In 1999, a Securities and Exchange Commission audi­tor from the Fort Worth, Texas, branch informed Arkansas Financial Group CEO Rick Adkins that a small administrative fee his firm received from servicing a Federated Investors money market fund might well preclude his firm from calling itself “fee-only.” Adkins, who became chair of the CFP Board of Standards in 2003, immediately asked the auditor to put it in writing and he did. He then asked Federated to discontinue the fee. They did. It was the first and only time Adkins has ever seen anything in writing from the SEC about the meaning of fee-only.

During the 1990s, the fee versus commission issue sparked a heated debate within both the profession and the financial services business at large. By the turn of the millennium, Adkins was serving on the CFP Board’s subsidiary Board of Practice Standards. He also was working on a task force charged with rewriting compensation disclosure requirements, so he immediately notified them of his experience with the SEC auditor. That task force was chaired by Daniel Candura and included a Who’s Who of professional advisors and consumer advocates like the Consumer Federation of America’s Barbara Roper and current CFP Board chair-elect Ray Ferrara.

Traditionally, the CFP Board uses its many subsidiary boards to gather broad input from the profession and groom future leaders. Besides the practice standards unit, its Board of Professional Review in 1999 also boasted many highly regarded financial planners, such as Ben Tobias and Alan Goldfarb.  Adkins himself would become CFP Board chair in 2003, the same year it finalized and announced compensation disclosure rules.

A decade later, something very different happened to Goldfarb, who became CFP chair earlier this year. Goldfarb was working on a fee-only basis as a senior advisor at Weaver Wealth Management, which owned a broker-dealer, and he held a 1% interest in the brokerage. With the 2003 disclosure rules in hand, the CFP Board issued Goldfarb a letter of admonition that was announced in June 2013. Goldfarb then resigned from the CFP Board.

For the better part of the last decade, the debate about compensation and what it means to be a fee-only financial advisor was a controversy that had faded from the conversation within the advisory business. Suddenly this year, thanks to the CFP Board, it resurfaced as a debate that refuses to die. Sadly, the issues are no clearer today than they were 10 years ago.

With its strict, narrow definition of what fee-only advice means, the CFP Board, which administers the CFP certification, has infuriated many advisors. Some think the CFP mark will be hurt as the debate drags on. Others attribute the debate to growing pains in a relatively new profession and argue the airing of alternative views is beneficial for both the profession and all advisors who value the CFP certification.

But some professionals think the idea of arguing about the meaning of “fee-only” is ludicrous. “‘Only’ is a hard word to parse,” Adkins, whose Arkansas Financial Group is based in Little Rock, says. “It reminds me of a president who said it depends on what the meaning of ‘is’ is.”

Bureaucracies Move Slowly
The disclosure rules that were announced in 2003 became effective in 2007. After six years of requiring full disclosure but remaining quiet about compensation claims, the CFP Board began to enforce a definition of what it means to be a fee-only advisor that is narrower than either that of the SEC, which still has no explicit definition, or the National Association of Personal Financial Advisors (Napfa), the leading fee-only association. Despite the SEC’s comment to Adkins back in 1999, both the SEC and CFP Board tacitly permitted advisors who call themselves fee-only to invest client assets in mutual funds that pay advisors annual trail fees, which many view as commissions, of 0.25% or less. While the CFP Board now says that crosses the line, some suspect that many CFP licensees have been earning even larger commissions while calling themselves fee-only.

The board didn’t stop there. It conducted an exhaustive look at potential conflicts of interest and began enforcing them, in the process dinging some of its own influential volunteers, including Goldfarb, its chair. Goldfarb’s case was not about what an advisor should own or be part of or how he or she should charge clients. It was about how he was listed on the CFP Board Web site and in the advisor’s marketing material. Goldfarb first listed his practice as fee-only and then as salary. Even though more and more CFP licensees are being paid by salary, that last option has since been removed from the Web site as a choice.

The three remaining choices are fee-only, fee and commission and commission-only.  Anyone who takes commissions or receives third-party compensation can’t play in the first category. In contrast, the SEC offers advisors four compensation options: fixed fees, hourly fees, a percentage of assets and commissions.

Many believe that the CFP Board treated Goldfarb, who had volunteered hundreds if not thousands of hours to the organization for more than a decade, in a shabby fashion. Conversely, if he and hundreds of others had been mislabeling themselves for years on the CFP Board’s Web site, the whole episode exposed serious incompetence on the part of the board. In effect, it was serving as a vehicle to mislead investors for years. These inconsistencies have caused a few longtime observers of the business to wonder why various consumer groups and trial lawyers haven’t sued the CFP Board (or, if they are wrong, why Goldfarb hasn’t).

In late September, the CFP Board took down its Web site advisor search engine for two days and asked those CFP professionals claiming to be fee-only to re-evaluate their compensation methods. It particularly sought to make sure those who claimed to be fee-only met their definition before designating their compensation method on the search engine. Many believe that move amounted to giving those CFP professionals who were violating the standards amnesty because they were not disciplined and were allowed to clarify their status.  Goldfarb never got that benefit.

Could The CFP Board Be Sued By Consumers?
The whole affair could prove more damaging than simply an embarrassment for the CFP Board. The organization doubled certificant dues several years ago and in 2011 launched a four-year, $36 million advertising campaign to promote the CFP mark, spending $9 million last year alone.

The board is currently sitting on $22.9 million in net assets, making it a juicy target to plaintiff attorneys. If, in fact, it emerges that the CFP Board only began enforcing its compensation disclosure requirements in 2013, six years after they became effective, that could become a serious liability. Saying that they found Goldfarb in violation of a technicality and sacrificed him on the altar of their own institutional inertia, especially in light of the big public awareness ad campaign, would sound like a flimsy defense on the witness stand.