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Rebels Without a Cause

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It’s always dangerous to ask a writer what he thinks about anything. You’re likely to hear something you don’t want to, for longer than you would have thought possible. That’s just what the board of the National Association of Personal Financial Advisors did a month or so ago, and I’m afraid I gave them an earful–in my tactful way, of course.

The NAPFA board made its mistake by inviting me to a brainstorming session on the future of its organization held in conjunction with the group’s national conference in May in Tampa. What the board asked of me and a few others was to offer some thoughts on the direction in which NAPFA might take its band of fee-only radicals. Bad move. For one thing, I’m a writer (see above). For another, I’m a big fan of NAPFA, have followed its ups and downs virtually since its inception in the early 1980s, and consequently have spent considerable time over the years pondering just this question. Uh-oh is right. What follows is a brief synopsis (thank God, I hear you say) of what I told them, in the hope that these humble thoughts might benefit the NAPFA membership as a whole, and perhaps even offer the financial planning community a better perspective of the role that NAPFA has played and can play in the future.

As I said, I’m a long-time fan of NAPFA. Every movement needs its radicals, to push the envelope and drag the mainstream into the future. Financial planning, defined as truly client-oriented financial advice, is in my view a movement, and NAPFA has been the movement’s radicals. Staunchly client-centered, it’s the only planning group to openly advocate a fiduciary duty to clients, compensation paid directly by clients, and continuing debate about what kinds of behavior constitute true client-oriented advice. Its crowning achievement came in the early ’90s, when, led by the then-chair of its PR committee, Ron Rog?, it managed to convince the financial press that fees really were a more-client oriented way to get paid for advice than commissions. It was an amazing achievement. With no budget, only a few hundred members, and no reason for anyone to listen, Rog? and his cohorts changed the way the public had been looking at financial advice for 100 years. The effects are still being felt today–the fee orientation on Wall Street, the fiduciary debate in Washington, and the virtual monopoly of financial planners as experts in the press.

But that doesn’t mean things have been all roses on Fee-Only Street. While its membership ranks are up, way up, you can rarely get a straight answer out of anyone at NAPFA about exactly how many members the group actually has, especially how many real, fee-only financial planners are members. You might think this would be a no-brainer, considering NAPFA is an organization of real, fee-only financial planners. But noooo. You see, NAPFA folks, particularly board members, have somewhat of an inferiority complex about the size of the organization. So they’re inclined to make it sound bigger than it is. Possibly toward this end, although I’m sure it has other good reasons, too, in recent years NAPFA has opened its doors to non-real-fee-only financial planners, including (as best I can tell) folks who are working on becoming fee-only financial planners, folks who are thinking about becoming fee-only financial planners, folks who once met a fee-only financial planner, and folks whose sisters-in-law think fee-only financial planning is a pretty neat idea. Altogether, NAPFA says it has around 1,200 “members,” which is dramatically up from the 250 or so a decade ago. Why, when you’re dealing with numbers this small, you would even bother to fudge, is a curious question upon which I won’t even begin to speculate.

More important, during the past 10 years or so, I’ve watched NAPFA flounder from one “cause” to another. In 1995, it was going to raise the level of competence in financial planning; then Mark Spangler led the charge for the ill-fated FO (fee-only) designation; during the Gary Schatsky years, the cause was a joint venture/merger with the AICPA that never happened. The current banner du jour is the NAPFA Registered Advisor mark. As you may know, none of these projects ever approached the kind of resonance the fee chord struck with other planners, let alone the public. The problem was that NAPFA had one issue–fee compensation–and when the group won that battle, its members literally became rebels without a cause.

Choice One: Merge With FPA

Which brings me to my suggestions. It seems to me that NAPFA really has two choices if it wants to regain any influence over the direction of the financial planning profession. First, and probably the better choice, though also the least palatable to its members, would be to merge into the Financial Planning Association. Clearly the time has passed for outside activism for fee-only compensation. The press gets it, the public gets it, Wall Street gets it, even most other advisors get it. As a profession, financial planning is slowly moving in that direction, but “slowly” is the operative word. Partly out of just plain pigheadedness, but mostly for economic considerations, many planners have resisted the transition to fees, even though it seems to me that the vast majority would like to be fee-only.

That’s why I believe the time has come for NAPFA to rejoin the mainstream planning community, and actively work to accelerate the transition to fees from within, both through programs to show other planners how to make the crossover, and by serving as examples, in a fee-only division of the FPA, of what constitutes the best in financial planning. What’s more, from this insider position, NAPFA could greatly advance the debate about what a truly client-oriented financial planner is, on a much larger stage, to a bigger audience.

Perhaps the best reason for NAPFA to merge with the FPA is that there has never been a more important time for financial planners to speak with one strong voice. The greatest threat to client-centered financial advice today is the re-regulation that is looming in Washington, D.C. I’ve never heard lawmakers, regulators, or lobbyists talking in such sweeping terms about rewriting the regulatory framework for financial advisory services. A real battle is looming. Moreover, there’s no guarantee that the good guys–the client-oriented advisors–are going to win, or even survive. So far, FPA has been carrying the banner in the early skirmishes: ejecting the broker/dealers, suing the SEC, forming a political action committee. FPA is fighting NAPFA’s fight, especially in challenging the brokerage exemption to the ’40 Act, and it’s time NAPFA got in it. The best way to do that would be as part of the FPA. As I try to tell my ultra-liberal, President Bush-hating friends, when they pause to take to breath: In war, there’s a time for dissent, and a time for unity. Believe me, financial planning is facing a war, and it’s truly time for unity.

Choice Two: Focus on Independence

It’s possible, even likely, that NAPFA will reject the merger-with-the-FPA idea. In that case, I modestly offered the Board an alternative: Adopt another “moral” cause that will resonate with the press and the public, and once again, force positive changes in the industry. I even suggested what one such cause might be–independent financial advice. With the battle over fee compensation won, the biggest issue in financial advice today is fiduciary duty to clients. The problem is that nobody understands the term “fiduciary” and it sounds too legalistic to be interesting anyway. I firmly believe that if the investing public understood that the people they turn to for financial advice–stockbrokers, insurance agents, most investment advisors–didn’t have a fiduciary duty to them, we’d have a mass revolt.

How do you communicate this in a way that will resonate with people, like fees did? My humble suggestion is to focus on independent advice, the only kind of advice that truly could hold the clients’ interests first. When I was a kid, I remember a TV ad campaign suggesting that we’d all be better off getting our insurance from independent agents, because they weren’t beholden to any particular insurance company and could therefore find the best insurance for each of us. Who could argue with that? Indeed, independent agents revolutionized the insurance industry, rendering captive sales forces a thing of the past.

People get the notion of independence; No need to explain. And who wouldn’t want independent financial advice? Today, we in the planning community think of independent advisors as people who are economically independent–paying their own expenses and overhead, especially for office space. I’m suggesting a much broader definition of independence: from an economic relationship of any kind with anyone or any firm, except the client. The actual definition would, of course, be up to NAPFA. After all, independent advice is really what NAPFA members have been talking about all along. But it’s a term that people will understand, and will help them sort out the choices they’re facing in financial services today.

The final thing I told the NAPFA board, whether the group chooses to stand with the FPA or wave a new banner, is that NAPFA needs to do a much better job of determining who the “enemy” is, and therefore, who its friends are. My biggest disappointment with NAPFA over the years has been its consistent inclination to alienate almost everyone who supports and agrees with its positions. By taking the zealot’s stance that if you don’t agree with me 100% about everything then you’re on the other side, NAPFA has managed to become isolated, parlaying the most popular position in financial services–fees–into a scant 1,200 members. That’s takes real genius.

There are many, many folks in financial planning who largely agree with NAPFA on client-centered advice, on the desire to be fee-only, on the benefits of being a fiduciary. Perhaps at one time, it was important to take a confrontational stance to get attention, to be sure the message was heard, to survive. But those days are long past. If NAPFA wants to change the world today, it will have to take less of an in-your-face attitude and adopt a more persuasive one. People mostly agree with you. Now you need to persuade those people that your way is the best way–from either inside or outside the tent.

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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