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CFP Board Releases Latest Proposed Changes to Ethics and Conduct Code

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The Certified Financial Planner Board of Standards on Wednesday released a revised version of its proposed Code of Ethics and Standards of Conduct. Like the earlier version released in June, the proposal sets a fiduciary standard that requires CFP professionals to act in the best interest of clients when providing financial advice, not just financial planning as the board’s current standards require. (Planning is a category within financial advice.)

The latest proposal also expands the current standard concerning conflicts of interest to include “full disclosure of all material conflicts” and it contains specific descriptions of different types of advisor compensation.

(Related: ‘Meaningful Changes’ to CFP Standards Proposal May Come Soon: Aikin)

A fee-only CFP professional cannot receive any sales-related compensation, but a fee-based advisor can and should clearly state that she earns fees and commissions.

In addition, sales-related compensation such as commissions, 12(b-1) fees and revenue sharing must be disclosed, but reasonable and customary custodial fees not tied to the value of a client’s transactions and fees for professional services under a Turnkey Asset Management Platform do not need to be released.

The CFP board will be seeking comments on the revised proposal between Jan. 2 and Feb. 2 and expects to issue final standards by the end of the first quarter in 2018 to take effect on Jan. 1, 2019. It would like to receive feedback on the custodial fee and TAMP exclusions from sales-related compensation as written, as well as on several other items.

(Related: CFP Board Seeks to Impose ‘Strengthened’ Fiduciary Standard on All Advice)

Advisors can access the proposal as well as a a redlined version showing changes from the previous version, a side-by-side document highlighting differences from the current standards, and commentary on some of the comments received on the initial proposal and the changes the CFP Board made in response. All these documents are available on CFP Board’s website.

The CFP Board received more than 1,300 written comments on its initial proposed revisions to its standards of conduct as well as 1,200 survey responses and feedback from in-person meetings.

(Related: CFP Board to Seek More Comments on Conduct Standards)

The latest proposal “maintains the requirement that a CFP always act as a fiduciary when providing financial advice or planning,” said Blaine Aikin, who chairs the CFP Board of Standards, at a briefing with reporters.

It also retains a more succinct definition of financial planning that was included in the initial proposal as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.”

With some minor tweaking from the initial proposed standards, the latest version also provides CFP advisors guidance on how to deal with clients who don’t want financial planning services — they can decide to not take on the client, limit scope of the engagement, inform the client about the benefits of financial planning or terminate the relationship.

One major change from the first proposal is the removal of the “rebuttal prescription,” which would have required a CFP-licensed advisor to provide prospective clients with a summary of material information about herself and her firm. That information will now be required prior to or at the time of engagement. The provision was confusing and “problematic to expect disclosure before initiation relationship established,” said Aikin.

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