“I am in full support of seeing some version of the proposed standards of conduct moving forward,” said Kitces. “That being said, the writing of new rules of conduct always introduces the potential for new areas of confusion for CFP professionals."
Kitces asked the CFP Board to consider the comments it has received, revise and re-issue a new version of the standards, and open an additional comment period.
The CFP Board’s definition of “sales-related” compensation should consider salary and bonuses as potential sources of third-party compensation at firms offering proprietary products, argued Kitces, as the firm’s ability to pay and reward its advisors may depend on the advisors’ ability to recommend proprietary products to their clients. Kitces also wrote that the CFP Board needs to further clarify the “duty of loyalty” to clients because of potential conflicts with an advisor’s obligations to their employer.
CFPs who receive compensation from commissions would not be able to continue to use the term "fee-based" if it could lead clients to believe that they are providing fee-only advice, according to the revisions.
Rather than defining and re-defining terms like “fee-only” and “fee-based,” the CFP Board should create standardized compensation disclosures with a standard nomenclature, said Kitces.
“The advisory community will simply keep coming up with new terms that may or may not be deemed misleading,” wrote Kitces. “A standard nomenclature—such as fee-only, commission-and-fee, fee-and-commission, and commission-only—eliminate any room for innovating new questionable terms.”
Financial “advice” should imply that advisors are working with clients in a formal business engagement for compensation, said Kitces, so that CFPs are still free to render advice in informal relationships with friends or colleagues, in an ad hoc conversation with a stranger or on a pro-bono basis without creating a fiduciary financial advice relationship.
On the CFP Board website, many certification holders were concerned that the proposals added too much complexity to a profession already beset by regulation.
“While the intent of the new standards is good, I think the wording is ambiguous in some areas and misguided in others,” wrote CFP certificant Doug Noble on Aug. 1. “There is an abundance of regulations issued by different entities trying to outdo one another. If the CFP Board passes this standard, it will compete directly with the DOL, and new SEC fiduciary standards, as well as with some states’ fiduciary standards. This will lead to confusion as well as contradictory guidelines in some cases.”