Give the CFP Board a leadership role in creating oversight body for planners

Good progress has been made in the coalition's efforts to promote a legislative agenda designed to protect consumers by ensuring that financial planning services are delivered to the public with fiduciary accountability and transparency, serving the client's best interests first and always.

The coalition's main focus today is working to persuade policymakers in Washington that any revision of financial services legislation or regulation should include oversight of financial planning as a distinct profession.

Financial planning comprises a distinct and broad range of advisory activities that can't be characterized as “investment advice,” and which have fallen through the gaps of our regulatory structure. A patchwork of regulations touches on financial planning — especially when it involves advice related to the sale of insurance, securities or other investments — but doesn't address the comprehensive advice and services that financial planners provide to the public.

For example, because financial planning often involves investment decisions, the Securities and Exchange Commission has authority over financial planners who are registered investment advisers.

But SEC oversight of investment advisory functions fails to provide adequate standards for consumer protection, since those standards ignore essential services — such as insurance and risk management, and tax and estate planning — provided under the umbrella of financial planning, not investment advice.

Would shifting oversight for investment advice or financial planning to the Financial Industry Regulatory Authority Inc., as suggested by the May 3 editorial published by InvestmentNews, solve the problem?

Not likely.

Finra, like the SEC, doesn't recognize financial planning and ignores the financial planning activities of those under its jurisdiction. Major financial scandals have occurred on Finra's watch, including the recent failure in its shared responsibility with the SEC to oversee Bernard L. Madoff.

Finra's loose interpretation of broker-dealer exemptions under the Investment Advisers Act of 1940 has contributed to the widespread use of confusing titles and the delivery of advice without appropriate regulation. And Finra regulation, while touted as tough, presents serious obstacles to open communication with clients — such as prohibiting the use of plain-English terms such as “mutual fund” in client newsletters without special approval — a vital activity within a fiduciary relationship, especially during times of financial crisis.

Most importantly, Finra is unprepared to enforce a fiduciary duty of care. It was late to the “fiduciary” party, reversing its historical opposition only after it began to position itself to take on regulation of investment advisers and after the fiduciary standard came into favor with policymakers.

Simply put, Finra regulates the sale of products, not the delivery of professional services. As the regulator of securities dealers and transactions with a suitability standard of care, it lacks the experience, expertise and understanding needed to oversee a profession that provides comprehensive financial advice under the fiduciary standard of care.

Could Finra — given its bureaucracy, its historical opposition to the fiduciary standard, its suitability-based product-sales orientation, and the entrenched influence of its large broker-dealer member firms — completely transform its culture to one that is adequate for the regulation of comprehensive financial advice delivered with a fiduciary standard?

Again, not likely.

The coalition members believe that the CFP Board would be well-positioned to take a leadership role in establishing a professional oversight board for financial planners. The CFP Board has an in-depth understanding of the financial planning profession through its nearly three decades of experience in certification, standards-setting and enforcement for CFP professionals.

The CFP Board embraced the fiduciary standard before it was politically expedient to promote a fiduciary level of care for financial advice. A bona fide fiduciary standard is at the heart of the CFP Board's Standards of Professional Conduct.

The CFP Board has updated its enforcement procedures, in a manner consistent with best practices among professional organizations, to effectively and aggressively enforce the fiduciary standard.

The question of resources for a new oversight board for financial planners will be addressed by the SEC in approving the new board. Developing an infrastructure with sufficient capacity to oversee substantially increased numbers of financial planners is easily implemented with a scalable business plan.

The more difficult part is ensuring that the oversight board has the necessary understanding of the financial planning profession and the capability of enforcing a fiduciary standard of care.

Unlike Finra, the CFP Board possesses those key attributes.

The coalition appreciates InvestmentNews' support for financial services regulatory reform and a fiduciary standard for anyone who dispenses financial advice.

It is time for Congress to take bold steps to enhance consumer protection by establishing regulation of those who provide broad-based, integrated financial advice. We think that the coalition's proposal offers a convincing case for closing a significant gap in our regulatory system.

It will give Americans a clear way to identify competent and ethical financial planners, thereby improving their financial health, strengthening our economy, decreasing consumer confusion, and providing consumers with increased protection and accountability.

Marilyn Capelli Dimitroff, CFP, is chairwoman of the Washington-based Financial Planner Board of Standards Inc.; Diahann W. Lassus, CFP, is chairwoman of the National Association of Personal Financial Advisors of Arlington Heights, Ill., and Richard Salmen is president of the Denver-based Financial Planning Association.