The National Association of Personal Financial Advisors has revised its criteria for membership, InvestmentNews reports.
NAPFA has advocated for fee-only compensation for financial advisors, and until now did not allow membership for advisors who receive commissions.
But in a recent policy change, the organization decided that applicants can qualify for membership if they receive no other sales-related compensation, have no more than $2,500 in trailing 12-months commissions, and relinquish their commissions.
According to the updated rules, advisors who have $2,500 or less in trailing commissions and receive no other sales-related compensation can join NAPFA if they transfer the commission-based assets to a non-related party, ask the firm paying the trailing commission to stop paying it, or donate their commissions to charity.
NAPFA said it was updating its membership standards in order to bring the association into line with the standards and code of ethics established by the Certified Financial Planner Board of Standards. The CFP Board has established similar criteria for CFP professionals to relinquish their trailing commissions.
NAFTA said the revisions would make the organization more inclusive to fee-only financial planners and increase its membership above the current 4,500 members without lowering its high standards.
“This policy change allows NAPFA to continue the advancement of fee-only financial planning by aligning with other like-minded financial planning organizations to follow a consistent definition of fee-only financial planning,” NAPFA said. “A common definition within the profession promotes greater consumer understanding and transparency of fee-only advising and allows NAPFA members to continue to deliver the highest professional and ethical standards to clients.”
The association said the change would also provide a pathway to membership for advisors who began their careers in a commission-based model but have not been able to transfer their commissions.
NAPFA’s position has been that fee-only compensation is the most transparent and objective method, minimizing conflicts and ensuring that financial planners act as fiduciaries.
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