Fee-Only Planner Definition
Course: Fundamentals of Financial Planning
Lesson 1: The Personal Financial Planning Process
Student Question:
Hello-
I have a question on the example where it says a fee-only CFP Certificant cannot accept sales-related compensation such as commissions on the sale of life insurance products. Let’s say that a CFP Certificant recommended that the client go speak with one of your friends who helps people consolidate debt or helps people work on their credit score for an hourly fee. Could you not make agreements with that friend to get 10% of that sale if the client chooses to work with them?
Or let’s say that a client has been talking about selling their home and buying another to help with their finances. You have a real estate friend who could help this client find a new home in their new budget. Could you get 10% of that home sale for referring the client over to that friend?
Thanks
Alexis
Instructor Response:
Hi Alexis-,
Here’s how the CFP Board defines fee-only.
Fee-Only. A CFP® professional may represent his or her or the CFP Professional’s Firm’s compensation method as “Fee-Only” only if:
- The CFP professional and the CFP Professional’s Firm receive no Sales-Related Compensation; and
- Related Parties receive no Sales-Related Compensation in connection with any Professional Services the CFP professional or the CFP Professional’s Firm provides to Clients.
Disability buy-out insurance in a Cross-Purchase Buy-Sell Agreement
Sales-Related Compensation. Sales-Related Compensation is more than a de minimis economic benefit, including any bonus or portion of compensation, resulting from a Client purchasing or selling Financial Assets, from a Client holding Financial Assets for purposes other than receiving Financial Advice, or from the referral of a Client to any person or entity other than the CFP Professional’s Firm. Sales-Related Compensation includes, for example, commissions, trailing commissions, 12b-1 fees, spreads, transaction fees, revenue sharing, referral or solicitor fees, or similar consideration.
So the issue here is that if you are a fee-only planner, you cannot take any sales-related commission. However, if you’d like to do that, you need to communicate to your clients that you work on sales-related compensation. The board is very serious about accurately representing your fee structure to clients.
Hope that helps!
Dan
