We Win, Sort Of

As a long-time advocate of aggressive public relations, I’m going to suggest that the FPA maximize the impact of its victory by launching a major PR campaign designed around the responsibilities that professional financial advisors have to their clients, which other kinds of “advisors” don’t have, and why that’s important; supported by quotes and references from various sources, including the recent ruling. Full-page ads in USA Today, and 30 second spots during PGA tournaments might be a little pricy for the FPA (although this is exactly the kind of consumer education that the Foundation for Financial Planning and NEFE should be financing). But well-placed interviews and articles in the mainstream press can do wonders to educate the public. Remember NAPFA’s success at promoting fee compensation on a shoestring.

Even though the FPA’s win in the D.C. Circuit was the best thing to happen to independent advice since the formation of the CFP Board (that was a good thing, right?), don’t think the Wall Street firms are going to take this lying down. While a few firms–including Piper Jaffray in Minneapolis–have already acknowledged that their brokers are investment advisors, it isn’t likely that the major wirehouses will be as sanguine about their brokers shouldering a fiduciary duty to put their clients’ interests ahead of their firms’ agendas. If history is any guide, it won’t be long before the world’s most effective marketing machine will be making Snapple out of this lemon. Look for their counter-attack on two fronts.

First, I suspect the wirehouses will quietly reverse their opposition to reorganizing the current maze of securities regulation. That’s because the Court’s ruling in favor of the FPA did what no legislation is likely to do: It left no wiggle room for anyone who takes a fee for advice to avoid the responsibilities of an investment advisor. However, if the brokerage firms could convince Congress to rewrite the laws the governing securities sales and advice, there’s at least an even chance their lawyers and lobbyists could effect an exemption at least as broad as the Merrill Lynch rule, but this time not be open to legal challenge.

While that may seem a bit of a reach (though I would still argue that it’s entirely likely), it is no stretch at all to predict that Wall Street will also focus more time and attention on distinguishing when brokers are acting as advisors (and subject to those duties), and when they are merely selling securities, and therefore exempt, within each client relationship. Of course, it’s ridiculous to think that any intelligent person would argue, let alone buy into, the notion that the same person could sometimes be an advisor, and at other times be a salesperson to the same client. Could that be any more confusing to a client? Sheer lunacy.

But wait a minute. Didn’t I just see… I know it’s around here, in this mess somewhere. Ah, yes, here it is: The Second Exposure Draft of Revisions to CFP Board’s Standards of Professional Conduct. Seems the Task Force is suggesting replacing Rule 1.1(e), with new Rule 1.4 which reads. “…that when the certificant is providing financial planning or material elements of the financial planning process, the duty of care owed to clients is that of a fiduciary…”

Is it possible that the Board is suggesting that financial planners have a fiduciary duty when they’re providing financial planning, but not when they are providing other services to the same client? Surely not. Yet, since their Standards apply only to Certified Financial Planners, who presumably provide financial planning services to all their clients, what else could they mean?

Back to the Future?

Yes, folks, given their track record, I’m pretty sure that’s exactly what the Board means. They’ve scrapped their highly criticized proposal from the first Exposure Draft–that CFPs can decide whether they want to assume a fiduciary duty, as long as they inform their client of their decision. They have instead reverted back to the old standard “scope of the engagement,” which means that when a CFP is acting as a financial planner for a client, then they have a fiduciary duty, but when they are acting as something else–a salesperson perhaps–then they don’t. Sound familiar?

Ridiculous? Confusing? The furthest thing possible from the best interests of the already befuddled public? All of the above, to be sure. Even worse, if that’s possible, if this Rule were to be adopted by the Board, it will align financial planners with Wall Street in arguing that this sort of “Which-hat-am-I-wearing-now?” obfuscation is somehow acceptable. Rather than differentiate professional planners from stockbrokers, it would serve to not only appear similar, but actually be similar. Great thinking, guys. Seems this spring, the profession of financial planning has taken one step forward, and one step back. Maybe for its next move, the FPA should sue the CFP Board for being chowderheads. Is that a valid cause of action?