© 2020 Arizent. All rights reserved.

CFP Board proposes tightening fiduciary requirements: 'Huge step' or 'double standard'?

The CFP Board has proposed sweeping changes to its ethics rules and standards of conduct, seen by some experts as a revolutionary tightening of its fiduciary requirements. But some fret the board is bowing to major firms in a bid to grow its base.

The proposal is "a huge step in the right direction," says former CFP Board Chairwoman Patti Houlihan, whose thinking contrasts sharply with that of industry consultant and CFP Timothy Welsh. "This is a double standard they are promoting here," he says.

The differing views represent the opposite sides along the spectrum of reactions from CFPs who have watched the board's evolving commitment toward client-first service.


The board released a 17-page proposal that includes a new, combined ethics code and revised standards of conduct. The rewrite is the product of 10 town hall meetings over the past year; the board will seek further comment at eight more meetings over the next two months.

"This is a bold move for us, expanding the definition of financial advice," Kevin Keller said during an interview with Financial Planning’s editors in New York on Monday.

One rule could be read as a line in the sand against the wirehouses: A CFP "must correct" any misrepresentations by their employers to clients regarding their compensation, the draft says.

"This is a doozy," says CFP Dan Moisand of Moisand Fitzgerald Tamayo in Orlando, a former president of the FPA who helped write the board's original practice standards more than 20 years ago. The board gave the draft to Moisand to review before its release.

The new requirement, if adopted, could pit CFPs against powerful employers with, potentially, their jobs or their certifications hanging in the balance, as he sees it. Moisand says he wonders how additional comments might impact that section.

"That's why [the board] put that out for public comment," Moisand says.

Supporters of the Labor Department's new fiduciary rule, which is being phased in starting June 9, say the rule will help prevent large firms from hiding or misrepresenting their compensation models to clients.

The board’s draft also calls for another big change: It stipulates that CFPs owe clients a fiduciary duty, but clarifies that statement in the next sentence by saying this holds only "when providing financial advice." A fiduciary duty is defined as a commitment to putting a client's financial interests ahead of an adviser's.

For years, the CFP Board's critics have argued that, in requiring fiduciary care, the board should not create any exemptions.

It's this point that led Welsh to say the board is trying to have it both ways: acting the part of the fiduciary standard-bearer while allowing commission-driven brokers to join its ranks.

However, Houlihan says the draft's definition of "financial advice" is highly detailed, so much so that it would be difficult for an adviser to argue that many, or even any, of their client engagements amounted to anything other than financial advice.

"It would be hard for me to believe that — unless you specifically said, 'I am doing nothing but order-taking' — you are holding yourself out as a financial adviser, and you have given financial advice in the past, and now [a client] has called with a hare-brained idea and now all of a sudden you aren't?" Houlihan asks.

Another section of the draft rules includes a detailed definition of various forms of commission sales. Advisers could use those definitions as a roadmap when they determine which of their clients they should ask to sign a best interest contract exemption, Welsh says.

Under the fiduciary rule, advisers to retirement accounts may sell commission investment products if their clients sign an exemption.

This part of the draft may give clarity and comfort to wirehouse advisers who want to know exactly how they can comply with the board's qualified fiduciary requirement while continuing to sell commission products, Welsh says. The board did not respond to his comments.

"They put a BIC inside the code of conduct, which is just ridiculous," Welsh says. "They did it on purpose because they know their growth will be coming from the commission-based world."

He offered an example: "That 9% loaded REIT is not good for clients, but it's good” for advisers compensated based on product sales, Welsh says, adding that the board has spelled out "how you can keep selling that and still be a CFP.”

If the board's fiduciary claims were as serious as they’re being billed, it would not allow CFPs to sell this kind of product, nor many others, he argues. "It's designed to create an open door for the wirehouses and the commission-based brokers to maintain the CFP," Welsh says.

There are currently more than 77,700 CFPs; the board projects the number to reach 80,000 by September. New CFPs bring additional revenue to the board, which has seen its ranks grow by 40% over the decade Keller has led the organization.

Houlihan thinks the largest firms are starting to embrace a truer fiduciary level of service, both because of the Labor Department's rule and "because it's good business," she says.

Any firm that loses CFPs because it doesn't let them provide client-first service could lose some of the industry's best advisers and their clients, she says.

"I believe in market forces," Houlihan says. "This is out there now."

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