The CFP Board announced on Tuesday that it will release a draft of proposed changes to its Standards of Professional Conduct on June 20. The Institute for the Fiduciary Standard applauds the CFP Board for reviewing its standards. Over the past few years, the Institute has conducted its own review of CFP standards as they apply to a CFP’s fiduciary duty to his or her client. With the initiation by the CFP Board of a discussion of proposed new standards, the Institute believes that now is the time to release its review of CFP professional conduct standards.
The Institute’s findings were announced on Tuesday in order to set out where the CFPB standards fall short of meeting a bona fide fiduciary standard and also to offer a basis for assessing proposed changes and subsequent debate.
It is important to understand the backdrop for evaluating these standards now. Research continues to suggest that many investors still view financial services and advisors with distrust. The conservative-leaning American Enterprise Institute went so far as to say, “Americans see Wall Street as a culture apart, one that operates by a foreign code of conduct.”
Research also shows the advisory industry a way forward. A 2016 paper by the CFA Institute, “From Trust to Loyalty: A Global Survey of What Investors Want,” shows 11 attributes that retail investors find important. Five attributes are associated with transparency and clear communications about fees and conflicts of interest. Together, they rank above other attributes. The message is that higher ethical standards dominate investors’ “wish list” from financial services.
The Institute identified three primary areas of concern and recommended action steps to address them.
1. Ambiguity over when CFPs are fiduciaries persists. The Board discusses at length its one standard for all CFPs and its other standard for CFPs who do financial planning. Yet it’s hard to tell the standards apart by what they are called and do. One standard requires CFPs to meet “the highest of standards,” while the other standard requires CFPs to act in “the best interest of the client.” Differences are modest. CFPs doing financial planning are held to the Board’s definition of fiduciary and required to make some disclosures and the agreement in writing.