Power Grab or Professional Progress?

Journal of Financial Planning: March 2014


Vern C. Hayden, CFP®, is president of Hayden Financial Group LLC in Westport, Connecticut, and author of Getting an Investing Game Plan and the forthcoming How Do I Know You Won’t Steal My Money?

My mindset calls for some background.

I am one of the few relics of the past who was captured by an American “dictatorship” system called “conscription into the military.” In other words, I got caught up in the mandatory draft in 1963. There were no lottery numbers. It included all of us who were fit. Uncle Sam was like a benevolent dictator, and you complied with the system or you were disciplined. Many personal freedoms were curtailed, including freedom of speech. For instance, after extensive research on the history of Vietnam, I concluded as a captain that we were in the wrong war—not a popular belief inside the military in 1966.

If I had shared that viewpoint with anyone below my rank I would have been considered a subversive with a possible dishonorable discharge. I put up with this and some incompetent bosses for seven years because I was proud to serve the greatest country in the world. I ended up assistant chief, security and law enforcement, of the 4th Air Force. I learned how to set policy and enforce it. 

I resigned because I wanted to get back into business where I could be my own boss again. That experience provided an effective backdrop in giving me perspective on rules, standards, and laws.

It has been my observation over the years that when humans have some power it almost always leads to the desire to have more power. Sometimes that power can exceed the limits of original intent.

For example, as a member of the Inspector General’s team of the 4th Air Force, I had a general in a subordinate command group who refused to allow his security policeman to carry a weapon. He was exercising more power than he was legally allowed and was breaking military law. With my general’s support we got the issue corrected.

The subject of power leads me to a couple of comments about CFP Board. CFP Board is a self-contained standard-setting and regulatory body in the sense that it has power over all CFP professionals. It is subject to the same temptations of overextending power as any of us would be. 

Currently, I am not on any boards or committees in our profession. I was on CFP Board’s governing body for three years in the mid-1990s and on the FPA national board for three years ending in December 2012. I was also on the board of the College for Financial Planning and as such was a founder of the National Endowment for Financial Education and its chairman of the board for two years ending in 1995. So while I am expressing solely my opinions, they are informed opinions.

Two issues concerning CFP Board have surfaced in the last several months that I want to comment on—how a CFP practitioner chooses a box regarding compensation and the education courses offered to fulfill CE requirements.

The Compensation Question

How I or any CFP practitioner gets compensated is none of CFP Board’s business. The board seems to agree with that by being revenue neutral. But thinking a little more about it, maybe they really do care. Why should the rule that ensnared Alan Goldfarb be in existence in the first place? 

There seems to be a feeling among many in our profession that the superior way a planner should be compensated is by fee only. You might ask as I have, “Why do people believe that?” One answer I have heard is that it connotes objectivity, and if the fee is paid only by the client, it reduces or eliminates conflicts of interest.

This misguided belief has its roots in a myopic understanding of human behavior. Behavior can be legislated and dictated to a certain degree—ask any U.S. Marine and they will tell you. The one thing that cannot be legislated is character. There is a saying in almost any sport, that the sport reveals character; it does not create it. The practice of financial planning reveals character. Every day there are opportunities to make decisions that connote either good or bad character.

“Jim” was a charismatic Air Force Academy graduate. His office was right across the atrium from mine in San Rafael, California. In those days (1972 to 1974) almost all compensation was commissions. Jim’s company did financial planning that led to investing in tax shelters like a cattle feeding operation and leveraged real estate. Jim tried to get me to join them. About that time, a buddy asked me if I knew Jim. I said, “Sure, he’s right next door.” My buddy said, “I can only say two words to you and I’m dead serious—stay away!” You see, my buddy was an FBI agent running the San Rafael, California, FBI office. 

Within a couple of years, Jim’s character was revealed. So there was a commission-only guy who went to jail.

If you only charge fees paid by a client, maybe you could stay out of jail. Well, you know what’s coming next. It’s an answer to the question, “Does the way you are compensated determine character?” Mark Spangler, former president of NAPFA, was convicted of fraud and money laundering. He was a “fee only,” planner, but that did not inoculate him from scamming the public.

The test is not how a person is compensated, but does a person have good character? Checking a box does not determine character. The take-away here could be a question that replaces CFP Board’s boxes, that goes something like this: Do you honestly disclose to clients how you are compensated?

The CE Business

CFP Board explored possibile entry into the education business. I am aware CFP Board has not decided to take that step currently. Extension of power is a wonderful thing until it is done inappropriately.

Does CFP Board have any memory of its birth? It wasn’t formed to educate. Ask Bill Anthes. He was president of the College for Financial Planning for a long time. By the way, Anthes, an innovative thinker, came up with the idea of creating the National Endowment for Financial Education (NEFE). It was the same Bill Anthes back in 1985 who, along with CFP Board, came to the realization that certification, standardization, and regulation should not be in bed with education. Remember, the College for Financial Planning created the CFP mark. To avoid a huge potential conflict of interest between certification and education, the College Board coughed up about a million bucks and created a new legal entity called the IBCFP, which eventually became CFP Board. Not only did the College subsidize this fledgling entity, but it gave up the millions of dollars of future earnings CFP Board enjoys today, because the right thing to do was to keep education, certification, and enforcement separate. 

These two issues have caused enough concern that I and others ask the question, “Who is CFP Board accountable to?” The answer seems to be it is only accountable to itself. CFP practitioners are not members; we are certificants, and that is appropriate. Perhaps the time has come to create an independent committee to serve as a vehicle to evaluate some of the activities of CFP Board on behalf of CFP practitioners. There may be a need for an independent and objective voice.

What do you think?

General Financial Planning Principles
Practice Management
Professional Conduct & Regulation