© 2020 Arizent. All rights reserved.

CFP Board delays standards enforcement, says rules are 'ironclad'

Register now

After concerns expressed by both large industry players and solo practitioners, the CFP Board announced it won’t punish CFPs for failing to adhere to its new fiduciary standard for nine months after it goes into effect on Oct. 1 — holding off on any punishment for infractions until June 30, 2020.

The decision comes two weeks after the CFP Board said it would neither weaken nor delay implementation of its heightened fiduciary standard in response to the SEC's passage last month of a lesser standard as part of its Regulation Best Interest rulemaking, causing confusion among certified planners about reconciling the two rules changes.

"We said that CFP Board would not be led by actions regulators take, but we won't ignore them either," said Susan John, the board's chairwoman, in a press conference. She added in a subsequent interview: "We think that, really, this is the best way to have as many CFPs as possible living into the standard." While John earlier said there would be no delay, CFP Board CEO Kevin Keller had indicated the board might delay enforcement.

As to the standard itself, John emphasized that its provisions remain unchanged and "ironclad."

By its original implementation date of Oct. 1, however, the board will expect its CFPs to be practicing at the higher fiduciary level — one which requires all CFPs to put their clients financial interests before their own while providing financial advice — even if it won't yet penalize them for failing to do so. After that date, the test the board administers to CFP candidates, as well as its continuing education classes in ethics, will teach to that standard and not the current one.

The existing standard only requires CFPs to act as fiduciaries when providing elements of financial planning, an arguably lower threshold.

Tim Welsh, CFP and president of Nexus Strategy, was critical of the decision. "This is definitely a nod to the industry," he says of the board's decision to delay enhanced enforcement. Instead of postponing any aspect of the upgrade, the board's attitude should have been, he says, “Just do it."

John counters that given the complexities of Reg BI, which runs to hundreds of pages, the board made the right call in opting for a delay.

"By setting this enforcement date, we are ensuring CFP professionals have ample time to adapt their policies to be in alignment with the new rules," she says.

In town hall forums as recently as two weeks ago, John adds, CFPs expressed genuine confusion about how to operate in order to satisfy two masters, one a federal regulator and the other a nonprofit certifying body.

She says that accomplishing this is not necessarily a straightforward matter, even in her own practice. John is the founder of Financial Focus, an RIA in Wolfeboro, New Hampshire, which she sold to F.L. Putnam Investment Management earlier this year.

In an interview, John and CFP Board CEO Kevin Keller were asked how the board would handle a situation in which CFPs in a large corporation were found to have violated their fiduciary duties on orders from their employers once enforcement of the standard goes into full effect. The SEC has brought actions against large firms for such fiduciary breaches in recent years. At least one allegedly involved a CFP, against whom the board is not known to have taken any action.

John said this kind of challenge could push the board into new territory, given that its disciplinary focus thus far has been on sanctioning individual CFPs and, in the worst cases, stripping them of the use of their marks.

But there is some precedent for more broad-based action, Keller said, citing an incident that occurred shortly after he became CEO in 2007. In response to reports of systemic misbehavior, Keller says, "I sent a letter to 700 people who worked at one firm because it was a credible allegation … That is the action that we took just to remind them of their ethical obligations under their CFPs."

He declined to provide further details about the outcome of the incident or what bearing it might have on future actions once the board begins enforcing its stronger standard next summer.

"It's our role and our mission to make sure that the CFP letters after a person's name means something," Keller says.

For reprint and licensing requests for this article, click here.