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The Institute for the Fiduciary Standard

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Northwestern Mutual Disclosure of Conflicts for CFPs Reveals Scale, Scope, Complexity and Opacity of Incentives

By Knut Rostad on January 29, 2020

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.

Download the full .pdf of the NM disclosure document here:Download

Dan Moisand

 

Dan Moisand is a nationally recognized fiduciary fee-only financial planner, an Institute Real Fiduciary™ Advisor and Chair-elect of the CFP Board.

The Institute has enshrined the ‘Moisand Rule’ on fiduciary practices. It is basic and is more important today than ever: “You have to avoid conflicts. If I avoid a conflict, I don’t worry about it.”

Watch the video of Moisand speaking here.

Bob Veres

 

Bob Veres is a long term observer of financial planning. His Newsletter, “Inside information” Is a staple of leading planners. In the May edition he writes about fiduciary and the Institute.

"But a much bigger point is that the fiduciary standard—as Knut Rostad of the Institute for the Fiduciary Standard has pointed out—has been determined by the Supreme Court (1963 ruling) to be at the very heart of the Investment Advisers Act of 1940. It is the foundation of what it means to be an RIA registered with the SEC instead of a tipster or a tout."

- Bob Veres, Parting Thoughts ... The SEC's Own Compliance Culture

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