Is the ICFP's agenda winning?

Nobody ever said merging two organizations was easy. And in almost every merger there is a winner and a loser, even if it sometimes takes years to determine who won and who lost. In the case of the merger between the International Association For Financial Planning and the Institute of Certified Financial Planners that created the Financial Planning Association in January 2000, it appeared early on that the larger, financially stronger IAFP would emerge in the driver's seat. When ICFP executive director David Brand stepped down as co-executive director just a few months after the merger was consummated, leaving IAFP executive director Janet McCallen alone in the top slot, it only served to confirm those suspicions.

But as time goes by, many think that the agenda of the planner-centric ICFP is emerging as the overarching agenda. That became clear this past September when the FPA asked its broker-dealer division, which was created by the IAFP in 1987, to leave the organization and form their own association, although they were invited to remain as corporate members. Some brokerage executives had considered initiating such a move on their own for several years, and a task force had been grappling with the issue for almost a year. But the FPA's portrayal of the break-up to its members and the media in mid-September as a mutual decision was also somewhat misleading. According to participants, FPA President David Yeske presented the decision as a fait accompli and said that it "was born of integrity."

In retrospect, there probably wasn't a diplomatic way to say it. Some brokerage executives interpreted that phrase to imply that their own integrity was subject to question, though Yeske, an eminently decent person, undoubtedly meant otherwise. Still, some wounds remain. "They told us to leave; they jilted us," says one participant.

While many independent broker-dealers may opt to become corporate members, some are weighing all their alternatives. "If I'm too mercenary to be a broker-dealer member, wouldn't I also be too mercenary as a corporate member?" one brokerage executive asks.

Some brokerage executives are resigned to the decision. "It was inevitable," says Art Grant, president of Cadaret, Grant & Co., a Syracuse, N.Y.-based brokerage. "In deciding to concentrate on the CFP community, the FPA has determined their future and it's consistent with that future. And I consider Dave Yeske a friend."

Yet Grant, who worked hard to establish an IAFP chapter in New York two decades ago, also admits to melancholy feelings about the outcome. Among broker-dealer executives, he's hardly alone. In the 1990-91 recession, as struggling planners left the business by the thousands, the old IAFP's broker-dealer division provided a good measure of the glue that held the fragile planning community together.

Today's reality is, of course, quite complicated. Financial planning now is an emerging profession that has survived a violent bear market and an extended economic slowdown in remarkably good condition. Advisors may have watched their hair turn gray in recent years, but they have unquestionably gained market share. Many practitioners have businesses that are healthier than the brokerages and financial services companies that helped underwrite much of the profession's early growth.

On the surface, the FPA has weathered the economic turmoil of the past three years with barely a scratch. It still has roughly the same 29,000 members that it did in 2000. That's a sharp contrast to the last recession of the early 1990s when the ICFP and especially the IAFP suffered sharp membership declines.

In mid-October, several brokerage executives met in Chicago to form the new spin-off broker-dealer organization, which will be headed by FPA Associate Executive Director Dale Brown. But the question remains whether that organization will be a broker-dealer-only group, or whether it will have a practitioner division to complement the broker-dealer division and potentially compete with the FPA. A few broker-dealers say that's still an option, although it appears to have caught the FPA leadership off guard. "I don't see that happening," Yeske says.

Others see it differently. Todd Robinson, chairman of LPL Financial Services, the nation's largest independent brokerage, probably will join the new broker-dealer organization that will come out of the FPA. But he says his firm is in "active talks" to establish yet another organization that could represent both brokerages and their reps. Robinson, who spent five years as chairman of NASDR, has one overriding reason to start another organization. "We're not sure the government understands the independent contractor model and this would be a way to create communication with all regulatory groups," he explains.

Creating such an organization is actually something Robinson wanted to do for several years but chose not to, out of a desire not to offend the FPA. The FPA's decision to part ways with its broker-dealer division creates a window of opportunity that simply didn't exist before. "This industry isn't in conflict," Robinson says. But different groups have "different goals, agendas and needs. For a while it was hard to get clarity."

Such a new organization could give "fee-and-commission planners a stronger voice," Robinson adds. "Getting rid of overlap is good for everyone."

Yeske sees those same fee-and-commission planners, most of whom transact business through broker-dealers rather than custodians, as a core constituency of the FPA. "The FPA has an evolving understanding of our organization, identity and purpose, and that makes it easier to make decisions," he explains. "We are for and about financial planning and we're the only ones claiming the big territory of financial planning. The FPA is not going to be about the financial services industry; it's going to be about financial planning. A lot of financial planning is taking place in the broker-dealer environment and we'd like to [be there]. This change only affects 110 broker-dealers, not individual members."

Some broker-dealers agree with Yeske that it made sense for brokerages to form their own advocacy/lobbying organization at the federal and state level. "With its carefully focused emphasis on promoting the financial planning process and CFPs, I do not believe the FPA could afford to spend the resources the broker-dealers feel are essential for advocacy on issues important to them," says John Dixon, who heads the Pacific Life network of broker-dealers. "I believe the FPA board was prescient in recognizing the growing sense among broker-dealers that they did not fit in the mix as well now as they used to. If I were on the FPA board I would have supported the separation."

As regulatory upheaval erupts in the nation's Capitol and sweeps across the states in the wake of unprecedented financial scandals, the need for advocacy for all players in the financial services business has increased exponentially and the interests of brokerages and practitioners have diverged on issues like who is a fiduciary. This became apparent following a Securities and Exchange Commission proposal to exempt reps at certain brokerages from RIA registration, a move that outraged many independent RIAs. Another suggestion last February by outgoing SEC Chairman Harvey Pitt, that regulation of RIAs be transferred from the SEC to the National Association Of Securities Dealers, elicited a similar reaction.

To understand where the new association is headed, it's useful to study how its predecessors got here from there. When the financial planning movement was starting to catch fire in the 1970s, the IAFP quickly became the cottage industry's largest association by structuring itself as an "open forum" where allied professionals interested in the movement could meet. Planners, brokers, attorneys, accountants and financial services executives could meet in one umbrella organization and share ideas about creating a profession out of a cottage industry. This "come one, come all" philosophy rapidly gained momentum in the 1980s, though it also attracted some dubious promoters of tax shelters and other high-commission financial products that left investors holding the bag.

On the other hand, the ICFP was built around the notion of its founder, P. Kemp Fain, of creating one profession with one designation. At this time the CFP mark was little more than a mail-order designation, so the ICFP gained traction slowly. If the IAFP's open forum concept was too loosely regulated for some, the ICFP's singular focus on advancing the mark and the profession struck some as narrow and constricting. Some advisors who belonged to both associations spoke of getting a feeling of "in-breeding" at ICFP meetings, which included too many nice, well-meaning small practitioners focused on small-picture issues.

But during the 1990s, the financial advice business did start to emerge as a real profession and the number of CFP licensees began to grow significantly. If anything, that growth has accelerated during the anemic economy of the new millennium. And with more universities introducing the CFP curriculum, the pipeline of new CFPs is stronger than it ever was.

A higher level of professionalism became the hallmark of both organizations in the 1990s, after a first attempt to merge in the late 1980s ended in acrimonious failure. After the CFP Board of Standards raised the level of difficulty for the CFP exam early in the decade, obtaining the designation became a serious challenge.

Gradually, the differences between the two associations receded as both engaged in a healthy and friendly competition to provide members with continuing education and networking opportunities. Among both memberships, there was a slow but inexorable shift away from commission-based planning towards the fee-based or fee-only models that mirrored changes occurring in the profession at large.

But while they were subtle, some differences remained. During the mid-1990s, three IAFP presidents in a row-Ross Levin, Greg Sullivan and Peggy Ruhlin-came out of a study group of successful practitioners called The Alpha Group. While all were fee-only advisors, they were seriously engaged in asset management and interested in building practices of a certain scale. In contrast, the leadership of the ICFP more often than not came from smaller ensemble offices or were solo practitioners.

In the late 1990s the leadership of the IAFP embraced the CFP mark, urging members who were seriously involved in financial planning to get it. At that point the differences between the two associations were so marginal that they re-entered merger negotiations, almost exactly a decade after they terminated similar discussions.

Although it went unnoticed at the time, a sign of potential future discord surfaced in late 1999 when Undiscovered Managers CEO Mark Hurley released his now-famous report on the future of the profession. He predicted a dramatic increase in competition that would force advisors to become larger if they wanted to compete and survive. Advisors at large firms, including a chunk of the IAFP leadership, were already working to grow their practices, and many embraced the report as a reason to redouble their efforts to grow. Smaller practitioners, by and large, saw the report as threatening, and some adopted a shoot-the-messenger attitude and dismissed Hurley's conclusions.

At the time the merger was consummated, what little opposition existed came from ICFP members. That was understandable, given that ICFP members were required to vote on the merger while the IAFP's board of directors was empowered to approve the deal at the board level.

One of the most influential and articulate opponents of the merger was former ICFP President Henry Montgomery of Minneapolis. In a letter to his fellow members, Montgomery pointed to the corporate and broker-dealer divisions of the IAFP and voiced fears that they would ultimately emerge in control of the organization.

Although these divisions had not usurped practitioners' interests at the IAFP for more than a decade, Montgomery feared that at some point this could change. "You know the golden rule," Montgomery wrote fellow ICFP members. "He who has the gold rules."

Today, Montgomery, who himself owns a broker-dealer with 11 reps, basically agrees with those who say the ICFP's agenda is carrying the day. "It's been very interesting," he says. "Quality rises to the top. The things I feared have not happened."

Sooner or later, the regulatory advocacy agendas of the FPA and independent broker-dealers were bound to collide. "When push came to shove, our interests are not the same," he says. "They [the FPA] made that choice before it was made for them."

Yet Montgomery acknowledges he has another fear-that the association's new focus on financial planning and practitioners could cost it financially. That fear is shared by advisor Alexandra Armstrong, who served as IAFP president in 1987 when its broker-dealer division was created. "I don't think the FPA could represent the interests of planners and broker-dealers," she says. "Where I see a problem is that broker-dealers helped support the FPA, so they may lose economic support."

But as Armstrong sees it, the FPA isn't moving straight toward an ICFP model. "My chapter in Washington is moving more in an IAFP direction," she says. "Integration has been painful. Part of the reason why it's been so painful has been the market."

Yet there are a number of leading practitioner members who are far more blunt and critical of the small-practitioner mentality and life planning orientation in some quarters of the FPA leadership. "When the broker-dealers leave, the corporate members could follow right behind them, and I don't think either of them will be foolish enough to come back," grouses one leading practitioner.

One indication of the small-practitioner mentality of some FPA leaders surfaced earlier this year when several of them stopped releasing the amount of assets their firms had under management. To some, the move reflected widespread dissatisfaction and doubts about the viability of the assets-under-management model that gained popularity in the 1990s, doubts that have deepened in a prolonged bear market. With many practitioners moving towards hourly or retainer fees, assets under management also is a less reliable indicator of a firm's scale. Yet critics suggest the reason some firms don't want to release the figure is because their asset base is insubstantial.

While some members worry that the FPA is too focused on the needs of small practitioners, others think that it should be. "Who do you think represents the vast majority of their membership, people who work in firms with $700 million in assets?" asks one practitioner.

Going forward, there may be other divisive issues, but they are less likely to break down along IAFP and ICFP lines. "From my seat on the board, there are no ICFP or IAFP factions," says Dan Moisand, a relatively new FPA board member from Melbourne, Fla. "Those two organizations went down with the World Trade Center. The folks who were quarantined together in San Diego on September 11 came together as a group and focused on common priorities."

Where any remnants of IAFP-ICFP rivalry still exist may be found at the chapter levels. "At the chapter level we occasionally still get some sense of the IA-IC thing," Moisand says. ""But the problems vary. In some areas, both chapters [of predecessor organizations] were very active and competitive."

As Yeske sees it, the FPA already has moved beyond both predecessor organizations. Part of his goal as president was to narrow the association's goals and agenda and try to do fewer things better.

The growing numbers and strength of the profession is attracting notice in the corridors of power. Four years ago, when then-ICFP president Elissa Buie spoke at an IAFP meeting in support of the merger, she met with then-SEC Chairman Arthur Levitt. She recalls that after she told Levitt her organization had only 14,000 members, his eyes began to drift out the window. Earlier this year, Yeske met with current SEC Chairman William Donaldson. "He seemed really engaged and he seemed to get it," Yeske says.

What about the possibility of a new organization being able to siphon members from the FPA? This was discussed at the time that the merger took place, and one board member asked, "Where are they going to go?"

So far, there haven't been many viable alternatives. At the time of the merger, the life insurance industry's largest association, the National Association of Life Underwriters (NALU), changed its name to the National Association of Insurance and Financial Advisors (NAIFA), created a financial planning division and hired a respected academic, Jerry Mason, as head of financial planning continuing education. Then it made a concerted effort to build the division, some think at the expense of the FPA.

Some NAIFA officials hoped that FPA members who were not CFP licensees would be prime recruits for another association, since the FPA was requiring all practitioner members to earn their CFP licenses by 2010 or move from the practitioner to the general membership with allied professionals and corporate members. The strategy failed, and if there were disgruntled members, NAIFA did not appeal to them.

Certainly, the ICFP never would have agreed to merge into the FPA if the new association didn't embrace the CFP mark. With a 29,000-member organization now committed to the CFP license, it would appear that rival designations, including the American College's ChFC and the American Institute Of Certified Public Accountants' (AICPA) PFS marks, are on the wane. (The AICPA recently decided it would fold its personal financial planning division.) "If you look at the development of any profession, you'll see that they eventually agreed on a common standard," says Norm Boone of Boone Financial Advisors in San Francisco.

The FPA's commitment to advancing the CFP mark has enabled it to forge an unusually close relationship with the CFP Board of Standards. CFP Board Chair Rick Adkins says the FPA's embrace of the CFP mark earned it "most favored nation status." Indeed, one source of disagreements between many CFP Board directors and its recently departed CEO, Lou Garday, was that Garday wanted to offer the same status to both the National Association of Personal Financial Advisors and the Society For Financial Services Professionals, and the other directors at the CFP Board rightly felt the other associations hadn't made the same commitment to the CFP designation that the FPA had. The relationship between the FPA and the CFP Board has become so close, in fact, that some think Garday's successor could come from the FPA.

In the interests of professional unity some, like Boone, wish the CFP Board would simply grandfather ChFC and PFS designation holders. But the CFP Board rejected such a move last year, reasoning that while it would have made the FPA's life easier it also would have undermined the integrity of the CFP mark.

So the FPA likely will continue to walk a fine line, trying to upgrade the level of professionalism without alienating too many members. "Anybody who wants to be part of it is welcome, but to have a profession you have to have a meaningful standard," Moisand says.

The FPA must try to support higher standards while sidestepping controversies ignited by the third rail of financial planning-the compensation issue. Like class in Europe and race in America, compensation controversies among financial planners seem almost inescapable. The more people try to avoid it, the less they are able to do so. Over time, discord over compensation may lose its resonance as many planners shift towards fees. Today, nearly 1,000 of the 4,900 reps at LPL accept new clients exclusively on a fee-only basis.

Challenges remain. Moisand notes that the FPA has been slow to convince veteran planners of the value of its recently created residency and intern programs. But he believes that when they come to understand the value of those programs, many will embrace them. Were that to happen, it could mark the genesis of real career paths for future planners, a component of many professions that has yet to surface in financial planning.

For a new association to succeed, it will need a more viable raison d'etre than simply exploiting disgruntlement within various quarters of the FPA. But for the FPA to achieve its potential, it will have to get members to buy into programs that capitalize on the growth the profession is likely to experience.