Disclosure underscores need for CFP Board to provide additional guidance to CFPs required to manage material conflicts

Financial Planning magazine recently reported on a material conflict of interest case for CFPs in its coverage of Northwestern Mutual’s (NM) disclosure document. The six-page document, specifically crafted for CFPs to use, is called “My Commitment to you as a CFP Professional.”

The document describes in detail how NM’s jungle of material conflicts that face a CFP who is a NM representative or insurance agent. Those include, for example, the contractual relationship with NM, the compensation-related conflicts, increasing-payout percentages … known as a grid, how “I am incentivized to sell more expensive products and services, ” and that “I have an incentive to recommend an NM variable annuity product for purchases below $50,000, which is a material conflict of interest…”

This is an extraordinary document. It plainly describes the magnitude of the incentives aimed to make NM a powerhouse product distributor. It describes a rep’s relationship of three: NM on one side, customers on another and the agent as the third piece. It openly tells the basic story that reps don’t “advise.” They are hired, trained and incentivized to sell.

The disclosure also plainly affirms the scale, scope, complexity, and opacity of the incentives a CFP faces in affiliation with Northwestern Mutual.

Read the full commentary by Knut Rostad at Advisor Perspectives.