Is the CFP Fiduciary Promise for Real?
The CFP Board launched its first-ever national awareness campaign in April 2011 with the aim of increasing brand recognition of CFP as a guarantor of quality in the often-confusing field of financial services.
"Just about anyone can use the term 'financial planner,' " the board's chief executive, Kevin Keller, said in a news release announcing the "Let's Make a Plan" campaign. "But only those individuals who have passed a rigorous set of criteria and meet our strict ethical qualifications can call themselves a CFP professional," he added.
Yet the campaign may ultimately have the opposite effect, undermining the CFP description by making promises the board cannot fulfill. The $36 million campaign for which the board nearly doubled certificants' annual fees drives consumers to the board's letsmakeaplan.org website, which touts a standard that not all CFPs are required to uphold and for which there is no audit system, nor a consistent disciplinary process. The board's own rules don't require CFPs to uphold the fiduciary standard consistently, and the code of ethics listed on the For CFP Professionals section of its website describes its ethical standards as "aspirational."
Indeed, in a commentary last year for Financial Planning, Keller wrote: "a CFP professional is not subject to a fiduciary standard at all times for all purposes."
Nonetheless, according to board spokesman Dan Drummond, under the CFP Boards standards of professional conduct, all 69,000 CFP professionals shall at all times place the interest of the client ahead of [their] own.
The "aspirational" reference in the code of ethics is not mentioned on the board's website where it explains why CFP certification matters to consumers: "When it comes to ethics and professional responsibility, certified financial planner professionals are held to the highest of standards. ... The rules of conduct require CFP professionals to put your interests above their own and to provide their financial planning services as a fiduciary acting in the best interest of their financial planning clients."
However, many CFP certificants are advisors at wirehouses, where they are held to a lesser suitability standard, which requires that the investments they recommend to their clients simply be suitable.
"What may not be clear to clients," says Jim Pasztor, vice president of academic affairs at the College for Financial Planning, which graduates the most CFPs annually nationwide, "is that all CFP certificants are not necessarily providing financial planning services, and that as far as the CFP Board is concerned they are a fiduciary only if they are providing financial planning services."
In response, Drummond, says CFPs "owe the client the duty of care of a fiduciary, under which a CFP professional must act in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client when providing financial planning or material elements of financial planning." However, Drummond did not explain what standard of care CFPs must deliver when they are not deemed to be providing financial planning.
"Simply put," says Ron Rhoades, a former NAPFA board member and head of the financial planning program at Alfred State College in Alfred, N.Y., "many consumers may be under the impression, as a result of the CFP Board's advertisements, that [its] certificants are trusted advisors when, in fact, many do not always practice in such fashion." Rhoades has accused the board repeatedly of perpetuating fraud against consumers by creating this impression.
Keller objects strenuously to that characterization. He called it "patently false" in last years commentary, and Drummond says the "CFP Board is not misleading the public."
However, in September it was revealed that the CFP Board's campaign was bringing consumers to its website at the same time that it was allowing hundreds of advisors at wirehouses, banks, insurance companies and independent broker-dealers to use their listings on that site to misrepresent themselves as fee-only.
"If it is true that [the board of directors] turned a blind eye to these infractions in the past, then they have a fiduciary breach," argues fiduciary expert Don Trone, president of the Leadership Center for Investment Stewards, a professional society that provides training, research and standards development for the financial services industry. "That's true of any board that knows [its] public representations are not true."
Vernetta Walker, a vice president at Washington-based BoardSource, a consulting firm to nonprofits, concurs that directors of nonprofit groups such as the CFP Board have a fiduciary duty to oversee the ethical conduct of the organizations operations.
AGAINST THE RULES
The board's rules forbid the use of the term fee-only for advisors who work at wirehouses, banks, insurance companies, independent broker-dealer or any companies that accept commissions for the sale of investment products.
The extent to which the board knew about the fee-only claims by wirehouse advisors is a matter of debate. On Sept. 20, one day after the board stripped all fee-only descriptions from advisor listings on its website a move made hours after Financial Planning reported that 486 advisors from the four wirehouses were using the term against the board's rules Keller was quoted in The Wall Street Journal saying the board altered the profiles upon becoming aware of them. "We wouldn't have sat on this data if we'd known it was there," Keller said.
Yet on Sept. 11, more than a week earlier, Keller spent 20 minutes discussing the violations in an interview with Financial Planning. When asked why the board was allowing advisors at those firms to market themselves using the fee-only descriptor on its website, Keller said, "Because our policy is that we don't conduct audits or examinations and have no plans to start now. ... In a self-reported field, our expectation is that people understand our rules and that they comply with them." Furthermore, he added, no one had complained that many of the fee-only listings werent accurate.
Yet two insiders say the fact that fee-only was being used inappropriately by many CFPs had been common knowledge at the board for some time. Bill Hayes, a member of the board's disciplinary and ethics commission, says the misleading profiles had been on the board's site "forever," and were the cause of particular frustration for independent fee-only planners who were obeying the board's rules for use of the term.
Robert Fleming, a Tucson, Ariz., lawyer who resigned from the disciplinary commission last year, says the profiles were the subject of hallway conversations when the commissioners met to hear and render judgment on cases.
While the board was allowing transgressions among large-firm advisors to go unaddressed, it began investigating and punishing some planners at smaller firms for similar compensation disclosure violations prompting criticism that its disciplinary policies are uneven and selective.
Drummond responds: With the increased attention to our disclosure compensation rules, we have been proactively educating CFP professionals about their obligations under our rules to facilitate understanding and full compliance. In addition, we will communicate and work with CFP professionals employers, including wirehouse firms, about CFP professionals obligations to fully and accurately disclose their compensation.
The larger point, Rhoades argues, is that the board has no business guaranteeing that all CFPs are fiduciaries. "The CFP Board conveys the impression that all of its CFP certificants act in the best interests of the consumer [and] that they are held to a fiduciary standard of conduct," when this is not in fact the case, he says. "Consumers are the real victims here."
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