As most Certified Financial Planner professionals are aware, the CFP Board adopted the new Code of Ethics and Standards of Conduct in March 2018, with an effective date of Oct. 1, 2019. This gap was intended as a grace period for CFPs to review and update current processes to comply with the revised Standards.
While the effective date for compliance remains Oct. 1, 2019, the enforcement date was moved to June 30, 2020. For conduct that occurs between Oct. 1, 2019 and June 29, 2020, the CFP Board will continue to enforce violations of the previous Standards of Professional Conduct. But starting June 30, 2020, CFP professionals may then be subject to disciplinary action for any violation of the new Standards.
As the revised Standards contains several important changes, including a significant expansion of the advisor’s fiduciary duty, I spoke to my colleague, Jeff Lang, regarding the new CFP Rules and how they might impact a firm’s practices.
Jeff advised that under the revised Standards, all CFP professionals providing financial advice are required to act as a fiduciary, and thus in the best interest of the client at all times, not just when the advisor is providing financial planning. This requirement applies regardless of whether an advisor is paid through a fee or through sales compensation, which includes commissions.
The Standards sets forth the following duties to be fulfilled by fiduciaries:
• Duty of Loyalty • Duty of Care • Duty to Follow Client Instructions
The revised Standards contains more specific guidance regarding information that must be provided to the client prior to, or at, the time of engagement to provide financial advice. This includes:
• A description of products and services to be offered; • The manner in which clients pay for these products and services; • How the CFP, their firm and related parties are compensated; and • Disclosure of public disciplinary or bankruptcy information leveraging public websites.