Rule Change on Disclosure Stirs Up Financial Planners.

OVER the years, the public has grown more suspicious of financial salespeople who earn commissions.

Maybe their advice, is absolutely straight. On the other hand, maybe it's influenced by the size of the commission they're going to earn. There are planners who think every client needs a tax-deferred annuity -- which happens to pay particularly well.

No one is more aware of this problem than certified financial planners. Planners take a variety of financial courses to get a CFP designation, which they think of as the industry's gold standard.

But the profession's leaders worry -- correctly -- about the issue of trust. If the public is sniffing, they don't want anything to smell.

Last year, the CFP Board of Standards proposed a change to the planners' Code of Ethics. The purpose: to tell you more about how -- and what -- individual planners are paid.

Right now, CFPs are required (by their code) to disclose only whether they're compensated by sales commissions, customer fees or both.

Commissions are paid by financial companies that have something to sell (mutual funds, insurance companies). Some pay more than others. A commissioned planner's standard of living depends on which particular products you buy.

Fees are paid by you, the customer. "Fee-based" planners take both fees and commissions. "Fee-only" planners take no commissions (or aren't supposed to). Instead, they run your investments for an annual percentage of the assets they manage -- say, 1 percent. Their standard of living depends on attracting clients with decent nest eggs to invest.

Clarifying terms

The CFP board proposed that planners get more specific about their specific about their compensation.

First, they think you should be clued in to the many ways planners earn their keep. For example, there are several forms of sales commissions, not all visible to you (such as "trail" commissions, paid in the years after you buy).

Second, they think you should be told specifically about the planners' conflicts of interest -- say, fees earned in return for referring you to a mortgage company or accountant.

Third -- and most controversially -- they want CFPs to disclose the amount they earn on each financial product, either in dollar or percentage terms. A CFP's brochure might have to say, "If I sell you this variable annuity; the insurer will pay my firm a commission of 5 percent. Of that amount, I'll earn one-third."

Well, talk about a storm.

Fee-only planners generally favor the change. They're already disclosing their fees for various services.

The commission planners, however, went nuts -- especially those who sell insurance and annuities. They stormed that disclosing specific commissions would put them in the competitive soup.

For example, say you had $50,000 to invest. A commissioned planner might suggest a variable annuity on which he'd earn $2,500 upfront. A fee-only planner might suggest a no-load mutual fund and charge 1 percent a year ($500 the first year).

The commission planners complain that the fee-only planner would look cheaper. If they have to disclose, they threaten to average their commissions over, say, 10 years -- so that $2,500 upfront could be quoted at a low "$250 a year for 10 years" (assuming you kept the annuity and not counting any trail commissions).

Also, two commissioned planners might not be paid the same amount. A novice gets less than an experienced salesperson. Disclosure, they fear, would make the novice look less expensive.

Their attitude is -- if you want to know the commission, read the prospectus. More disclosure just means more paperwork. Besides, it would hurt business! Planners like these think their livelihood depends on keeping you in the dark.

Informed choices

But disclosure isn't about comparing two planners. Consumers don't shop for CFPs by price.

Instead, it's about comparing the different products sold by the same CFP.

The issue is trust. What are my options, as a customer -- an annuity or a mutual fund? Term insurance or whole-life? What financial difference does it make to the planner if I chose one over another?

Knowing the answer doesn't mean that customers always will choose what's cheap. But it might make them feel more confident that they've chosen based on their own needs, not on the planner's.

Originally, a new disclosure rule was supposed to have taken effect next January. Not likely, I'd say -- although Patti Houlihan, chair of the CFP Board of Governors, still hopes that the fight can be sorted out. "It's a wording question," she said.

Actually, it's a philosophy question. The financial world is full of conflicts of interest, which you pay for ultimately. The question for CFPs is whether they want to take an ethical step up.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.

All Taxpayers Won't Be Getting Refunds

I'm finding a lot of misunderstanding about the tax-refund checks that are being mailed out.

Single taxpayers would get $300 each, heads of household, $500, and couples filing jointly, $600. About 79 million taxpayers are indeed going to get the full amount most of them in the upper half of the income base, according to Citizens for Tax Justice. But some 34 million people won't get a dime. Another 17 million will get less than they expected.

The tax law created a new 10 percent bracket for all taxpayers. It was previously 15 percent.

The 10 percent bracket was backdated to Jan. 1, so your taxes for 2001 are going to be slightly lower than you originally thought.

Normally, you'd claim the refund on your 2001 income-tax return. But those refunds are being paid now -- in advance.

The government doesn't know what you're going to earn in 2001, of course. So it is basing your refund on your 2000 tax, return. The refund is measured as 5 percent of your taxable income, up to the $300, $500 or $600 ceiling.

But to qualify for payment you have to have paid income taxes last year.

Jane Bryant Quinn