National Association of Personal Financial Advisors (NAPFA)

AAA

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. Financial Responsibility Law

    A law which requires an individual to prove that he or she is ...
  2. Personal Financial Advisor

    Professionals who help individuals manage their finances by providing ...
  3. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  4. Financial Infidelity

    Financial infidelity occurs when couples with combined finances ...
  5. Certified Trust And Financial Advisor ...

    A professional credential offered by the American Bankers Association ...
  6. Certified Financial Planner - CFP

    The CFP legal team has provided its official definition, along ...
Related Articles
  1. Professionals

    Seeking a Financial Advisor Job? Read This First

    The choice between a larger or smaller company may be decided by an advisor's experience or temperament. Find out the best size for you.
  2. Options & Futures

    Shopping For A Financial Advisor

    Finding your perfect advisor is as simple as shopping for a car. Read on to learn more.
  3. Professionals

    Why Financial Advisors Need To Earn The CFP Mark

    The CFP designation is heavily favored by both the finanical and the mainstream media and offers a wealth of benefits for certificants.
  4. Professionals

    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.
  5. Professionals

    How To Be A Top Financial Advisor

    The best advisors love what they do for a living, but they also know what to do to get to the top. This shared advice can help you get there, as well.
  6. Professionals

    Why Clients Fire Financial Advisors

    The reasons most clients fire their advisors are very simple and easy to address. Find out what you should be doing to keep your clients.
  7. Professionals

    Fiduciary Designations For Financial Advisors

    Attaining the AIF or AIFA could help both you and your clients enjoy a comfortable retirement.
  8. Professionals

    How Financial Advisors Are Leveraging Social Media

    As financial advisory clients are increasingly turning to social media, wealth managers who aren't following suit risk being left behind.
  9. Professionals

    Ethical Issues For Financial Advisors

    Learn what to do when that devil on your shoulder begins to whisper.
  10. Taxes

    Tax Tips For Financial Advisors

    Self-employed advisors are prone to a number of unique expenses, but the tax benefits can often balance out the financial burdens.
RELATED FAQS
  1. How can an investment banker switch to a career in corporate finance?

    It's pretty easy for an investment banker to switch to a career in corporate finance. The career skills are easily transferable, ... Read Full Answer >>
  2. What are the best MBA programs for corporate finance?

    Opinions vary based on which publications you consult, but the best MBA programs for a career in corporate finance are at ... Read Full Answer >>
  3. How stressful is the typical corporate finance job?

    In the financial industry, corporate finance jobs are often contrasted with investment banking jobs. The traditional view ... Read Full Answer >>
  4. What are the benefits of financial sampling?

    Financial sampling allows auditors to approximate the rate of error within financial statements. For accounting purposes, ... Read Full Answer >>
  5. What should I study in school to prepare for a career in corporate finance?

    Depending on which area you want to specialize in, corporate finance can be one of the most competitive fields in business. ... Read Full Answer >>
  6. What are the differences between a Chartered Financial Analyst (CFA) and a Certified ...

    The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  2. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  4. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  5. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  6. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!