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NAPFA faces test if 'fiduciary' status becomes norm

Amid brewing storm, there's an eerie calm at conference

Thursday, August 27, 2009 – 3:48 AM by Elizabeth MacBride
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Diahann Lassus: Model of regulation should help consumers

Before RIABiz had its online debut, I asked Elizabeth, a seasoned non-financial business reporter, if she was interested in writing for this publication. She replied that she’d be interested in meeting some financial advisors to see what she thought of the industry. It turned out that NAPFA was having its national conference at the Gaylord Hotel in Washington just 10 minutes from her home the very next week. She was unsure of writing about an industry that she was just becoming acquainted with. I told her that her fresh observations would be as interesting as those of an expert reporter. NAPFA graciously accepted her late registration and this column came about by that process.Brooke Southall

You get the feeling about NAPFA that it’s an organization at a crossroads – and that its members ought to be a bit more concerned.

NAPFA, the National Association of Personal Financial Advisers, has always set the bar high for its members, asking its advisors to promise to abide by a stiff fiduciary standard buttressed by continuing education and an ethic of being paid by fee alone. NAPFA’s small membership, of fewer than 2,000, probably reflects how few advisors are willing to work to these exacting standards.

Now that the latest Wall Street bust has tainted the financial services industry in general, NAPFA is trying to use its outsize ethical standing to seize a leadership position in the debate over new regulations proposed by the Obama administration.

It’s not been an easy road.“We really thought we were making progress,” says NAPFA chair Diahann Lassus, president of Lassus Wherley & Associates, based in New Jersey and Florida. “Everything’s beeen sidetracked by health care reform.”

Fast education

She now believes that there’s only an outside chance new regulations will be passed this fall. Ms. Lassus has received a fast education in the way things work on Capitol Hill in recent months. In an interview at NAPFA’s annual convention at the Gaylord Convention Center outside Washington, she seemed downright shocked that staffers on the Hill knew very little about the industry they were drawing up regulations to cover. (She suggested that they start by creating a flow chart to illustrate which regulatory bodies have jurisdiction over which people and what kinds of companies.)

In July, Ms. Lassus gave testimony to the House Finance Services Committee on behalf of the Financial Planning Coalition, which includes NAPFA, the Financial Planning Association and the Certified Financial Planner Board of Standards Inc. The coalition recently hired its first lobbyist.

Of course, Ms. Lassus was sitting at a table with a representative from the Securities Industry and Financial Markets Association, one of Washington’s best-funded and most-feared lobbying groups.SIFMA, like the other groups, has embraced the idea of a fiduciary standard.

The question is how, exactly, “fiduciary standard” will be defined in any new legislation.“Will it be diluted?’ Ms. Lassus asks.The striking thing at the NAPFA conference was how little concer the rank- and-file membership seemed to show for the high-stakes regulatory battle, which could utterly transform the industry.

When I attended NAPFA’s national conference in Washington DC early in June, talk at the lunch tables was of marketing strategies, and software. The overall impression I got at the conference was one of a world in a bubble, still wealthy by the standards of most small businesses, devoted to clients and to maintaining its position at the top of the ethical heap.

Though almost all of the attendees said they’d seen income decline, few have had to resort to layoffs, and many were seeing hopeful signs in assets fleeing the wirehouses.

Plenty of nice freebies

One sign of the wealth in the market were the financial product marketers and software providers there to woo NAPFA members, handing out plenty of nice freebies, from gold pens to cuddly stuffed animals. That’s a distinct difference from other recession-straitened conferences I’ve been to lately.

There was plenty of discussion about how to educate clients about the importance of fee-only financial planning. But if the prevailing ethical standard in the industry becomes the fiduciary standard or if American regulators follow the lead of the British and decide that commission-based pay ought to be vastly limited, NAPFA could face a new set of challenges in distingushing itself.

Maintaining NAPFA’s special place as a haven for fiduciaries is not the point, Ms. Lassus says. The question is: “can you change the model of regulation in a way that helps the consumer?” That question remains to be answered.

Mentioned in this article:

National Association of Personal Finance Advisors
Top Executive: Geof Brown, CAE

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