IF YOU'RE looking for a "fee-only" planner -- someone who charges fees but no sales commissions -- it just got harder. A leading financial planning organization recently declared it ethical for planners to advertise as "fee-only," even though they take commissions, too.
Fee-only planners charge purely for advice. You pay flat hourly rates for getting questions answered, fees for a financial plan and a fixed percentage of assets for getting your money managed.
These planners don't take sales commissions in any form. If you need a financial product, they'll recommend no-load mutual funds and non-commission-paying life insurance. Commissioned salespeople, by contrast, are paid only if you buy something. Maybe they'll sell you just the right thing, but you can't be sure that their advice isn't influenced by the size of the commission.
High-commission products, such as variable annuities, earn them more than low-commission products. Some salespeople joke that "everyone is a variable annuity prospect until they prove otherwise." So establishing exactly who is and is not a true fee-only planner matters to consumers. Here's where the Certified Financial Planner Board of Standards has just stepped in.
Planners earn a Certified Financial Planner (CFP) designation by following a course of study approved by the board. They're also supposed to adhere to a code of ethics, which the board develops and enforces.
The code says that a CFP "shall not hold out as a fee-only planning practitioner" if he or she receives sales commissions.
Fee-only planner James Wilson of Columbia, S.C., who helped write the code five years ago, says it was intended to divide planners into two groups -- those who took commissions and those who didn't.
Last January, fee-only planner Gregory Galecki of Galecki Financial Management in Fort Wayne, Ind. -- following what he believed to be the ethics code -- complained about a colleague to the CFP board. The colleague was registered to sell securities (hence was earning commissions) but advertised "fee-only financial planning."
Galecki got a surprise. The CFP board said the ad was OK. Board President Robert Goss -- splitting hairs -- says there's a difference between being a "fee-only practitioner" and offering "fee-only services."
A "fee-only practitioner" is a true fee-only planner. But under the newly interpreted CFP code, commission salespeople can offer "fee-only services" to customers who want it, while selling commission products to other customers.
This ratifies a widespread and misleading practice, judging by a survey of 288 planners and investment advisers in the greater Washington, D.C., area, done last year by the Consumer Federation of America (CFA) and the National Association of Personal Financial Advisors (NAPFA). Two-thirds of the people in the survey billed themselves as fee-only although all but 19 sold commission products to retail customers.
So what does it mean when you see "fee-only" in an ad? Exactly nothing. To find someone who sells only advice, you have to look for an ad that says "fee-only practitioner" or "fee-only financial planner."
A commission planner advertising as "fee-only" might charge you an initial fee, then switch you to commission products. But don't people seeking fee-only planners want people dedicated to advice, not planners thinking of ways of switching them to
NAPFA members may turn to a new "certification mark" -- an "FO" in a circle -- indicating a fee-only NAPFA planner. (Note, however, that many true, fee-only planners don't belong to NAPFA.)
Bottom line: If a planner claims to be fee-only, ask if he or she also sells commission products.
If the answer is "yes, but for you I'll do fee-only," consider whether such a relationship can last. Some salespeople may keep to their bargain, others may not.
Washington Post Writers Group
Pub Date: 9/29/97