Updated Friday, September 4, 2015 as of 9:10 PM ET

NAPFA Faces Member Loss After Fee-Only Rule Change

A newly announced NAPFA rule change may put the group in peril of losing members.

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Comments (5)
NAPFA has always been irrelevant and this will make it even more so. By limiting practitioners to a strictly defined fee-only model, clients of NAPFA member planners are often forced to work with non-fiduciaries to implement the plan.

The intense focus on the fee versus commission debate instead of what is best for the client is absurd. NAPFA should re-examine its mission. Is it actively helping consumers or simply promoting an ideology?
Posted by Brent E | Friday, June 27 2014 at 12:48PM ET
For the record, I'm on NAPFA's Compensation Task Force which is charged with interpreting the Fee Only rule in the context of new member and existing member renewal applications. I do not believe Mr. Kahler's ownership of a 50% stake in a real estate sales firm violates the definition of "fee only" unless he is charging clients a fee for financial advice in connection with their acquisition, disposition or retention of real estate.

There are a number of activities outside the securities industry in which a "fee only" person might be engaged. If, for example, I am a wood carver and I sell my wood carvings, does that disqualify me from qualifying as "fee only" for my activities in advising clients on their financial affairs? Of course not - unless I'm advising them to purchase my carvings as an "investment" and charging them a fee based upon the value of my carvings.

The point is that if we advise clients for a fee on financial matters, our only compensation from the items on which we advise them must be in the form of a fee paid to us by the client to qualify as "fee only". This does not prevent anyone from other non-financial, non-securities industry daliances which may involve profiting in some way from the sale of something to someone.

I agree with Mr. Kahler that it would be great to be able to get away from the focus just on compensation and move on to the broader concept of a fiduciary relationship. Unfortunately the regulators are going nowhere with that and frankly, that whole initiative looks like it has a very real risk of ending up with a watered down "fiduciary" standard which will make it EVEN MORE DIFFICULT for largely ignorant consumers to identify who is TRULY "advising" them versus who is "selling" them something. At the moment the manner in which the "advisor" is paid is the best way to make this identification and may unfortunately continue to be so if we end up with a watered down "fiduciary" standard.
Posted by Tom B | Friday, June 27 2014 at 1:06PM ET
@Tom B: Thanks for your comments. It's interesting to hear your opinion of Kahler's stake in his family's real estate firm. But it seems to be entirely at odds with what NAPFA's leadership thinks on the issue. I'm at ann.marsh@sourcemedia.com
Posted by Ann M | Friday, June 27 2014 at 8:13PM ET
NAPFA should take a close look at those members who for decades have manufactured their own products (limited partnerships and other investment structures) and earn "fees" for doing so. Logic would have to say those who recommend products so-manufactured have every bit as much conflict of interest (and possibly more) than one who might enjoy some sort of commission income, related or not.
Posted by ROBERT F | Saturday, June 28 2014 at 12:01AM ET
I agree with Michael Kitces that the two organizations have pushed themselves into a corner of absurdity. The client cares only about her relationship to the planner--not anyone else's. Emerson taught us that the misuse of language often hides a more sinister agenda. In this case, turf wars are drawing attention away from what really matters.
Posted by Ray B | Tuesday, July 08 2014 at 4:50PM ET
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