In a move that has bewildered many CFPs, the CFP Board of Standards took a giant step backward in transparency. It chose to no longer inform consumers searching for a CFP of advisors' compensation models.
The CFP Board sets the standards for Certified Financial Planner certification. In an email on March 2, 2020, the Board informed its membership that, "Today, we have updated [the website] to remove information about compensation method," contending the best way for consumers to pick a CFP is through a conversation.
This puts an additional burden on consumers wanting to avoid CFPs who are compensated solely or partially by commissions. No longer can consumers screen out CFPs who sell financial products as a first step toward finding a planner who is only compensated for their advice. They will now need to call the list of CFPs who meet their other search criteria and ask them about their compensation models.
Not only will this take more time and effort for consumers, it will be much more confusing. The CFP website actually had a straightforward explanation of the three basic compensation models: commission-only, commission and fee, and fee-only.
While both commission and fee and fee-only advisors are held to a fiduciary standard, the major problem with a commission and fee planner, versus a fee-only planner, is the potential for a big conflict of interest. The higher the gross revenues a commission and fee planner earns from commissions on the sale of products (annuities, mutual funds, insurance, etc.), the higher the potential conflict of interest. If a client needs a detailed financial plan addressing asset protection, estate planning, business succession, and real estate decisions, rather than investments, there isn’t much incentive for planners whose incomes are largely from commission sales to do the appropriate analysis for something for which they will not be compensated.
The financial media regularly educates consumers on the benefits of engaging a fee-only advisor. Accordingly, a growing number of consumers who want comprehensive financial planning look for an unbiased fee-only advisor. It makes sense, then, that CFPs who are commission and fee would want to give the illusion they are fee-only.
