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October 25, 2012 at 05:44 AM
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:
