Question: I am a CFP professional working for a major wirehouse. I provide investment management services and charge an asset management fee tied to the size of the account. I can do financial planning for clients, when needed or requested, but most of the time I manage client accounts on a discretionary basis. CFP Board just announced new ethical standards for CFP professionals that requires that I act as a fiduciary whenever I provide advice. I wonder how this expanded fiduciary duty will affect me and if I will be able to meet the standards at my existing firm. There are a lot of CFP professionals at my firm, but the firm expressed concerns about certain aspects of the proposed changes during the initial comment period last summer. I don't want to leave my firm and I don't want to give up my certification either. What should I do?
Answer: Let's start with the good news. You shouldn't have to quit your firm or give up your CFP certification because of the revisions. You should be able to comply with CFP Board's fiduciary requirements in the same manner that you comply with the fiduciary requirements of governmental regulators like the SEC and DOL. CFP Board held off on an effective date until October 2019 so that everyone involved has an opportunity to learn about the standards and prepare to comply.
All fiduciary standards share a commitment to act in the best interest of the client, provide full disclosure of conflicts and inform the customer about costs and compensation. What is different about CFP Board's standards is that they apply more broadly than most, including the SEC and DOL. Under the situation you described above, SEC rules hold you to a fiduciary standard because you are charging fees and/or you have discretion over client accounts. Other employees at your firm, maybe working from the same location, who don't have discretion and work solely on commissions would not be held to a fiduciary standard by the SEC. But if they have CFP certification, they will need to act as fiduciaries when the standards go into effect in October 2019.
Similarly, unless you live in the 5th Federal District, the DOL will require you to act in the client's best interest whenever the account is a qualified plan or an IRA. But if you were not working with those types of ownership, the DOL rules would not apply.
Today there are situations in which either the SEC or DOL (or both) would hold an adviser to a fiduciary standard but the CFP Board standards would not — a recognized weakness in the current CFP Board standards. And there are times when CFP Board would hold you to a fiduciary standard but neither the SEC or DOL would. To further complicate the matter, some states are looking into establishing separate fiduciary standards within their own territories. The result is a great deal of confusion among clients and advisers alike.
For CFP professionals and their clients, this becomes simpler with the revised standards. If you are providing financial advice or have discretion over client accounts, you are a fiduciary under CFP Board's revised standards.
For CFP professionals it becomes easier to answer an increasingly common client question: "Are you a fiduciary?" Today the answer is "Sometimes," or "It depends on whether I am providing financial planning," or "I am if I charge a fee not dependent on the sale of a security," or "when I am advising you about your 401(k) or your IRA," or "not in this state." After October 2019, for CFP professionals the answer is "Yes." Those in your firm who are not CFP professionals will continue to provide conditional answers to customers who increasingly demand a fiduciary level of care unconditionally.
CFP Board is a voluntary certification for an individual who seeks to serve the public by providing higher standards than those imposed by traditional regulators. That is how they deliver value to consumers and create demand for CFP professionals. But they also recognize there are many firms, like yours, where not everyone has CFP certification. By giving firms 18 months to prepare for the new standards to take effect, CFP Board acknowledged that it takes time to implement these changes across an organization, and that most of us need time to adjust to change.
Since the new standards exceed current standards from either CFP Board, the SEC, the DOL or state regulators, CFP professionals (and even non-CFP professionals) can study the revisions and incorporate them into their business models in order to serve their clients with the highest ethical standards. There is nothing to stop you from going beyond current standards and acting in the best interests of your clients.
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.