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NAPFA Stained By Scandal

It was only a matter of time before NAPFA’s reputation would be tainted in the national media.

Ron Lieber, the personal finance columnist at The New York Times, wrote a story in today’s paper entitled, “How a Personal Finance Columnist Got Caught Up in Fraud.”

Lieber last week received a letter from his advisory firm's custodian, Charles Schwab & Company, saying it “had discovered unauthorized money transfers out of accounts associated with the financial planning firm I use.”

Ironically, Lieber hired advisor Matthew Weitzman of AFW Wealth Advisors after writing a “secret shopper” article about how to pick a financial advisor, which was published by in May 2003 by his former employer, The Wall Street Journal.

A day after receiving the letter from Schwab, Jay Furst, who co-founded AFW with Weitzman, sent an email message to Lieber.

“Matthew Weitzman , one of our partners, has been placed on leave from AFW,” Furst said in the letter emailed to Lieber. “As part of this leave, Mr. Weitzman will have no further contact with any client accounts. We do not anticipate that Mr. Weitzman will be returning to AFW in any capacity.

“We believe that the affected accounts have already been identified and that the total amount of the discrepancy is less than 5% of the total assets under management at the firm,” Furst added. “However, it is possible that additional accounts may be identified during the investigation and that the current estimation may change as a result of the investigation.”

The letter from Furst left little doubt that he blames Weitzman for the wrongdoing. Furst said be notified the Securities And Exchange Commission and that the agency is investgating the matter.

“AFW views these potentially unauthorized transactions as the isolated acts of Mr. Weitzman,” AFW told Lieber in a prepared statement when he asked for the firm to comment. “AFW, its many clients and I are saddened, angered and betrayed by the apparent actions of Mr. Weitzman, Mr. Furst reportedly added. “AFW is sorry for any harm this has caused to its clients.”

And then Lieber brands NAPFA with the black mark that very publicly stains its once unblemished record with the consumer press.

“Mr. Weitzman and Mr. Furst belong to the National Association of Personal Financial Advisors, an organization of financial planners who have sworn off commissions and make money only through fees they charge their clients,” Lieber writes. “Members have made a lot of noise in recent years about ethics and the importance of acting as a fiduciary, in a client’s best interests.”

“I’ve always believed that advisers in the association were plenty smart and morally upright, but it’s hard to recommend them now without at least including an asterisk.”

The consumer press has been infatuated with NAPFA for far too long and it was only a matter of time before one of the group’s members strayed from the lofty principles embraced by the association.

NAPFA members are generally better-trained than the average advisor, and the group has a history of backing ethical practices. But the fee-only compensation model that once differentiated NAPFA members from other advisors has been co-opted by planners who do not practice excellence or are outright unethical. Mode of compensation stopped being an accurate litmus test for professional competence over a decade ago. The consumer press just didn’t know it!

Ron Lieber shouldn’t feel betrayed by NAPFA. He and the rest of the consumer press should have been telling consumers years ago about ways to ensure an advisor is honest. Instead the financial press lazily used the NAPFA membership directory to find the same sources in article after article year after year.

Lieber is now telling readers to read their statements carefully, as if consumers are actually going to do that. He’s a personal finance reporter and didn't detect a problem!

Smart consumers and the consumer press finally have figured out that joining a membership association and networking with ethical financial advisors is no guarantee of integrity and competence.

NAPFA remains a powerful and positive force in the financial advice business. But it needs to reinvent itself and rethink. The same old ideas that used to work are no longer good enough to keep NAPFA in the warm embrace of the press and consumers.

The best way for advisory firms to fight the rising tide of consumer mistrust is by embracing transparency systematically. Transparency must be integrated in an advisory firm’s technology platform and system for client communications.

The Trust Issue
A Breakthrough In Advisor-Client Communications




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