From the June 2007 issue of Wealth Manager Web • Subscribe!

June 1, 2007

What's Next?

March 30, 2007. I was at the Brown Palace Hotel in Denver attending a town hall meeting conducted by the CFP Board on its latest proposals for changes to its Code of Ethics. Between the meeting, a Web-based survey, an earlier Webcast, and side-by-side comparisons of the proposals, it was very clear that an era of renewed openness had begun.

It was also clear that the changes offered by the CFP Board strengthen and improve the Code. (Only a few months before, significant doubts existed that this would be the case.) I was happy to express thanks and support to the board for its openness and the quality of the new proposals.

If that were all that occurred on March 30, it would have been a fine day. But as I was preparing to make a few comments to the CFP Board on behalf of the FPA, I received notice that FPA was successful in its lawsuit against the SEC over the broker/dealer exemption. I spent the rest of that morning being briefed by our attorneys and participating in a conference call with the media. Most reporters wanted to know how it felt to win, what it meant, and what was next.

First question? It felt good, very good. Second, the Court's decision means that the exception does not exist, and everyone goes back to the rules that existed prior to that 1999 proposal of the B/D exemption.

The third question however--"What's next?"--was the most intriguing. Regardless of whether the SEC appeals, the area most ripe for speculation is whether the commission or the brokerage industry will go to Congress to rewrite financial services regulations. And if they do, will the changes they seek benefit the public or, like the overturned exemption, benefit the brokerage firms more. There is a wide range of opinion about the brokerage industry's chances to succeed in Congress.

Most lobbyists will tell you that it is far easier to kill a bill than to pass one. Getting major legislation through Congress is very costly and time consuming. The rough rule of thumb for controversial legislation to pass through Congress is three to five years. While the brokerage industry may have significant dollars to devote to such an effort, they would be paddling against the current of public and media opinion, and likely against a coalition of advisory and consumer groups as well.

On the other hand, there are some Washington insiders who believe that Wall Street has too cozy a relationship with the SEC. They point to the exemption, the generous interpretative guidance, and lack of enforcement activity as evidence of a revolving door between Wall Street and the SEC. They argue that--with all the political action and personal contributions flowing into congressional campaigns--the big firms will have an easy time getting Congress to pass their agenda. Maybe I'm too ideal-istic, but I don't share such cynicism about Congress, the SEC, or even about Wall Street. There are folks inside the glassed-in SEC offices who have privately acknowledged problems with the B/D exemption. I also know many planners working for large firms of all types that do excellent work for their clients, and who embody everything we hold dear as a profession. These planners tend to be great assets to their firms and did not like the exemption either. We have already heard comments inside a few of these firms at the higher management levels that the fiduciary concept is starting to take hold, and someday it will be part of their business plan. Firms that support these planners in their fiduciary capacity are more likely to retain them and their clients' assets. And that is good for business.

Even if none of the current speculation should come to pass, and neither the SEC nor Congress took steps to override the court's ruling, the financial planning profession still has a long way to go where regulation is concerned. Not only do our laws demand little from planners, they also do little to bring real meaning to the terms "financial planner" or "financial planning."

Since at least 1987 when IA-1092 was released by the SEC, holding oneself out as a financial planner has triggered registration as an investment advisor, thus imposing disclosure requirements and the duty to act as a fiduciary. Even under the flawed broker/ dealer rule exemption, the Commission maintained that holding out as a planner would continue to invoke registration.

All well and good, but until there is a licensing function explicit to financial planning and financial planners, the public will still be exposed to thousands of solicitations by people who may or may not be planners. The simple act of registering as an investment advisor or investment advisor representative allows you to hold out as a planner. In effect, registration is a quasi-license for planning.

Unfortunately, registration does not require much knowledge of financial planning, nor does it deliver much in the way of actually providing financial planning or practicing any specific standard of conduct. The result, then, may be a legally registered, but faux planner.

However, by instituting either a specific federal or state licensing regimen for financial planning, the public will more likely be able to find truly qualified practitioners. As my friend, colleague, and dual registrant Kirk Francis, CFP, so succinctly puts it: "You can't have a faux planner if they are outlawed."

Of course, simply adding another license to the business will not fulfill the public's needs. The planner must still provide something meaningful for the client. In fact, the financial planning profession has put considerable time, energy and resources into developing a set of applicable standards. This effort has been led by the CFP board, but it goes far beyond the CFP designation and far beyond the recent squabbling between planners and some in the financial services industry.

Certainly, the CFP Board rules can be improved. That will probably always be the case and is, in fact, one reason the board exists: to improve the rules as the profession evolves. At the moment, only the CFP Board seems to care whether and how one practices financial planning.

The problem is that the CFP Board does not have the enforcement power that true regulators have, and both the public and the profession need. They have jurisdiction only over CFP licensees and control of the marks. They cannot fine anyone, order reparations, stop someone from practicing or even holding out as a "financial planner," or send anyone to jail for heinous behavior.

While I could write about another dozen elements important to the development of the profession, I believe that, ultimately, the three areas discussed above can meet the public's needs:

1. Planners should be separately licensed so the public is able to easily identify who is qualified to practice.

2. The public needs to know what standards of care and practice they can expect from the planning process and services provided by these licensed practitioners.

3. The public needs a way to hold licensed practitioners accountable to those standards with appropriate remedies for any given breach.

If the CFP Board rules or similar guidelines defining appropriate fiduciary and practice standards and full disclosure were enforced by a recognized regulatory body, the public and the profession would be well served. That may sound simple, but no one thinks it will be easy.

So, while the profession can be proud of its association and its successful stand against the broker/ dealer exemption, there is indeed much still to be done. Of course, forcing $300 billion or so in assets to choose sides over a newly refreshed bright line, is one heck of a start.

Dan Moisand, CFP, is a principal of Spraker , Fitzgerald, Tamayo & Moisand LLC in Melbourne, Fla. and Chair of the Financial Planning Association. Editor's Note: Mr. Moisand's opinions are his own and are not to be construed as the Financial Planning Association's position.

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