After a long and arduous process, the CFP Board announced today at a press conference that it had approved the final version of its revised ethical standards, making it explicit that the nearly 55,000 planners it oversees must put clients' interests first, act as fiduciary and disclose the scope of their engagement and their compensation when engaging in planning activities.
"These standards are something all CFPs should be proud of," CFP Board Chair Karen P. Schaeffer said at the press conference.
The new standards, which go into effect July 1, 2008, were vetted during two public comment periods before being approved by the CFP Board last week. "Ethical service is something that people expect and deserve when they hire a CFP professional, so at the CFP Board we take this very seriously," Schaeffer said. "We wanted to make sure that in the financial planning relationship that clients have an utmost good faith standard, that we have a clear fiduciary standard and that the disclosure rule is not misleading ... all the components to having the best relationship with the client."
The revised standards require a CFP professional to "at all times place the interest of the client ahead of his or her own." The new language replaces the lower standard of "reasonable and prudent professional judgment." The revised standards also require CFP professionals who provide financial planning services do so with the duty of care of a "fiduciary," a term partly defined as acting "in the best interest of the client." The heightened duty of care significantly strengthens the current requirement that financial planning services be performed "in the interest of the client," Schaeffer said.
The new standards also require CFP professionals to:
Disclose the terms and scope of each planning engagement in writing, as well as potential conflicts of interest.
Disclose their method of compensation, as well as other sources of compensations (such as referrals) and descriptions of their source.
Use the term "fee-only" only when the only source of a CFP licensee's compensation comes from client fees.
Self report any criminal investigations and regulatory problems.
Maintain tougher continuing education standards.
The new standards also place an onus on companies who supervise CFPs to ensure that clients have written agreement that accurately spells out the planning engagement and the above information. A detailed, side by-side comparison of the new and old standards is available at www.cfp.net.
Schaeffer said that CFP professionals, companies who supervise CFPs and educators need until July 1 of next year to make changes to their programs. In the meantime, the CFP Board will develop guidance on when planners' activities and services fall within the mandates of the revised ethics standards.
The Financial Planning Association, which applied pressure on the CFP Board during the process to make the fiduciary and client interest standards in the code broader and more explicit, is reviewing the updated code of ethics, but is generally pleased with the outcome, said FPA spokesman Brad White.
The FPA is also moving ahead with its own ethics project, in an attempt to create a broad-based fiduciary standard for all practitioners. The CFP Board's jurisdiction is limited in the U.S. to the 54,500 certified planners it oversees.