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Fiduciary Standard: Moving the Ball Forward

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Over the last several weeks there has been a growing conversation in blogs, columns and other venues about Certified Financial Planner Board of Standards' fiduciary standard -- when and to whom it applies and whether it is sufficiently comprehensive to benefit the public. On one blog, Scholarly Financial Planner, Ron Rhoades, CFP, challenged the CFP Board to “move the profession forward” by requiring that “those who hold themselves out as CFP certificants [be] held to fiduciary status at all times.”

We welcome the dialogue, particularly the opportunity to clarify our fiduciary standard and CFP Board’s commitment to advancing the fiduciary standard of care.    

As Rhoades correctly observes, the CFP Board was well ahead of the fiduciary curve when, in 2007 -- more than three years before Dodd-Frank became law -- it adopted its current Standards of Professional Conduct.  The board faced significant opposition when it required CFP professionals, regardless of their legal or regulatory obligations, to adhere to a fiduciary standard of care in providing financial planning services.  Hundreds chose to relinquish their CFP certification rather than be subject to the CFP Board’s heightened standard.

Rhoades is also correct in noting that a CFP professional is not subject to a fiduciary standard at all times for all purposes, and that the CFP Board’s fiduciary standard is not identical to the common law standard.

The CFP Board established a two-tiered requirement for CFP professionals.  First, a CFP professional “shall at all times place the interest of the client ahead of his or her own.”  Second, a CFP professional who provides financial planning services or material elements of financial planning “owes to the client the duty of care of a fiduciary as defined by CFP Board.” We define a fiduciary as “one who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.”

Determining a Fiduciary Relationship

As is the case with the common law fiduciary standard, a determination of when and how the standard applies under CFP Board’s rules involves an evaluation of the totality of facts and circumstances.

Yet Rhoades mistakenly accuses CFP Board of placing a “huge emphasis on whether the financial planning engagement touches on more than one subject area.”  In actuality, the degree to which multiple financial planning subject areas are involved is just one of a number of factors the board considers in determining whether a CFP professional is in a fiduciary relationship. 

Other key factors are the client’s understanding and intent in engaging the CFP professional, the comprehensiveness of the CFP professional’s data gathering and the breadth and depth of his or her recommendations.  A fiduciary standard may apply even when services are limited to a single subject area, depending on the application of these factors.  Very simply, there are no bright lines or simple tests -- just as in the common law application. 

Education Efforts

That is precisely why, since our Standards became effective in July 2008, we have been working diligently to educate CFP professionals on how to meet them.

We developed a comprehensive set of frequently asked questions, which has been updated on several occasions.

We have put on a series of compliance webinars for CFP professionals, such as How to apply the fiduciary standard to a financial planning practice

We developed a series of short, detailed multimedia scenarios to help CFP professionals better understand their fiduciary obligation.  We also established a Business Model Council, in which we work directly with legal and compliance professionals in brokerage, advisory, banking and insurance firms; we educate them about our fiduciary standard and discuss how CFP professionals can meet their fiduciary obligations within specific business models.

Most recently, we developed and presented a Compliance Checklist to provide CFP® professionals and compliance officers with a convenient checklist to facilitate compliance with our rules.

But Rhoades and others are urging the CFP Board to do more.  Rhoades says: “I hope the CFP Board will revise and clarify its Standards of Professional Conduct ... to recognize that all those who hold themselves out as CFP certificants should be held to fiduciary status at all times. To do otherwise is fraud.”

Fiduciaries at All Times?

Putting aside Rhoades’ suggestion that the CFP Board is somehow perpetrating consumer “fraud” unless it revises its Standards -- which is patently false -- he and others raise a provocative question.  Should CFP Board extend its fiduciary standard beyond financial planning services and require CFP professionals to be “fiduciaries at all times?” While Rhoades and others may believe it is within the purview of the CFP Board’s mission to set standards for non-financial planning activities -- such as the sale of securities or insurance products -- others believe that CFP Board’s standards are appropriately limited to financial planning services. This is a healthy debate within the profession, and it is one that we welcome.

In the meantime, the CFP Board is far ahead of other certification bodies and regulators in championing the fiduciary standard. In fact, the board remains the only certification body in financial services that requires and enforces a fiduciary standard of care.  The SEC has made little progress in its efforts to implement a uniform fiduciary standard of care under Dodd-Frank. And FINRA just this year adopted a new rule (Rule 2111) in which it is taking steps toward a client-first standard, like the one CFP Board established as its baseline in 2007. 

CFP Board has also been a leader when it comes to advocating for policy change. Along with our colleagues in the Financial Planning Coalition (National Association of Personal Financial Advisors and Financial Planning Association), we have been a strong advocate for extending the fiduciary standard of care to broker-dealers who provide personalized investment advice.  In fact, the CFP Board has made more than 10 submissions to the SEC and Capitol Hill urging this important investor protection reform.

Can we do more to raise the bar for the profession?  Absolutely.  We believe that we are raising the bar by continuing to provide guidance to our 67,000 CFP professionals on how to apply the fiduciary standard -- regardless of business model -- when they provide financial planning services, and by continuing to rigorously and fairly enforce our Standards. 

The process of raising standards for the profession continues to be a work in progress. We expect that CFP Board -- consistent with our mission to benefit the public by granting the CFP certification and upholding it as the recognized standard of excellence for personal financial planning -- will continue to play a leadership role in that effort. 

Kevin Keller is the CEO of the CFP Board.

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