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.