What’s In a Name? If You Are a Fiduciary, a Lot. But Are CFP Certificants Fiduciaries?

Financial planners who hold the Certified Financial Planning designation have been tussling with the CFP Board, which controls the CFP designation, over the designation’s ethical standards. Well, it looks like the tussling will continue.

Financial planners who hold the Certified Financial Planning designation have been tussling with the CFP Board, which controls the CFP designation, over the designation’s ethical standards. Well, it looks like the tussling will continue.

At issue: Should financial advisors who hold the CFP designation be able to, as the “dissident” CFPs put it, “opt out” of a fiduciary standard just because they are “merely” Series 7-holders and only have a suitability requirement to their clients? [Registered investment advisors (RIAs) and their employees (investment advisor reps, or IARs) have fiduciary responsibility to clients.]

Opt out? Series 7-holders with CFPs never had to, says Marilyn Capelli Dimitroff, chair of the CFP Board’s Code of Ethics Task Force. In announcing its second draft of Standards of Professional Conduct today, Dimitroff gave a nod to the vigorous debate (noting there were “passionate opinions”), but said, essentially, many were wrong. There were “many who incorrectly believed that the CFP Board’s current ethical standards require a fiduciary duty from all CFP professionals,” she said in the release. (For more on the “passionate” arguments, see Registered Rep.’s December cover story, “Of Two Minds”.)

In today’s release, the CFP Board said CFPs who are registered reps and who don’t practice financial planning (or are RIAs) won’t have to act as fiduciaries, but will have to have something like it: “CFP professionals shall at all times place the interest of the client ahead of his or her own.” That replaces a softer “reasonable and prudent professional judgment” contained in the CFP Board’s current Code of Ethics and Professional Responsibility. There will be a 45-day comment period for the draft.

Also, financial planners who hold a CFP certificate would, of course, have to act in a fiduciary capacity, the Board said. In fact, the current requirement that financial-planning services be performed, “in the interest of the client,” have been beefed up to, “in the best interest of the client.”

“Because a CFP professional can be in a wide range of fields, it is inappropriate to require, say, a high-school teacher, to act as a fiduciary. It is wholly appropriate to regulate the CFP Board’s fiduciary standard when professionals are providing financial planning or material elements of the financial-planning process,” said Dimitroff.

Dan Moisand, president of the Financial Planning Association, says he was pleased with the process the Board is going through. He says the more clear the Board can be, the better, because there are some people who didn’t believe there was ever a fiduciary duty governing CFPs.

Ron Rhoades, a fee-only registered investment advisor and CFP with Joseph Capital Management in Hernando, Fla., says he is generally pleased with the draft, but still had some questions relating to the document’s interpretation; it wasn’t clear to him if a CFP certificant can “opt out” of fiduciary duty.

“Can somebody act as a fiduciary providing a financial plan, but then terminate the financial plan engagement, and then provide brokerage services or life insurance sales under non-fiduciary standards of care?” Rhoades asked.

The CFP Board’s Code of Ethics governs more than 52,000 CFP-holders, an increasing number of which are brokers at big wire houses. Between the increasing number of brokers taking on financial-planning responsibilities, their fiduciary responsibility under the broker/dealer exemption (a.k.a. the Merrill Lynch rule) and the stringent regulatory eye of watchdogs such as the SEC, NASD and NYSE, retail investors might ask: “Broker, planner, what’s the difference anyway?”

And so, the Board’s release is yet another skirmish in the battle between the brokerage community and the registered investment advisor community, as each struggles to define themselves in an attempt to cement their industry roles, regulations and appearance to the public.

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