In formal comments submitted on September 25 to the CFP Board of Standards, Financial Planning Association President Daniel Moisand said that proposed changes to the CFP Code of Ethics and Professional Responsibility will “weaken, not strengthen,” consumer protections for the 51,000 certificants who hold the most widely recognized financial planner designation in the U.S.
Moisand detailed the concerns of the FPA in an 8-page comment letter to the CFP Board, Denver, Colo., which is preparing to adopt new standards after 3 years of internal review. Absent a recommendation for further revisions, the CFP Board is expected to issue a final ruling on the proposed changes during its October 24 meeting.
“The changes have the potential to adversely affect an estimated 5 million clients of CFP certificants in the U.S. and potentially millions of future clients,” Moisand said in a statement accompanying the comment letter. “Protecting the public should be of utmost concern.”
The FPA’s unease with the proposed ethics changes include the manner in which the changes were developed, which Moisand said lacked transparency. He observed that the board prepared the revisions behind closed doors without “the benefit of broad stakeholder or public input.” He called for the entire proposal to be withdrawn pending further discussion with consumers and stakeholders.
The CFP Board was unprepared at press time to comment on Moisand’s letter, according to a CFP Board spokesperson. Moisand was also unavailable to elaborate on the letter, which he addressed to CFP Board of Standards Chair Barton Francis.
Chief among the FPA’s objections to the proposed Code revisions was Rule 1.1 of the Rules of Conduct, which would require a CFP certificant to indicate in writing what legal standard will govern the agreement between the certificant and the client. If no legal standard is designated, the default standard is that of a fiduciary. In his letter, Moisand contends the proposed rule would result in “greatly varying standards of conduct for CFP certificants,” rather than a strengthening of standards that the Board seeks, and thus placing the rule in conflict with the CFP Board’s mission.
Absent a fiduciary standard of care, Rule 1.1 would require the client to “read the fine print” of an engagement letter to determine whether the certificant must place the client’s interest first–a point on which, the Moisand said, “there should be no equivocation in ethical parlance.”
Moisand asserted that elimination of Rule 202 of the current Code of Ethics, which requires that practitioners “act in the interest of the client,” aims to minimize the impact on CFP certificants–life insurance agents, registered representatives, registered investment advisors and broker-dealers–who otherwise don’t have to designate a lower standard of care because a fiduciary disclaimer is already incorporated into their customer account forms.
Moisand added in his letter that he has “serious concerns” about the apparent effort to revise the Code of Ethics to comport with an SEC staff interpretation (staff letter) from December 2005 relating to the so-called “broker-dealer rule.” As communicated in a previous letter, the FPA believes the staff letter “has seriously diminished previously existing investor protections and undermined the value of financial planning.” The revisions purportedly do so by allowing registered reps to hold themselves out as CFP certificants without being required to register as investment advisors, so long as they do not provide financial planning services.