The National Association of Personal Financial Advisors has barred members from owning stakes in financial services firms that engage in transaction-based compensation. The move comes as the organization works to lobby the government on a strong definition of a fiduciary duty for advisors.
"Really, our stance is that we want to look at how you do business. It's about being a fiduciary," Linda Levitz, head of NAPFA, said in an interview with WP. "This is how it should be."
Previously, NAPFA had an exception that allowed members to own up to a 2% stake in a firm that generated transition-based revenue. But the organization has dropped the exception, resolving an outstanding difference between NAPFA's definition of a fee-only advisor and the definition of a fee-based advisor drawn by the Certified Financial Planner Board of Standards Inc.
NAPFA is partners with the Financial Planning Association (FPA), the Certified Financial Planner Board of Standard, Inc. (CFP Board) and the National Association of Personal Financial Advisors (NAPFA) in a coalition lobbying the U.S. Securities and Exchange Commission and the Department of Labor to adopt a fiduciary standard of care for advisors.
The hope of the coalition is that legislators will establish a professional oversight board for financial planners. The body would be subject to federal authority and would include a definition that holds advisors to a true fiduciary standard of care.
“If I tell you I am an attorney, or a doctor, there is an assumed fiduciary duty. But this is not the case with financial planner, and it should be,” says Leitz. “The average person assumes there is a fiduciary duty there, even if they don't know what the word means. Financial planner should be a recognized label like a doctor, or lawyer. It should be a comprehensive term.”
The coalition would like the title "financial planner" to be recognized as distinct from sales persons. Those using the term financial planner would be held to competence and ethical standards similar to those required of a CPA, doctor or lawyer.
"Eliminating potential sources of conflict is an oxymoron, be we want to get as close as possible,” says Leitz.
So far, the debate over fiduciary duty seems to have stalled at the SEC, as the top tier terms lobby against the idea of a fiduciary duty applied to advisors. “I think the breakthrough will be one of the major firms taking this on,” says Leitz.