to visibly represent the public, you’re going to have to get in people’s faces from time to time. Take bold positions. Don’t shy away from being critical when it’s warranted.

    When accountants do something dumb like sell their credibility for consulting fees, call them on it. When mutual fund managers violate their investors’ trust by arbing their own funds, scream bloody murder. Take out ads in The Wall Street Journal. Give interviews on Dateline. Lord knows, planners recommended enough of those funds to be outraged. There’s plenty going on in the financial world these days to be outraged about. To protect the public, you have to stand up. That alone would separate financial planners from the other “advisors.”

  • Clarify what you stand for. The regulation task force may delineate the issues, but ultimately, the FPA will have to decide what its position is. Thompson says no decision has been made yet. “We really have three options: State licensing of financial planners; a federal SRO; or the status quo with the CFP Board. The SRO is only one thing to look at. It may turn out that the status quo is the best solution.”

    The FPA also needs to get clear about other pertinent issues. Is it behind the CFP as the only designation for professional planners, or are there other acceptable credentials? What exactly is meant by financial planning anyway? How about a fiduciary duty: Is that required of all planners? These are the issues that comprehensive regs or legislation will resolve. If the FPA isn’t explicit on what it’s advocating, it won’t be effective in influencing the outcome.

  • Build a coalition. One way to gain more critical mass against much larger opponents is to band together with other like-minded groups. The Consumer Federation of America, AARP, the AICPA, NAPFA, and of course, the CFP Board all have an interest in the coming regulatory changes. Working together toward a common goal could prove a lot more powerful than going it alone. Association with other consumer advocates couldn’t hurt the FPA’s branding in the clients’ corner, as well.

    Thompson told me that the FPA is not currently working on a coalition: “That would be putting the cart before the horse. We have worked with various groups, depending on the issue and what our interests are. In Washington, it’s kind of fluid as to who are your friends and your enemies.”

    I have no doubt that Mr. Thompson knows what he’s doing, but I’d respectfully suggest that starting sooner rather than later to hammer out a position that’s agreeable to a strong coalition of consumer-advocacy groups would be a prudent thing to do. Rather than just letting the chips fall where they may, it would be far more proactive to be sure you have the right folks on your side when the time comes.

  • Finally, work with the CFP Board to strengthen its position. Frankly, if the Board were more focused, I doubt the FPA would feel the need to be having this discussion. In addition to deciding whose side it’s on, the Board needs to answer the same questions that the FPA should be asking itself: Who and what are planners, and what are their duties? You’d think the Board would already have these answers, and they probably think they do. But if you look at its results, the Board seems to do more to cloud the differences between planners and other advisors than to clarify them.

Obviously, both the CFP Board and the FPA would be stronger if they could agree on positions about an SRO and other planner regulation. With a bold new leader in Sarah Teslik at the Board, this seems the perfect time to help the Board get its ducks in a row, too.

The good news is that financial planning has been working toward this moment at least since I started with the IAFP 20 years ago. Then executive director Herky Harris (the former assistant director of the Office of Budget and Management under President Carter) was plotting his return to Washington as head of the SRO for financial planners. It didn’t work out for Harris. But through all those years, the formation of the CFP Board, the rise of NAPFA, the merger into the FPA, and its recent jettisoning of its broker/dealer division, financial planning has been evolving toward a position to have a significant influence over its own future. That day may be here. My money is on the FPA.

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

[email protected].


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