Window Opens to Comment on CFP Conduct Standards

The Certified Financial Professional (CFP) Board this week called for industry and public comments on proposed revisions to its formal standards of professional conduct, which set the ethical requirements for all CFP professionals working with individual and institutional investors.

As the certification and monitoring organization lays out, “CFP Board’s standards for ethics and practice are an essential part of the CFP certification and an important element of the public’s trust and confidence in CFP professionals.” As such, the board promises a “deliberate and inclusive process” for reforming the key conduct standards.

Newly released, a draft of the proposed revisions directly acknowledges the fact that the Department of Labor (DOL) has recently taken the bold—if perhaps temporary—step of revamping its own adviser conduct standards under the Employee Retirement Income Security Act (ERISA). CFP Board officials freely admit their own efforts, like those at DOL, represents a significant revision and strengthening of the standards with “a range of important changes being implemented.” 

At a high level the changes broaden the application of the fiduciary standard for CFP professionals, “effectively requiring CFP professionals to put a client’s interest first at all times … and enhancing and updating standards related to [personalized] financial planning.”

CFP Board says it will carefully consider feedback received during the comment period—so now is the time for interested parties to speak up and speak clearly. “The final revised standards will be announced at a later date along with an effective date for implementation,” CFP Board says.

NEXT: Highlights of the stronger CFP standards 

The CFP Board provided the following highlights of the proposed conduct standard revisions:

• A broader fiduciary standard requires CFP professionals to act in the best interest of the client at all times. Under the current standards, CFP professionals are required to act as a fiduciary when providing personal financial planning. However, since the definition of financial advice, per DOL, is now much broader than the definition of financial planning, the draft revised standards expands the commitment that all CFP professionals make to acting in their client’s best interest.
• A shorter definition of financial planning and a presumption that financial planning is required. The new standards presents a new definition of financial planning that is intended to be “brief and comprehensive.” Financial planning is defined as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.”
• The revised standards sets forth a presumption that CFP professionals are required to provide financial planning when providing financial advice, while also outlining the factors CFP Board will weigh in determining whether financial planning is required.
• More specific practice standards for the delivery of financial planning. The changes update the CFP practice standards, “presenting them more efficiently,” with the financial planning process beginning after the engagement has been formed and with goals selected after the CFP professional has developed an understanding of the client’s personal and financial circumstances.”

Other revisions address more esoteric subjects, such as client treatment and recordkeeping during practice bankruptcies, as well as the “types of adverse conduct to be handled through the disciplinary process.” Finally, the changes consolidate four sections of the current standards into a single document. Following a brief Preamble, the Code of Ethics announces ethical principles, the Standards of Conduct sets forth specific standards governing the conduct of CFP professionals, and a Glossary defines key terms.

NEXT: Quiet but positive industry reaction 

For context, compared to the huge number of comments submitted to PLANADVISER by advice providers and other financial services interests in the wake of the DOL fiduciary rule draft publication, far fewer have spoken up regarding the new CFP standards. This probably reflects the fact that a great many CFP professionals, given the major reforms mandated by the fiduciary rule, will already be in a position to comply with these new requirement. 

The National Association of Personal Financial Advisors (NAPFA) seems to agree, describing itself as “a full-throated supporter of fiduciary principles from its inception.” The group “sees the expansion of a standard for CFP certificants as a big step in the right direction.” 

“NAPFA has always believed that financial advice should be delivered according to fiduciary principles,” NAPFA CEO Geoffrey Brown argues.  “Working in the best interest of the client is the most transparent—and we think the most objective—way of serving the public. Consumers have recently come to expect advice delivered in their best interest and now, because of the broadening of the CFP Board’s fiduciary requirements, will be able to count on CFP professionals to act as a fiduciary when providing financial advice to a client.”

As to other areas of the proposed standards, including the more specific practice standards for the delivery of financial planning, and a revised process for addressing bankruptcies, NAPFA “plans to review the changes thoroughly, and survey its members to capture their feedback on all of the proposed changes.”

The Financial Planning Association, known as the largest membership association for CFP pros, also commends the CFP Board for the move.

“We applaud their efforts in seeking to raise the bar in the profession,” says 2017 FPA President Shannon J. Pike. “FPA has been a staunch advocate for an unambiguous fiduciary standard for years and has proudly worked collaboratively with CFP Board and NAPFA as partners in the Financial Planning Coalition to advocate for this high standard. FPA’s actions over the years to advocate for a fiduciary standard have led to meaningful awareness and advancement of the profession.”

More information on the initiative, and the forms for submitting comments, are available here.