Data & Research March 29, 2018

Americans Unsure How Long Recovery From Stock Market Volatility Would Take

A survey also revealed that among those Americans with access to using retirement savings vehicles, only 46% say they are contributing as much as they would like.

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Lately, retirement plan participants have seen how volatile markets can be, with the Dow plunging nearly 3,000 points in early February, and the markets swinging wildly up and down since then.

Data from the Alight Solutions 401(k) Index showed participants reacted poorly to the volatility.

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A new survey conducted by Gfk on behalf of in partnership with COUNTRY Financial finds Americans are expecting a volatile year in the stock market with slightly more than one-quarter (27%) saying the market will gain value and 23% expecting the market to lose value. Nearly three in 10 (29%) say they “don’t know” what to expect from the stock market in 2018, and 19% expect the market to stay the same.

More than half of Americans (52%) say they are financially prepared if the Dow were to lose an additional 6,000 points, yet only 28% actually have a financial safety plan in place. Two-thirds (65%) of Millennials do not consider themselves financially prepared for another down market in comparison to 70% of older Americans (age 65 and older) and men (57%), who believe they are equipped to handle a drop.

Six in 10 (61%) survey respondents are simply not sure how long it might delay their ability to save for retirement should a large 6,000 point drop in the Dow occur. For those that are able to estimate the amount of delay in their ability to save for retirement, responses ranged from zero to two years (23%) to more long-term impact of nine or more years (2%), with a mean of 2.69 years. Women are more likely than men to be “unsure” about how long a large drop in the Dow might delay being able to save for retirement (67% to 55%, respectively). Men are more likely than women to say that the delay in savings might only be zero to two years (28% to 18%).

The survey also revealed how many Americans would tap into savings to pay for an unexpected expense. Nearly half of Americans (49%) feel like they could pay a $1,500 emergency room visit using their savings, while one in five (19%) would need to rely on using a credit card to pay the emergency room bill. More than half of Americans (53%) feel like they could pay a $500 car insurance deductible using their savings, while one in six (17%) would need to rely on using a credit card to pay the insurance deductible. When faced with a $100 tax bill, 54% of Americans feel like they could pay the bill from their savings.

Among those Americans with access to using retirement savings vehicles, such as a 401(k), 403(b), 457 plan or individual retirement account (IRA), only 46% say they are contributing as much as they would like. Those who are not contributing as much as they like blame a combination of a full range financial responsibilities (home mortgage (23%), credit card debt (20%), student loans (16%), car loans (15%), and medical bills (8%)) holding them back from contributing more.
Compliance March 29, 2018

With DOL Fiduciary Expansion Faltering, CFP Board Requires Best Interest Service

The Certified Financial Planner Board of Standards has adopted a revised ethics code that requires a CFP professional to act as a fiduciary in all client service contexts, and therefore, to act in the best interests of the client at all times when providing financial advice.

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Just about two weeks after the landmark 5th U.S. Circuit Court of Appeals decision to vacate the Obama-era Department of Labor (DOL) fiduciary rule expansion, the Certified Financial Planner (CFP) Board of Standards has revealed a revised and strengthened Code of Ethics and Standards of Conduct.

Notably, the revised standards “require a CFP professional to act as a fiduciary, and therefore, to act in the best interests of the client, at all times when providing financial advice.” To allow time for implementation, the Code and Standards will become effective on October 1, 2019.

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The previously existing standards in fact already impose a fiduciary duty on a CFP professional when providing “financial planning services.” Crucially, the new standards extend the application of the fiduciary duty to “all financial advice.” CFP Board’s reasons for the decision are presented in substantial detail in a newly published discussion draft of the standards, available for download here.

Advocates for the DOL fiduciary rule expansion quickly and loudly applauded the move by CFP Board. They clearly hope the new requirement could pick up some of the regulatory slack seemingly created by the surprise 5th Circuit ruling.

“Investors often can’t easily tell whether the financial professional they are working with is providing advice that’s in the investor’s best interest or a mere sales pitch disguised as advice that’s in the financial professional’s interest,” says Micah Hauptman, financial services counsel for the Consumer Federation of America, which has been an outspoken supporter of the DOL fiduciary rule expansion process. “Particularly at this time, with regulatory protections under attack on all fronts and significant market and regulatory uncertainty about what protections investors will receive when they seek investment advice, a strong indicator that the financial professional will act ethically and provide advice that’s truly in the customer’s best interest is for the financial professional to practice under the CFP mark.”  

Not all the reaction has been positive, however. Hauptman claims he has seen evidence that “some firms have threatened to decertify their professionals if faced with the prospect of having to comply with these higher standards.”

“If firms follow through on their threats, investors will clearly see just whose side these firms are on and they will bear the consequences of their anti-investor, ethically compromised decisions,” Hauptman says.

CFA Director of Investor Protection Barbara Roper served as a member of the Standards Commission that proposed the new CFP Board standards. She says the move to adopt the proposed standards is a “historic advance in professional standards,” and she adds she is “pleased that the CFP Board has approved our recommendations.”

Background information included in the preamble to the new standards is actually quite revealing in terms of what it took for CFP Board to reach this juncture. As the document lays out, CFP Board’s predecessor organization, the International Board of Standards and Practices for Certified Financial Planners (IBCFP), introduced its first Code of Ethics in 1985. In 1986, IBCFP revised the Code of Ethics and integrated new Standards of Practice. In 1993, IBCFP adopted a new name, the Code of Ethics and Professional Responsibility, divided the standards into Principles and Rules, added a Terminology section, and made substantive revisions.

The next round of reforms came in 1998, when CFP Board adopted the first two steps of the Financial Planning Practice Standards. CFP Board added the third step of the Practice Standards in 1999, the fourth and fifth steps in 2000, and the sixth and final step in 2001. CFP Board adopted the current Standards of Professional Conduct in 2007, which substantively revised and renamed as Rules of Conduct the Rules portion of the Code of Ethics and Professional Responsibility.

Then, in December 2015, CFP Board announced the formation of a Commission on Standards to review and recommend to CFP Board’s Board of Directors proposed changes to the Terminology, Code of Ethics and Professional Responsibility, Rules of Conduct, and Practice Standards sections of the Standards of Professional Conduct. The commission has now put forward the fruits of its multi-year labor.

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