NAPFA, which has about 2,400 members, adheres strictly to this fee-only standard, but used to allow advisers to own up to 2% of a firm that generates revenue based on commissions. That exception ended Thursday in an email to the members of the organization, which believes that fee-only compensation minimizes potential conflicts of interest between financial planners and clients.

James F. Sampson, managing principal of Cornerstone Retirement Advisors LLC, tells PLANADVISER he is unsure how many retirement plan advisers use the NAFPA designation, but he thinks some probably do. His firm does not. “I think that because of the nature of our industry products and platforms, most of us have some form of legacy business that the broker/dealer world would consider commission-based, so I don’t know that we would qualify for that designation anyway,” he says.

Does the membership change affect retirement plan advisers? Yes and no, says Ryan Mumy, president and founder of Mumy Financial Advisors LLC in Hickory, North Carolina. Mumy says he cannot be a member of NAPFA because he does holistic planning. His practice looks at a client’s insurance needs in the context of a complete financial picture. “I am going to show them the options for solving insurance needs, and the only way to get paid on life insurance is through a commission,” Mumy tells PLANADVISER.

Holistic Planning Could Be Issue

The change in description could affect true holistic planners who are not just managing money, Mumy says, which is just one piece of the pie. Advisers who really want to guide a client and consider the entire financial picture, from budgeting to life insurance to long-term care insurance, cannot do that if they are bound by NAPFA’s criteria, he feels.

“Certainly, it needs to be a facts and circumstances situation,” says Roger Wohlner, an adviser at Asset Strategy Consultants in Arlington Heights, Illinois. As an example, a clear violation would appear to be ownership of an insurance firm where a supposedly fee-only adviser refers clients but shares in the benefits of selling annuities and insurance products, he tells PLANADVISER.  

“However,” Wohlner points out, “I would view ownership of a real estate firm as being irrelevant to whether an adviser is fee-only or not. Yet as I understand it, even the latter case would be a violation. I'm all for uniformity in the definition of fee-only, but what is more important to me is that this definition be the right one, based upon what and how the client compensates his or her adviser.”

Sampson says he is unsure if this change will affect retirement plan advisers. “I think that most retirement plan advisers have a broker/dealer relationship, mainly because the business has been so ‘broker’ driven for so long,” he says. “We take over most plans via ‘broker-of-record’ and then convert them to a fee-based model whenever possible.” Otherwise, he says, he would let go of his broker/dealer licenses and operate only as a registered investment adviser (RIA).

Mumy points out that a lot of older plans carry a finder’s fee. Taking a plan to one of the larger providers, he says, can garner some upfront percentage points.

“I'm sure they gave the issue due consideration, but at the same time I feel like perhaps we are letting the CFP [Certified Financial Planner] Board drive the definition here,” Wohlner says.