A Modest Proposal to Respond to the CFP Board Controversy

There is continuing controversy around the CFP Board’s decision to drop the compensation-search function from its website, making it less easy for consumers to find “fee-only” CFP advisors. The most recent development was a letter from the Committee for the Fiduciary Standard, sent to all media outlets, urging the CFP Board to reverse the decision, credibly arguing that the method of compensation search function was a helpful consumer tool, especially in light of the financial media’s oft-repeated admonition that consumers are better off working with an advisor who charges fees rather than commissions.

My take, published last week, is that not all service providers who charge fees sit on the same side of the table with their clients. As most of you know, the wirehouses are rapidly converting their brokers away from one-time sales of individual products to gathering client assets onto their asset management platforms – which is, in the long term, much more lucrative. (The independent broker-dealers are encouraging their reps to move away from sales to asset management as well.)

As a result, we have entered an entirely new phase in the constant battle between sales agents and fiduciaries, and this has somehow gotten lost in the discussion. It is now very hard to find a functional difference, compensation-wise, between a broker who is paid to gather assets for a wirehouse firm’s asset-management platform, and a fee-only planner who is gathering assets for his or her AUM platform and offering (or not) planning services.

Both are paid exclusively via AUM, and therefore both fall under the technical definition of fee-only. I said in the earlier article that the CFP Board and NAPFA would have some difficulty answering brokerage firm attorneys who will question why their AUM-compensated brokers are somehow regarded as different from advisors who are gathering assets for their own asset-management services.

Let’s reflect on the larger issues before we talk about solutions. The fiduciary members of the financial services profession have, over the years, tried to create a number of ways for consumers to distinguish them from sales agents.

Once upon a time, advisors offered financial planning services, while brokers did not. Eventually, brokers did, and the distinction became meaningless.