Registered Rep. spoke with Dimitroff about a second round of proposed revisions to the CFP Board's Code of Ethics.
Registered Rep.: Why do the new revisions make a distinction between fiduciary duty (required of CFPs who offer financial planning) and the duty to place the interest of the client first (required of all CFPs)?
Marilyn Dimitroff: We have CFP certificants in such a wide range of jobs. Some of them, like high school teachers, social workers and government employees, don't spend any of their time delivering financial planning. You can't apply a fiduciary responsibility to that.
RR: What are the legal differences between fiduciary duty and this other standard of care?
MD: Remember that the CFP Board can only enforce its own standards. So, this is not intended as a legal definition.
RR: What was the most passionate argument against mandatory fiduciary duty for all CFPs?
MD: That if the word fiduciary is used, the implication is that someone could interpret that as having a legal application.
RR: The CFP Board's current ethical standards do not require fiduciary duty?
MD: No, no, no. It's much weaker. Currently, certificants must exercise reasonable and prudent professional judgment, and a financial-planning practitioner should act in the interest of the client.
RR: How does the CFP Board define “financial-planning services”?
MD: That's very clear. It is defined by the personal financial-planning process, which is the six steps involved and the “material elements” of a financial plan [check out the CFP Board's Web site (www.cfp.net) for more on the six steps as well as the material elements]. You don't have to do a full comprehensive financial plan to be doing financial planning. Someone could say, “I just want to know what I need to do to retire,” but that still is financial planning. [The Webcast on our Web site] also explains the things that are not financial planning.
RR: Can a CFP be a fiduciary at some times and not at others?
MD: Yeah, it would depend on the relationship with the client, or the services being provided.
RR: How does the CFP Code of Ethics compare to the Merrill rule?
MD: The Merrill rule lacks clarity. The issue is what's incidental. It leaves a lot of wiggle room for people to say I wasn't really doing financial planning. [In our code,] if the client believes, because of verbal or written statements, that he's receiving financial planning, then you have delivered elements of financial planning.