Compliance February 25, 2025

CFP Board Releases Technology Standard Guide for CFPs

The guide should assist CFPs in complying with the duty of care standards outlined in the board’s code of ethics and standards of conduct.

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The Certified Financial Planner Board of Standards has released the “Guide to CFP Board’s Technology Standard,” a resource designed to assist CFP professionals in complying with the duty of care outlined in Standard A.14, the technology standard, of the CFP Board’s code of ethics and standards of conduct.

The CFP Board’s Technology Standard:

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  1. A CFP professional must exercise reasonable care and judgment when selecting, using or recommending any software, digital advice tool or other technology while providing professional services to a client;
  2. A CFP professional must have a reasonable level of understanding of the assumptions and outcomes of the technology employed; and
  3. A CFP professional must have a reasonable basis for believing that the technology produces reliable, objective and appropriate outcomes.

Possessing the necessary knowledge and skill to operate the technology effectively includes understanding both how to use key features and how to interpret the outputs in a meaningful way.

The new guide highlights the importance of understanding the full ecosystem of technology upon which a CFP professional relies, including knowing how data flow between different systems, identifying potential gaps in a technology stack and ensuring that the tools in use align with client needs.

When adopting new technology, professionals should assess how the new tool integrates with existing systems and whether it improves their ability to deliver client-focused financial advice, the standard states. Vendor due diligence plays a crucial role in this process, helping professionals evaluate potential risks, review documentation and make informed decisions about adopting new technologies.

The guide also addresses situations in which clients seek recommendations for personal finance tools, such as budgeting software. CFP professionals must first ensure compliance with their firms’ policies before making any recommendations. If permitted, they should clearly distinguish between endorsing a specific tool and providing general educational guidance on available options.

CFP professionals must critically evaluate the assumptions underlying any technology they use, ensuring these assumptions are appropriate and can be adjusted or validated where necessary. The guide stresses that financial planners cannot blindly rely on technology-generated outcomes. Instead, they must apply professional judgment to verify that results are accurate, unbiased and suitable for the client’s specific financial circumstances.

The CFP guide also applies to advanced artificial intelligence tools and analysis. It states that CFP professionals may determine that AI is a smart starting point for their work. However, it cautions that a CFP professional using AI tools when providing professional services to a client needs to always exercise reasonable professional judgment to evaluate the AI’s work product, as AI tools should not replace professional skill and judgment.

Deals & People February 25, 2025

Private Equity Dominates Wealth Management M&A Activity

M&A deals with private equity backing have surged over the past decade, according to Fidelity.

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Private equity is the “new, prominent player” in the M&A industry, as it private equity-backed deals made up 89% of all transactions during 2024, up from 39% five years earlier, according to a report from Fidelity Investments that tracked and analyzed M&A deals from 2015 through 2024.

“Private equity continues to fuel our industry,” the report stated. “Private equity continues to be attracted to the appetite for financial advice, coupled with the steady stream of fee-generated cash flow and the opportunity to capitalize on the wealth transfer.”

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According to Fidelity’s research, April 2024 was the first month during which all registered investment adviser M&A transactions were backed by private equity firms, which occurred again in November and December. The report also noted that the number of minority-stake transactions in 2024 increased to 41 from 26 in 2023.

Fidelity stated that 2024 was a “record-breaking year” for wealth management M&A deals, surpassing 2023’s total by six deals. Deals worth more than $1 billion accounted for 35% of all transactions, up from 29% the previous year, while the median value of the transactions for the year was up 28% to $536 million, compared with the previous year.

Over the 10-year period, the number of registered investment adviser M&A deals surged to 233 in 2024 from 89 in 2015, which is a 14% compound annualized growth rate over 10 years, according to Fidelity. The value of purchased assets increased more than fivefold to $669.8 billion from $130 billion, while the median deal size grew to $536 million from $500 million during the period.

“Since Fidelity Investments began tracking transactions in 2015, we have witnessed profound change in the M&A space, including the acceleration of transactions, the size of deals, and the players involved,” the report stated, adding that purchased assets for RIA and broker/dealer M&A deals totaled nearly $909.7 billion in 2024.

The report cited major private equity investments in RIA firms since Fidelity began tracking private equity in wealth management M&A in 2016. Notable transactions included KKR and Stone Point Capital’s investment in Focus Financial, which went public in 2018 before being taken private again by Clayton, Dubilier & Rice in 2023. The report also cited Thomas H. Lee Partners’ investment in Hightower in 2017 and Oak Hill Capital and Genstar Capital’s 2018 investment in Mercer Advisors, among others.

“With the typical PE hold period described to be five to seven years, we may be experiencing a third wave of PE capital entering our industry” over the past 10 years, the report said. “Conversations with strategic acquirers and private equity stakeholders suggest that while PE is typically not expected to be forever capital, PE has expressed willingness to invest a bit on the longer end of the hold period.”

The Fidelity report also projected an increase in first-time acquirers during the coming decade.

“An interesting question remains: what percentage of these acquirers will be backed by private equity?” the report stated. “Will there be a tipping point in the next decade of private equity taking a larger controlling stake in wealth management firms? And if so, could this be where the mega-merger is born?”

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