The National Association of Personal Financial Advisors (NAPFA) has long advocated for fee-only compensation as the most transparent and objective method in the financial advisory industry. However, a recent policy change has allowed some flexibility regarding trailing commissions. NAPFA now permits advisors with a minimal amount of trailing commission compensation to become members.
Under the new guidelines, financial advisors who receive $2,500 or less in trailing commissions and do not receive any other sales-related compensation have three options to join NAPFA. They can either transfer the commissions to an unrelated third party, request the commission-paying firm to stop paying them or donate the commissions to a charitable organization. In the latter case, advisors must provide proof of donation annually to maintain their NAPFA membership.
NAPFA said it updated its membership criteria for trailing commissions to align with the Certified Financial Planner Board of Standards Inc.'s code of ethics and standards of conduct. According to InvestmentNews, this revision comes after the CFP Board recently clarified its code to determine when trailing commissions are not considered sales-related compensation. NAPFA and the CFP Board now follow a three-step process for advisors to relinquish trailing commissions, ensuring consistency between the organizations. The CFP Board's code explicitly states that a CFP professional referring to themselves or their firm as fee-only does not provide false or misleading information regarding their compensation method in cases involving trailing commissions.
Financial Advisor Transitions consults advisors nationwide to explore employment transition options and to preserve and protect their practice in any transition that they make.
