Independent-contractor broker-dealers are gnashing their teeth over the possible consequences of an updated professional code of ethics for certified financial planners, coming this summer.
Brokerage executives worry that the new code — which the Certified Financial Planner Board of Standards Inc. is putting into effect July 1 — will place enormous paperwork and disclosure burdens on their registered reps and advisers who are CFPs.
That comes at a time when many firms are grappling with the in-creased compliance burden of suitability rules from the
Financial Industry Regulatory Authority Inc. of New York and Washington concerning the sale of variable annuities — the first wave of which is to be put in place today.
Firms also fear that the CFP Board's new ethics code could open the door to plaintiff's attorneys' using it to gain traction in their cases against reps and advisers, said a top executive at an independent broker-dealer, who asked not to be identified.
The new code "puts reps [who are CFPs] under a lot of pressure," the executive said. "There's no regulatory burden, but it's yet to be seen if broker-dealers have liability."
The Financial Services Institute Inc. last month sent its members a briefing on the issue, warning that the new standards "raise concerns" for independent broker-dealers.
The standards require additional client disclosure and a written agreement with clients, and impose a fiduciary duty of care on any person with a CFP designation who provides
financial planning or performs some part of the
financial planning process, according to the FSI's briefing.
The Atlanta-based FSI clearly is displeased with the standards.
"Although well-intentioned, the updated standards will increase the liability exposure of CFP certificants and the broker-dealers with which they affiliate by imposing a heightened standard of care, and establishing detailed disclosure and contractual requirements," the FSI said in the April 17 brief.
What's more, the Financial Planning Association of Denver has said that it is considering applying the new standards to all its members — even those who don't hold a CFP certificate, according to the FSI.
The FSI board is trying to influence the CFP Board's thinking on the matter, said Dale Brown, president and chief executive of the FSI. So far, the CFP Board doesn't plan to make any changes, he said.
The FSI missed the period to comment on the new standards, said Chris Wloszczyna, a spokesman for the CFP Board of Washington.
"The situation is, the comment period ended in April 2007," he said. "I can only reaffirm that the standards become effective on July 1."
Mr. Wloszczyna added that the CFP Board "would be happy to work with firms to achieve compliance."
When asked if the FSI was late in making its push over the new standards, Mr. Brown said that he could understand that point of view. However, he noted, the FSI has been busy with other issues, such as Regulation S-P and 12(b)-1 fees.
FSI GIVES DIRECTIONS
Regardless, the FSI is urging its members to go directly to the CFP Board and, in a comment letter, focus on several issues.
These include that the new standards "establish a baseline standard of care that is inappropriate for the non-financial-planning activities engaged in by CFP certificants," according to the brief.
Second, the standards define the element of the financial planning process so broadly that a fiduciary standard of care is imposed on activities for which the standard isn't appropriate, it stated.
Third, the disclosure obligations are "onerous and are likely to prove impractical to comply with in practice," the brief stated.
And finally, the "contractual obligations" created by the new standards are difficult to put into place, it noted.
E-mail Bruce Kelly at [email protected].
