Praise and reproach for CFP Board’s proposed standards changes

Published
  • August 25 2017, 11:38am EDT
Major consumer advocates and groups say the CFP Board's proposed changes to its standards of conduct represent an important step forward in the evolution toward a more fiduciary planning industry.

"I applaud the board," wrote Phyllis Borzi, a former assistant secretary in the Department of Labor and the official credited most with shepherding the government's own fiduciary rule into existence. Borzi’s comment appeared on the board's public forum for feedback on its proposals. Nearly 200 responses appeared on the site, which closed to additional feedback on Aug. 21

Others chimed in to say the board needs to go even further to rid the industry of conflicts and clarify ambiguous points of the current rule.

Critics, however, said it will create unintended consequences, as well as overly burdensome compliance requirements.

Now that the deadline for public comments is past the CFP Board will evaluate the feedback. The timetable for finalizing the changes will depend on the comments received, according to its General Counsel Leo Rydzewski.

Scroll through to read a lightly edited survey of the comments.

Major consumer advocates and groups say the CFP Board's proposed changes to its standards of conduct represent an important step forward in the evolution toward a more fiduciary planning industry.

"I applaud the board," wrote Phyllis Borzi, a former assistant secretary in the Department of Labor and the official credited most with shepherding the government's own fiduciary rule into existence. Borzi’s comment appeared on the board's public forum for feedback on its proposals. Nearly 200 responses appeared on the site, which closed to additional feedback on Aug. 21

Others chimed in to say the board needs to go even further to rid the industry of conflicts and clarify ambiguous points of the current rule.

Critics, however, said it will create unintended consequences, as well as overly burdensome compliance requirements.

Now that the deadline for public comments is past the CFP Board will evaluate the feedback. The timetable for finalizing the changes will depend on the comments received, according to its General Counsel Leo Rydzewski.

Scroll through to read a lightly edited survey of the comments.

Consumer Federation of America

These proposed revisions provide a model for what advice standards should look like throughout the financial industry, regardless of business model or compensation structure…. Since 2008, CFP professionals across all business and compensation models have been required to operate under a fiduciary standard when providing financial planning services. While that standard has benefited investors substantially, it leaves open the possibility for a CFP professional to make sales recommendations or otherwise act in a way this is not in the investor’s best interest, outside of the financial planning relationship. The proposed standards close this potential loophole, extending the fiduciary duty to all financial advice, not just when a CFP professional provides financial planning services. This means that a client will be fully protected throughout the relationship, regardless of what services they are receiving.

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Financial Services Institute

We are concerned that the proposal will have negative unintended consequences and further confuse investors …. While FSI appreciates that the CFP Board is well-intended in wanting to disclose material conflicts of interest to clients and to provide baseline information to prospective clients, it is important that the CFP Board consider the consequences this creates for firms who have financial advisors who hold the CFP designation and the resulting regulatory obligations the proposal will create. Simply put, firms will be faced with either applying all resulting requirements to their entire universe of financial advisors or disallowing any financial advisors to hold themselves out to customers as CFP-designated. FSI does not believe the CFP Board intends either of these scenarios and thus urges the board to reconsider the unintended consequences of the proposal.

Phyllis Borzi, former assistant secretary, Department of Labor

I applaud the board for its long-term work to assure that investors seeking financial retirement advice can rely on those advisors to provide recommendations in their clients' best interest. The proposed revisions reflect the simple and unambiguous principle that individuals who hold themselves out as experts in providing financial advice must be held accountable to their clients to meet a best interest standard of conduct. Requiring advice professionals to embrace a fiduciary standard of conduct at all times and for all types of financial planning advice as a condition of their CFP professional certification is a critically important consumer protection.

Arthur B. Laby, former director of the CFP Board, professor, Rutgers Law School

The Standards of Conduct do not explicitly address whether and when a CFP professional can switch hats from providing financial advice, a defined term, to acting as a broker-dealer representative, selling a financial product to customer, shorn of a fiduciary duty. Is the word “implementation” in the definition of financial advice meant to address hat-switching? Also, what about the case when a CFP professional seeks to sell a financial product to a customer who is not part of a financial plan and not considered financial advice? A CFP professional, for example, could claim to be "making available" a certain investment but not "recommending" the investment. The standards could be more explicit that hat switching is not permitted – or if it is permitted, the circumstances under which it is permitted.

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John McPherson (advisor)

I think the overwhelming positive reception of additional regulations and rules is very disturbing. While the enhancements and additional rules sound impressive, I believe it is a physical impossibility keeping up with every single rule and regulation we deal with every day.

The Committee for the Fiduciary Standard

We believe the term "fee-based" is inherently misleading and its only purpose is to confuse the consumer. We recommend that when a certificant is both fee and commission compensated that the only allowable terminology be "fee and commission" or its equivalent.

Richard VanDerNoord (advisor)

Selling insurance based on a needs analysis doesn’t make you a financial planner; it makes you a good insurance agent. For whatever reason (probably money), the CFP Board as well as the FPA has allowed everyone in the financial services industry to claim that they are financial planners. So just like 98% of the politicians give the other 2% a bad name, so also the overwhelming number of product-pushers claiming to be financial planners are defining not only public opinion, but also now our own SROs.

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Center for American Progress

The Certified Financial Planner Board of Standards’ 2007 adoption of a fiduciary standard for financial professionals under the CFP designation represented a bold step forward for consumers and industry. The revised Standards of Conduct continue and refine this standard of trust, and will help ensure that individuals seeking financial advice from CFPs truly receive the service that they expect and deserve.

Lida Gadkowski (advisor)

Yes, all CFPs need to be on the same page. Stop stooping to the brokers. Raise the bar. Having two standards lowers the profession. Would you want a doctor with two ways to operate on you?

Jeffrey Morley (advisor)

I'm a little uncomfortable with the inherent tension between the fiduciary standard of care and any conflicts of interest. The CFP tradition of "disclosure and management of conflicts," seems like it's being maintained in deference to traditional compensation structures, while at the same time the fiduciary standard (if taken seriously) really does not comport with conflicts – at all.

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Doug Noble (advisor)

I believe that the wording of the comprehensive fiduciary duty opens the advisor up to potential liability if we do not explicitly state what we are not covering under a plan. If we do not review a client's automobile insurance policy are we then liable because we said our plan was comprehensive? Or if the client does not wish to plan for long term care, could we be sued later by the family if they needed care and it was not in the financial plan? Overall there are many words that are ambiguous and the interpretation of "reasonable" or "reasonably" can be far-reaching and inconsistent.

Jennifer Brennan (advisor)

I can think of several examples when client instructions are not aligned with their own best interest. In those cases, which should prevail: the client’s best interest as expressed in the objectives of the engagement or the client's current instructions? If both duties are to remain equal, I for one would appreciate direction on how to reconcile direct conflicts between the two.

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