Is there Justification for the CFP Board’s New Compensation Disclosure Policy?
The CFP Board has eliminated compensation disclosures from its consumer-facing website. It may have had good reason to.
As you no doubt have learned by now, the CFP Board has decided to take down the checkboxes where the CFP mark holders, on its website, list their compensation model as “fee-only,” “fee plus commission” or “commission-only.” This has sparked some degree of outrage in the advisor community – the idea apparently being that the CFP Board has caved in to the non-fiduciary firms (including independent broker-dealers and wirehouses) and made it impossible for consumers to know whether their search is bringing up advisors who will truly act in their best interests.
How dare they!
In a recent communication with the CFP Board for more information, CEO Kevin Keller noted that the discussion about whether to retain the compensation-search criteria was discussed several times last year at the board level, and that the CFP Board is (and always has been) "compensation neutral." To compensate for the removal, the Board has posted a list of suggested questions that consumers should pose to their advisors; Number 7 (of the 10 questions) is: How will I pay for your services? and noted that advisors are paid by AUM, commissions or a combination of both, or by annual or monthly fees. (No mention of hourly fees, which is a curious omission.)
For those who are outraged at what they imagine to be the CFP Board giving aid and comfort to the sales culture, I would like you to engage in a thought experiment.
First, the proposed question makes clear that the three compensation categories on the CFP Board website have become increasingly inadequate to provide guidance on how, exactly, advisors get paid. Imagine a non-wealthy millennial who is looking for an advisor who will charge via a subscription model, to whom paying by AUM is as anathema as paying by commissions is to some Baby Boomers who are aware of the conflicts.
So the solution is to expand the search categories to include these new compensation models, right? Perhaps not. I know of many advisory firms that charge by the project (hourly), by subscriptions (for high-earner not rich yet – HENRYs) and via AUM (for wealthier Boomers). Some of those firms also charge commissions. If the outrage is focused on the conflicts of interest inherent in sales activities and commission revenue, then more categories might mean more confusion.