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Why the FPA Can’t Win in the Broker Market

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Since my last blog (Should the FPA Get Behind the CFP Board or Go It Alone?”) on Michael Kitces’ virtual white paper about what’s wrong with the Financial Planning Association (Could FPA’s Waning Power Lead to Its Untimely Demise?), two leaders of that association—Janet Stanzak, the current FPA president, and Lauren Schadle, FPA’s CEO—posted a lengthy response to Michael’s remarks.

While they do a nice job of articulating the FPA’s stated mission to “represent the interests of, and expand the opportunities for, CFP professionals,” and detailing the steps their organization has taken toward that end, one is struck by the paucity of specific examples of those efforts over the past 14 years.

Even more troubling is their happy talk about how great the FPA is doing of late (without mentioning the rather dire membership and revenue figures cited by Kitces), while failing to mention the elephant in the convention hall: the CFP Board’s wooing of Wall Street and what that means for the future of the FPA. 

Stanzak and Schadle agree with Kitces about the FPA’s mission, boldly stating: “The financial planning profession needs a professional membership association to zealously represent the interests of, and expand the opportunities for, CFP professionals – in FPA, it has it.” And then they go on to enumerate examples of the FPA’s efforts at representing: “…there have been numerous instances… …where FPA and our predecessor organizations acted as an essential counter-balance to policy positions promoted by CFP Board. We have mobilized our members and chapters on many issues over the years including leading the charge to dismantle the notion of having a ‘CFP-lite’ designation, proactively lobbying the CFP Board to elevate its standard of care for CFP professionals in 2007/2008, discouraging CFP Board’s entry in the continuing education marketplace and influencing the clarification of compensation definitions just last year.” 

Folks, that’s four instances over the past 15 years (the CFP Lite controversy occurred in the summer of 1999, the year before the FPA was founded). Which means that of those four examples, one didn’t even involve the FPA, while discouraging the Board’s entry into CE was more of a matter of protecting the FPA’s economic turf than CFPs. Of the remaining two, I don’t remember what “standard of care” in 2007 they are talking about (hopefully, you do, and it’s really important).

That leaves “influencing the clarification of compensation definitions last year.” I do remember what this is about: it’s the Board’s recent crackdown on the incorrect use of the term “fee-only” and related descriptions, during which three CFPs were forced off the CFP Board, two CFPs were prompted to file suit against the Board to stop a public censure after they had corrected their mistake, and another CFP relinquished his designation in protest that the Board was disciplining him for the actions of his RIA firm, over which it has no jurisdiction. 

It’s important to remember that during the time, hundreds of brokers had designated themselves to be “fee only” on the CFP Board’s own website: The Board responded by sending them a letter kindly asking them to rethink their compensation status. In response to all this, the FPA asked the Board to clarify its definitions? Really?

I suspect this is what Kitces was getting at when he suggested the FPA hasn’t been living up to its role as CFP advocates with the Board. Yet it’s hard for me to believe that the FPA’s scanty record on CFP advocacy is the cause of its failure to capture much of the recent increase in CFPs. As Kitces pointed out, since 2000, the number of CFPs has virtually doubled, from about 36,000 to over 70,000, while the FPA’s membership declined, from some 30,000 to around 23,000.

So over the past 14 years, the FPA’s “penetration” of the CFP market has fallen from 83% to 33%. While Stanzak and Schadle report that the FPA’s “retention of CFPs has grown 5%” (whatever that means) in the past 1 ½ years, maybe it’s just me, but this doesn’t seem like a basis for optimism. Does it?

While the FPA’s dynamic duo cite membership losses from the expulsion of the broker-dealers and the suit against the SEC as the primary causes, those occurred in 2003 and 2004—11 and 10 years ago, respectively. Call me crazy, but I suspect there are more recent forces at work here. In a recent request, the CFP Board declined to provide a breakdown of the business models of current CFPs. Given the Board’s courting of Wall Street in recent years, it’s not a leap to suspect that many of those new CFPs are wirehouse brokers, who, in my view (and supported by the above figures) aren’t very likely to join the FPA.

Historically, the FPA has been geared toward the business and investment needs of “independent” planners: either RIAs or independent B/D reps. It would be a strange mix of programing and cultures to attract brokers (who probably wouldn’t come anyway).

I’m not sure that many CFPs today, appreciate the divide—and often animosity—between wirehouse brokers and independent CFPs, stemming back to the 1980s, when brokers often referred to the IAFP (forerunner to the FPA) as the International Association of Failed Producers.

This divide is no accident. Brokerage firms with employee brokers (as opposed to independent rep B/Ds) do not want their brokers regularly interacting with independent advisors, and being exposed to the benefits of independence. I suspect this is even more true today, when so many brokers are breaking away. It’s my understanding that one of the main reasons that the CFP Board is courting Wall Street is that those large brokerages pay for their brokers to become CFPs. It’s a good business model, and one that would quickly come to a halt if becoming a CFP emerged as the first step on the road to independence.

Consequently, I don’t think the FPA really has the option of “courting” CFP brokers (as Kitces suggests, and the FPA’s optimism seems to rest on). Rather, brokerage firms (possibly with the help of the Board) have done a good job of convincing their W-2 brokers that independent CFPs are financially unsophisticated bumpkins (not that there’s anything wrong with that).

That leaves the FPA in a rather difficult position, and not one of its own making. It can try to follow the CFP Board’s lead, but to be successful, that would entail overcoming a rather significant image problem. Or it can stick to its roots and continue to serve the independent advisory world, while shifting its emphasis away from sales and toward advice.

That would entail at least a few more lean years. But the trend is clear: the number of employee brokers continues to fall and the number of independent advisors continues to rise. I believe the CFP Board has short-sightedly hitched its wagon to the wrong horse. The FPA would do well to avoid that mistake.