NEW YORK, June 26 The National Association of
Personal Financial Advisors (NAPFA)on Thursday barred its
members from owning stakes in financial services firms that
receive transaction-based compensation, as part of its push to
promote fee-only investment advice.
NAPFA, which has about 2,500 members, has permitted members
since 2004 to own up to 2 percent of a firm that receives
commissions. The exception was meant to accommodate members who
owned shares of common stock or a trust company, but NAPFA's
inability to audit its members and growing interest in fee-only
compensation among its members and the public led to the change.
"This is about eliminating a sense of confusion in the
industry for advisers and consumers," said Geoffrey Brown, chief
executive of the Washington, D.C.-based planners group.
Removing the 2 percent exception will affect about 125
members, Brown said, adding he expects most to resolve their
situation by the time they renewed their annual NAPFA
memberships. Those who don't comply cannot be members.
The move also aligns NAPFA with the Certified Financial
Planner Board of Standards' tightened scrutiny of advisers who
advertise themselves as fee-only planners. The CFP Board, which
oversees the CFP designation used by planners who pass its
exams, temporarily delisted about 8,000 planners from its list
of fee-only planners last year after finding that some were
affiliated with companies that take commissions.
NAPFA and the CFP Board are members of a coalition lobbying
to have the U.S. Securities and Exchange Commission and the
Department of Labor adopt a fiduciary standard of care for
anyone who gives investment advice to the public or retirement
plans. That means the advisers must put a client's interest
ahead of their own in recommending investments.
Stockbrokers currently are held to a less rigorous standard
that permits recommendation of investment products suitable to a
customer's risk profile, even if they may be more expensive than
similar products that yield a broker a lower fee or commission.
At a conference this week of investment management companies
and brokers, brokerage firm officials urged their colleagues to
join them in lobbying against a strict fiduciary standard that
could prevent them from working with retirement plans.
"It's slow going," Brown said of the fiduciary standard
effort. "The climate in Washington hasn't really changed."
(Reporting by Jed Horowitz; Editing by Paul Simao)