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

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.

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.