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CFPs Lack Clarity on Board’s New Standards, FPA Says

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While fiduciary advocates applaud the Certified Financial Planner Board of Standards’ revised standards of conduct — specifically for expanding the scope of a CFP’s fiduciary duty and moving the industry toward a profession — they say the Board must clear up some ambiguities, and even seek more comments, before adopting the plan.

On June 20, CFP Board released for a 60-day public comment period a draft of proposed revisions to its Standards of Professional Conduct, which set forth the ethical standards for CFP professionals.

The draft Code of Ethics and Standards of Conduct put forth significant revisions to the Standards, including broadening the application of the fiduciary standard for CFP professionals — effectively requiring CFPs to put a client’s interest first at all times — and enhancing and updating standards related to financial planning.

The comment period expired Monday.

The Financial Planning Association told the Board that after reviewing FPA’s CFP members’ comments on the plan, they “require more clarity.”

FPA said that while it asked its members “for their opinions on the proposed Standards, many were unable to do so because they remain unsure of what is being proposed, what the changes will mean to them as practitioners, and how the proposed Standards will be implemented and enforced.”

FPA urged the CFP Board to consider the following changes to the process:

  • Develop the next layer of explanation and clarification for CFP professionals to understand how they will need to alter their practices to stay in compliance, which would include expanded definitions, concrete examples and legally substantiated criteria.
  • Engage in additional educational activities, including virtual events and the availability of charts, diagrams and scenario-based case studies that will help CFP professionals better understand the application of the proposed Standards.
  • Add another comment period after more detail is developed and disseminated to allay the concerns of practitioners who want to comply as soon as the Standards are adopted and prior to implementation.

“A strong foundation has been laid by CFP Board and the Commission on Standards to revise the Standards of Professional Conduct, but more must be done,” FPA said, adding that “CFP Board’s effort will be rewarded with another level of patience, work and clarity.”

Indeed, Michael Kitces, partner and director of wealth management at Pinnacle Advisory, said in his comment letter that CFP Board’s proposed changes “do introduce numerous new questions and concerns, from key definitions that (in my humble opinion) still need to be clarified further, to new wrinkles in what does and does not constitute a fee-only advice relationship (and whether and to what extent certain types of compensation must be disclosed), to uncertainties about how CFP professionals are expected to navigate important conflicts of interest.”

Other ambiguities, he continued, include how CFP professionals “should interpret the 29(!) instances where the CFP Board’s new standards are based on ‘reasonableness’ … with no explanation of how ‘reasonable’ is determined, and a nonpublic CFP Board Disciplinary and Ethics Commission that doesn’t even allow CFP professionals to rely on prior case histories for precedence.”

Kitces said that he hopes the Board moves forward with its proposed changes to expand the scope of fiduciary duty for CFP certificants “but only after publishing another round of the proposal for a second comment period, given the substantive nature of both the changes themselves, and the concerns that remain.”

Elissa Buie of the firm Yeske Buie agreed in her comment letter that “there are too many words in the revised Standards. In places you have almost created checklists. In other places you have repeated information more than once in an unnecessary way.”

When we CFPs “are trying to do our best to comply with these new Standards, it will be easier to do so if the document is more concise,” she said.

Buie added that she’d “love to see these new Standards identify those who are subject to them as broadly as possible (i.e. applying to as many as possible), while at the same time defining Financial Planning as clearly as possible to distinguish it from mere financial advice.”

In this way, she continued, “while many (including some CFP professionals) may not be identified as doing financial planning, all would be identified as being required to act as fiduciaries. And at the same time, you would be staking claim to what Financial Planning really is. I believe you have an historic opportunity to truly define financial planning as being strategic. Please don’t miss that chance.”

— Check out CFP Board’s Proposed Fiduciary Standard: Too Weak, Too Strong or Just Right? on ThinkAdvisor.