Back in December 2015, the CFP Board of Standards announced the creation of a Commission on Standards to “review and recommend to the CFP Board’s Board of Directors proposed changes to CFP Board’s Standards of Professional Conduct.” The Board’s then chairman Rich Rojeck said at the time: “This review by the Commission, … finalized only after stakeholders have had an ample opportunity to comment the proposed changes, will ensure that the CFP Board’s standards continue to be the benchmark for excellence in financial planning.”
Setting aside for the moment the fact that I’d hope the CFP Board’s standards would be the “benchmark for excellence” for all retail financial advice, I’m beginning to hear rumors that its Commission on Standards may soon (within the next month or so) release its recommendations and open them up for public comment. Now, I’m not trying to upstage the Board here (as if), but it occurs to me that it might be helpful to set the stage for thinking about the Commission’s recommendations by starting a discussion of the issues that the Commissions should be trying to address.
(Related: The 5 Levels of Fiduciary)
For help with both research on and analysis of the Board’s current “Standards of Professional Conduct,” I turned to Knut Rostad, president and founder of the Institute for the Fiduciary Standard. Based on Knut’s files and my own research over the years, my assessment of the problems with the Board’s current standards for CFPs are two-fold: First, they are far weaker than current fiduciary law that applies to investment advisors; and second, the Board’s standards only apply to CFPs when they are deemed by CFP Board to be doing financial planning for clients — not for the entire scope of the client engagement.
First, let’s look at the difference between the Board’s standards and the law. Despite Board claims that all CFPs are held to “the highest of standards,” its rules do not include requirements to: disclose fees in dollars or percent of AUM, or control fees and expenses; disclose conflicts of interest in writing, manage or avoid conflicts; obtain written client consent to conflicts; or to “provide sufficiently specific facts so the client is able to understand the conflicts and provide informed consent or reject them,” as is required of RIAs.
What’s more, the Board’s standards go to great lengths to differentiate between when a CFP is “acting as a financial planner” (and would therefore fall under its fiduciary standard) and when she or he is not. For instance, in Question 1-8 of its Frequently Asked Questions the Board states: “The primary factors on which CFP Board relies for determining whether ‘material elements’ [of financial planning] exist are: the client’s understanding and intent in engaging the CFP professional; the degree to which multiple financial planning subject areas are involved; the comprehensiveness of data gathering; the breadth and depth of recommendations.”
Question 1-10 brings it all to a fine point: “The question of whether a client relationship involves financial planning is one that CFP Board determines on a case-by-case basis.”