CFP Board asks advisers how to offer guidance on revised standards

At a public forum in New York, advisers ask for help understanding how new fiduciary standard applies in practice

Sep 27, 2018 @ 1:54 pm

By Ryan W. Neal

With just over one year until the Certified Financial Planner Board of Standards' new code and standards goes into effect, the board is asking for adviser input on what resources would be most helpful to understand and adopt the new rules.

Of particular concern is the broader fiduciary standard that requires all CFPs to act in the best interest of clients at all times they are providing financial advice. At a public forum on Wednesday in New York, CFP-certified advisers said they want guidance on how and when the new standard applies in practice.

(More: CFP Board opposes state regulation of financial planning process)

Specifically, advisers want to know how to determine which client communications qualify as financial advice. For example, are advisers providing financial advice when they are talking to clients about insurance?

Ian Harvey, a financial planner with Financial Asset Management, said CFP advisers at hybrid firms in particular are struggling with how the new rule applies to certain products and share classes.

"If you are being compensated by someone other than your clients, how are we going to ensure that you are working with the client's best interest in mind? There's an inherent conflict there," Mr. Harvey said.

As the Financial Planning Association's president of NexGen, Mr. Harvey said younger CFPs in particular want guidance on how to navigate conflicts that could arise when their employer isn't held to the same standard that they are personally. The scenario is possible when a firm encourages a product that meets a suitability standard, but it doesn't meet the CFP Board's fiduciary requirements.

"These employees, who are relatively young in their careers, are being expected to know whether something is fiduciary or not," Mr. Harvey said. "I'm not sure we are prepared to assist them with that."

Another area in question involves clients who are going through a divorce. What are the CFP Board's views on how an adviser can serve as a fiduciary to two clients with conflicting interests, Mr. Harvey wondered.

Advisers at the forum said they also want guidance around new requirements for client disclosures. Specifically, advisers are looking for the CFP Board to outline what clients are generally expected to understand about financial concepts and investment products.

(More:CFP Board opposes state regulation of financial planning process)

Mr. Harvey said he'd also like to know what disclosures are required for advisers who call themselves "fee-only." Just because someone is only paid by the client, that doesn't mean they are 100% free from conflict, he said.

The CFP Board has held similar sessions in four cities and plans to hold several more throughout the country to determine which areas of the new rules advisers need the most help with, said Leo Rydzewski, general counsel and managing director of professional standards at the CFP Board.

Mr. Rydzewski said one common area of feedback they've received is to break up guidance into smaller segments. The board is working on a set of frequently asked questions to help CFP professionals find answers to specific issues, he said.

"What we are really committed to is thinking about the different ways we can provide the information to the professionals that makes it digestible for them," Mr. Rydzewski said. "We are taking the content and sending it out in different formats to do what we can to reach all audiences."

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