DEFINITION of 'National Association of Personal Financial Advisors (NAPFA)'

A U.S.-based professional association for professional fee-only financial advisors. Formed in 1983, NAPFA requires its members to adhere to the organization’s code of ethics and take an annual fiduciary oath. Members must provide independent, objective financial advice to their clients and uphold the highest standards in the financial planning profession. They must earn their income from fees, not commissions.

BREAKING DOWN 'National Association of Personal Financial Advisors (NAPFA)'

Financial planners can be broadly divided into two categories: 1) those who are compensated with commissions from recommending specific investments to clients, and 2) those compensated with a fee for providing objective investment advice. NAPFA requires its members to be paid in fees rather than commissions, because an advisor who is paid in commissions has an incentive to recommend the investments that he or she receives the highest commissions for, rather than the investments that are best for the client. By charging an hourly fee or a fee based on a percentage of the client’s assets under management, the advisor’s incentives are aligned with the client’s incentives. NAPFA members are also prohibited from receiving referral fees for sending the client to another professional.

NAPFA has additional requirements for its members. They must strive to provide objective advice and avoid giving advice in areas they are not knowledgeable in. They must keep all client information confidential unless the client authorizes sharing information. NAPFA members are required to earn continuing education credits to keep their knowledge and skills current. Financial advisors who join NAPFA must additionally be transparent in their interactions with their clients and do their best to ensure that clients understand how their money is being managed. NAPFA members are also required to act in a way that reflects positively on both NAPFA and the financial planning profession.

RELATED TERMS
  1. Personal Financial Advisor

    Professionals who help individuals manage their finances by providing ...
  2. Financial Adviser

    A professional who helps individuals manage their finances by ...
  3. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  4. Investment Advisor

    As defined by the Investment Advisors Act of 1940, any person ...
  5. Commission

    A service charge assessed by a broker or investment advisor in ...
  6. Fiduciary Rule

    Fiduciary rule is regulation that requires retirement advisors ...
Related Articles
  1. Financial Advisor

    Top Reasons Why Advisors Should Go RIA

    The top reasons why advisors should go RIA only.
  2. Financial Advisor

    Fee-Only Financial Advisors: What You Need To Know

    Are you considering hiring a fee-only financial advisor or one who is compensated via commissions? Read this first.
  3. Financial Advisor

    How Advisors Can Win with the New Fiduciary Rule

    Advisors would be wise to use the change in fiduciary rules to educate clients on the value of the advice they provide. Here are some tips.
  4. Financial Advisor

    4 Professional Associations Advisors Should Join

    These four professional organizations are among the most respected and well known in the industry.
  5. Financial Advisor

    How the New Fiduciary Rule Will Impact Investors

    The DOL's new fiduciary rule is now in effect. Here are a few areas where individual investors, including clients and prospects, might notice some change.
  6. Financial Advisor

    The Top Challenges Financial Advisors Face

    These are the top challenges that financial advisors face today.
  7. Financial Advisor

    Ethical Standards You Should Expect From Financial Advisors

    Professional ethics in the financial services profession can be confusing. Here are some ways to ensure you are getting the best out of your advisor.
  8. Financial Advisor

    Advisors: How and Why to Justify Your Fees

    In an era of fee compression here's how financial advisors can justify what they charge clients.
  9. Financial Advisor

    7 Steps To Evaluate A Financial Advisor

    Looking to hire a financial advisor but unsure what you want or need? Follow these seven steps.
  10. Financial Advisor

    The Coming Fiduciary Rule: Advisor, Client Impact

    The proposed DOL fiduciary standard has wide ranging implications for advisors and their clients. Here's an overview for advisors and their clients.
RELATED FAQS
  1. How do financial advisors charge fees?

    Learn how financial advisors make their money and how you can make sure they are looking out for your best interests by understanding ... Read Answer >>
  2. What fees do financial advisors charge?

    Learn how much financial advisors charge clients; discover the various payment plans available to customers seeking financial ... Read Answer >>
  3. Do financial advisors have a base salary?

    Find out how self-employed and corporate financial advisors make a living. Find out whether they get paid based on commission ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center