by Rick Kahler
decided it's time to engage a financial planner, but you don't know any
financial planners. How do you know whom to trust?
years, I have recommended that you start by finding a professional with the CFP®
designation. It's become recognized internationally as the standard for
financial planning. The CFP® designation is
conferred in the United States by the CFP® Board and by 22 other organizations
affiliated with them.
To earn the CFP® designation, one must hold a bachelor's
degree, pass six semester courses on a broad spectrum of financial topics, pass
a 10-hour exam, and complete three years of experience. To keep it, designees
must pay the CFP® Board an annual fee of $325, complete 30 hours of continuing
education every two years, and abide by a code of ethics. The cornerstone of
the code of ethics is the duty to act as a fiduciary, or in the consumer's best
that code of ethics, CFP®s may be compensated for their work in three ways:
commissions, fees (fee-only), and both fees and commissions (fee-based). The
duty to act as a fiduciary is difficult to carry out when a majority of the
compensation comes from selling the consumer a product. In fact, many other
countries, like Australia and the UK, do not allow individuals who give
financial advice to also sell products and receive commissions.
I know many excellent "fee and commission" CFP®s who do put their
client's interests first. Typically, only a small portion of their compensation
comes from commissions. Some of them sell their clients term life insurance,
which has a low commission, instead of sending them to a life insurance
salesperson who may be tempted to upsell them more expensive and commission-laden
products. Other planners establish a set annual fee and offset any commissions
received against the fee. If you're shopping for a fiduciary planner, it's hard
to know without doing an extensive interview if a "fee-based" planner's
compensation is largely fees or largely commission.
these reasons, when I became a CFP® in 1983, I decided to remove any potential
conflict of interest and only accept fees for my financial planning services.
Accordingly, I hold myself out as a "fee-only" planner. Over the
years, "fee-only" has become the easiest way to be reasonably assured
the financial planner is a true fiduciary.
a number of CFP®s have found a way to misuse this term, rearranging their
compensation so they can brand themselves as "fee-only" without
giving up lucrative commissions. Usually, they do this by owning two firms. One
is a "fee-only" firm that charges consumers fees for planning advice.
The other is a financial services company that earns commissions by selling the
client financial products. The CFP® can take a salary or receive dividends from
the financial services firm and thereby contend that he or she does not receive
slick. To stop this abuse, the CFP® Board recently passed a new requirement. It
specifies that if CFP®s, or any party related to them, own any interest in a
financial services company, they cannot call themselves fee-only.
the surface, this would appear to solve the problem and make it easier for
potential clients to find planners who are true fiduciaries. The problem is,
like all regulations, there are unintended consequences.
have snared me, along with several other fee-only planners who are careful to
carry out their fiduciary duty to clients. In order to maintain my professional
integrity, I'm even considering giving up the CFP® designation I have
maintained with pride for 30 years. Next week I'll tell you why.
Rick Kahler, Certified Financial Planner®, MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!