CFP Board Seeks to Impose 'Strengthened' Fiduciary Standard on All Advice

Proposal out for a 60-day comment period; Kitces wonders if board is prepared to enforce and discipline those not in compliance

The draft of proposed changes to the CFP Board’s Standards of Professional Conduct released Tuesday for a 60-day public comment period “strengthens” the fiduciary standards CFPs’ must adhere to, requiring CFPs to act as fiduciaries “at all times,” said Leo Rydzewski, CFP Board’s general counsel.

In a Monday conference call with ThinkAdvisor to discuss the draft plan, Rydzewski explained that the updated standards go beyond the fiduciary parameters when CFPs engage in financial planning and attaches fiduciary standards “to all financial advice.”

Blaine Aikin, executive chairman of Fi360 who leads the CFP Board’s board of directors, stated on the conference call that the Commission on Standards, appointed by CFP Board in December 2015, has “done an impressive amount of work” on revising the standards over the last 18 months.

Advisors can submit comments online until Aug. 21 or register to attend one of eight public discussions nationwide. The forums will take place on July 24 in Tampa, Florida, and Atlanta; on July 25 in New York and Detroit; on July 26 in St. Louis and Dallas; and on July 27 in Phoenix and San Diego, California.  

“Almost a decade ago, CFP Board took at the time a bold step” in introducing a fiduciary standard for CFP professionals, said Kevin Keller, CFP Board’s president and CEO, on the conference call.

“It’s now time to update these standards,” Keller said. “These revisions will help keep CFP certification as the recognized standard for competent and ethical financial planning.”

Aikin added that the proposed revised standards are "independent of the [fiduciary recommendations] set out in the Department of Labor’s rule,” but that “the regulatory developments that have occurred regarding fiduciary advice have been informative and informed some of the language,” in CFP Board’s proposed revised standards.  

The standards also put forth a “clearer description” of financial planning and when financial planning is required, incorporating a “new definition” of financial planning that is intended to be brief and comprehensive.

Financial planning is defined as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.”

Also revised is the Board’s process for addressing bankruptcies. The proposed standards includes bankruptcies among the types of “adverse conduct to be handled through the disciplinary process, thereby returning CFP Board to the process that was in place prior to 2012.”

Input Flow

Comments are already flooding in.

Michael Kitces, partner and director of wealth management at Pinnacle Advisory, told ThinkAdvisor Tuesday that the CFP Board’s effort to try to expand the scope of its fiduciary duty “is laudable, but as we’ve seen from the rollout of the Department of Labor’s fiduciary duty, it’s very expensive and time-intensive for much of the industry to put in place fiduciary safeguards and oversight.”

Kitces wonders if large firms will “take the CFP Board’s expanded fiduciary duty seriously, and really make the necessary adaptations to comply with it? And if they don’t, is the CFP Board really prepared to enforce and discipline the CFP certificants who are not in compliance with the new CFP fiduciary rules?”

Knut Rostad, president of the Institute for the Fiduciary Standards, added that he sees the proposal as a “good first step and reminder of the distance between existing CFP Board standards and a bona fide fiduciary standard.”

The next two months, Rostad said, “will be an exciting time to continue to reimagine what an investor-centric standard can be.”

Skip Schweiss, director of advisor advocacy at TD Ameritrade Institutional, stated at the Financial Planning Association's annual lobbying day in Washington on Tuesday that the firm is "impressed" with the CFP Board's plan.

He added in separate comments to ThinkAdvisor that "extending the fiduciary standard to the financial advice component of the relationship helps clarify a CFP professional’s position with respect to the standard of care extended to investors throughout the engagement," and "further raises the standard of care for investors, who deserve to know the CFP professional is acting in his or her best interest not just when providing financial planning services, but also when implementing the plan via financial advice."

With the DOL's Conflict of Interest Rule taking effect, and now with the CFP Board’s new proposed standard, "along with action we’re seeing in the states, the fiduciary standard is on the march across the land," Schweiss added. "That can only be a good thing for American investors.”

 

 

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