The CFP Board of Standards released today proposed rules changes that would allow certificants to choose whether or not they should act as fiduciaries for their clients.

    Among other changes in the revised rules, certificants or their employers would for the first time be required to have a binding written agreement with their clients that spells out the nature of their relationship.

   The agreement, under the revisions, must state the advisor will act as a "fiduciary" for a client or specify another type of legal standard that will govern the relationship.

   The rules stop short of requiring all certificants to act as fiduciaries. Instead, it sets the fiduciary relationship as the "default" arrangement that applies if no other structure is stated.

   In the revised rules, the CFP Board defines fiduciary as, "In good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and in a manner he or she reasonably believes to be in the best interests of the client."
   This definition surprised may observers, since in the past, some CFP Board officials, and others, had said the term "fiduciary" was never clearly defined.
   The revised rules also expand the amount of information certificants must disclose to potential clients. Before striking a written agreement, CFP certificants would be required to disclose an array of details to the client in writing, including how the advisor will be compensated, whether the advisor will receive compensation from third parties as a result of the relationship and any potential conflicts of interest.

   Setting a broad definition for what the written disclosure should include, the revised rules also require CFP certificants to reveal "any information about the certificant or the employer that could reasonably be expected to materially affect the client's decision to enter into an agreement, including, but not limited to, information about the certificant's areas of expertise that the client might reasonably want to know in establishing the scope and nature of the relationship."

    In another change, the CFP Board took its Practice Standards-step-by-step requirements detailing how planners should serve clients-and incorporated portions in its Rules of Conduct. Much of the "activity-specific" portions of the standards will be included at a later date into a series of "Best Practices" that will act as guidelines for "subsets of certificants," according to the board. One result of the change will be that a portion of the current Practice Standards will be reduced to guidelines, instead of requirements.

    "This new body of 'Best Practices' will be similar in some ways to the Standards of Practice that guide specialized medical practices," according to the board.

   Some CFP licensees said they are concerned about the changes to the Practice Standards.

    "It made me disappointed and sad to see they had gutted the Practice Standards," said Rick Adkins, a former CFP Board chairman and CEO of The Arkansas Financial Group in Little Rock. "There is no longer a separate document that addresses the practice standards using the six-step process in the manner that currently exists."

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