FPA Describes Proposed Changes To CFP Code Of Ethics As Flawed

Moisand further objected in his letter to the proposed elimination of Rule 402, which requires certificants in a financial planning engagement to disclose “all material information relative to the professional relationship,” such as conflicts of interest and sources of compensation. Moisand described as “vague” proposed rules that call for a written description of compensation arrangements as required by regulatory rules governing the engagement. He additionally questioned new rules that require certificants to discuss terms for offering proprietary investment products, but do not mandate written disclosure of such terms or the potential conflicts of interest in receiving higher rates of remuneration based on the sale of proprietary products.

Moisand recommended that the CFP Board implement a “more concise standard” mandating written disclosure of all material information relative to sources of compensation, conflicts of interest and proprietary product offerings. He additionally encouraged the Board to reinsert into its Rules of Conduct (currently omitted from the proposed revisions) a requirement that certificants notify the Board of any activities that could affect their right to maintain their certification or to disclose “material” disciplinary actions to clients (e.g., censure by a regulatory body or suspension of an insurance license).

While not opposed to a requirement in the proposed Rule 1.1 that a certificant and client enter into a binding written agreement governing the services to be provided, the FPA is “concerned” about the effect of the rule on pro bono client engagements. Because such services are rendered without compensation and are not always included in written agreements, the association fears that pro bono clients may not enjoy the same protections under the Code as do paying clients.

Moisand concluded his letter by calling on the CFP Board to maintain the Practice Standards, now removed from the proposed revisions. He specifically questioned the ostensible reasons for their removal: first to eliminate redundant and conflicting language in the current Code and Standards; and second to improve enforceability of the Code to preclude certificants from claiming they are not engaged in financial planning, and thus exempt from review in the event of an ethics complaint.

While lauding these goals, Moisand wrote the FPA is “not convinced that the removal of the Practice Standards is required to achieve the desired clarifications. The problem can be solved,” he added, “by revising the definition of a financial planning engagement in clarifying the application of the Standards to the work of a certificant.”

Moisand’s comments are the culmination of a process that began on July 24, when the CFP Board released Exposure Draft Revisions to each of 2 sections of the Standards of Professional Conduct: the Code of Ethics and Professional Responsibility; and the Financial Planning Practice Standards. The Code contains principals and rules that govern CFP certificants. The Practice Standards supplement the Code’s provisions, establishing a level of professional practice expected of certificants engaged in financial planning.

The Exposure Draft revises the Code and replaces the Practice Standards with Rules of Conduct. “Activity-specific” portions of the Practice Standards, as now envisioned, will be incorporated at a later date into a series of “Best Practices” or guidelines.

The FPA’s release of its comprehensive response to the Exposure Draft on Sept. 25 coincided with the end of the CFP’s Board’s public comment period. The FPA’s Professional Issues Committee, a volunteer group of experienced planners, spearheaded analysis of the draft for the association.