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Financial Planning > Charitable Giving

Clark at Large: The Riddle of the CFP Board

By Bob Clark, Bob Clark

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With Thanksgiving past and the new year approaching as I write this, it’s a perfect time to kick back and contemplate the year that was 2009, and few places in the world are better for such musings than Santa Fe. Perhaps it’s the solitude of the setting, or maybe it was the two interviews I had earlier today, but as I stare at the snow-capped Sangre de Cristo mountains, it occurs to me that I’ve finally solved what my biographers might possibly call “The Riddle of the CFP Board.”

It might be likened to my personal Moby Dick, but since its formation in 1988, the CFP Board has been a puzzle to me. I’d see the brightest, most ethical financial planners get elected to the Board, and before you could say “CFP Lite” they’d start coming out with statements and initiatives that would leave me shaking my head in disbelief. A few examples that come immediately to mind are, of course, the great Harold Evensky and “CFP Lite,” Elaine Bedel (who I still believe is the poster girl for advisor integrity), Bob Goss arguing you’re a financial planner when you give advice but not when you implement that plan, and most recently, model planner and Board chair Marilyn Capelli Dimitroff patiently explaining to me that in the “real world” it’s in the public’s best interest for the Board to serve both advisors and sales folks. Honestly, you just can’t make this stuff up.

In pursuit of an answer to my quandary, over the years I’ve asked many people in the industry for their assessment, and been provided with theories ranging from a fear of losing the trademark on the CFP, to the Board’s status as a 501(c)(3) corporation which avoided setting up state boards, to the heavy hand of Bob Goss, who was viewed either as the Messiah or the Dark Lord. Yet none of these seemed sufficient to explain the massive groupthink that seems to occur shortly after absorption into the Borg, ah, I mean, Board.

In fact, it wasn’t until a few minutes ago that the answer dawned on me. In case you missed my past writings on the subject, and that of many others, the Board, through its somewhat surprising dominance of the recently formed Financial Planning Coalition (which also includes the FPA and NAPFA), has taken the raging battle over a fiduciary standard for all advisors as an opportunity to push for becoming the regulator of all financial planners.

The CFP Board’s Goal?

On its face, this is just one more quirky initiative by a seemingly out-of-touch Board, to be sure. Yet, the timing is obviously no coincidence: With financial advisory regulation up for grabs for the first time in 70 years, now is certainly the time to throw the Board’s hat into the regulation ring. But why would the Board (and the FP Coalition) think that anyone in this fight would care a whit about “financial planners” when they are mentioned not at all in the Obama Administration’s releases or draft legislation? Why would anyone think that the Board (or its proxy) with a few thousand CFPs loosely under its belt could compete with FINRA and its $1 billion budget and 700,000+ registered reps to become the single regulator of all financial advisors? And why in the world would you think that this was more important to financial consumers than a fiduciary standard that would truly put their financial advisor on their side of the table?

Then it hit me: Suppose you didn’t see the world from this perspective? Suppose, due to a few too many tabs of window pane in the ’60s or because your trademark only covered the CFP mark and the six-step financial planning process (or a combination of the two), you had concluded that the single most important factor for a consumer’s financial well-being is that any advice they get be the result of the six-step financial planning process?

That is, it’s more important than how the advisor is compensated, whom they work for, limitations on the “products” they can recommend, whether you’re always a financial planner (even for the same client), or even the actual definition of the fiduciary duty. Once you determine that your goal is to spread the use of the financial planning process, you might be pretty darn flexible about virtually everything else.

One Little Problem

There is, of course, one problem with all this self-aggrandizement: The world has changed, and apparently the only two groups that haven’t figured this out yet are the CFP Board and SIFMA. Recently, Knut Rostad and his Committee for the Fiduciary Standard teamed up with SEI Advisor Network to poll some 890 RIAs and registered reps about their feelings regarding the pending fiduciary standard. Their findings might surprise you: It seems that 75% of brokers and 83% of advisors “believe all professionals giving financial or investment advice should be required to put the client’s best interest first at all times.”

Got that, right? Financial OR investment advice, at ALL TIMES. What’s more, a majority of brokers also agreed that clients should not be allowed to wave the fiduciary duty, the standard should not be modified to fit selling activities, nor should they be able to revert back to the suitability standard when recommending investment products. If only more brokers were on the CFP Board.

What in the world is going on? It seems the folks on the front lines closest to the clients are seeing a trend that hasn’t trickled up to either the SIFMA firms or the CFP Board. It’s the same trend that led Wall Street firms to offer fee-based managed asset products since 1999, and brokers to start breaking away in droves at least since then. Financial consumers are finally getting it–independent advice, fee compensation, and now, a fiduciary duty.

The message that brokers in the Coalition survey are sending to SIFMA and FINRA is clear: Don’t water down the fiduciary standards for brokers, it’s hard enough for us to compete as it is. Add in the breakaway broker trend, and the picture that emerges is that of a brokerage industry on the wane, and a independent advisor profession on the rise.

What does that bode for the CFP Board? Not well, I suspect. Financial consumers today get the fee thing, they get independence, and they’ll soon get the fiduciary duty, when SIFMA publicly succeeds in watering down a broker’s duty to suitability, again. That all starts to add up to a profession; a profession of financial advice. Unfortunately, in its zeal to make the scope of financial planning as broad as possible, the CFP Board has been way too flexible on the other elements that make up a profession: conflict-free compensation, working directly for and only for the client, unlimited product lines, and a broad and unambiguous fiduciary duty to the clients, in all cases, and at all times.

But instead of creating a badly needed financial planning profession (which ironically would have positioned it as the single regulator), the Board focused on the planning process, which at best is a tool that advisors use, and while right for many clients, certainly isn’t helpful for all clients. But it’s a far cry from a profession. (The Board recently acknowledged as much when recently asked to define “financial planning” a representative responded that it would include “anyone who uses two or more of the six steps.” Which, of course, would include virtually every broker, agent, and CPA in the country, expanding its purview from 60,000 CFPs to roughly 1.5 million advisors. Now, that’s chutzpah!)

So with the CFP Board marginalized by its focus on process rather than profession, who will step up to create the much needed, much demanded profession of financial advisors? NAPFA has been banging the profession drum for years now–compensation, training, independence, and a fiduciary duty–without gaining much traction in the independent advisory world. And the FPA seemed positioned to champion a profession with its victory over the SEC in the suit over the Merrill Lynch Rule, and jettisoning its broker/dealer division for divergent agendas. At least until it and NAPFA seemed to get hijacked by the CFP Board’s assuming control of the Financial Planning Coalition.

In the light of my warm fire on this cold night, I see a merger between the FPA and NAPFA–with NAPFA providing the professional brains and the FPA the organizational muscle–to create a true profession. Call it financial planning or call it financial advice, just don’t fall into the trap of focusing on anything except what’s truly in the best interest of the clients.

Bob Clark, former editor of this magazine, surveys the advisory landscape from his home in Santa Fe, New Mexico. He can be reached at [email protected].

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