NAPFA narrows ‘fiduciary’ to fee-only planners

The National Association of Personal Financial Advisors on Monday adopted a new definition of “fiduciary” that applies only to its fee-only members, who do not accept commissions. The policy bans sales contests and referral fees and requires members to take a fiduciary oath.

Under the new standard, compensation for NAPFA members must come solely from fees charged for managing assets, creating financial plans or providing other services. The policy also requires proactive disclosure of conflicts and a pledge to “always act in good faith and with candor,” plus an explicit refusal of referral fees contingent on product sales.

NAPFA Board Chair Natalie Pine described the definition as a supplement to the Securities and Exchange Commission’s fiduciary rule and said the organization wanted a clearer label for planners who do not switch between fee and commission work. NAPFA officials said the change is intended to help consumers find advisors who follow a fee-only model.

Supporters among fee-only planners said the definition answers specific client questions about conflicts and compensation. Brenna Baucum, a NAPFA member and owner of Collective Wealth Planning, said the rule provides a simple way to confirm whether an advisor is paid only by the client and whether compensation could change based on product recommendations. NAPFA requires members to hold the CFP designation and to complete at least 60 hours of continuing education every two years.

Critics said the new label could add confusion to already overlapping industry terms. Jeff Judge, founder of Chesapeake Financial Planners, said he often spends time explaining the difference between fee-only and fee-based advisors and expects the new definition will complicate those conversations. Judge argued the SEC’s fiduciary test-asking whether an advisor acted in a client’s best interest-is auditable and enforceable, while NAPFA’s approach is a compensation standard.

Knut Rostad, president of the Institute for the Fiduciary Standard, pointed to the legal foundation of the adviser fiduciary duty under the Investment Advisers Act of 1940 and related court and regulatory interpretations. He characterized the emergence of an alternative, organization-specific fiduciary label as potentially confusing for investors who rely on the statutory standard.

Other observers questioned whether an oath and conduct pledges will change behavior in practice. Bryan Byrer, founder of a fee-only planning firm in Indianapolis, compared professional oaths to ethical statements in other fields and noted that promises alone do not guarantee compliance.

NAPFA has about 4,600 members. That membership represents under 5% of the roughly 110,000 individuals who hold the CFP mark. The CFP Board maintains its own fiduciary definition but does not limit the term to fee-only advisors. The NAPFA policy takes effect for the organization’s members and establishes a specific, compensation-based definition of fiduciary within the group.