National Association of Personal Financial Advisors (NAPFA) is an American

financial planning In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans. This often includes a bu ...

trade organization A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific industry. An industry trade association partic ...

created in 1983 to expand the use of fee-only

financial advisor A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory ...

s by individual consumers. NAPFA established the first set of

professional standards National Occupational Standards (NOS), also known as professional standards, specify UK standards of performance that people are expected to achieve in their work, and the knowledge and skills they need to perform effectively. NOS, which are appr ...

for fee-only financial advisors and has updated them to reflect changes in industry practices. NAPFA members are distinguished from other financial professionals in several ways. * Adherence to a fee-only standard is strict: NAPFA members cannot accept compensation in any form from any source other than their clients. There are no exceptions. NAPFA believes that this minimizes potential

conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations i ...

between a financial planner and their clients. * The

fiduciary relationship A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...

requires that members always put their clients' interests before their own and that they disclose any potential conflict of interest prior to the client making a decision. This fiduciary standard is in direct opposition to the fiduciary standard by which

stockbroker A stockbroker is a regulated broker, broker-dealer, or registered investment adviser (in the United States) who may provide financial advisory and investment management services and execute transactions such as the purchase or sale of stocks an ...

s are held, a standard under which their legal responsibility is to their employer ahead of their client. * NAPFA is the only financial planning organization to require a

peer review Peer review is the evaluation of work by one or more people with similar competencies as the producers of the work (peers). It functions as a form of self-regulation by qualified members of a profession within the relevant field. Peer review ...

of a candidate member's work output prior to granting membership. * Peer review ensures that a NAPFA member has the ability to provide comprehensive financial planning across a wide range of potential client needs—

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

es,

estate planning Estate planning is the process of anticipating and arranging, during a person's life, for the management and disposal of that person's estate during the person's life, in the event the person becomes incapacitated and after death. The planning inc ...

, college savings,

insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

long-term care insurance Long-term care insurance (LTC or LTCI) is an insurance product, sold in the United States, United Kingdom and Canada that helps pay for the costs associated with long-term care. Long-term care insurance covers care generally not covered by health ...

retirement Retirement is the withdrawal from one's position or occupation or from one's active working life. A person may also semi-retire by reducing work hours or workload. Many people choose to retire when they are elderly or incapable of doing their j ...

spending, and more. * All new members since 2012 must have the

Certified Financial Planner The Certified Financial Planner (CFP) designation is a professional certification mark for financial planners conferred by the Certified Financial Planner Board of Standards (CFP Board) in the United States, and by 25 other organizations affiliated ...

designation. * NAPFA has the highest continuing education requirement in the industry, with 60 credit hours required every two years. The combination of strict fee-only rules and a peer review have kept NAPFA's membership small compared to other professional financial planning organizations. As of December 1, 2018, NAPFA had approximately 3,500 members.NAPFA - What Is NAPFA?
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Fee-only

NAPFA defines a "fee-only" financial advisor as one who is compensated solely by the

client Client(s) or The Client may refer to: * Client (business) * Client (computing), hardware or software that accesses a remote service on another computer * Customer or client, a recipient of goods or services in return for monetary or other valuable ...

, with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a

financial product Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, ...

. This definition is in direct contrast to most advisors, who earn commissions, discounts, and other

incentive In general, incentives are anything that persuade a person to alter their behaviour. It is emphasised that incentives matter by the basic law of economists and the laws of behaviour, which state that higher incentives amount to greater levels of ...

s when their clients purchase financial products. Also, unlike other financial planners, NAPFA members are required to clearly disclose the fee in advance. However, NAPFA members differ on how they charge the fee. Some advisors charge an hourly rate, similar to an

attorney Attorney may refer to: * Lawyer ** Attorney at law, in some jurisdictions * Attorney, one who has power of attorney * ''The Attorney'', a 2013 South Korean film See also * Attorney general, the principal legal officer of (or advisor to) a gove ...

or CPA. Rates vary by region of the country and an advisor's experience level and expertise. Some advisors charge a

retainer fee A retainer agreement is a work-for-hire contract. It falls between a one-off contract and permanent employment, which may be full-time or part-time. Its distinguishing feature is that the client or customer pays in advance for professional work ...

schedule that is paid quarterly or annually. Other advisors charge based upon a percentage of the client's assets under management, such as a 1% fee on the assets per year. Regardless, the fee must be made clear to the client. NAPFA does not permit its members to be compensated via the industry-standard 12b-1 sales & marketing expense fees for

mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...

s. From NAPFA's perspective, there are two problems with these fees: undermined

objectivity Objectivity can refer to: * Objectivity (philosophy), the property of being independent from perception ** Objectivity (science), the goal of eliminating personal biases in the practice of science ** Journalistic objectivity, encompassing fairne ...

and inadequate disclosure. * Objectivity: A mutual fund pays 12b-1 fees directly to the selling

broker A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be confu ...

-dealer, to be shared with the selling broker. This violates NAPFA's rules—though it is neither illegal nor unusual—and it potentially could influence an advisor's recommendation about selection of a fund. * Disclosure: NAPFA has written to the

Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...

(SEC) to explain that the fees are removed from the clients' assets without notice or

invoice An invoice, bill or tab is a commerce, commercial document issued by a sales, seller to a buyer relating to a sale transaction and indicating the product (business), products, quantities, and agreed-upon prices for products or Service (economic ...

to the client, are not reported on their investment statements, and are generally invisible to the client except through reduced investment returns. In 2010, the SEC adopted rules to improve disclosure of 12b-1 fees.

Comprehensive

NAPFA's membership requirements include proof that a financial advisor can produce a comprehensive financial plan for a client. Proof is demonstrated through peer review of a financial plan submitted by the prospective NAPFA member. The plan can either be from an actual client with whom the advisor is working, or it can be a plan produced from a sample set of facts and situations developed by NAPFA to test a candidate's knowledge. The plan must contain numerous specific elements that are common needs of many individuals and families. These include the following: a client's goals and objectives,

net worth Net worth is the value of all the non-financial and financial assets owned by an individual or institution minus the value of all its outstanding liabilities. Since financial assets minus outstanding liabilities equal net financial assets, net ...

statement,

cash flow A cash flow is a real or virtual movement of money: *a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...

analysis, recent

tax return A tax return is the completion of documentation that calculates an entity or individual's income earned and the amount of taxes to be paid to the government or government organizations or, potentially, back to the taxpayer. Taxation is one of ...

and analysis, insurance needs (medical, home, life, disability, long-term care, auto, umbrella, other),

investment analysis In finance, valuation is the process of determining the present value (PV) of an asset. In a business context, it is often the hypothetical price that a third party would pay for a given asset. Valuations can be done on assets (for example, inve ...

and recommendations, retirement needs and projections, and estate plan and related elements (will,

Advance health care directive Advance commonly refers to: *Advance, an offensive push in sports, games, thoughts, military combat, or sexual or romantic pursuits *Advance payment for goods or services *Advance against royalties, a payment to be offset against future royalty pay ...

, durable

power of attorney A power of attorney (POA) or letter of attorney is a written authorization to represent or act on another's behalf in private affairs (which may be financial or regarding health and welfare), business, or some other legal matter. The person auth ...

, etc.).

Consumer Education

In addition to developing standards for financial advisors and enforcing those standards, NAPFA engages in a variety of free

consumer education Consumer education is the preparation of an individual to be capable of making informed decisions when it comes to purchasing products in a consumer culture. It generally covers various consumer goods and services, prices, what the consumer can e ...

programs. These are designed to teach consumers how to manage their financial affairs, as well as to identify when they might need the assistance and support of a fee-only financial advisor.

Consumer Advocacy

NAPFA has always advocated on behalf of consumers' interests. In fact, protecting

consumer A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. T ...

s was the impetus behind the creation of the organization—the radical idea in the early 1980s that fee-only financial planning, without high and hidden commissions, would be better for consumers. Over the years, NAPFA's influence has resulted in greater awareness and adoption of fee-only principles by leading financial advisors, other major

financial industry Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, ...

trade association A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific Industry (economics), industry. An industry tra ...

s, and government regulations. Since 2008, NAPFA has joined with two other organizations in the Financial Planning Coalition (FPC) to push for greater change for consumers, at a time when an economic downturn and investment scandals have affected the financial security of nearly all Americans. NAPFA, the Financial Planning Association, and the CFP Board of Standards formed the Financial Planning Coalition to work with

Congress A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of a ...

and federal agencies to strengthen the rules on financial advisors' fiduciary conduct, fee disclosures, and conflicts of interest. Among the FPC's successes in this area have been greater disclosure of 12b-1 marketing fees by mutual funds and the SEC study in fall 2010 of a need for a consumer-first fiduciary requirement on investment brokers.

References

{{DEFAULTSORT:National Association Of Personal Financial Advisors Business and finance professional associations Personal finance