All A-Twitter about NAPFA & “Fee-Only” Financial Planning

December 3, 2010
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Image by RambergMediaImages via Flickr

Here is my message today:  A Chicago-based CFP retweeted one of my posts earlier this week.  This compliment was made even stronger when I found that he is in NAPFA.

The rest of this post explains what the heck I’m talking about.

Twitter

According to alexa.com, Twitter is presently the 10th most popular website on the internet.  For those of you who don’t know, Twitter is sort of like a part social networking, part mini-blog service.

On Twitter, you can briefly post to the world what you are doing or what’s going on in your life in 140 characters (this sentence has 139).  You can post as many times as you wish.  You can follow what other posters are up to, and other posters can follow you.  If you like what someone has written, you can “retweet” it, or essentially repost it, so that the people following you can also see it.

Anyways, when I found that Mr. Roger Wohlner, a Certified Financial Planner (CFP) out of Chicago had retweeted one of my posts earlier this week, I immediately went to his Twitter page.  This eventually led me to his website, where I found out that he was a member of NAPFA, the National Association of Personal Financial Advisors.

NAPFA

NAPFA is the National Association of Personal Financial Advisors, which is a small group of financial planners who provide services “fee-only”.  All members must have minimum levels of experience, must submit a sample detailed financial plan for review, and must obtain 60 hours of continuing education every two years.  Most importantly, the advisor cannot make any commissions through the sale of products.

So why does this amount to a hill of beans in this crazy world?  Because these kinds of advisors believe that earning money through commissions creates a conflict of interest.

The Conflict of Interest

To illustrate, let me share the following scenario that I had early in my career (an aside:  one can easily find out where I worked in my career with a little internet research.  The following does not reflect any ill-will towards or the opinions of any of my past employers; it merely points out a disagreement in philosophy between me and one boss):

One time, I wrote a financial plan for a financial advisor that he was going to present to a client.  In it, I recommended specific highly-rated mutual funds from the “A” company, whereas the advisor would make more money if he sold the client funds from the “D” company.  After reviewing my plan, my boss came into my office.

Boss:  Scott, good job.  But why didn’t you recommend any “D” funds?

Me:  Because the ones I recommended from “A” have performed better over the last 3, 5, and 10 years, and the “D” funds have not done very well at all.

Boss:  Look, I know where you are coming from, but our advisors – these are our friends – make a higher commission by selling “D” funds.  Our friends are trying to make a living.

I left the firm soon afterwards.

“Fee-Only”

Fee-only financial advisors only charge a fee for the plan or for individual tasks.  They can pick out the best products and strategies at the lowest cost.  The consumer knows the advisor is making recommendations akin to a fiduciary-type relationship, because the relationship is pure and up front.

So are all “fee-based” (advisors charging both fees and commissions) or commissioned advisors evil?  Not at all – many talented and ethical financial advisors make commissions.

However, to me, NAPFA advisors, and other fee-only financial advisors, remove the handicap of influence and quotas at the start, and therefore get the benefit of any doubt.  If you need a financial planner, strongly consider going the fee-only route.  Check out NAPFA.org for a list of some of the best.

 All A Twitter about NAPFA & Fee Only Financial Planning
 All A Twitter about NAPFA & Fee Only Financial Planning

Scott

Scott R. Zucker, Esq. is the owner of The Zucker Law Firm PLLC, located just outside the Capital Beltway in Annandale, within five miles of the City of Fairfax, the county seat of beautiful Fairfax County, Virginia. The firm focuses mainly on estate planning services for Virginia, Maryland and Pennsylvania clientele, and seeks to do so in an affordable and approachable way. People interested in learning more can contact Scott by phone or email.

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3 Responses to All A-Twitter about NAPFA & “Fee-Only” Financial Planning

  1. December 3, 2010 at 3:53 pm

    Scott great post and I’m flattered to be included. NAPFA is a fantastic organization and I’ve found it advantageous personally and professionally to be a member. The great thing about NAPFA is that almost without exception my fellow members are always ready and willing to be of help with questions about various financial matters. As a solo practitioner this allows me to leverage their expertise in areas in which I may not have a great deal of knowledge for the benefit of my clients.
    Roger Wohlner recently posted..The Deficit Commission and Your Retirement

  2. Scott
    December 3, 2010 at 8:11 pm

    Roger–

    The pleasure is all mine. There is something to be said for going the solo route, and yet acknowledging the need for others’ expertise. The combination enables independent thought by the advisor, but is also part of the “best for the client” thinking that is common among NAPFA folks. Coincidentally, I am also finding this kind of congeniality amongst small and solo law firms as well.

    Thank you for taking the time to comment here, and best wishes for a happy holiday season.

    Scott

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