The last choice, commission only,
is a dying breed. It has been a dying
star for some time. The concept of
advisors acting as a fiduciary is
gaining momentum, and I believe
it is here to stay. I also believe that
the fiduciary standard is appropriate and necessary to run an ethical financial planning practice and
imperative for clients to make informed choices. That doesn’t mean
that commissions will disappear
entirely from the financial planning landscape, but it does mean
that advisors will need to disclose
all conflicts of interest, including
the compensation received from
product manufacturers as a result
of implementation activities.
Please don’t read into this that I
feel that commission-only planners
are unethical. But my experience
does lead me to believe that the
advice rendered by such commission-only planners is frequently not
holistic and proactive, and often
limited to the areas from which they
may receive a commission from
product sales. Commission-only
advisors also run the risk of spending hours on planning services only
to go uncompensated if a sale is not
made. This goes against the grain of
every CPA that I know.
For years, the fee-only method
was the fastest-growing segment of
the planning business. Fee-only advisors only receive compensation in
the form of fees charged to clients.
These fees are typically delivered on
a fixed or hourly fee basis for planning activities. For asset management activities, fees are commonly
tied to a percentage of the assets
overseen by the advisor or done
on a fixed-fee basis. I started as a
fee-only planner, and found great
success in the early days of my CPA
firm simply by touting our independence and objectivity.
Models
FROM PAGE
20
tention, but over time the service
model has morphed largely in that
direction for many practitioners. I
have several problems with this.
First is that I challenge the average advisor, fee-only or otherwise,
as to their true abilities as an asset
manager. Not because CPA financial planners are not smart enough
to manage assets, but because asset
management is a full-time business.
And unless your practice is very
small, it is nearly impossible to do
a great job as an asset manager and
be a holistic and proactive financial
planner. Another observation of
fee-only planners is that many have
an aversion to insurance. Fee-only
planners commonly bash annuities and insurance products, and
consequently I’ve taken over many
clients from fee-only planners who
were severely underinsured or never learned about the income benefits of annuities. While it is true
that there is probably more abuse
proffered at the hands of insurance
agents than fee-only advisors, this
type of generic disdain is hardly in-
The
knowledge
needed is
broad and
wide, and
one person
cannot
know it all.
dependent and holistic.
The last model, and now the
fastest-growing one, is called the
hybrid model, or one in which the
advisor charges fees and receives
commissions. Hybrid advisors
have both securities licenses and
are registered investment advi-
sors. Many also obtain insurance
licenses. At first many CPAs cringe
at the thought of selling insurance,
but it just takes one bad deal from
an agent to their client for them to
realize that they might have done a
better job. And if you are a student
of the CPA financial planning in-
dustry as long as I have been, you
remember the American Institute
of CPAs’ study of business-owner
clients from the late 1990s where 86
percent of business-owner clients
would prefer to buy their life insur-
ance from their CPA, rather than
from a life insurance agent.
John P. Napolitano, CFP, CPA, PFS,
is chairman and CEO of U.S.
Wealth Management in Braintree,
Mass.
FEE-ONLY CAVEATS
In practice, however, many fee-only planners stop after they have
delivered the plan and taken over
the management of client assets.
I’m sure that this was not their in-
