Kitces Raises Concerns With Colorado Financial Planning Guide

Popular blogger and advisor Michael Kitces, co-founder of XY Planning Network, is raising a number of concerns with the Colorado Division of Securities’ Ongoing Financial Planning Guide, especially as it pertains to the regulation of financial planning services delivered by RIAs providing “fee for service” billing arrangements.

Kitces pointed out his concerns in a recent comment letter to the division. XYPN is a membership organization for fee-for-service financial planners.

The Colorado Division of Securities Ongoing Financial Planning Guide, published in March, was, as Kitces notes, developed to “assist investment advisers offering ongoing financial planning services,” and was published “in response to the growing trend of advisers offering financial planning under an ongoing or continuous model, and the increasing need for advisers to review and enhance their compliance programs in this area.”

In his comment letter, Kitces states that “XYPN agrees in concept that guidance which helps firms to comply with state regulations is a key part of the regulatory oversight process” and that RIA and financial planning fees “should be transparent and fair, and that RIAs should be accountable for delivering the services promised to their clients via disclosures and in the client agreement.”

However, XYPN is concerned that the guidance will prompt fee-for-service RIAs “to move to AUM billing practices, even when this fee arrangement does not align with the services they are providing to their clients, or may prove to be more expensive, and at times creates a conflict between the adviser and their client.”

“More troubling,” Kitces notes, is that the guidance “has the potential to limit access to financial planning advice for those who are willing to pay an ongoing advice fee but do not yet have a portfolio of assets to manage and cannot meet the typical minimums of AUM-based advisers,” namely people of color and moderate-income consumers who want and need planning services.

Kitces explained that XYPN’s “overall concerns” with the guidance are that:

• How it applies to the financial planning profession is unclear, as “ongoing financial planner” is not an industry term;
• It creates a disparity between the fee invoicing requirements that fee-for-service RIAs must implement and those required for investment advisers using an AUM approach, particularly where AUM investment advisers provide otherwise identical financial planning and investment management services;
• It limits access to financial planning services for a growing number of Colorado consumers who have not yet amassed sufficient liquid assets to be managed under the AUM model;
• It does not make a clear connection between its pricing and recordkeeping requirements and the benefits that accrue to the consumer;
• It suggests that financial planners refrain from using terms such as “holistic” and “comprehensive” in describing their services when such terms were never proscribed for advisers charging AUM fees for similar services; and
• Its use of a custody arrangement as a fee refund process, and its position against payment-for-availability and service-bundling arrangements, are inconsistent with existing standards that apply to AUM advisors and unsupported in law.