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CFP Board: Stop calling yourself a fiduciary champion

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The Financial Planning Coalition, of which the CFP Board is a prominent member, filed an amicus brief in federal court in Texas on August 24 supporting the Department of Labor’s fiduciary rule. The DoL is defending itself against a group of plaintiffs, including the U.S. Chamber of Commerce, which has sued to stop the rule's implementation in April. The federal judge overseeing the case ruled to allow the coalition’s brief to be considered.

That’s unfortunate, because the brief contains information which I believe to be inaccurate and misleading, and now that information may be used to shape public policy.

The amicus brief
In its brief, the board writes:

“Since 2008, CFP professionals across all business and compensation models have been required to operate under a fiduciary standard similar to that required by the Department of Labor’s … rule.”

This statement is not accurate.

To say that CFP certificants have been held to a standard similar to the rules recently released by the DoL is like saying a little league team is similar to a professional baseball team. The CFP Board has defined its fiduciary standard in terms of a de minimis common law standard with as many loopholes and exceptions as possible, which allows CFP certificants to avoid accountability.

In fact, the CFP Board has deliberately and intentionally interfered with other, earlier industry efforts to define a higher fiduciary standard for financial planners.

In 2009, the FPA announced that one of its strategic initiatives would be to define a fiduciary standard specifically for financial planners. At that time, I was engaged by the FPA to take the lead in developing the standard, and in 2010 we published the fiduciary handbook, "Fiduciary Ethos – FPA Edition."

When we developed the standard for the FPA, we anticipated that the DoL would soon subject IRAs to a fiduciary standard. We, therefore, developed the FPA’s framework to integrate ERISA fiduciary best practices with the six-step financial planning process developed by the College for Financial Planning, the CFP and FPA Codes of Ethics, and with the CFP Board’s Practice Standards.

As soon as the handbook was published, I was notified by the CFP Board that I was no longer approved to sponsor continuing education (I had been an approved sponsor for more than 20 years). FPA chapters, however, still wanted me to speak on the handbook and found it extremely helpful. The FPA and I spent two years appealing the CFP Board’s decision, but to no avail.

What I believe has become abundantly clear is that the CFP Board was motivated to interfere with the FPA’s initiative for two reasons: It did not want the FPA to be seen as taking the leadership role in the fiduciary movement and it did not want a fiduciary standard defined that a majority of CFP certificants could not meet.

The brief also says that:

… CFP professionals have not just survived; they have thrived. The CFP ranks have swelled 30% while providing financial advice in the best interests of their clients, including service to middle-income Americans…

As noted, thousands of CFP professionals and FPA and NAPFA members across the country currently provide fiduciary-level services to everyday Americans with business models requiring no or very low minimum assets under management.

These statements also are not accurate.

First, as previously mentioned, the CFP Board’s fiduciary standard is a hollow, almost inconsequential criterion. The CFP Board was aware that if it defined a meaningful standard, many firms would not permit their brokers, agents or advisors to use the CFP marks.

To the extent the amicus brief implies that CFP ranks have swelled because of the CFP Board’s work, I do not believe that statement is fair to the stakeholders who provide CFP training and continuing education. The CFP ranks have swelled because of the quality of the training, not because the CFP Board enacted a fiduciary standard.

Second, the statement that CFP professionals have provided "service to middle-income Americans" also is an attempt to misdirect the arguments of those who are opposed to the DoL’s new rules. Opponents of the rules have argued that small-to-mid-size retirement investors are going to lose access to personalized investment advice.

The median IRA account is $25,000. If a planner charges a level fee of 100 basis points for his or her advice, the median IRA account will generate $250 a year in revenue. The CFP Board has yet to explain how a CFP certificant, for $250, can provide a service that complies with the DoL’s conflict of interest rules, is based on the six-step financial planning process, meets the CFP Board’s Practice Standards and generates enough profit to offset the significantly increased liability associated with the DoL’s new rules.

It should be noted, that if the CFP Board had not interfered with the FPA’s fiduciary training initiative, the planning community would have had six years of actual experience in working with ERISA fiduciary best practices. Tens of thousands of financial planners would be better prepared to serve their clients under the DoL’s new rules. And, the FPA would be in a leadership position today to offer authentic, expert testimony on the impact a fiduciary standard has on individual retirement advice.

Where are the directors on the CFP Board?
I don’t agree with the Financial Planning article from September, “Lawsuit by planner could be last CFP Board faces. The CFP Board can still be sued. CFP certificants and stakeholders can bring a derivative action suit against the directors of the CFP Board if it is determined that the directors are grossly negligent in fulfilling their fiduciary responsibilities.

Since 2012, the same year the CFP Board interfered with the FPA’s fiduciary initiative, there has been no transparency of the board’s governance. I have been informed that the directors have been locked into confidentiality agreements and do not feel they can try to go public with any of their concerns. In fact, it has been reported that directors are not even permitted to speak in public, in private or to a reporter, unless accompanied by the CFP Board’s CEO.

In my view, the directors need to hire independent legal counsel to investigate whether there has been any self-dealing and conflicts of interests. Until the directors can demonstrate that they themselves are in compliance with generally accepted fiduciary and governance standards, the CFP Board should not be providing any further expert opinions on fiduciary responsibility.

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