Financial Advisor Marketing & Technology

Marketing & Technology For Independent Financial Advisors


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.

11 Responses to “NAPFA Stained By Scandal”

  1. April 18th, 2009 at 10:22 pm

    Ron Lieber says:

    Mr. Gluck —

    Someone sent me a link to your post wondering if you’d actually read my story.

    Re this:

    "He’s a personal finance reporter and didn’t do it carefully enough to detect a problem!"

    I didn’t have a problem. I didn’t lose any money. And reading my own statements wouldn’t have tipped me off to alleged improprieties on the statements of other people.

    Thanks… Ron

  2. April 18th, 2009 at 10:32 pm

    Gloria Smith says:

    "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 do it carefully enough to detect a problem!"

    Actually, Ron Lieber, after checking his account, found that there were no irregularities.

  3. April 19th, 2009 at 1:11 am

    Andrew Gluck says:

    Mr Lieber:

    Thank you for your comment. I appreciate the clarification.

    The AFW letter sent by email to you said clients of AFW whose accounts had “irregularities” had been notified. Since you received that notification from AFW and Schwab, it sounded like there indeed were irregularities found in your account.

    So I appreciate our clarifying this by saying that there were no irregularities in your account and you could not have discovered them by reading your statement, and I changed that sentence to reflect the fact that there were no irregularities to be seen in your account.

    My point is that if even a personal finance reporter who conducts secret shopper research and who reads statements can’t spot an shady advisor, who can?

    Consumers don’t want to work that hard and shouldn’t have to. And, as you say, the NAPFA litmus test is no longer as reliable it once was.

    The best thing that investors can hope for is an advisory firm that is proactively transparent, that proactively discloses trades as they occur and provides the documentation and communication to support all of the activity in a client’s portfolio. In the era of mistrust we’ve entered, advisory firms will need to take steps to make it easier for clients to understand and view what’s happening in their accounts.

  4. April 19th, 2009 at 1:53 pm

    Bill Winterberg says:

    In addition to proactive transparency, I’d like to see firms demonstrate the way they confirm activity in client accounts.

    What I mean is that advisors are the individuals who submit trades and money withdrawal requests (at the request of the client), but other support staff in the firm are the ones who confirm the activity.

    What good is it if the advisor who makes the fraudulent withdrawal is the same person that confirms the activity for the firm? An additional level of checks and balances is needed.

    Unfortunately, not all firms have the revenue to support full-time staff to perform daily confirms and portfolio reconciliation. This scandal may put smaller firms at a significant disadvantage to larger firms with such practices established.

  5. April 19th, 2009 at 4:29 pm

    Andrew Gluck says:

    Firms that handle their own portfolio reporting need to be sure clients see all trade confirmations and encourage clients to read them. Doing this online is not all that difficult.

    Services bureaus, like BOSS, can perhaps play a new role as independent verifiers of portfolio trasnactions. Having an outside firm responsible for performance reporting provides another level of assurance to clients by makign it impossible for an advisory firm to fabricate statements.

  6. April 19th, 2009 at 4:57 pm

    Roger Wohlner says:

    NAPFA is not the issue here. NAPFA, like all professional organizations, is just a collection of individuals. If indeed these charges are true Mr. Weitzman would represent a bad apple. Even one breach of client trust by one advisor is too many. However to say that the alleged actions of one advisor is now indicative that NAPFA does not represent the highest ideals of our profession is simply not correct. Additionally the Fiduciary issue is not "just a lot of noise" it is at the heart of what being a financial advisor is or at least should be. NAPFA is no better or no worse than we were as an organization prior to this unfortunate incident. The press has been good to our organization I think to the benefit of the public. To now turn and bash NAPFA would be a disservice to the public, espeically in this time of financial turmoil. The best way to experience what NAPFA is all about is to attend one of our conferences and mingle with my fellow members. What will come across is that this is a group of the smartest and most ethical people that you will ever meet.

  7. April 19th, 2009 at 6:10 pm

    Roger Wohlner says:

    Andrew, if you are not saying in that NAPFA is diminished as an organization, why the title "NAPFA Stained by Scandal"? Why not something like "Dishonest Advisor Points to the Need to Review Account Statements More Closely"?

  8. April 19th, 2009 at 6:16 pm

    Andrew Gluck says:

    No one–neither Leiber nor I–is saying the actions of one individual is indicative that NAPFA is a bad organizaton.

    What I am saying is that the consumer press now see that NAPFA membership alone is not a guarantee that an advisor is competent or ethical.

    Moreover, just because an advisor says he is fee-only and accepts his responsibilities as a fiduciary does not guarantee competence and honesty. Yes, these are important steps. Absolutely! But these steps are only part of the effort an advisory firm must make to assure clients of fidelity.

    Specifcally, advisory firms that integrate transparency into their internal processes and client communciations backing up their words with substantive actions.

    In this time of mistrust, opening a window into how an advisory firm manages client portfolios will be far more reassuring to investors than merely promising to be honest. Technology now enables such transparency and it is the future of the industry.

    Incidentally, we should all remember that the advisor in question has not spoken out himself–other than in a denial of wrongdoing issued by his attorney who was quoted in Ron Lieber’s article. The allegations could turn out to be false.

  9. April 19th, 2009 at 6:19 pm

    Andrew Gluck says:

    Like it or not, Mr Lieber’s article created the stain on NAPFA’s reputation by saying "it’s hard to recommend them (NAPFA) now without at least including an asterisk."

  10. April 28th, 2009 at 10:53 pm

    Morris Armstrong says:

    I actually communicated with someone who did feel betrayed and they expressed why. It is in the beginning of my blog and the sense of betrayal by a person who was a member of NAPFA reminded me of someone who learned that Santa Claus isn’t real.

    The issue may be that as an organization NAPFA went overboard in their aspirational statements.

    As I said I would rather aim high than aim low but in the real world you should am TRUE.

  11. March 9th, 2010 at 7:19 am

    web development says:

    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.

Leave a Reply