Why I Feel Torn Over the CFP Board's Treatment of Goldfarb

Armed with these two definitions, the Release then concluded that the “CFP Board’s definitions of ‘compensation’ and ‘fee- only’ prohibit a CFP® professional from referring to his or her practice as “fee-only” if any of the compensation received by the CFP® professional and any related-party, such as the CFP® professional’s employer, is comprised of compensation other than the types of fees identified in CFP Board’s definition of ‘fee-only.’” In the Goldfarb case, because the RIA he worked for and its affiliated BD “were entitled to receive compensation such as commissions and 12b-1 fees… …the Ad Hoc Commission determined that Mr. Goldfarb misrepresented his compensation model as ‘fee-only’.”

As I said, it’s an impressively well-reasoned and well-supported ruling. On its face, it appears that Goldfarb was in fact in violation of the Board’s definition of “fee-only.” Yet, the case against Goldfarb essentially rests upon the ability of a “related party” to charge commissions. This is a very expansive definition of “fee-only.” In fact, it’s beyond even NAPFA’s definition, which limits ownership “interest in a financial services industry firm that receives transaction based [commissions]” to not more than 2%. 

In the bigger picture, I’m very encouraged by the Board’s narrow interpretation of “fee-only.” I have for a long time believed that “fee-only” advisors and their firms should have to be completely independent of commission-charging and/or product-generating affiliates, in order to truly “mitigate” all the potential conflicts of interest involved. At the same time, it still seems to me that the Goldfarb case was a bit of an over reaction by the Board. He described his compensation as “fee-only” in one instance, where the online form’s options were limited to one of: fee-only, salary, commission, or fee and commission. He chose what he felt was the most accurate, and then changed it to “salary” after refection (which the Board also ruled as not accurate because the clients “paid commissions and/or fees”). And he provided full disclosure of his firm’s circumstances to all clients and prospective clients. Public resignation and admonition were probably overkill. 

Again, I applaud the Board’s overall interpretation, but in this case, due to circumstances and limited scope of the infraction, the novelty of the Board’s definition of “fee-only,” and Mr. Goldfarb’s clear intention of trying to do the right thing, one can’t help but feel that perhaps more leniency was warranted.