The National Association of Personal Financial Advisors, long known as the professional organization for advisors with no commission business, has updated its membership standards for advisors with trailing commission compensation.
The change provides a pathway to NAPFA membership for advisors who began their careers in a commission-based model but have been unable to transfer their negligible amount of commissions due to clerical challenges, NAPFA stated.
Under the changes, 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 those commissions.
NAPFA has outlined a three-tiered process for relinquishing commissions, including first requesting a transfer or assignment of the commission-based assets to a person or entity that is not a related party. Second, “if the assets are unable to be transferred, the advisor must contact the entities paying the trailing commission and request that these entities discontinue paying any trailing commission,” NAPFA stated.
Lastly, if neither of those steps work, the advisor may then donate the remaining commissions to charity.
NAPFA made the changes to be more inclusive to fee-only financial planners who have been unable to drop their de minimis commission business.
“This policy change allows NAPFA to support more eligible fee-only financial advisors and their clients, who value the transparency and objectivity that come with a fee-only compensation structure,” NAPFA said in a statement.
In an FAQ on the change, NAPFA stated it does not expect the update to substantially increase its numbers above its current level of 4,500 members. The organization also stated the update will not change its rigorous 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.”