Financial Planning Coalition Applauds Fiduciary Rule

The white paper noted that there are three primary types of financial planners, each of whom is subject to different regulations. The financial planner who provides advice is regulated under the Investment Advisers Act of 1940 and is subject to registration either by the Securities and Exchange Commission (SEC) or the states, depending on the amount of assets they manage. They are held up to a fiduciary standard of putting the interests of their clients first.

Brokers are regulated under the Securities Exchange Act of 1934, must register with the Securities and Exchange Commission (SEC) and become a Financial Industry Regulatory Authority (FINRA) member. FINRA only requires them to recommend suitable securities to their clients. A financial planner who sells insurance products must be licensed by a state insurance department as either an insurance sales agent or an insurance consultant or adviser. “Unfortunately for consumers, this lack of regulation leaves significant gaps in the oversight of the delivery of financial planning services,” the Financial Planning Coalition said. “The current regulatory scheme that allows for non-fiduciary advice, dependent upon the services provided or the licenses or registrations held, is not appropriate or sufficient to fully protect consumers.”

The coalition noted that the “CFP Board has been a leader in protecting consumers and promoting excellence in the profession by establishing competency and practice standards, as well as a code of professional conduct through the Certified Financial Planner certification” and that today, there are more than 70,000 CFPs throughout the U.S. The new fiduciary rule would hold all financial planners up to this standard, the coalition said. “Establishing clear qualifications and standards for financial planners—similar to the standards established by the CFP Board—will enable consumers to distinguish between financial planners who are able to provide competent, comprehensive and ethical advice and those who offer limited product solutions without regard for the client’s broader financial interests.”

Earlier this year, the coalition issued its interpretation of the fiduciary rule, noting that under DOL’s proposed definition, a fiduciary adviser is “any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor, plan participant or IRA owner for consideration in making a retirement investment decision. The fiduciary can be a broker, registered investment adviser, insurance agent or other type of adviser. It is important to note that the DOL will determine who is a fiduciary based not on the adviser’s title, but rather on the advice provided to the client.”

The DOL, the coalition said, excludes some areas from the fiduciary obligation, namely, “general education on retirement savings, order-taking and brokers who pitch to large plans with a degree of sophistication.”

The DOL’s rule, the coalition continued, also “includes new, broad, principles-based prohibited transaction exemptions (PTEs) that can accommodate a range of evolving business models,” such as the “best interest contract exemption [in which] advisers and firms must enter into a contract with their clients that: commits the firm to enter into a contract with their clients that: commits the firm and adviser to providing advice in the client’s best interest; warrants that the firm has adopted policies and procedures to mitigate conflicts of interest; and clearly and prominently discloses any conflicts of interest that may prevent the adviser from providing advice in the client’s best interests.”

Comments received about the DOL’s proposed fiduciary rule can be found here.