From the February 2009 issue of Investment Advisor • Subscribe!

February 1, 2009

Teaming Up for Change

Planning groups to push for uniform regulation of financial planning

The three financial planning organizations--the National Association of Personal Financial Advisors (NAPFA), the Financial Planning Association (FPA), and the Certified Financial Planner Board of Standards (CFP Board)--which have joined forces to lobby Congress on financial services reform--have officially christened themselves the Financial Planning Coalition.

As financial services re-regulation is debated in Congress this year, the coalition shares a common goal: to push for uniform regulation of financial planning that holds those practicing it to a fiduciary standard of care. During a conference call with reporters January 13 to discuss the coalition's priorities and goals, Diahann Lassus, chair of NAPFA, said the critical part of the coalition's goal is "having a regulatory body for financial planners so that individuals will recognize and understand what they can expect every time they hire someone to fit that title."

Richard Salmen, president of FPA, said there's never been uniformity among the four "Es" that make up financial planning: examination, education, experience, and ethics. "Unfortunately right now there is not a uniform process for verifying those four things when it comes to financial planning," he said.

Marilyn Capelli Dimitroff, chair of CFP Board's Board of Directors, added that the coalition is "looking at a regulatory organization that will require those that practice financial planning or hold themselves out to be financial planners to register and comply with standards." Most importantly, she said, "we would like to see all RIAs be held to a fiduciary standard of care and disclosure standards to put the clients' interests first."

The regulatory bodies being contemplated would include a self-regulatory organization (SRO), a professional regulatory organization (PRO), or "other options in terms of state regulation," said Lassus. Another important component to the coalition's work, she said, is "to pay attention to what's going on in Washington and be able to work with our legislators and the SEC and other organizations." Indeed, Salmen added, "educating [Congressional] staffers is going to be an important part of this coalition's job."

Members of Congress and regulators must be educated about the "huge difference" in the FINRA model, which regulates product development and distribution, versus the RIA model, which is based on delivery of service, Lassus stressed. "FINRA is more compliance based, and RIA [regulation] can't, by its nature, be compliance based because once it becomes compliance based you begin to lose the ability to provide the service that we all want to provide."

Expansion Possible, but Also Resistance

When questioned recently about whether an SRO for advisors would become a reality soon, former SEC Chairman Harvey Pitt told Investment Advisor that he's "not optimistic about an SRO being formed for investment advisors any time soon." He did say, however, that "it is definitely in the interests of the industry to create its own best practices and standards, but in the absence of statutory authority, there may be those who have concerns about taking collective action. I believe this can be done, and done reasonably easily without legislation, but whether the industry will move on this is an open question."

The coalition of three is also in talks now to expand the alliance to include other organizations like the Consumer Federation of America and the American Association of Retired Persons (AARP). "We want to work with a large broad-based coalition to bring appropriate uniform standards to the consumer," Salmen said.

Many advisors are dreading Mary Schapiro taking the helm of the SEC because they fear she'll push to have FINRA regulate advisors. Lassus said the coalition hopes Schapiro will "look at the overall view of the SEC and what her responsibilities are and go through a very thoughtful process in determining the next steps to correct some of the issues that have taken place within the SEC."

Capelli Dimitroff noted that Schapiro will have to make a transition as she takes the helm because she "has been involved in a product-oriented regulatory body." There is a transition, she said, "to be made in applying that process to services--they are two different kinds of things and we hope that distinction is preserved."

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