Morgan Stanley and Merrill Lynch, the nation's two largest wirehouses by number of advisors, have told those among their advisors with a CFP certification to stop describing themselves as "fee-only." The move came in response to the CFP Board's decision on Sept. 19 to strip the fee-only listings from all the advisor profiles on its website.
The board made the changes after Financial Planning reported that 486 wirehouse advisors from Bank of America Merrill Lynch, Morgan Stanley, UBS Securities and Wells Fargo Advisorsand hundreds more at banks, insurance companies and other firmswere calling themselves fee-only in the profiles accessible via the board's "Find a CFP Practitioner" search tool. The number of wirehouse advisors who call themselves fee-only on the CFP Board website was computed by examining online advisor profiles at each firm in all 50 states. Any wirehouse advisor who identifies as fee-only is violating the board's rules, which forbid advisors from using the descriptor if they are associated with any "related parties" that take commissions, including employers.
The CFP Board unilaterally changed thousands of its certificants' profilesreplacing "fee-only" with "none provided." Asked how long advisors who typically earn commissions have been marketing themselves as fee-only on the board's website, Bill Hayes, a member of the CFP Board's disciplinary and ethics commission, says, "Forever." The profiles misled consumers into equating brokers who can sell products for commissions with independent advisors whose income consists solely of fees paid by clients for planning advice, Hayes says.
Resetting the profiles without warning insulated the Board from potentially thousands of complaints about rule-breakers. The Board says its policy has been to initiate an investigation only after a complaint.
A day after stripping out the fee-only declarations, the Board sent an email to all advisors who had been marketing their practices by using the term, directing them to reread the Board's compensation disclosure rules and then reselect the appropriate compensation disclosures. The email, sent to the 8,000 people who stated that they were fee-only, "reminded [those] who previously self-identified...as fee-only of its rules related to compensation disclosure and [their] obligation to provide clear and accurate compensation disclosure," says Board spokesman Dan Drummond. In so doing, the CFP Board extended a broad amnesty to hundreds of advisors who had been breaking its rules on the fee-only designation.
Representatives for Bank of America Merrill Lynch, UBS and Wells Fargo Advisors declined to comment on their advisors' fee-only profiles. James Wiggins, a spokesman for Morgan Stanley, also did not respond to questions about Morgan Stanley advisors. But he did say that the firm's clients benefit by having the option of choosing services that are fee-based or priced by transaction.
"We strive for clear and accurate communication with the investing public about our services and will continue to work with all interested parties toward that end," Wiggins said via email.
Wirehouse advisors make up about 10,000 to 12,000 of the 68,900 CFPs in the country, according to Kevin Keller, chief executive of the CFP Board. One of those advisors, Merrill Lynch broker Jeffrey Slothower of New York, was asked via email if he was aware that his use of the term "fee-only" violated the terms of his CFP certificate. "That doesn't really apply to me at a wirehouse," Slothower replied.
"That's exactly what I'd expect him to say," says Hayes, the disciplinary commissioner. "The wirehouses tell them [the rules] don't apply to them."
Yet a few days after the email exchange, Slothower switched the compensation description on his CFP Board profile to "commission and fee." A spokeswoman for Merrill Lynch requested that this example not be published.
In general, wirehouse advisors are shielded from most disciplinary actions from the Board, according to Hayes and numerous other current and former disciplinary commission members. When the CFP Board requests documents from the wirehouses for its investigations, the wirehouses typically refuse to provide them, citing client privacy concerns, Hayes says.
Morgan Stanley says it sent a bulletin to all of its 16,000 advisors, instructing those with CFPs to comply with the Board's rules for use of the term both on the Board's website and in any marketing. A company spokesman says Morgan reimburses all advisors who study and sit for the CFP examination.
Merrill Lynch, which has a total of 14,000 advisors, instructed its 2,900 CFP advisors to switch their compensation disclosures to "commission and fee," according to a company spokeswoman. Merrill integrated the CFP curriculum into its 43-month training program for new advisors about two years ago but does not require those advisors to take the exam.
A representative for Wells Fargo Advisors said the wirehouse was determining whether and how it plans to communicate with its advisors about this issue. The firm did not elaborate about how it followed up. Wells Fargo has approximately 3,000 CFPs among its advisors. A spokesman for UBS said that the firm's head of financial planning, Richard Scarpelli, had met with CFP Board members to discuss the issue and that the firm was planning to send out a communication to its CFPs.
The CFP Board's number of certificants is now 68,900, up from 52,000 in 2007. Much of that growth has come from advisors in large firms.
Several wirehouse advisors from around the country said they were not concerned about the Board's decision to unilaterally alter their profiles. "I really don't have a strong objection to them doing that," says Erik Bohn, a newly minted CFP with Morgan Stanley in Washington, D.C., who had called himself fee-only. "I'm glad I get to correct the error before I get penalized, because I do market myself as a CFP."
Bohn's comments on the rules indicate the widespread confusion over their definition. "If the finding is that I work for a wirehouse and I have to put down 'fee-based and commission,' then that's what I want to do," Bohn says. "I don't want to misrepresent my business."
He chose the term "fee-only," he says, because he thought the board was asking for his interpretation of his compensation. And, given that he earns mainly fee income, that seemed like the right choice, he adds.
"That was how I wanted to present myself to the public," Bohn says. "It may not be the case with 100% of my clients because, in my reality, that's not how it works.... In my leg of this business, I don't know anyone who 100% takes fees."
Bohn says he values the CFP certificate as part of emphasizing holistic financial planning. Completing the requirements to obtain his CFP certification "was a pain, but I'm glad I did it," he says. "It has enabled me to dig deeper."
The controversy has had additional ramifications. The surprise move to offer widespread amnesty prompted calls for the Board to reconsider and possibly rescind recent sanctions of other CFP holders for similar transgressions.
Before the amnesty, the Board had already punished at least three former officialsincluding former chairman Alan Goldfarbfor compensation disclosure violations. The sanctions occurred at a time when the Board was not punishing wirehouse advisors, insurance companies, independent broker-dealers and others who broke this rule on its site.
Goldfarb, who had served in unpaid senior positions on the Board for more than 11 years, stepped down during the investigation. At the same time, he left his former employer, Weaver Wealth Management, which owns a broker-dealer in which he owned a 1% stake. After more than 40 years in practice, he opened a new firm.
Questions were raised about whether the Board has been practicing a double standard by punishing some of its CFP holders for alleged compensation disclosure violations while granting amnesty to hundreds at the wirehouses and other firms. "There is no double standard for enforcement," Keller says. "We expect all of our CFP professionals to adhere to our rules and our ethical standards."
The Board does not audit its members; only complaints alleging violations are investigated, according to Drummond. However, board bylaws permit investigations if information about violations arises.
"Looks to me like they are realizing that many of their critics have valid concerns," says Tina Florence, one of two former members of the Board's disciplinary and ethics commission who resigned their positions at the same time Goldfarb did last year after the Board began to investigate them. "I believe at some level CFP leaders recognize that important errors in judgment have been made."
The Board privately sanctioned Florence over one sentence describing her compensation on her website, she says, after vetting her for months before inviting her to serve as a volunteer. It also sanctioned another unnamed former member of the disciplinary commission. The investigation and sanction process can last for months. Those who settle with the Board to receive private sanctions may have to pay $1,500 in fees to convene settlement hearings into their cases, Florence says.
Ron Rhoades, a former board member of the National Association of Personal Financial Advisors and head of the financial planning program at Alfred State College in Alfred, N.Y., calls the widespread rule-breaking "a dark stain on the gold standard the CFP certification professes to be." He adds, "I hope the board of directors will review the actions taken, and sanctions handed down, in connection with compensation disclosures."
Mason Braswell contributed reporting to this story.