NAPFA: Fiduciaries Disclose Fees, Do Not Take Commissions

For financial planners registered with the National Association of Personal Financial Advisors, a new standard has been set to define a conflict-free adviser relationship.

According to the association’s Monday announcement, being a fiduciary means working on a fee-only basis, not accepting commissions or conflicted compensation, and providing full written disclosures of all fees in advance to clients—including how and when fees may change.

Other rules established by the NAPFA standard include placing clients’ interests first, leading client relationships with comprehensive financial planning, and referring clients to outside experts when client needs fall outside the NAPFA adviser’s field of expertise. The adviser must eliminate conflicts of interest or clearly disclose them, as well as uphold a rigorous standard of care and competence.

The standards remain closely aligned with the description of fiduciary duties described by the Department of Labor under the Employee Retirement Income Security Act of 1974, including acting solely in the interest of plan participants and beneficiaries, carrying out duties with prudence and due diligence, and following plan documents and diversifying plan investments.

“The word ‘fiduciary’ is used often, but what it means in practice is not always clear,” said Kathryn Dattomo, NAPFA’s CEO, in a statement. “The new NAPFA fiduciary standard underscores our commitment to the fee-only fiduciary model.”

NAPFA’s fiduciary standard of conduct includes five core duties that define fee-only fiduciary service: care, loyalty, compensation, competence and engagement, according to the announcement. Advisers commit to operate only on a fee, with no commissions, product sales, incentives or outside compensation. Financial advisers registered with NAPFA must also obtain the standard certified financial planner certification and complete 60 hours of additional continuing education every two years.