How Should CFP Board Raise Its Standards?

Require that all CFP registrants do what most investors believe they do — meet a single rigorous fiduciary standard that is plainly written. ACTION STEP: Eliminate the CFP Board’s “two-standard” standard whereby CFP registrants have different conduct standards depending on whether they are offering financial planning advice or not. Communicate this standard in plainly written language.

2. The Board appears to view conflicts of interest as ubiquitous, unavoidable — and benign. This view departs sharply from longstanding views of jurists, academics and advisors who have viewed conflicts of interest as, essentially, toxic to fiduciary advice.

Adopt a rigorous standard on conflicts of interest that discusses the well-recognized risks and potential harms to clients that conflicts create. Clearly urge avoiding or eliminating. ACTION STEP: Initiate a robust discussion that reflects history, law and plain common sense on why CFP registrants should avoid conflicts. Provide guidance on how conflicts that are not avoided must be managed. Outline the burden advisors must overcome. Include guidance on disclosure and informed consent. Replace allowing a “general summary of likely conflicts of interest” with the SEC policy requiring written disclosure with “sufficiently specific facts so the client is able to understand the conflicts of interest … and can give informed consent.” Honor the principle that, though no one can be free of all conflicts, everyone can avoid most conflicts. Conflicts cannot be taken lightly or accepted as a norm.

3. Compensation and expense disclosure requirements reflect a minimum standard. The CFP Board’s standards only require disclosure of “compensation methods” and “information related to costs and compensation” by the CFP and his or her firm. They do not require, as a matter of course and without specifically being asked, disclosure of actual fees and investment costs, or a good faith estimate of these total costs.   

Require transparency and clarity in fee disclosure. ACTION STEP: Stop allowing a “general description of compensation arrangements” and “information related to costs upon request.” Instead, require clear disclosure of what the client will pay in underlying investment costs and what the CFP registrant and the firm will be paid as a result of the advisor’s advice or product recommendation, along with a good faith estimate of these fees and costs.

In conclusion, the CFP Board has a great opportunity to strengthen the CFP mark. It can set out conduct standards that meet high historic standards that today’s investor demands. The Institute for the Fiduciary Standard considers the above recommendations as vital to the future integrity and credibility of the CFP marks.

— Read Crunch Time Part II: CFP Board’s ‘D Day’ on ThinkAdvisor.