At A Crossroads Again

Is it really that difficult for so many people and institutions in the financial services business to commit themelves to fiduciary relationships that place their clients' interests ahead of their own? Apparently, it is.


This question surfaced once again when Senior Writer Ray Fazzi was working on the lead article in our Frontline News section about the National Association Of Personal Financial Advisors' request that the CFP Board of Standards include a fiduciary requirement in its soon-to-be revised code of ethics, a request the CFP Board seems likely to reject.

Some of the reasons seem reasonable. Different states have different definitions of fiduciary. Editor-at-Large Dick Wagner says he looked up the definition of "fiduciary" in the index for the Colorado Revised Statutes and found six columns. That's only one state. Wagner, who is an attorney, adds he has never seen a solid common law definition of the word.

But there's another issue here. Because this business deals with people's life savings, many financial advisors understandably believe they should be held to a higher standard than other professions and industries.

Most businesses operate under the principle of enlightened self-interest, which holds if a company produces better paper towels or screwdrivers or homes than its rivals, it will be rewarded in the marketplace. That unwritten code simply doesn't cut the mustard when you're talking about people's life savings.

According to several past CFP Board chairs, there has been discussion in the past about using the code of ethics to embrace the F word implicitly, including language about placing a client's interest first, rather than explicitly with the F word spelled out. It should be noted that nowhere in the language of NAPFA's fiduciary oath is the F word actually mentioned except in the title. A lawyer must have advised them.
Which brings us to another point. If implemented successfully, this will be the CFP Board's second revision of practice standards in a decade. Whether it's fair or not, there is growing fear in many quarters CFP Board CEO Sarah Teslik is succumbing to some of the same temptations that derailed her predecessors, Bob Goss and Lou Garday.

Specifically, more than a few CFP licensees worry that the board is considering sacrificing the mark's integrity to increase the number of licensees, and with that, the organization's revenues and political clout. It's natural for an ambitious head of a professional regulatory organization (PRO) to view the mostly unregulated world of financial planning and advice against the sprawling background of the financial services business. A CEO of a PRO intuitively concludes that the cloistered little world of CFP licensees is very confining, while finding the huge expansion opportunities of bringing others "inside the tent" seductive.

But problems immediately arise when the goal of bringing the representatives of big firms inside the tent comes at the expense of undermining the standards that made the tent a desirable place to enter in the first place. When hundreds, if not thousands, of licensees have volunteered hours of time to make the CFP mark valuable, they can't be blamed for trying to protect its integrity.

Moreover, the CFP Board has seen so much turnover in recent years that concerns about a loss of institutional memory are justified.
It looks like we're about to find out what the vision of the current CFP Board is and whether it can find a new path while dodging all the minefields that have hamstrung the PRO in the past. Hopefully, some progress can be achieved without trashing the standards that have made the CFP mark the gold standard in the world of financial advice.

Evan Simonoff