CNBC And Meridian-IQ Proprietary Formula For Ranking The Top 100 Fee-Only Firms

While there are many lists to rank the “top 100” (or 50 or 500) advisors, the recent CNBC Top 100 Fee-Only Wealth Management Firms is unique in its effort to specifically list not just advisory firms in general, but specifically those that are “fee-only” in the services they provide to clients. Noting the importance for consumers to understand the conflicts of interest that arise with commission-based arrangements amongst advisors, CNBC deliberately limited its list to “fee-only” financial planners that operate under a registered investment adviser (RIA) with a fiduciary responsibility to act in clients’ best interests, highlight that the firms “do not accept any commissions or other compensation based on product sales”. Accordingly, CNBC suggests that they will “have fewer inherent conflicts of interest.”

To specifically rank the firms, the CNBC team worked with industry data tracker Meridian-IQ to create a “proprietary” formula to rank firms. Notably, the CNBC process did not involve advisors asking to be on the list, submitting an application, etc. Instead, ranking data was drawn directly from regulators like the SEC, FINRA, and state regulators, and combined together to come up with a quantitative ranking. Given its “proprietary” nature, CNBC did not disclose the exact formula used, but noted the following were included as criteria:

Criteria For Ranking In CNBC Top 100 Fee-Only List – Assets under management – Having staff with professional designations, such as CFP or CFA – Working with third-party professionals, such as attorneys or CPAs – Average account size – Growth of assets – Years in business – Number of advisory clients – Providing advice on insurance solutions

Unfortunately, though, a deeper look at the firm included on the CNBC list include a number that are known for having related insurance affiliates. And in fact, it turns out the approach is far more common than most have realized.

CNBC Top 100 Fee-Only Firms Fail Fee-Only Requirements

As a part of the registration requirements for an RIA, all firms must submit Form ADV, a public disclosure document which includes, in “Part 2”, an explanation under “Item 10” of “Other Financial Industry Activities and Affiliations”. This disclosure documentation must be provided to new updates (along with annual updates thereof), and is publicly available to anyone through the Investment Adviser Public Disclosure (IAPD) search database.

Accordingly, I looked up the Form ADV Part 2 disclosures for each of the top 10 firms in CNBC’s list of top Fee-Only firms, with the remarkably simple approach of just searching for the word “insurance” and seeing what came up in Section 10 on disclosed affiliates. Here’s what I found (in order of the top-10 ranking on CNBC’s list), quoted directly from the companies’ Form ADV Part 2 documents:

Creative Planning

Insurance Activities through Creative Planning Risk Management, Creative Planning Benefits, and Creative Planning Risk Services

Creative Planning has three related insurance agencies.

 Creative Planning Risk Management provides individual life, disability and long term care coverage through various insurance companies.

 Creative Planning Benefits provides group health benefits through various insurance companies.

 Creative Planning Risk Services provides property and casualty coverage.

Clients of Creative Planning may be referred to a related insurance agency. Creative Planning does not receive a referral fee; however, some of Creative Planning’s personnel that are insurance agents may receive commissions for the sale of insurance products. The receipt of insurance commissions is in addition to any advisory fees charged by Creative Planning. – Creative Planning Form ADV Part 2

In other words, Creative Planning explicitly acknowledges that it has insurance companies under related ownership along with its RIA, to which clients are referred and to which clients will pay commissions in addition to their fees.

Carlson Capital Management

ViaForte, Inc. (“ViaForte”): ViaForte applies advanced estate planning strategies and design to utilize opportunities and offer access to financial vehicles provided by insurance companies. The team at ViaForte works with individuals, financial services firms, and business to business advisors including advisory clients of CCM. ViaForte’s agents are licensed with various insurance companies. As such, ViaForte may receive commissions in connection with any insurance product purchased through ViaForte. The client should be aware that ViaForte and CCM are under common ownership. ViaForte products that include securities are offered through M Holdings Securities, Inc. a Registered Broker/Dealer, Member FINRA/SIPC. – Carlson Capital Management Form ADV Part 2

In other words, Carlson Capital Management (CCM) explicitly acknowledges there is a sister insurance agency called “ViaForte” where advisory clients will pay insurance commissions to the CCM-related entity.

CPS Investment Advisors

CPAlliance Insurance Services, Inc. is an Independent Insurance Agency that sells Life, Health & Disability insurance for a commission. The owners of CPS have a majority ownership (100%) of the company CPAlliance Insurance Services, Inc. – CPS Investment Advisors Form ADV Part 2

In other words, CPS Investment Advisors (CPS) explicitly acknowledges that it is the 100% owner of an insurance agency to which clients may pay a commission.

Jackson Thornton Asset Management

Jackson Thornton Risk Management Services, LLC (JTRM) is a licensed insurance agency owned by the accounting firm of JT&Co. which also owns JTAM. JTRM may provide services to advisory clients of JTAM. JTRM offers whole and term life insurance products. JTRM and its associated persons are able to implement recommended insurance transactions for advisory clients for separate and typical commission compensation. – Jackson Thornton Asset Management Form ADV Part 2

In other words, Jackson Thornton Asset Management (JTAM) explicitly acknowledges that it owns an insurance agency as a subsidiary and that advisory clients may end out working with that subsidiary and pay “separate and typical commission” compensation [in addition to advisory fees].

BKD Wealth Advisors

We are, through common control and ownership, affiliated with BKD Insurance, LLC (BKDI). BKDI is an insurance agency and may provide analysis of, and recommend, the purchase and sale of certain insurance products. Insurance licensing is primarily handled through BKDI and not through BKDWA. We utilize the services of Schwartz Benefit Services, Inc. (Schwartz) for most insurance recommendations. Upon agreement, you may be introduced to Schwartz for insurance and analysis recommendations. The recommended products may also be sold to you if it meets your needs. Schwartz pays BKDI up to 50% of the commissions and other compensation received in exchange for the introduction on certain types of insurance products. Commissions are paid to the firm, not to specific individuals within the firm. – BKD Wealth Advisors Form ADV Part 2

In other words, BKD Wealth Advisors (BKDWA) explicitly acknowledges that there is a related insurance agency under common control, along with an outside arrangement with Schwartz Benefit Services, and that commissions generated by referring clients to Schwartz for insurance implementation will be paid back to BKD’s related insurance entity.

SB Capital Management

The Adviser has a California insurance license to sell life and disability insurance. Sandy Singer (a Principal) has a license to sell life and disability insurance. The Adviser earns commissions on these insurance products in addition to any fees earned from financial planning, investment management or other services offered. The commissions are based on the standard commission schedule of the provider of the insurance products and are generally not negotiable. – SB Capital Management Form ADV Part 2

In other words, Singer Burke (SB) Capital Management explicitly acknowledges that one of the principals of the RIA is also a licensed life and health agent, to whom clients will pay insurance commissions (if they choose to do business) in addition to any advisory fees paid.

Adams Hall Wealth Advisors

Insurance Company or Agency

We are under common control with Mariner Insurance Resources, LLC; ERS Insurance, Inc.; and ERS Securas LLC; duly licensed insurance agencies. We do not render or recommend insurance advice or services to our clients. Certain of our Advisory Affiliates, in their individual capacities, are licensed insurance agents and in such capacity may recommend on a fully disclosed basis the purchase of certain insurance-related products. Real Estate Broker or Dealer

We are under common control with Mariner Real Estate Management, LLC. One of our affiliates, Ryan Anderson, is a licensed real estate broker and owner of Mariner Real Estate

Management, LLC. – Adams Hall Wealth Advisors Form ADV Part 2

In other words, Adams Hall Wealth Advisors explicitly acknowledges that it has a related insurance entity to which clients could be referred, and for which the parent holding company will generate (fully disclosed) insurance commissions. In addition, Adams Hall also has a related real estate broker under common control, to whom clients may be referred and generate real estate brokerage commissions as well.

AKT Wealth Advisors

AKT Wealth Advisors LP’s parent company, AKT Services, LLP, also owns… AKT Benefit Advisors LP… and AKT Benefit Advisors LP provides group health benefit, life, and disability insurance services. – AKT Wealth Advisors FOrm ADV Part 2

In other words, AKT Wealth Advisors explicitly acknowledges that it has a related insurance agency under common ownership that may generate insurance commissions on the sale of group health, life, and disability insurance policies to the firm’s (small business) clients.

GHP Investment Advisors

While it does disclose some related accounting entities to which clients may pay separate fees for separate accounting work, GHP Investment Advisors (GHPIA) is the one RIA out of the CNBC’s Top 10 that actually does appear to be “fee-only” and does not generate insurance commissions for itself or a related-party entity under common control.

– GHP Investment Advisors Form ADV Part 2

Droms Strauss Wealth Management

Droms Strauss Advisors, Inc. has a wholly-owned subsidiary company, DSA Risk Management, LLC (DSRM). DSRM was formed primarily for the purpose of offering risk management services and certain insurance related products to clients not otherwise available other than by a duly licensed insurance entity. Products sold through DSRM may result in commissions being paid to DSRM. The payment of commissions to DSRM may result in a potential conflict of interest. In order to mitigate this conflict DSRM fully discloses such commission arrangements to Droms Strauss clients before the client purchases any such products. – Droms Strauss Wealth Management Form ADV Part 2

In other words, Droms Strauss Wealth Management explicitly acknowledges that it created a wholly-owned subsidiary to allow clients to purchase commission-based products, with (fully disclosed) commissions paid to the related entity.

Fee-Only Firms With Disclosed Commissions To Related Entities

So there you have it. Directly from the firm’s Form ADV Part 2 documents, 9 out of the top 10 “Fee-Only” firms on CNBC’s list are not actually fee only under the CFP Board’s compensation disclosure definitions. In fact, to comply with SEC disclosure requirements, the firms have explicitly acknowledged the fact that there are related entities that may generate insurance commissions in addition to any advisory fees paid by clients. And given that 9-out-of-the-top-10 firms don’t qualify based on a simple review of their Form ADV, one wonders how many of the other “Top 100 Fee Only Firms” on CNBC’s list aren’t actually fee-only either?

It’s worth noting that these wealth management firms containing related insurance entities are not doing anything “evil” or Machiavellian. From a practical perspective, having a separate entity to be licensed for insurance purposes is actually a necessary requirement under many state insurance laws, and the reality is that in many cases – e.g., term insurance – clients will pay the exact same thing for the insurance no matter where they buy it. In other words, an insurance commission might get generated, but the client isn’t even paying more for it, because in many categories of insurance there is no such thing as a [viable] “no-load” insurance alternative. Ultimately, it’s about doing what’s right for the client and being accountable to a fiduciary standard for it, not the means by which you’re compensated.

Nonetheless, the fact that the companies acknowledged the existence of the commissions and disclose them in the Form ADV means, almost by definition, these firms are not fee-only! In fact, holding out as a “fee-only” advisor while the advisor (or his/her parent firm) has a related entity that is an insurance agent is the exact issue that brought about the complaint with the CFP Board against Jeff and Kim Camarda, and the subsequent Camarda vs CFP Board lawsuit that has ensued. Similarly, an advisor holding out as being “fee-only” while working for a company with a related entity that generates commissions was what led to the resignation and subsequent public admonition of former CFP Board chair Alan Goldfarb. And after an article on this blog pointed out that under the related-party rules, any advisor working for a broker-dealer is in violation of the “fee-only” rules simply by the fact that they work there, the CFP Board had to reset the compensation disclosures on its own website after a follow-up story in Financial Planning magazine revealed hundreds were in violation of the “fee-only” disclosure rules.

In point of fact, if these held themselves out to the public as “fee-only” with very-similar-to-Camarda disclosures that they can actually receive insurance commissions through related parties, it could place them in violation of the CFP Board’s rules as well – a situation where the CFP Board, under its Camarda-and-Goldfarb precedent, could issue public letters of admonition to the CFP certificants employed at most of these firms (though clients would likely have to file complaints for the CFP Board to become aware in the first place). Similarly, for the firms involved that have CPA/PFS licensees (rather than CFP certificants), if they held themselves out as fee-only while subsequently disclosing commissions it could potentially be a violation of the AICPA’s current Statement on Standards in Personal Financial Planning Services as well.

Of course, it’s important to note that there is no evidence that these firms are marketing themselves as fee-only. In fact, as the CNBC methodology notes, these firms did not apply to be on a fee-only list – CNBC just named them to list on its own. Which means hopefully the CFP Board will be forgiving in recognizing that the firms didn’t market themselves this way, and at worst perhaps just ask the firms to request CNBC to remove the firm names from a list that doesn’t accurately characterize them.

In any event, this debacle perhaps, somewhat ironically, makes CNBC’s point better than it stated itself. As CNBC wrote, “before you hire any financial professional—whether it’s a stockbroker, a financial planner or an investment advisor—you should always find out, and make sure you understand, how that person gets paid, and that means fees vs. commission.” Perhaps the same approach needs to be better applied when generating top-advisor lists, too?

On a personal note, I’d point out that it’s an unfortunate reality in today’s world that calling out publications for mis-labeling fee-only advisors requires identifying and “calling out” the advisory firms as well. My apologies in advance for any of the firms mentioned in this article who never intended to hold out as fee-only in the first place, didn’t want to be, and have simply been swept into a story by CNBC that mischaracterized their compensation. Hopefully in the future such advisor lists will have a better vetting process, to ensure that advisors aren’t put in the awkward position that CNBC has created here.

So what do you think? Is this “much ado about nothing” when it comes to fee-only disclosures? Or are these problematic examples of compensation disclosure violations that deserve to be recognized as such? If CNBC has trouble separating the fee-only advisors from the rest, what does that mean for consumers?