National Association of Personal Financial Advisors

From Wikipedia, the free encyclopedia

National Association of Personal Financial Advisors (or NAPFA) is an American organization created in 1983 to aid the field of Fee-Only financial planning by encouraging interest and establishing a new level of professional standards and reputation for excellence. According to its web site, NAPFA's core values are competancy, comprehensive financial planning, objective fee-only compensation, a client-centered fiduciary relationship, and complete disclosure of fees.

Magazines and media often cite NAPFA's checklist of difficult questions to ask your financial planner.

One of the distinguishing characteristics of NAPFA, aside from its insistence on fee-only as the most certain method of minimizing potential conflicts of interest between a financial planner and their clients, is that NAPFA is the only financial planning organization to require a peer review of a candidate members work output prior to granting membership. NAPFA members are compensated directly by their clients. They cannot accept sales commissions from financial services or insurance firms. Members that have been through the peer review process are allowed to use the designation "NAPFA Registered Financial Advisor". The combination of fee-only and a peer review have kept NAPFA's membership small compared to other professional organizations.

NAPFA defines a 'fee-only' financial planner as one who is compensated solely by the client, with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product. This definition seems to indicate an hourly or retainer fee schedule similar to tax advisor or attorney. However, NAPFA's definition has been interpreted by the organization to allow membership to planners who are compensated based upon a percentage of the clients' assets under management. Ostensibly, this kind of asset fee differs in some material way from other asset-based compensation arrangements such as 12-b-1 fees.

While NAPFA members try to eliminate two of the most heinous elements of the financial planning industry -- commissions and conflicts of interest -- NAPFA is not without criticism. NAPFA is commonly criticized for being too self-righteous, too dramatic, and too heavy with transplants from the public accounting world. It also is criticized for having a lack of consistency, organization-wide, in terms of whether asset fees are ethical. This issue has threatened to splinter NAPFA into rival factions during the recent years. John Sestina and Bert Whitehead are two prominent NAPFA members who believe NAPFA's ambivalence to asset fees is ethically wrong.