Chairwoman seeks balance between group's rabble-rousing roots and concern for members.
Not every group will hold a press conference to
disparage its own industry. But that's exactly what the National
Association of Personal Financial Advisors did in 1997 when it released
a stingingly critical expose of financial planning professionals, which
revealed that three-fifths of planners lied when they told clients they
were fee-only and didn't accept commissions.
The exclusive group of fee-only financial planners furthered slapped the business' face that day when it told reporters it had registered the "fee-only" moniker with the U.S. Patent and Trademark Office to prevent "wolves from continuing to dress up in sheep's clothing."
Flash forward nine years, and a name game is once again at the forefront of investors' challenges, this time because the Securities and Exchange Commission has ruled that brokers can call themselves advisors-without having to actually register as advisors.
Will NAPFA take up the gauntlet, and maybe even mystery shop broker-dealers to see what products and disclosure they're offering to consumers? Will it take up any controversy, the way its executives did just nine short years ago? And, as important, is controversy even what the bulk of its some 1,287 members want these days as some grow and manage firms that have topped the $1 billion in mark?
They're all challenging questions, says NAPFA Chairwoman Peggy Cabaniss, who is halfway through her tenure as chairwoman of the small and once-feisty organization for fee-only financial advisors.
We caught up with Cabaniss, or rather she caught up with us, after a November article in Financial Advisor asked why NAPFA didn't put its money where its mouth is and join the Financial Planning Association's lawsuit to force the SEC to revoke its broad-based exemption for brokers who want to act as advisors. As a result of the article, Cabaniss asked for an opportunity to set the record straight. We were glad to oblige the veteran investment advisor, who manages $150 million for 130 clients at her firm, HC Financial Advisors Inc., in Lafayette, Calif.
FA: While NAPFA has grown, relative to its size, is it really big enough to be meaningful any more in an arena that includes some 700,000 competing advisors, brokers and bank and insurance salespeople?
Cabaniss: We're still small, but relative to our numbers we have made a heck of an impact. We put fee-only financial planning on the map. We have grown about 80% since 2000, so we're up from about 700 members to about 1,287 members today. We've always heard the same remark about our size, but today more than ever consumers are looking for advice that is not conflicted. Our main goals are promoting competency and comprehensive financial planning, and I think we continue to find our mark. Reporters seek out our members for their competency. The number of consumers requesting the names of NAPFA advisors in their areas has doubled since 2000 to 50,000 requests in 2005. Some 16,000 consumers have signed up to receive NAPFA's quarterly e-pamphlets on planning and investing issues, and new consumer names are being added daily. Twenty-five percent of the folks on Bloomberg Wealth Manager's list of the largest investment advisors in the country, some 130 out of 500, are NAPFA members.
Some of our members would like us to grow to 5,000 or 10,000 advisors. We are focusing on that. Right now we grow at a little over 10% a year. We'd love to grow at 15% to 20% a year. We have the capacity to do that, and we're looking long-range at how we can achieve that. Of course we are limited by our criteria, which requires that advisors be fee-only, complete 60 hours of continuing education every two years [two times the industry average] and submit a financial plan for peer review.
FA: The phrase that's often been associated with NAPFA is "holier than thou." Would you say you're promoting that perception these days, or combating it?
Cabaniss: I am combating that. I don't like the terms holier than thou or elitism. What I do want to promote is that NAPFA has high standards, which allow our advisors to meet the needs of clients. We want to be known for our client-centered, competent, comprehensive planning, and that our values are more than fee-only.
FA: How are you reaching out to folks interested in the fee-only model, for instance those from the wirehouses?
Cabaniss: We're looking to Ben [Ben Lewis is NAPFA's new public relations representative] for help with this. We send invitations to our conferences to as many folks as possible, and offer basic training programs to those who want to convert their practice to fee-only. We're inviting as many CFP program administrators from colleges and universities as possible to the program, so they're aware of us and what we can do for them. We're also beginning to promote the fact that the fee-only model, which has been tagged as a way to starve, is really a very profitable way to do business. To get a true handle on that, and show how profitable we are, we're building a database and doing a survey that will break down profitability based on the different sizes and practices of our member firms. That information has never been broken out like that, so it will be interesting.
FA: Where is the industry most challenged right now?
Cabaniss: One area that still needs a lot of work is the insurance arena. It's very hard to get someone to disclose their commissions or even what assumptions are being used. The other area is the SEC rule [exempting brokers from advisor rules]. Its like, "At 2 p.m. I'm a rep, at 2:15 p.m. I'm a client-centered advisor, but at 2:30 p.m. if I need to sell you something, I switch back."
The SEC's primary goal should be to protect the public, but their position has become so muddied. There are companies out there doing a financial plan and saying it's not a plan. Frankly, we're working with a jumbled set of regulations and the 1934 and 1940 acts. We're trying to navigate in a world that has changed over 70 years since these two old acts were written. The SEC is doing nothing to help.
FA: Why didn't NAPFA join the FPA's lawsuit to force the SEC to repeal its exemption, or at least write an amicus brief?
Cabaniss: The FPA really did not ask for help on this. We had prepared an amicus brief for the first lawsuit, but were not contacted this time. NAPFA members wrote letters to the SEC during both comment periods, asking the agency to get rid of this Merrill Lynch exemption. We've sent in many letters of protest.
More and more of us are helping clients and prospects dig a little deeper into what they're getting when they come in with brokerage accounts. Our members are giving them a comprehensive review of all aspects of their financial lives.
FA: Some NAPFA members say that the organization has to take on these kinds of consumer-protection issues in a high-profile, high-impact way, or NAPFA will lose its relevancy and should think about becoming a division of the FPA.
Cabaniss: I've heard that before. Actually, that issue [of joining the FPA] has been discussed a few times at the annual regulatory meeting all of the associations get together for. But we like what we do and who we are. We just don't see the benefits of joining the FPA. That said, we do have members who want us to return to how things were in the beginning. We have some who feel NAPFA's sole job should be to advocate for the consumer and aggressively expose confusing, unethical behavior in the industry. We also have members who want us to help them develop their practices. We have members who are principals of firms that manage $1 billion or more, as well as members who are solo practitioners managing less than $10 million. Our job is to meet the needs of all of our members to ensure they get what they need and practice in a competent, comprehensive manner, with complete disclosure. Luckily, we have more money in our budget this year [$2.3 million, up from $1.8 million last year] to allow us to reach out to consumers more. We hired Ben [Lewis] to help us begin to develop a strategy to do this.
FA: What does Peggy Cabaniss want on her proverbial NAPFA tombstone?
Cabaniss: That I stayed the course. We have some very ambitious projects in the works. One of them is the large-firm initiative. This is a very ambitious project, developed by and for our larger members, who were almost at the point of saying, 'I'm not sure that NAPFA is meeting our needs any more."
There will probably be 150 initial members [of the new division within NAPFA], and more will join as they find out about it. We're devoting our advanced planning conference in San Diego in February to large-firm development this year, and have developed an intranet they can use, as well as a knowledge network that lets different groups of eight to ten members from different parts of the country share their experiences and successes when it comes to building their firms, staffing, managing expenses and increasing profitability. We've always helped advisors who were getting started, so this is a good complement for those larger advisors who have distinct needs. This is one of the many things we're doing to benefit our members.