In case you missed it, Michael Kitces just posted a very insightful and well-reasoned analysis of the current state of the Financial Planning Association and what should be done about it, titled “Could the FPA’s Waning Power Given Its Declining Market Share of CFP Certificants Lead to Its Untimely Demise?” It’s as thorough a history as I’ve seen of the Financial Planning Association since its creation back in 2000, and how its actions and inactions have contributed to its loss in both total membership and share of CFPs. Yet with that said, I can’t help but think that the rather dire picture that Michael paints of the FPA might have been more revealing had it been placed in the broader context of the challenges—and opportunities—that the financial advisory world is currently facing.
Kitces’ picture of the current state of the FPA is striking. “Since the time that the FPA was formed, the number of CFP certificants has nearly doubled, from about 36,000 to over 70,000,” he wrote, “and the percentage of financial advisors who have CFP certification has more than doubled (from about 11% to 23%).”
During the same period, he points out that FPA’s total membership has declined from its peak at the merger of the ICFP and the IAFP of almost 30,000 to only 23,000 now. In Kitces’ view (which is hard to argue with), this resulted in a “drastic decline,” in which the FPA’s share of CFPs fell from “over 50% of all CFP certificants as members to under 25%.” And the FPA describes itself as “the membership association for CFP certificants.”
How did this happen? In Kitces’ view, the FPA’s problems started about 10 years ago, in the wake of its victorious lawsuit against the SEC, which had tried to extend the brokerage exemption to the ’40 Act to assets under management. “Yet in the midst of its incredible forward momentum as a burgeoning profession, the FPA started to come under criticism,” he writes. “Some suggested that the board of directors was becoming too RIA- (and former ICFP-member) centric…”
Kitces notes that in response, the FPA shifted away from its CFP focus, adopting a “big tent” philosophy that sought to include “anyone who values financial planning…with the unfortunate outcome that even as the FPA won the lawsuit with the SEC, the victory may have marked the zenith of FPA’s power (and its membership count).”
I remember the moment I was made aware of the FPA’s shift in direction. It was at the FPA national conference in 2005. I was talking to a friend of mine who was on the FPA Board, and she was telling me about a decision made in the pre-conference Board meeting to create a membership division for CFPs, which would open up the general membership to anyone else in financial services. As she was going on about this “master stroke” that would explode FPA membership, I remember blurting out, in my typical tactless way: “If you do that, you’ll lose half of the CFPs.” Out of the mouths of babes, and fools…
No fool himself, Michael Kitces believes the salvation of the FPA lies in returning to its roots of representing CFPs. “With the ongoing growth in CFP certificants, it is simply impossible for 70,000+ professionals to not have a membership and advocacy association dedicated solely and entirely to their needs. [It’s time for the FPA] to loudly, proudly, and publicly be the membership association of CFPs, and justify why CFP certificants should pay for both the CFP marks and a separate membership association to represent them.”
As Michael points out, the CFP Board’s recent heavy hand (against the Camardas), uneven (overlooking brokers), and overreaching (involving firms rather than individuals) disciplinary actions against CFPs over the use of the “fee-only” description has certainly underscored the need for an organization to give CFPs clout with their would-be regulator. Yet it seems to me that the FPA’s situation may not be as “simple” as Kitces would have us believe.
The retail “advisory” world today is undergoing a massive transformation on a number of fronts: from a sales model (commissions) to managing assets (fees); from employees (brokers) to independents (firm owners); and from business relationships with clients (suitability) to professional relationships (fiduciary). Each of these transitions represents a shift toward better service for clients and, not coincidentally, a better business model for advisors.
But like all major transitions, getting from here to there tends to be messy: fraught with multiple visions of the future and both short-term and long-term opportunities. During the past decade, the CFP Board seemed to be accepting, albeit grudgingly, these changes, with its tepid acceptance of a “fiduciary standard,” but then backtracked big time with its not-so-subtle courting of the brokerage industry in recent years.
The Board’s about face has left the FPA out on a proverbial limb. The FPA had rather boldly embraced the new realities: by booting out its broker-dealer division (due to conflicts), challenging the SEC over AUM fees, and cozying up to fee-only NAPFA. Yet it’s still the Financial Planning Association. And thanks to the Board, financial planning seems to be headed in a different direction.
So the FPA has to make a choice, and that choice is far from easy. It can do what Michael Kitces suggests, getting in line behind the CFP Board, improving its short-term prospects, and maybe using any increased clout it gets by gaining CFP members to try to nudge the Board into a longer-term, more professional, direction.
Or it could give up on the Board, and continue working toward a true profession of financial advisors. That would be longer-term investment—and, at some point, entail a name change.