Industry groups retrench on defining financial planners

Bowing to the political clout of the insurance and securities industries, the Financial Planning Coalition has given up its effort to get Congress to establish a definition of financial planning that would have brought thousands of insurance and securities brokers and money managers under the sway of an oversight board that the FPC seeks to create.
The coalition has been lobbying Congress to define a planner as anyone conducting two or more elements of the financial planning process, spanning a range of tax, retirement, investment, estate and educational activities.
Now, however, it has dropped that effort but still hopes to hold any of the approximately 300,000 people marketing themselves as financial planners to minimal competency, ethics and education standards.
The coalition is continuing its push for legislation that would require all financial planners to adhere to a fiduciary standard of care when giving investment advice.
“We want to establish a baseline standard in law that says, ‘This is what it means to enter the financial planning market,’” said Richard Salmen, chairman of the Financial Planning Association, which is part of the coalition.
That standard, he said, likely would be lower than the standard applied to certified financial planners, which is the designation granted by the Certified Financial Planner Board of Standards Inc., another member of the coalition.
“Our goal as a coalition is to be pragmatic, not just idealistic,” Mr. Salmen added.
Legislating a definition of financial planning was always a long shot, consumer advocates said, but one seized on when Congress and the incoming Obama administration began considering far-reaching regulatory reform.
The FPC was formed in December 2008 by the FPA, the CFP Board and the National Association of Personal Financial Advisors.
Insurance groups such as the Million Dollar Round Table and the National Association of Insurance and Financial Advisors, seeking to preserve their members’ abilities to sell annuities and other products as part of “holistic” financial planning services without another layer of regulation, effectively overwhelmed the coalition’s efforts on Capitol Hill.
Among the “myths” they’ve been spreading is that financial planning is not a separate profession, the FPC said, even though an insurance-industry-sponsored study found that agents professing to be “planning experts” produced significantly more income than colleagues focused on product sales.
However, even groups sympathetic to the coalition’s goal of establishing a uniform fiduciary standard for providers of investment advice, such as the Investment Advisers Association, fear that members who have no interest in planning could be swept under the planning definition because of incidental activities with clients.
What’s more, the coalition is having a hard time pointing to financial planning abuses as a root cause of the economic and financial woes affecting consumers, said Barbara Roper, director of investor protection at the Consumer Federation of America.
The financial regulatory-reform package passed by the House of Representatives in early December 2009 avoids defining financial planning but calls for a study of the planning industry that would have to be completed within six months of passage of a final bill.
The Senate Banking Committee has not yet issued its final version of a bill for the Senate to consider.
“It would be a victory just to be able to get a study [on financial planning] out of Congress,” said Mercer Bullard, president and founder of Fund Democracy Inc., a consumer advocacy group. “The bottom line is, the financial planners just don’t have the firepower. With their tiny wedge in the securities world, the insurance people were able to scare [the House] into maintaining the Wild West of variable annuities that we live with today.”

See the Feb. 2 issue of InvestmentNews for the full story.

Related Topics: Financial Planning Association (FPA)