Certified financial planners, including those working at broker-dealers, would have to adhere to a fiduciary standard at all times under new rules proposed by the organization that grants the designation.
Under a new
17-page code of ethics and standards of conduct released by the Certified Financial Planner Board of Standards Inc. on Tuesday morning, the definition of fiduciary would be broadened.
By doing so, the CFP Board is trying to close loopholes that exist with its current definition, which requires fiduciary duty from mark holders only during the finanical planning process. Critics have said that the parameters allow CFP holders to switch hats, adhering to fiduciary duty during planning but ignoring it while selling financial products.
The change is expected to have a greater impact on advisers working at broker-dealers than at registered investment advisers since RIAs already adhere to a fiduciary standard that requires them to act in the best interest of clients. Broker-dealers follow a less onerous standard that requires their advisers to sell investment products that are "suitable" for a particular client.
"This is a broader application," Kevin Keller, the CFP Board's CEO, said on Monday during a meeting between organization leaders and
InvestmentNews staff. "There have been times in the past [where]...we've had people avoiding the material elements of
financial planning."
CFPs must also disclose and manage conflicts of interest, according to the rule proposal.
The first major CFP rule-change proposal since 2009 comes weeks after
partial implementation of the Labor Department fiduciary rule, which requires financial advisers to act in the best interests of their clients in retirement accounts. The Securities and Exchange Commission also has indicated it's going to
revisit proposing its own fiduciary standard.
"In the long run, it's the right thing to do, and it's the right time to move forward," Mr. Keller said.
The proposal, which consolidates existing CFP documents on terminology, rules of conduct, code of ethics and practice standards, is open for a 60-day comment period. After collecting reaction to the changes, the CFP Board will determine whether to finalize the new rules.
The rule proposal also beefs up the CFP Board's compensation definitions. The board has been criticized for the criteria it uses to determine whether a CFP runs a fee-only practice. Last year, it
won a suit brought by Florida financial planners who charged that the board unfairly disciplined them for using the fee-only label, which is coveted by financial advisers because it connotes a high standard of care.
The new language clarifies that CFPs can define their practice as "fee-only" even if they are affiliated with another business that charges commissions as long as the commission operation doesn't directly serve its fee-only clients.
Leo G. Rydzewski, CFP Board general counsel, said the CFP Board is not proposing any major changes to compensation definitions.
"The way we've handled compensation representation hasn't materially changed here," he said. "It's more descriptive in setting forth that standard."
The rule proposal provides a new and more streamlined definition of financial planning: "Financial planning is a collaborative process that helps maximize a client's potential for meeting life goals through financial advice that integrates relevant elements of the client's personal and financial circumstances."
The rule proposal outlines in more detail than current CFP rules how a CFP should work with a client.
"It's just a much more comprehensive set of practice standards for the financial planning professional," said Mr. Rydzewski.
The recommendations were compiled by a 14-person commission that was established in December 2015. Members of the panel represented different advice business models, consumer advocates, experts and the public.
The CFP Board sets the educational and ethical standards for the CFP designation and enforces its rules for the approximately 77,000 CFPs in the United States.
