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December 03, 2014 at 07:46 AM
Ron Rhoades recently wrote some riveting reading (sorry, I couldn’t resist) that takes the discussion about the CFP Board, the FPA, and the “profession” of financial planning to a new level. (See my blogs: Why the FPA Can’t Win in the Broker Market, and “How Fiduciary Advisors Can Change Wall Street—Again. )
In his November 6 blog, “Should We Rally Around the CFP Board’s Rules of Conduct?, Rhoades agrees with the views of Bob Veres, Knut Rostad, myself and many others that further advancements of a client-centered fiduciary standard will come from “a marketplace solution,” rather than a regulatory one. He then explores the question of whether (as many people have recently suggested) the CFP Board might be the organization to effect such a solution. His reasoning provides insight into both the Board’s approach to a fiduciary standard for CFPs and the difficulties in distinguishing between sales and advisory relationships.
As the accrediting organization for more than 70,000 financial planners, and which embraced a fiduciary standard for CFPs back in 2006, one might think that the CFP Board would be an ideal candidate to create a much-needed profession of financial advisors. Yet many folks, including Ron Rhoades, aren’t so sure. He gets right to the heart of the matter when he asks: “Are the CFP Board’s Rules of Conduct a true, bona fide fiduciary standard? And are the CFP Board’s conduct standards applied at all times when personalized investment or financial planning advice is delivered?”
The CFP Board’s rules on the matter are rather hard to discern owing in no small part to essential details appearing separately in its Rules of Conduct, definitions and FAQs. Yet as Rhoades points out, the most important element is found in Rules of Conduct, section 1.4, which reads: “A [CFP] certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by CFP Board.”
One can immediately see the confusion.
While the first sentence says a CFP should place clients’ interests first “at all times,” the second sentence limits a CFP’s “fiduciary duty” only to when a CFP provides “financial planning.” Here’s what Rhoades had to say about it: “While, to its credit, the CFP Board takes the position that once fiduciary status is assumed the certificant remains a fiduciary throughout the financial planning relationship, there still appear to be instances in which the definition of “financial planning” is construed quite narrowly…I’m trained as a lawyer, a compliance officer, and I’m an academic – yet I cannot understand the fine lines which the CFP Board attempts to draw (or, perhaps, not draw)…”
Of course, for retail investors—and those who believe that a profession of truly fiduciary advisors is the best way to help them—the real problem here is that it sounds as if someone calling themselves a CFP might not have a fiduciary duty to a client if they don’t provide defined “financial planning” to them. This is a major problem for Rhoades: “Should not the use of the term “Certified Financial Planner” automatically result in fiduciary status, at all times when providing any financial advice?” he asks. “Otherwise, as others have written, does not the use of a term or title which denotes a relationship of trust and confidence, when none exists, result in a ‘bait-and-switch’ and become tantamount to fraud?”
