Ask the Ethicist

Dan Candura answers readers’ questions on the ethical dilemmas financial advisers face.

Don't forget: Comment period for CFP Board's new standards ends Aug. 21

The proposed standards enhance the value of certification by establishing clear standards for the delivery of financial advice

Jul 21, 2017 @ 4:38 pm

By Dan Candura

Editor's note: Dan Candura takes a break from answering adviser questions this month, but will resume doing so in his next column.

Last month the CFP Board of Standards Inc. released a proposal to update the Standards of Professional Conduct governing the ethical requirements of the more than 77,00 CFP professionals in the US. They established a 60-day comment period that ends August 21, seeking input from interested parties including current CFPs, consumers, regulators, media and other financial professionals. Since I was part of the group that promulgated the current standards, here are my thoughts on the proposal.

I congratulate members of the committee who worked on the proposal for over a year. I know from experience that such a review is not an easy task, and I think they have done their work brilliantly. The proposed standards enhance the value of certification by establishing clear standards for the delivery of financial advice. The proposal removes much of the ambiguity that caused confusion among practitioners and the public.

No longer will a CFP certificant need to spend time evaluating whether CFP Board might consider a particular client interaction as financial planning or the even more amorphous "material elements of financial planning." They will not have to worry about whether the standards require certain disclosures in writing or mandate a written agreement.

(More: CFP Board's proposal to expand fiduciary duty draws praise, carries risks)

The committee reorganized, reordered and rewrote the entire set of standards in a more concise and consistent format that should be easier to follow for those subject to the rules, and hopefully enhances the task of delivering consistent and effective enforcement by CFP Board's Disciplinary and Ethics Commission.

This is not a situation where a word was removed here or a phrase added there. While the proposed standards incorporate many elements of the current version, the two documents have different structures and appearance. So, if you are looking for a "red-line" revision you will be disappointed. However, there is an annotated version that does provide much needed information about what was changed and what remains the same.

The most significant change is a broadening of requirements to act as a fiduciary that includes all financial advice delivered by a CFP professional. This increased requirement is more specifically and prominently defined and should make it easier for both advisers and the public to understand. By placing this at the very top of the proposed standards, CFP Board recognizes the increased importance of a fiduciary duty for 21st century consumers.

(More: CFP Board proposal another signal fiduciary is the future)

While the proposed standards are tougher, they are not longer. This is accomplished through some clever reorganization. The current standards consist of separate "sections": Principles and Code of Ethics, Rules of Conduct, Financial Planning Practice Standards, Terminology, Fitness Standards, Disciplinary Rules and Procedures, and Appeals Rules. The proposed standards incorporate the first four items into a single principle-based document that covers just 17 pages. The last three are really administrative in nature, and I am sure will continue, but not as part and parcel of the requirements affecting the behavior of certified persons.

The proposed standards include an introductory preamble that establishes authority for what follows. Then there is a six-item Code of Ethics. That is one short of what is in the current code. None of the previous principles were eliminated as some were combined into one of the six statements. This allowed for the addition of several important elements such as the duty to act in the client's best interest, exercise due care and disclose material conflicts of interest.

The proposed Standards of Conduct consists of five parts: duties owed to clients (17 standards), financial planning and application of the practice standards for the financial planning process (5 standards), practice standards for the financial planning process (7 standards), duties owed to employers, principals and subordinates (3 standards), and duties owed to CFP Board (6 standards), followed by a glossary. This represents an increase over the 30 rules of conduct that currently exist, but more clearly describe the duties the professional takes on with certification.

I won't go further into each of these elements, but I think it is a masterful rewrite and positions CFP Board well going forward. I intend to respond to CFP Board's request for feedback by the August 21 deadline. I urge all of you to do the same.

Dan Candura is founder of the education and consulting firm Candura Group. Write to him to submit a question. All submissions will be treated confidentially.

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