Earlier today, CNBC released its second annual list of the “Top 100 Fee-Only Wealth Management Firms” to the public. In cultivating the list, CNBC noted that consumers should “make sure you understand how that [advisor] gets paid, and that means [understanding] fees vs commissions” and that “fee-only financial planners… do not accept any commissions or other compensation based on product sales.” Independent RIAs were then ranked based on a “proprietary formula” including assets under management, having staff with professional designations like CFP or CFA, average account sizes, growth of assets, years in the business, and comprehensiveness of advice (even on insurance solutions).
Yet a deeper look at the Form ADV Part 2 disclosures of just the top 10 firms on CNBC’s “fee-only” list reveals that 9 out of 10 of them share in insurance commissions, own an insurance agency, or are under common ownership alongside an insurance affiliate to which advisory clients are referred. In other words, 9 out of 10 of CNBC’s “Top Fee-Only” firms would not actually be fee-only under the CFP Board’s compensation disclosure rules.
Notably, the CNBC list does focus exclusively on registered investment advisers (RIAs), and in most cases the RIA firm does not receive any insurance commissions directly (though it does happen in at least one situation, as RIA status does not technically ban commissions). Nonetheless, in 9 out of 10 cases, the RIA does have a clearly related entity or relationship that generates commissions – to the point that ironically, those “fee-only” firms themselves actually disclose those commissions and the conflict of interest it creates in their own Form ADVs!
Ultimately, the fact that a firm (or its related entities) get commissions doesn’t automatically merit any complaints or mean it is a “bad” firm – it’s about doing whether the firm does what’s right for the client (and is held accountable for it), not how the client pays for it. Nonetheless, this incident suggests that at best, the phenomenon first revealed in the now-infamous Camarda vs CFP Board case – where advisors hold out as “fee-only” based on their RIA but have a commonly owned/related insurance entity to collect commissions anyway – may be far more widespread and common than realized. And in the meantime, these firms are placed in an awkward position with the CFP Board, with its existing precedent in the Camarda and subsequent Goldfarb cases to issue public letters of admonition when commission-and-fee firms hold out as “fee-only” – though notably, in this case there is no evidence that any the firms themselves have ever represented themselves as “fee-only”, beyond the unfortunate fact that CNBC has misclassified them as such on its very public list of “Top 100 Fee-Only Wealth Management Firms“!