Why NAPFA Matters

Let me explain. There is a fight brewing in Washington the likes of which the financial services world hasn't seen in this country for 60 years. The last time we had a sweeping overhaul of financial advice was in the 1930s, which led to establishment of the Securities and Exchange Commission in 1933 and the Registered Investment Adviser Act in 1940.

Today, everyone agrees financial services regulation is a mess: We have the SEC, the NASD, the Treasury Department, the Department of Labor, the AICPA, the CFP Board, and state insurance and securities divisions all looking over the shoulders of "financial advisors," with the lines between their purviews hopelessly blurred and intertwined. Finally, thanks to financial debacles dating back at least to the dot-com crash of 2000, massive change is in the wind.

But change, especially in Washington, is never certain to be good. In fact, with the aggregation of powerful lobbies in Washington–for banking, brokerage firms, insurance, unions, and the AARP–odds are that any changes will not benefit client-oriented advisors, or financial consumers themselves. Indeed, it's entirely possible that independent financial advice will be regulated or legislated out of existence altogether.

Make no mistake, whether you're paranoid or not, they are out to get you. Independent financial advice is no longer merely an annoyance to brokerages, banks, and insurance companies: for some years now it has become a threat. They are dying for a way to get their fingers in your pie, so to speak, or if that's not possible, put you out of business. Within this environment, when Congress feels that it has to do something to "help the consumer," there will be a lot of finger pointing about who the "bad guys" really are. "Unregulated" financial planners are an all-too-easy target.

Such a draconian change doesn't have to come overtly and in fact probably won't, as in a law that renders independent advisors illegal. It will be more subtle, as in a regulatory change that moves independent financial planners under the auspices of the NASD. Or it might be economic, as in raising the regulatory requirements so high as to make independent advice unprofitable. For instance, my SEC-watching friends tell me that soon the Commission will start requiring RIAs to pay for their own independent compliance audits, the same way public companies need independent financial audits. How much do you think that will cost?

What's going to protect financial planners from such an onslaught? In Washington, three things sway decisions: financial might, such as that wielded by brokerage firms, banks, and insurance companies; very large numbers, such as the seven million members of the AARP or the millions in organized labor; and public opinion–for instance, who isn't for protecting the environment or saving Social Security?

Obviously, financial planners aren't in the same financial ball game, or even the same league, as the big institutions. Your numbers aren't going to do it, either (despite one e-mailer who claimed that at its present rate of growth, NAPFA would soon dominate financial planning. It's true that at the current doubling of "membership" every five years, in 50 years, NAPFA would have 1 million members). In fact, one reason why NAPFA's focus on larger numbers is so troubling is because it's the wrong goal at a critical time–like trying to reach the moon by constructing a taller building. No, the 1,264 financial planners in NAPFA, or the 30,000 in the FPA, or the 48,000 CFPs, or even the total 150,000 or so financial planners of all stripes will never be enough to win the day in Washington.

That leaves public opinion. Once upon a time, NAPFA with fewer than 200 members changed the financial services world, by convincing the media and consumers that fees were a better way to pay for financial advice. Today, virtually all financial advisors are paid by "fees" of one kind or another.

Today, we need a similar principle-based "miracle" to convince the media, the public, and the folks in Washington that all financial advice should be required to be client-oriented, fiduciary responsible, fee-compensated, and independent. Who's going to make this happen? The CFP Board is too busy trying to figure out how to make all Merrill and Smith Barney reps CFPs. The FPA has stepped up its lobbying and PR, but its membership may be still too diverse to allow it to effectively make this fight.

Only NAPFA has a membership that stands for all these things today. So it's possible that only NAPFA can lead this fight. It's a fight that has to be won. To survive, independent financial planners have to stand up. I'm afraid NAPFA will have to do it.

Will NAPFA do it? Judging by the NAPFA braintrust's response to my prior column and the e-mails I've received, it doesn't look likely. Not if they've lost their focus on the big picture over a few hundred members. It's one thing to stand for "the public's right to receive unbiased assistance when making important financial decisions," but quite another to launch a campaign that will convince Washington. The future of financial planning hangs in the balance. That's why NAPFA matters.

Bob Clark, a former editor-in-chief of this magazine, sagely surveys the advisory landscape from his home in Santa Fe, New Mexico. He can be reached at [email protected].