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Financial Planning > Behavioral Finance

NAPFA Bans Stakes in Commission-Based Firms

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Members of the National Association of Personal Financial Advisors have been notified that the association will no longer allow members to hold a 2% ownership interest in a financial services firm that receives transaction-based compensation.

Established in 1983, NAPFA is an association of fee-only financial advisors. Its more than 2,400 members renew a fiduciary oath annually, swearing to provide written disclosure to clients on an ongoing basis of any potential conflicts of interest which would compromise independent advice.

Members also swear to not receiving any compensation contingent on the sale of any financial products.

The decision to disallow ownership interests in firms that receive transaction-based compensation was approved by NAPFA’s national board of directors and is expected to affect less than 5% of NAPFA members.

“After careful consideration of the discrepancy between our membership standards and the CFP Board’s Rules of Conduct, we felt strongly that eliminating the exception was necessary to address confusion within the profession and on the part of the consuming public,” Geoffrey Brown, CEO of NAPFA, said in a news release.

“This change is in alignment with our members’ commitment to providing financial planning services in a manner that is open, clear and easily understandable for consumers,” he said. “NAPFA members will continue to provide transparent, comprehensive and conflict-free financial advice to help consumers achieve their financial goals.”

The fee-only compensation model prevents advisors from selling insurance-based financial services, such as annuities, long-term care or disability coverage, or Medicare gap coverage, all of which are products that compensate advisors on a commission basis.

NAPFA’s clampdown follows a long-simmering dispute over compensation disclosure for CFP certificants who claimed to be “fee only” on the CFP Board website but who had ownership interests in firms that took, or take, commissions.

Check out The Process of Financial Planning: Time to Go to the Next Level? on ThinkAdvisor.


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