The Washington INsider

CFP Board's effort to strengthen enforcement could sharpen teeth of fiduciary duty

But overall effectiveness of new advice standard still likely to depend largely on honor system

Jul 31, 2019 @ 2:21 pm

By Mark Schoeff Jr.

The CFP Board recently delayed enforcement of the elevated advice requirement for its designation until next June. It can use the extra time to bolster its ability to give the new standard sharper teeth.

Under the new rule, the approximately 85,000 CFP holders in the United States will have to act as fiduciaries at all times when working with clients, not just when they're performing financial planning functions.

The new approach was set to begin in October. Moving enforcement back to June aligns the Certified Financial Planner Board of Standards Inc. with the implementation date of the Securities and Exchange Commission's new investment advice standard, the centerpiece of which is Regulation Best Interest for brokers.

Before then, the CFP Board will have received recommendations from an independent task force it has created to improve its enforcement practices. The task force was established in response to a Wall Street Journal article this week taking the board to task over the omission of information about regulatory and criminal problems and customer complaints on its website that helps investors find CFPs to hire.

"Along with our high competency and ethical standards comes the need for an equally robust enforcement program, and we look forward to receiving the task force's actional recommendations, which will strengthen the value of CFP certification," CFP Board chairwoman Susan John told reporters Tuesday.

Since 2011, the CFP Board has been touting the credential as the gold standard among financial designations in a $10 million annual ad campaign. The organization then upped the ante last year when it approved the strengthened fiduciary duty attached to the mark.

Now, the CFP Board has to make the new standard mean something — and that's where strengthened enforcement comes in.

In the wake of the WSJ article, the board said it would no longer rely on mark holders to report their own disciplinary problems with the SEC or the Financial Industry Regulatory Authority Inc.

But self-reporting is essentially how all of CFP Board enforcement works. It reacts when someone informs the organization of conduct by a certificant that violates CFP rules. Will that be enough to give the CFP fiduciary standard real bite?

"We cautioned even more heavily in 2017 as the CFP Board put out its new fiduciary standard that it was raising the standards bar but might not be able to actually fully enforce those standards because it's not a regulatory body with investigative powers," Michael Kitces, partner and director of wealth management at Pinnacle Advisory Group, wrote in a tweet this week.

It seems the CFP Board is getting that message.

"We're always looking at how we can improve that [disciplinary] process," CFP Board chief executive Kevin Keller told reporters Tuesday. "We have added additional attorneys over the last year, and we'll be looking at the resource allocation going forward."

The honor system is the strongest part of the CFP enforcement program, according to one mark holder.

"If you believe [having the certification] is what makes you an elite adviser, what puts you above your competition that doesn't have it, then you would comply with their code of ethics," said Allan Katz, president of Comprehensive Wealth Management Group. "It would deter people from doing the wrong things."

Still, he acknowledges that stepped-up enforcement may be needed to stop financial advisers who choose to ignore the CFP standards.

"They have to pour capital into it," Mr. Katz said.

From now until June, CFP Board will have an opportunity to do just that.


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