More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
Last week witnessed a number of thought provoking and important commentaries that raise important questions on the status of investor trust, and what to do about it.
On Sunday, one-man think-tanker Ron Rhoades provided a detailed legal analysis in his blog of the background on the facts and circumstances determining the presence of fiduciary status, as a preface to commenting on the CFP Board's explanations for applying fiduciary status to CFP holders.
Ron’s posting follows a recent piece by Allan Roth in The Wall Street Journal questioning the CFP Board’s handling of a case brought against a CFP certificant and a piece by Andy Gluck on his website that questions the CFP Board's "definition" of fiduciary. Bob Clark of AdvisorOne addressed that same issue in a September 24 blog, with a response by the Board’s CEO, Kevin Keller.
Rhoades zeroes in on the Board's claim that "financial planning or material elements of financial planning" must be present and that a certificant who only engages in one of the six subject areas of financial planning is not likely to be engaged in "material elements" of financial planning and is, according to the Board, not to be considered a fiduciary. Rhoades stresses this emphasis on "one subject area" and "material elements" has no basis in law, and appears to contradict legal precedents which indicate, according to Rhoades, that the provision of any advice "will likely give rise to the application of fiduciary status under state common law."
Reconciling CFP Board's definition of fiduciary status with state common law is a serious matter. Yet Rhodes may raise a more serious question: is the CFP Board’s advertising misleading? Does it constitute, he asks, "fraudulent advertising by CFP Board?" CFP Board's advertising campaign suggests, Rhoades notes, that all CFPs are fiduciaries at all times. This suggestion seems to stand four square against the core CFP Board view noted above that by design and intent, all CFPs are not fiduciaries at all times.
This is arguably a more serious charge because it raises fundamental questions of judgment, ethics and law. It raises questions of precisely how CFP Board applies the fiduciary standard to advance the profession. It raises the question of trust.
I asked the CFP Board to respond to the Rhoades critique. Dan Drummond from the Board replied:
"Thanks for reaching out to us. We are aware of and read with great interest Ron Rhoades, CFP®’s thoughtful piece with regard to CFP Board's fiduciary standard. Mr. Rhoades makes some very interesting points that undoubtedly will engender further conversation on this important subject.
I would note that CFP Board's standard has been the subject of considerable discussion within the industry since CFP Board broke ground in 2007 by requiring all CFP professionals to be held to a fiduciary standard when providing financial planning services. CFP Board will continue to rigorously enforce all of our standards and, in concert with our Financial Planning Coalition partners, will continue to advance our public policy efforts to encourage the SEC to create a rule that extends a fiduciary standard to broker-dealers who provide retail investment advice.
We value input from our CFP professionals and the public."
Last Tuesday, at the Tiburon Strategic Advisors CEO Summit (where I spoke on the precarious status of the fiduciary standard) Tiburon CEO Chip Roame, opened the conference of some 200 C-level execs with a broad, detailed (114 slides) presentation on "The Future of Wealth Management." In this presentation, Roame covered the state of consumer wealth and baby boomer financial behavior, and industry stumbles and scandals. Here Roame said some things we usually don't hear at industy conferences from industry leaders.
For example, Roame opined that consumers generally view the whole industry as "appalling" and that consumers do not distinguish between good and bad guys: "The whole industry is evil." Consumers do not pick out certain industry participants and just blame these firms. Consumers blame all the players.
The takeaway? This is everyone's problem.