CFP Board modifies details of revised standards but maintains strengthened fiduciary duty

Under second proposal, CFP Board tweaks pre-engagement client disclosure, clarifies rules for non-financial-planning advice

Dec 20, 2017 @ 7:00 am

By Mark Schoeff Jr.

The Certified Financial Planner Board of Standards Inc. released today a second round of revisions to its code of ethics and standards of conduct. It maintains higher advice standards for the credential but eases some disclosure requirements and clarifies how the rules applying to advisers holding the mark but not providing financial planning.

Earlier this year, the CFP Board released its initial proposal, which would require all CFPs, including brokers who use the mark, to act in the best interests of their clients at all times when they are providing investment advice. The current standard holds CFPs to a fiduciary standard only during the financial planning process.

Under the revised proposal released today, the fiduciary requirement remains intact.

But the modified document eliminates disclosures that were required before CFPs start doing business with a prospect. Instead of providing introductory written information about themselves before signing a client, CFPs would have to give a description of their products, services and compensation "prior to or at the time of engagement," the proposal states.

Requiring disclosure before that point "presents considerable practical problems with respect to implementation," CFP Board chairman Blaine Aikin told reporters Tuesday during a briefing about changes to the proposal.

The revised proposal also removes the presumption that a CFP who is giving financial advice also is providing financial planning. Under this approach, a CFP involved in a disciplinary action regarding violation of the financial planning practice standards (for example, determining a client's personal and financial goals, needs and priorities) "must demonstrate that compliance with the practice standards was not required."

The so-called "rebuttable presumption" that practice standards apply was removed due to "considerable confusion and misinterpretation" about whether financial planning was always required while giving investment advice, Mr. Aikin said. In some instances, the advice could be "episodic."

"There are circumstances that don't require a comprehensive written financial plan," Mr. Aikin said. The provision "was not as clear as it was intended to be."

But Michael Kitces, a partner and director of wealth management at Pinnacle Advisory Group, said that although the CFP Board proposal establishes fiduciary duty for the mark that is "stronger than it was originally," the removal of the assumption that advice involves planning opens a loophole in circumstances where the CFP's only interaction with a client is the sale of an investment product, such as an annuity.

"How do you prove that my advice wasn't fiduciary advice when there's no standard for non-financial-planning financial advice?" said Mr. Kitces, who listened to the CFP Board's media briefing. "There are no practice standards to determine whether you've met your fiduciary obligations."

Mr. Kitces, publisher of the Nerd's Eye View blog, said the change opens the door for financial advisers who "want to say they're financial planners and not be held accountable for doing financial planning."

But Mr. Aikin said the second round of changes to the CFP standards of conduct clarified rather than diluted them.

"This revised document continues to set a high standard of competence and ethics that consumers can count on," Mr. Aikin said. "The second draft really does raise the bar with respect to financial planning professionals ... providing advice."

The CFP Board received 1,300 comments after putting out the initial proposal over the summer. The revised version will be open to another comment period from Jan. 2 through Feb. 2. The board expects to finalize the changes by the end of the first quarter next year.

The revision of the designation's investment advice standards is occurring while the Labor Department reassesses its fiduciary rule for retirement advice under a directive from President Donald J. Trump, and while the Securities and Exchange Commission works on its own fiduciary rule.

The CFP Board, which sets the educational and conduct standards for the nearly 80,000 CFPs in the United States, has been at the forefront of fiduciary duty since the organization first required it in 2007 for CFP holders doing financial planning, according to Kevin Keller, CFP Board chief executive.

The expansion of the fiduciary requirements to CFPs giving advice keeps pace with the trend toward raising such standards, he said.

"The cat is out of the bag on fiduciary duty," Mr. Keller said during the media briefing. "The public expects advice delivered in its best interests. We think this is a natural progression."

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