As a follow up to my June 12 blog (“The Curious Case of Alan Goldfarb and Why All Advisors Should Care”), on June 18 the CFP Board issued a newsrelease announcing its recent censures of “Improper CFP Professional Conduct” including its actions against former CFP Board Chairman Alan Goldfarb. I have to admit to now finding myself torn on the Goldfarb case: While I am in agreement with Ron Rhoades (who posted an excellent, well-reasoned comment to last week’s blog) that Alan Goldfarb has been unduly reprimanded, I’m also encouraged by the Board’s approach to the use of the term “fee-only.”
Let me state right up front that I’m more than impressed with the Board’s explanations of its actions in this release. I guess it’s been a while since I looked at its disciplinary activity, but the detail of the circumstances and the reasoning behind each ruling does indeed provide practical guidelines for all CFPs—and valuable additions to the Board’s ethical standards themselves.
As you might expect, the best example in this release is the explanation of the Board’s thinking in the Goldfarb case. As an employee and a part owner of an RIA, and an employee and part owner of an affiliated broker-dealer, Goldfarb had listed his compensation as “fee-only” and “salary,” on the FPA advisor-search website. However, the Board’s Ad Hoc Disciplinary and Ethics Commission “issued a Letter of Admonition to Mr. Goldfarb” after determining that he “misrepresented his compensation, first as ‘fee-only’ and later as ‘salary,’ on an online financial planner database.”
To reach its ruling, the Board combined two definitions from the Terminology Section of its Standards of Professional Conduct. First, there’s the question of what is a “fee only” advisor: “A CFP® professional may describe ‘his or her practice as ‘fee-only’ if, and only if, all of the CFP® professional’s compensation from all of his or her client work comes exclusively [emphasis added] from the clients in the form of fixed, flat, hourly, percentage or performance-based fees.”
This definition is fine as far as it goes, but it leaves unanswered the question of what, exactly, constitutes “compensation.” Here’s what the Standards say: “…compensation is ‘any non-trivial economic benefit’ that a “[CFP® professional] or related-party receives or is entitled to receive for providing professional activities.”