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Financial Planning > Behavioral Finance

‘Just Say No’ to CFP Board’s New Standards

By Don Trone

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The Certified Financial Planner Board of Standards’ 60-day comment period and scheduled town hall meetings to gain feedback on the Board’s new practice standards that were released on June 20 are nothing more than a show of faux collaboration.

The CFP Board is taking a page right out of the Labor Department’s playbook: Announce a comment period, hold hearings, and then conduct a press conference to claim that the Board “listened” to certificants and made “material” changes to their “proposed” standards.

Baloney.

The Board doesn’t give a hoot about certificants, nor about the best interests of the public. The Board’s fiduciary initiatives are being fueled by politics, power, ego and greed. 

More to the point, there are two reasons why CFP certificants should “just say no” to the Board’s recently released standards:

  • The vast majority of certificants have not been properly trained on fiduciary prudent expert standards, and as a result are going to be exposed to considerably more risk and liability; and
  • The Board wants to foist moral and ethical standards on certificants that the Board is not willing to impose on its own leadership.

A fiduciary standard requires more than simply acting in the best interests of another. It also carries an implicit understanding that the fiduciary will act as a prudent expert. To illustrate:

  • What fiduciary practices are associated with the preparation and delivery of an insurance proposal?
  • Could a certificant face fiduciary liability if a financial plan for a near-retired couple did not include a proposal for long-term health care?
  • Does a certificant have fiduciary responsibility for monitoring a financial plan once it has been implemented? 

Simply stated, if a certificant is sued by a client for breach of fiduciary responsibility, the client’s attorney is going to call multiple expert witnesses to pick apart every component of the certificant’s planning process. As a defense, the certificant may try to argue that he or she met the generally accepted practices of a financial planner, but such a defense will likely be insufficient.

The numerous problems associated with painting every financial planner with a broad fiduciary brush were first identified by the Financial Planning Association in 2009. The association’s leadership made a decision to develop a series of handbooks that would identify the fiduciary best practices associated with each pillar of the financial planning process.

The first FPA handbook, Fiduciary Ethos, which I helped to write, was published in 2010. The handbook integrated the financial planning process, CFP Practice Standards, and CFP Code of Ethics with a uniform fiduciary standard of care — everything the CFP Board is trying to do today, we accomplished seven years ago. As soon as it was released, the Board began to interfere. 

The reasons why? Many of us believe the Board didn’t want the FPA to be seen as taking a leadership role in the fiduciary movement. In addition, one of the Board’s directors was involved in providing a competing fiduciary training program. If these reasons are correct, then the Board’s interference constituted a material conflict of interest, and the Board’s leadership engaged in self-dealing.

This brings us to the issue of the Board’s integrity — or lack thereof. “Integrity” is one of the focal points of the new standard, as it should be. Integrity is the principal ingredient to building trust and in determining the quality of a fiduciary standard.

Yet, integrity is a characteristic that the Board fails to demonstrate. Consider the following practices by the Board that run counter to good governance and to a fiduciary standard of care: 

  • There are no open elections for directors.
  • Directors are required to sign a confidentiality agreement.
  • Any conversation with a director — public or private — requires the presence of senior staffers.
  • Board minutes are not made public. Of particular concern is the absence of minutes identifying the directors who are taking part in determining the exorbitant salaries of senior staffers.
  • A corollary to the previous point: Formal ethics complaints against directors are viewed first by the staff and not by an independent ethics committee. This provides the staff the opportunity to bury an ethics complaint against a director who may later have a hand in determining the staff’s compensation.
  • And, directors are not represented by independent legal counsel.

If the CFP Board were a country, it would be North Korea.

The Board has done more harm to the fiduciary movement than any other organization. And given the absence of transparency and of good board governance, certificants need to understand that there is no self-correcting mechanism to drain the swamp. 

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