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New CFP Board commission on ethics rules has some advisors scratching heads

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The CFP Board has created a new commission composed of top industry executives to teach CFPs about the nuances of its new ethics rules — prompting expressions of both support and confusion from advisors.

After a two-and-a-half-year process, the board this year adopted a heightened fiduciary standard, requiring all CFPs to act in their clients' best interest at all times when providing financial advice.

The new ethics rules and standards of conduct go into effect in October 2019.

The "when providing financial advice" condition leaves in place a loophole that, critics believe, permits the abuse of clients through the commission sales of investment products.

More broadly, that wiggle room has left many CFPs with questions about how to comply with the new standards.

The 13 members of the standards resource commission include prominent lawyers, consumer advocates and executives from large firms such as Federated Investors, Fidelity, Northwestern Mutual and Raymond James. Together they will help update materials to explain to CFPs how to comply with the new rules, the board's CEO Kevin Keller says in a video.

"The new rules are confusing people and this commission looks great to me," says Sheryl Garrett, one of the country's best-known fiduciary advocates and founder of the Garrett Planning Network, who says the commission will serve an important need.

"We've got the folks representing the end-user client's experience, the compliance and procedures experts, as well as many current and former practitioners."

However, some CFPs questioned why the board needed such a body at all.

"I don't think they are going to need another dozen people to explain to me what they already have been explaining to me," says CFP Delia Fernandez, of Fernandez Financial Advisory, a fee-only firm in Los Alamitos, California.

"There must be a bigger reason," says Fernandez, who says she wonders if the main purpose of the commission is to bolster the board's own reputation through affiliation with well-known names, as opposed to promoting the rule changes.

Board spokesman Dan Drummond pushed back against that characterization: "That speculation is unfounded and false. This blue-ribbon panel will provide valuable input that will benefit CFP professionals and the public."

While traveling around the country, CFPs told Keller they want guidance about the new standard, he says in the video.

"Our goal at CFP Board is to help certificants comply with the ethical obligations of CFP certification, not to take action against alleged violations of our standards," he says. "That's why we are committed to educating CFP professionals about the revised standards. To that end, we are forming the standards resource commission,” he says, adding it will update existing resources including the disclosure guide, checklists and FAQs."

It also will help create "videos, webinars and guidance on various scenarios a CFP professional might encounter," Keller adds.

For some fee-only planners, the discussion of "scenarios" — many of which involve the sale of commission products — distracts from the goal of serving clients with holistic planning.

"I guess I don't see the whole need for all of it," Sandra Field, a CFP and fee-only planner with Asset Planning in Cypress, California, says of the commission and the perspectives of its different members. "It makes me embarrassed for my profession that we have to spell it out like this that we will not steal [from] and cheat our clients."

"I really hope that my dues did not go to reinstating, 'Just do unto others as you would have them do unto you.’” she adds.

A recent study by the Institute for the Fiduciary Standard found that 85% of the country's more than 80,000 CFPs are brokers who take some commission income. Only 15% are fee-only planners.

Commissions pose a well-known conflict-of-interest risk for advisors, who can be tempted to place the lure of that income over their clients' best financial interest.

While the board tells the public — as Keller puts it in the video — that "our high ethical standards distinguish CFP certification" from other players in the financial services industry, nowhere does the board warn the public about the potential risks posed by brokers' commission income.

As a result, over the years, critics have accused the board of perpetuating a fraud on the public.

"There are conflicts of interest associated with every compensation structure," Drummond emailed in response to this allegation. "CFP professionals have a wide-variety of compensation models for their services, including fee-only, fee and commission and commission-only. The CFP Board is compensation and business model neutral. What is important is for financial planners to place their clients' interests first, fully disclose material conflicts of interest, obtain informed consent and properly manage the conflict."

Commissioners include former CFP Board Chairman Blaine Aikin, a fiduciary consultant to wirehouses; former NAPFA head and current CFP Board director Linda Leitz; Pat Daxon, a Raymond James vice president; lawyer Fred Reish of Drinker, Biddle & Reath; Peter Richardson, the assistant general counsel at Northwestern Mutual; and Kevin Ruth, head of wealth management at Fidelity Investments.

One of the new commissioners, Randy Gardner, a CFP in Laguna Beach, California, says he's not sure what the work will entail because the board has yet to let him know.

"They asked me to be involved. They told me it's about the fiduciary standard, something I feel strongly about," Gardner says, adding that was enough for him to sign on.

In questioning the impetus for the commission, Fernandez says she'd just like to understand its true goal.

"Maybe this is really trying to impress upon the industry what a real code of ethics should be," she says. "There certainly has been room for interpretation."

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