CFP board navigates rough seas

Until this year, the Certified Financial Planner Board of Standards Inc. had lived a fairly quiet existence, granting the financial planning designation and upholding related education and ethics requirements for nearly 69,000 mark holders. Perhaps because it was seen as issuing what most considered the gold standard of financial planning credentials, the CFP Board commanded a good deal of respect in the planning profession. But in 2013, the CFP Board hit choppy waters, roiled by controversies over compensation disclosure and the organization's attempt to offer its own continuing-education programs. Other looming challenges could be just as vexing. As it tries to attract new CFPs — a board study over the summer showed that more than half of students who earn a financial planning degree do not sit for the CFP exam — the board must elevate the mark against a proliferation of other investment advice credentials that now number more than 200. The board seems to have quelled the recent battle over offering continuing-education credits by backing off the proposal, saying it will concentrate on improving the quality of the 15,000 CE programs that already exist, instead of getting into the business itself. That move satisfied the Financial Planning Association and the National Association of Professional Financial Advisors, who both generate revenue by offering their own CE credits and rebelled against the prospect of the CFP Board being both an overseer and provider. Sometime CFP Board critic Michael Kitces, a partner and director of research at Pinnacle Advisory Group, and publisher of the blog Nerd's Eye View, applauds the CFP Board for backing down. “They thought about something, they put it forward, they got negative feedback, they backed away,” Mr. Kitces said. On the other hand, the controversy over compensation disclosure is far from over and is casting a less flattering light on the board, according to Mr. Kitces and others. “The CFP Board is acting without buy-in from stakeholders,” Mr. Kitces said of the fee-only matter. “The problem continues to snowball, continues to fester. In one case, they've [listened] to stakeholders. In the other case, they're ignoring stakeholders.” Some CFPs could hold a grudge, according to Ron Rhoades, an assistant professor of business at Alfred State College. And in some cases, CFPs have publicly questioned the value of the CFP mark. “CFP certificants are going to remember these controversies for a long time,” Mr. Rhoades said. “To that extent, it's going to diminish the reputation of the CFP Board.” Any suggestion that the board is at an inflection point draws a quick response from chief executive Kevin Keller, who leaned forward in his chair and rattled off what he sees as a string of successes. He pointed out that since he arrived in 2007, the number of CFP certificants has grown by 26%. In addition, the board has implemented a fiduciary standard for mark holders, established a public-policy operation and launched a four-year, $40 million marketing campaign that has increased consumer awareness of the CFP credential by 7%. “We've got a clear course, and we're charting it forward,” Mr. Keller said. “Have we had a couple speed bumps along the way? Sure we have,” he said. “It is an occupational hazard of this job that from time to time, there are going to be people who take strong exception to what you're doing.” The CFP Board was established in 1985 as the International Board of Standards and Practices for Certified Financial Planners Inc., a spinoff of the College for Financial Planning. The organization was renamed the CFP Board in 1994 and achieved accreditation in 1995 from the National Commission of Certifying Agencies. In 2007, it moved its headquarters to Washington from Denver. The CFP Board, which employs 62 people, saw its revenue jump to $25.3 million last year, from $15.9 million in 2009, according to tax filings. But almost all of that increase is due to the marketing campaign, which increased the annual CFP certification fee by $144, to $325.

STEADY GROWTH

Over the past three years, the number of CFPs has grown steadily from 64,236 in 2011 to 67,241 last year to 68,964. Last year, 5,653 people sat for the CFP exam, a significant decline from 2011, when 8,572 took it, but about even with the 2010 and 2009 numbers, which were 6,219 and 6,059, respectively. Usually, 60% to 70% of test takers pass. Unlike the FPA and NAPFA, the CFP Board isn't a membership organization. By virtue of its mission — to set and enforce CFP standards — it is bound to generate controversy and make enemies from time to time, according to its supporters. The “CFP Board has been involved in controversies on a regular basis,” said Dan Candura, president and chief executive of PennyTree Advisers LLC and a former CFP Board member. “It's part of being a standard-setting body in a developing profession.” The line on compensation description has been jarring. The most favorable description for many advisers is “fee only,” and the CFP Board found that many of its members were identifying themselves as fee-only even though part of their compensation, or the compensation of their firm, was coming from commissions. In that case, these advisers were supposed to label themselves “commission and fee,” even if the amount of commission revenue was minuscule. The issue first attracted attention last year when Alan Goldfarb stepped down as CFP Board chairman after being charged by the board with misrepresenting his compensation on the FPA website. Members of the Disciplinary and Ethics Commission were removed for similar violations. The board also has been sued over compensation descriptions by Jeff and Kim Camarda, managing members of Camarda Financial Advisors. “The reason this is messy is because they decided to enforce standards, and people are getting caught,” said Paul Auslander, the FPA's chairman and himself once a target of a CFP compensation investigation. “They are not a public regulator; they are a private regulator,” he said. “They have to walk a really fine line, and they're doing an admirable job.” In August, the board temporarily removed the “fee-only” description from its website for the 8,000 CFPs who used it. Of the 4,000 CFPs who have re-entered a fee description, about 900 have changed from “fee only” to “commission and fee,” though many aren't happy about it.

FEES, COMMISSIONS

That is especially true of those advisers who individually generate the revenue from fees but are associated with a firm that may generate commission revenue. “Just because someone owns an interest in a company, I don't understand how that's relevant unless the clients of the firm are being sold products and are paying commissions,” said Diahann Lassus, president of Lassus Wherley & Associates PC and a former CFP board member. Mr. Keller noted that the compensation definitions have been in place since 2007 and that the CFP Board has no plans to change them. In September, he conducted several town hall meetings with CFPs about compensation rules. “That line can only be changed by a very elaborate [rule] process of proposal, notice, comment and subsequent adoption by the board,” Mr.Keller said So far, there are no plans to change those rules. As it looks ahead, the board expects continued growth in the number of CFPs over the next several years but at a slower pace than originally anticipated. Part of the reason is a lack of investor trust in the financial services industry, according to Mr. Keller. The board is battling that perception by focusing the next phase of its multiyear marketing campaign on CFPs themselves, a move that could draw more advisers to the mark and more clients to CFPs. New ads will be launched in mid-January. “We're going to target the campaign to make the point that while anybody can hold themselves out as a financial planner, a CFP is something special,” Mr. Keller said. “A CFP professional has the mark of competency and ethics.”