CFP Board's "standards" seen weakening value of true fiduciaries' offerings. Financial-planning associations are taking aim at proposed changes to ethical standards for the industry's 50,000 or so practitioners. The point of contention is the Certified Financial Planner Board of Standards' (CFP Board) pitch late last month to fix a fiduciary standard for all certified financial planners, but make it something they can opt out of if they wish -- as long as they hash it out in the initial agreement with their clients.

Fiduciary opt out

The CFP Board says it doesn't want to make fiduciary duty mandatory because some of those it certifies are teachers, government workers and others who don't do financial planning.

Fulfillment of a professional's fiduciary duty is generally understood as putting the needs of the clients ahead of those of the professional. A true fiduciary would not, for instance, recommend a product because he receives compensation from the manufacturer for doing so when another product might serve they client as well or better.  

The CFP Board's proposal to give certified financial planners wiggle room in the application of fiduciary responsibility doesn't sit with the National Association of Personal Financial Advisors (NAPFA), an Arlington Heights, Ill.-based group representing about 1,300 fee-only planners. "We encourage the CFP Board of Standards to strengthen its code of ethics to require, without any qualifications or exceptions, that any financial advisor giving financial |image1| planning advice adhere to a fiduciary standard to place the client's interest first," NAPFA wrote in a 5 May 2006 comment letter. "As you surely know, this is the same standard that is required of an advisor giving investment advice under the 1940 Investment Advisors Act," the letter continues. "And it is the standard that the SEC has chosen not to impose on broker-dealers who claim to provide something less than 'financial planning.'"

The Denver-based Financial Planning Association (FPA) -- which has about 28,000 members -- is also unhappy with the CFP Board's proposal on fiduciary status. "By allowing practitioners to choose a lower standard simply because CFP Board wishes to allow non-practitioners to be held to a lower standard is very troubling, to say the least, and not in the interest of consumers," says FPA president Daniel Moisand.

Baby and bathwater

Other changes proposed to the CFP standards include: Elimination of a current requirement that CFP certificants report infractions of the Code of Ethics by other certificants. Elimination of a written notice informing clients of their right to ask any time for information about the certificant's sources of compensation, and an annual offer of disclosure of important information about the certificant. Changes to the definition of a "client engagement" by requiring a written agreement and compensation. The previous standard indicated a client engagement existed when an individual reasonably relied upon the information of a certificant. Elimination of the requirement that a certificant without the requisite expertise refer the client to another professional

Instead of the last requirement, the CFP Board of Standards proposes that a certified financial planner would have only to disclose his areas of expertise in the course of helping the decide what services the individual wants from the financial planner.

"At a time when consumer studies clearly show a general lack of financial literacy, these new requirements will not be useful to the vast majority of Americans who should be able to look to the CFP 'marks' as the embodiment of accountability in the financial planning profession," says Moisand. "As more and more consumers seek financial planning, and the ranks of CFP certificants grow, uniform standards for the delivery of financial planning services must be made a priority."

Meanwhile, the CFP Board is still mulling over its proposals -- and inviting public comment.

The CFP Board says it "will consider information received during this comment period at its October 24, 2006 meeting."

The CFP Board already held a public discussion in Santa Monica, Calif., this past Friday, where -- according to an Associated Press report -- board members got another earful from the FPA.

"You don't see lawyers being able to opt out of their fiduciary duty, nor would you think doctors would be able or want to waive their Hippocratic oath to patients," FPA chairman James Barnash is reported to have told the CFP Board.

The FPA is also in a legal battle with the Securities and Exchange Commission over the regulator's decision in April 2005 to exempt fee-based brokers from having to register as investment advisors.

Click here for an overview of the CFP Board's proposals. --FWR

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