The CFP Board is right on ethics

Reactions to the Certified Financial Planner Board of Standards Inc.'s new requirements for ethics continuing-education programs have been mixed. Although there has been nearly universal acknowledgement of the need for change to make ethics training more practical and focused, several respected commentators have questioned whether the CFP Board's updated requirements, which become effective Oct. 1, are too proscriptive and remove the opportunity to benefit from a rich history of ethical philosophy and to learn from experts in the field of ethics. The concern stems from the specificity of the two changes imposed by the board. The first is the establishment of six learning objectives focused on the Financial Planning Practice Standards as the design focus for qualifying courses. The second involves new requirements that require instructors to hold a current CFP certification and to have had a clean disciplinary history as a CFP for the past five years. It strikes me that based on the stated reasons for the changes and careful consideration of the fundamental reasons for having a set of ethical standards, the CFP Board's changes are necessary and reasonable.

ADVERSE TRENDS

The changes were precipitated by observed trends in client complaints against CFPs, along with direct experience of the CFP Board's Disciplinary Ethics Committee in conducting disciplinary hearings, and feedback from CFP professionals. The main goal of a code of ethics is to guide behavior. If the keeper of the code observes an adverse trend in behavior, it has a responsibility to act. The three-part design of the CFP Board's ethical standards is classic; it fits the textbook model for effectiveness. 1. The Code of Ethics and Professional Responsibility establishes the high-level system of moral obligations and the principles that set overall behavioral expectation. 2. The Rules of Conduct move from principles to procedures that provide more-specific guidance to influence the behavior of members of the planning profession. 3. The Financial Planning Practice Standards are intended to address the difficult decisions that will need to be made by practitioners. They serve as the basis for disciplinary actions that may be required to address departures from behavior expected of members of the profession. Taken together, the three parts of an effective set of ethical standards can meet important institutional and symbolic objectives. The institutional objectives are practical and include such components as defining the boundaries of acceptable behavior, promoting high standards of practice, and providing benchmarks for members to use in evaluating their own behavior and influencing the conduct of colleagues. The primary symbolic objective is to define the profession for how those outside the profession will see it. Training in the general philosophy of ethics by those without direct experience as members of the profession squanders the opportunity to meet the institutional and symbolic objectives of the integrated ethical standards for the profession. It is entirely appropriate for the updated requirements of the CFP Board's CE program to adopt six specific learning objectives, all of which must be presented in the context of the integrated ethical standards. Three of the objectives address the essence of the profession, including understanding of the planning process and the elements that constitute planning, and recognition of when the ethical obligations attendant to rendering planning services apply. Two learning objectives zero in on areas that are common sources of misunderstandings between planning practitioners and clients, and are receiving special attention from regulators: terms-of-service agreements and disclosures.

FIDUCIARY STANDARD

The final learning objective addresses understanding of what the fiduciary standard requires and when it applies. That brings an ethics-saturated legal structure to the CFP Board's ethical standards. Given that planning practitioners are invariably fiduciaries, the inclusion of this learning objective is a practical necessity for reasons of compliance with laws, regulations and the ethical standards, and because fiduciary status is a defining characteristic of the profession. The CFP Board has made clear that it intends to raise the stature of planning as a profession. The updated ethics CE program requirements are important steps in that direction. Blaine F. Aikin is chief executive of Fiduciary360 LLC.