The Certified Financial Planner Board of Standards’ board has approved the second installment of revisions to its Code of Ethics and Standards of Conduct, expanding a fiduciary duty to CFPs rendering all types of financial advice.

Richard Salmen, the board chairman, said on a Wednesday morning call with reporters that the board “unanimously” approved the new standards requiring CFPs to “at all times” act as a fiduciary when providing financial advice to a client.

CFP Board Chairman Richard Salmen Richard Salmen

The previous standards held CFPs to a fiduciary standard only when providing financial planning. “By owing the clients the same fiduciary duty when providing financial planning and when providing other financial advice, we are eliminating any confusion when a CFP professional provides both types of services,” Salmen said.

The new standards take effect on Oct. 1, 2019, to enable CFPs and “the firms that employ them time to implement the new standards before they can be enforced,” Salmen said.

Kevin Keller, CFP Board’s CEO, said on the call that the new standards represent a “deliberative, inclusive and transparent process” that began in December 2015 when the CFP Board appointed a Commission on Standards to review and make recommendations for CFP Board’s current Standards of Professional Conduct.

A decade has passed, Keller said, since CFP Board’s board approved a fiduciary standard for CFPs when providing financial planning services. “Much has changed,” Keller said, with the number of CFP certificants growing 46% to nearly 80,000 in U.S and more in other countries today. “One in four” planners, he said, is a CFP professional.

“Our board is taking another bold step in approving these new standards,” Keller said. The CFP mark “is the most recognized financial planning designation there is. That means something. The public looks for it.”

With CFP Board’s “fiduciary requirement and other changes, we are further separating ourselves from the pack to be the leading financial services designation,” added Keller.

The Financial Planning Association said that while it applauds the CFP Board extending a fiduciary duty when providing financial advice, which will “elevate the level of business success” of CFPs and “drive the profession forward,” FPA hopes CFP Board “will consider future enhancements to the standards.”

The updated standards also set out new disclosure and compensation requirements, and modifiy rules that govern how CFP professionals operate.

For instance, CFPs are now required to provide information to the client prior to, or at, the time of engagement when providing financial advice that does not require financial planning.

CFPs are also responsible for “implementing, monitoring and updating terms of the [client] engagement unless specifically excluded from the Scope of Engagement.”

CFPs must also document that they have “provided the information to the client, but allow for flexibility in satisfying that standard by not requiring any particular form of documentation.”

When financial planning is required, a CFP must provide the information in writing, the standards state, but may do so in one or more documents.

As to compensation, while the CFP Board is compensation and business model neutral, and has set out when CFPs may represent his or her method as “fee-only.”

The new Standards make clear that “fee-based” is equivalent to “commission and fee.”

CFP professionals who represents his or her compensation method as fee-based must clearly state either that the CFP professional earns both fees and commissions, or is not fee-only.

Also, the new standards applies to “any other term that is not fee-only” the same constraints that apply to the term fee-based.

CFP Pushback

The new standards also turn the six-step financial planning process into seven steps, a modification that prompted complaints from CFPs.

“We expect there will be some grumbling about these standards,” Salman said on the Wednesday morning call. “But it’s never the wrong time to do the right thing.”

With a fiduciary rule by the Securities and Exchange Commission expected soon, Salmen said that CFP Board, as a standard-setting body, has “an obligation to set these standards,” and that CFP Board has been “on a two-year journey to update our standards and that doesn’t depend on” an SEC standard.

“Whatever the SEC comes out with, we’ll deal with,” Salmen said.

Ameriprise Financial Services told CFP Board in a Feb. 2 comment letter that the “timing” of CFP Board’s standards presents “complex challenges” as the firm’s “primary regulators” such as the SEC “work to promulgate a [fiduciary] standard of care.”

CFP professionals who are registered reps of an RIA or broker-dealer “are required to act in best interest of clients under SEC and FINRA requirements, respectively,” Amerprise said.

Ameriprise’s CFPs “are already subject to numerous policies and procedures, including client disclosures, that are reasonably designed to meet the requirements and expectations of our primary regulators. Unfortunately, the revised proposal imposes disclosure obligations on CFP professionals that are not required by the SEC or FINRA rules.”

Education and Guidance

The Board’s decision to have an 18-month compliance timeline “was because we wanted CFP professionals and the firms they work for enough time to ‘live within’ the Standards, truly understanding them and being able to have the time to implement them,” Salmen stated.

CFP Board plans to announce in the near future the types of guidance and education CFPs will be receiving during the transition.

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