Should Finra be given responsibility to regulate RIAs? Should a fiduciary standard be extended to apply to Finra-regulated advisors as well as registered investment advisors?

These questions are confronting the financial advice industry in the midst of a seismic shift that is reshaping its landscape.
As reported last month, the Financial Planning Association has suffered a 15% decline in membership over the past five years while other membership organizations for financial advisors enjoyed strong growth. The FPA's slumping membership-a spokesman says it's losing about 50 members a month net of new members joining-is occurring as rival membership organizations for advisors, such as the Financial Services Institute, the Investment Management Consultants Association and the CFA Institute enjoy growth in membership.

This month, we'll examine more closely the shifting landscape of the financial advice business and the positions the CFA Institute, the FSI and the IMCA are taking on regulatory reform and on the promulgation of a single fiduciary standard for all advisors.

In a shift that is reshaping the U.S. financial advice industry, advisors are increasingly choosing to become chartered financial analysts. The financial advice business has long been dominated by brokers and, in recent decades, by a growing cadre of certified financial planners. However, a shift in the character of financial advice is under way, with growing numbers of CFAs moving into the investment advice business.

The FPA's slide follows several years in which it took bold positions that alienated some in its traditional membership base. The association successfully sued the Securities and Exchange Commission to end the exemption of brokers registering as RIAs. It supported regulatory reform that would apply the fiduciary standard of the Investment Advisers Act of 1940 to registered representatives. And it opposed the naming of Finra as the self-regulatory organization responsible for overseeing registered investment advisors.

Interestingly, growth in the number of CFPs was anemic in 2008, and in 2009 it sank to the lowest level in at least a decade. The slump could be dismissed as temporary, but it contrasts with the growing number of CFAs moving into private wealth management, which could mean that the FPA's membership woes may be tied to a more significant trend away from financial planning and a growing embrace of other approaches to wealth management. In other words, the growing popularity of the CFA designation and its approach to wealth management could be coming at the expense of the financial planning movement.

The CFA Institute, the accrediting body of the CFA designation, says the number of its charterholders in North America doubled in the past decade to 49,000. The fastest-growing segment of the North American membership is private client advisors working with high-net-worth individuals. Moreover, the number of CFA candidates is soaring. About 105,000 North American candidates are enrolled in the CFAI's education system, and an additional 120,000 candidates are enrolled in the program outside of North America. About 30% of them are expected to move into private wealth management. Since about 20% of those who begin the CFA education program complete it, this translates into about 2,500 new U.S. CFAs annually moving into wealth management. That figure rivals the number of new CFPs entering the advisory field.


The CFAI's ascendance is likely to influence the financial advice industry in important ways. Groups like the CFP Board, the FPA, the FSI, the IMCA and the CFA Institute are influential because they educate professionals and take positions on regulatory and professional issues. They represent important centers of influence in the financial advice industry. They support the intellectual underpinnings and methodologies used by financial advisors in their practices, and they are the advisory industry's advocates.
How will the rising influence of these groups affect debate about the regulation of advisors and the adoption of a fiduciary standard for all of them? In the IMCA's case, not much. The IMCA takes no position on regulatory issues; it has no advocacy program.

If the IMCA took a position on the fiduciary standard or on Finra's bid to supervise RIAs, it would alienate one of two large membership segments: RIAs or wirehouse brokers. Taking a position in opposition to a large segment of your membership can be risky for membership associations, as the FPA has learned from taking positions in opposition to wirehouse reps, broker/dealers and registered reps and suffering a concomitant decline in membership deeper than in previous recessions.