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NAPFA and the History of Financial Planning: From Salesperson to True Advisor 

By Bill Prewitt

In the year of our 40th anniversary, NAPFA is delighted to share this history of NAPFA’s origins.In this article, we hear from Bill Prewitt, a longtime member and volunteer leader of NAPFA.

NAPFA was founded on the belief that there was a better way for financial professionals to relate to customers. We call them “clients” now, but before NAPFA, the industry regarded them as “customers” to be sold products. My, how times have changed, thanks to the efforts of NAPFA and its members!

Then: An Industry Selling to Customers

Forty years ago, the financial industry saw its job as overcoming customers’ resistance by applying advanced sales techniques. The successful sale of a product was the operational foundation of the industry. Salespeople were judged by their “production.” Those generating more transactions created more revenue for the firm’s owners. Charts comparing individuals’ weekly sales were common; they were designed to create a contest atmosphere, prodding everyone to improve their sales production. High producers were rewarded with bonuses and free travel. Low producers were allowed to fall by the wayside because they were seen as tying up otherwise useful desk space and telephone lines.

Questioning the Sales Approach

NAPFA’s Fee-Only approach introduced the idea that fees paid by a third party introduced a significant conflict of interest that corrupted the advisor’s objectivity. Whose interest was served—the advisor’s or the customer’s? The answer was clear to NAPFA members.

Many so-called advisors who were selling products rationalized that they were objective, claiming they could “wear two hats.” While wearing the “advisor hat,” they claimed to be objective advice providers. However, to be compensated, they had to wear a “sales hat.” Compensation was usually in the form of commissions paid by the companies that developed the financial products. Sometimes, the advisory company also was the company that developed the products. During company sales meetings, it was common for a company to tout a specific product for salespeople to promote to their customers; extra compensation in the form of bonuses or prizes incentivized them to move that product over the next sales cycle.

NAPFA’s influence shifted the focus of the relationship to the client. Using the Fee-Only moniker, all compensation was to come directly from the client, making transactions transparent to all parties. With compensation no longer dependent on the successful sale of a product, a significant conflict of interest no longer tainted the relationship.

Financial Planning’s Shift in NAPFA’s Direction

The public was slow to catch on to how compensation affected relationships. However, NAPFA enjoyed credibility with the financial press, whose members gained an understanding of the conflicts of interest issues through interviews with NAPFA members. It quickly turned out that members of the public wanted financial knowledge and a better way to get financial advice. After the so-called “education” they had received from product salespeople, they were receptive to answers that made sense. The term Fee-Only began to gain popularity as consumers began to understand the conflicts of interest created by third-party compensation.

Slowly, the concept of “fiduciary” also began to creep into the conversation. Originally, it was a term one ran into only dealing with trust companies. As NAPFA members’ relationships with their clients matured, they realized that they occupied an unparalleled position of trust in their clients’ lives. Ethically, they felt compelled to act in the best interests of their clients without regard to their own financial interests—in other words, acting as fiduciaries. As NAPFA shared this message, the press again was highly supportive.

Over time, NAPFA’s message resonated with financial associations, too. In its latest revisions, the CFP Board of Standards has defined Fee-Only and fiduciary in terms compatible with NAPFA’s. The Institute of the Fiduciary Standard has developed guidelines for Real Fiduciary™ Advisors that amplify the message NAPFA aims toward the public.

Over the past 40 years, NAPFA has filled a need for both givers and receivers of financial advice. We have accomplished this with a consistent message articulated through loyal volunteers, supported by a dedicated staff, and delivered by the press to a receptive public. I look forward to what NAPFA accomplishes in the next 40 years.

Bill Prewitt, MS, CFP®, founded Charleston Financial Advisors LLC in 1986 and is on his retirement glide path. He works a two-day week, sails Charleston Harbor, and hikes in the North Carolina mountains.