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A Level Playing Field

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“A financial advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a Fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how the financial advisor is to be compensated and any corresponding conflicts of interest.”

Amid the STURM und drang surrounding the broker/dealer exemption rule and the Financial Planning Association’s successful suit against the SEC over said “Merrill” rule, and the dueling e-mails and town hall shout-outs regarding the CFP Board’s precise wording over the fiduciary standard for its certificants, the still point has been NAPFA.

The National Association of Personal Financial Advisors is the advisor group that defines the term fiduciary in the above words, but more than a formality, the fiduciary standard has always been a hallmark of the fee-only group. So now that the FPA can declare victory in its David-versus-Goliath contest and the CFP Board seems to be playing along in upholding a fiduciary standard for certificants in its most recent draft revision to its code of ethics, are they signs that NAPFA’s mustard seed role in the profession is waning? No way, says Dick Bellmer, current chair of NAPFA and principal of Deerfield Financial in Indianapolis, who states that the group is in “as good a position as we’ve ever been.”

Bellmer, whose term ends August 31, spoke with IA Editor-in-Chief Jamie Green on the eve of NAPFA’s national conference, during which the group announced the launch of its second annual “Focus on Fiduciary” consumer education campaign that begins June 1 and will continue through the summer. The campaign will include a Web portal for information on fiduciary standards––radio and print public service announcements, and a lobbying effort in Washington. During the meeting, the NAPFA board elected Tom Orecchio, principal of Greenbaum and Orecchio in Old Tappan, New Jersey, as chairman. He spoke with IA following the national conference.

What’s the current status of NAPFA and its agenda going forward?

The agenda isn’t changed. We’re over 1,500 members and continuing to grow at a nice pace [following the interview, NAPFA provided the exact numbers--1,107 full-fledged NAPFA registered advisors and 1,618 total members and affiliates]. More and more people are looking at the fee-only model and are willing to jump through all the hoops and loops we make people go through. We’re going to keep our standards at a certain level–we’re not going to reduce them– and people are coming up to those standards.

We’re in as good a position as we’ve ever been. If you look at the national conference, the attendance is up significantly–60% more attendees–over the previous year.

The Focus on Fiduciary campaign is starting to build resonance not only among the members, but among the media who have been gracious enough to report on this whole Merrill Lynch rule issue and similar ones that work out best as far as the consumer is concerned, which is what it’s all about.

We did a small survey asking about the word fiduciary. It was amazing to us that people did understand what that word meant, when for so long we’ve heard that people had no idea what a fiduciary was. I will grant you that the survey was done with people who had visited the NAPFA Web site looking for information, so the sample could have been skewed, and I’m not sure that the average person on the street knows, but the more we let them know the difference between fiduciary and suitability standards, which are hugely different, the better they are.

As not only chair of NAPFA but as a practitioner, we’re not saying that anybody who doesn’t [keep to a fiduciary standard] is a crook, we’re just saying: Here’s full disclosure. Here’s the way we do it, here’s the way you do it. Here’s what we charge, here’s what you charge. The consumer is fully knowledgeable and can choose intelligently. That’s what’s really important, that everyone understand what a level playing field is.

Things seem to be heading in that direction–the judges in the Merrill case argued that it should be made pretty clear to everybody.

That is our stance. Everybody should know how the game is played, and if we all play by the same rules, then the consumer can decide whether he wants to play under this set of rules or that set of rules. Rather than saying, ‘Oh, I’m wearing this hat now, and wearing another hat five minutes later, but I haven’t told you which hat I’m wearing right now.’

From NAPFA’s standpoint, is it just a battle that’s been won, not the war?

Absolutely. We’ve just been through round one. The brokerage community has a lot of options, and I’m curious as to how they’ll choose, since all of them are difficult. But you know they have to react. They won’t say “Oh, we all need to be fiduciaries now.”

Do you think the court ruling and the SEC’s Rand study will open the door to Congress taking some legislative step to regulate the industry?

The problem with Congress right now is that they can’t agree on anything. And we’ll have the same situation for the next couple of years.

While you said NAPFA’s agenda isn’t changed, is there something specific you’ll be focusing on?

We did a study with Moss Adams that found that the membership is composed of four groups, all of which have very different needs. First is the solo practitioner or the new practitioner coming in–representing around 37% of the organization. Then you have the solo practitioner who’s been around for a while. Then you have a group called the emerging ensemble that has multiple owners but is still growing in terms of revenue and employees. Then you have the mature ensemble where they’ve gotten to the point where they have significant revenue and numbers of employees, and their big issues revolve around management and technology and how to run a business.

We are addressing those needs within the organization–like Basic Training for the small firm, and our Larger Firms Initiative, and NAPFA University, which addresses the six different modules of financial planning.

You know, at one point, NAPFA was considered way out, the mavericks, but now I think we represent the best of the industry.

Editor-In-Chief James J. Green can be reached at [email protected].


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