There are many qualities to look for in a financial planner, but first and foremost, you should look for a financial planner who is fee-only.

You might think that the easiest way to find out if a professional is fee-only is to ask. However, when you ask a commission-based financial professional, “Are you fee-only?” they will often reply with a misleading answer. Some examples are:

• “I am a fiduciary.”
• “I am required to act in your best interests.”
• “I am fee-based.”
• “We all have to get paid.”

The commonplace nature of this dishonesty is why the CFP Board enforces which CFP® professionals are allowed to use the term “fee-only.”

In the CFP Board’s Code of Ethics and Standards of Conduct , which governs CFP® professionals, the CFP Board explains that:

A CFP® professional may describe his or her or the CFP® Professional’s Firm’s compensation method as Fee-Only only where:

(a) the CFP® professional and the CFP® professional’s Firm receives no Sales-Related Compensation; and

(b) Related Parties receive no Sales-Related Compensation in connection with any Professional Services the CFP® professional or the CFP® Professional’s Firm provide to Clients.

CFP Board does not prohibit the term “Fee-Based,” but instead makes clear that Fee-Based is equivalent to “commission and fee,” and sets requirements for using the term.

Elsewhere in an official CFP Board video called “Code and Standards: Understanding the Term ‘Fee Based’,” Leo Rydzewski, general counsel for the CFP Board, makes clear that “Clients often don’t understand what the term ‘fee-based’ means and, unfortunately, they often believe that being fee-based means that you are fee-only when typically that is not the case.”

The implication is that no one should use the term “fee-based,” but the CFP Board does not come right out and prohibit the term’s use. This implied perspective without restriction is because, while the CFP Board acknowledges that honesty around compensation is very important, they have to remain compensation neutral because of how they are paid.

The annual certification fee for one CFP® professional is $445. This is the main source of the CFP Board’s revenue.

As of June 2024, the CFP Board reports having 100,641 CFP® professionals . Meanwhile, the National Association of Personal Financial Advisors (NAPFA), the largest fee-only financial planning organization, reports having 4,600 members . All NAPFA advisors are also CFP® professionals.

This suggests that only 4.6% or more of the CFP Board’s membership revenue is sourced from fee-only advisors. In other words, up to 88.78% of their revenue would be jeopardized by criticizing sales-based compensation.

This is why Leo Rydzewski, general counsel for the CFP Board, explains their position as:

At the CFP Board, we are compensation neutral. We recognize that all CFP® professionals can act as a fiduciary whether they are receiving fees or sales-related compensation. In other words, from the CFP Board’s perspective, the key F word is not ‘fee-only,’ it is ‘fiduciary,’ and all CFP professionals are required to act as a fiduciary at all times when providing financial advice.

While that is the official position of the CFP Board, they are wrong. “Fee-only” is the important word. Salesmen are paid commissions. Planners are paid a fee.

If you are looking to work with a CERTIFIED FINANCIAL PLANNER^TM, you should look for a fee-only fiduciary.

In the past, the CFP Board permitted potential clients to limit their search for CFP® professionals to only advisors who were fee-only. However in the past five years, the CFP Board removed this feature. When we called to ask why, the CFP Board representative explained that “advisors didn’t like it.” This suggests to us that the commission-based CFP® professionals complained, and the CFP® Board gave in.

Videos, like the one referenced above, are all a part of the CFP Board’s new advertising campaign. Their new motto is “It’s gotta be a CFP,” emphasizing the credential and minimizing everything else.

While it is very important to pick a fiduciary, all registered investment advisors are required to be fiduciaries ; not just CFP® professionals. In fact, the only non-fiduciaries are financial professionals who are not registered with the SEC or commission-based broker-dealers subject to regulation Best Interest.

In this way, it doesn’t have to be a CFP, but it does need to be a fee-only fiduciary.

In short, we think that being a fee-only fiduciary CERTIFIED FINANCIAL PLANNER^TM doing comprehensive financial planning is the best that a financial advisor can be. These are the requirements of NAPFA, the National Association of Personal Financial Advisors.

This is why we recommend that, when looking for a comprehensive financial planner, limit your search to NAPFA-registered advisors.

Photo by Carolina Garcia Tavizon on Unsplash. Image has been cropped.