The National Association of Personal Financial Advisors requested the resignation of a member of its compensation committee after he leaked a memo challenging its fiduciary standard to the media, according to InvestmentNews.
Bert Whitehead tendered his resignation a day after it was requested by Robert Gerstenmeier, chairman of the fee-only financial advisors' trade group.
In his memo, Whitehead, founder and principal of Cambridge Connections, was critical of a trend among fee-based advisors in which they charge "different fees on different types of assets, (which) results in an inevitable ongoing conflict of interest: the advisor is incentivized to invest more in stocks on which the client is charged a higher fee."
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Whitehead cited a recent case he came upon of an advisor allocating 97 percent of a client's assets in stocks, one year before they were expecting to retire.
Whitehead produced the memo in his capacity as a member of NAPFA's compensation committee, which examines and aids in setting best practices for the group's members. He released his memo to the media without authorization, and it was reported in InvestmentNews on Jan. 29.
Geoffrey Brown, CEO of NAPFA, said the decision to force Whitehead out had nothing to do with the content of his memo, and everything to do with its unauthorized release to the media.
"The board lost confidence in his ability to meet the demands of his assignment on the compensation committee," Brown told InvestmentNews.
Whitehead stood by his position that setting fees based on how assets are allocated creates inherent conflicts for RIAs.
"If you've got a horse in the race, you can't tell people how to bet," he told the news outlet, while also asserting that he had sent the memo to the compensation committee before he released it to the media.
While no changes have yet been made to NAPFA's compensation guidelines for members, Brown said the issues Whitehead raised in the memo will "probably be incorporated" in some way.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
