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."

    CFP Board Chairman Barton Francis, however, says most of the Practice Standards are covered in the Rules of Conduct and that the revisions will lead to an overall strengthening of standards. The revisions, he said, also close a loophole that currently allows CFP certificants to evade enforcement of the Practice Standards by stating they are doing something other than "financial planning."

   "We are cleaning up things, simplifying things and raising standards," Francis said.

    Harold Evensky, also a former CFP Board chairman and chairman of Evensky & Katz Wealth Management in Coral Gables, Fla., said based on his reading of the draft document, the Practice Standards-which he described as "the meat of the guidelines for what is indeed professional appropriate practice"-essentially were removed.

   "It wasn't streamlined-it was gutted," he said. "I find it inconceivable and a potentially disasterous error."

    The changes are part of an overhaul to the organization's Code of Ethics and Professional Responsibility and Financial Planning Practice Standards that have been in the works since last year.

    The board has been under pressure during that time to enforce a fiduciary standard upon holders of the CFP mark-which is looked upon as the leading financial planning standard-while at the same time overseeing a diverse membership of investment advisors, brokers, insurance agents and others. Complicating the situation further is the fact that the CFP Board's members answer to several different regulators.

   Among the groups calling for a fiduciary standard have been the Financial Planning Association (FPA)-the nation's largest organization of planning practitioners-and the National Association of Personal Financial Advisors (NAPFA), an organization of fee-only planners.

   The FPA recently released a poll in which 86% of surveyed members supported requiring a fiduciary standard for CFP mark holders.

    FPA President Daniel Moisand said today he's concerned that giving CFP certificants the ability to "opt out" of a fiduciary standard could undermine the integrity of the CFP mark.

   "It seems to me that it creates (sets of) two standards under one designation," he said.

    Peggy Cabaniss, chairwoman of NAPFA, called the optional fiduciary standard a "step forward" but still short of where NAPFA wants to see the line drawn.

   "They still are not saying to be a CFP you have to put the client's interest first," she said.

    Roy Diliberto, the head of RTD Financial Advisors in Philadelphia, says he is somewhat concerned about the on-again, off-again use of fiduciary. "My concern centers on taking the fiduciary hat on and off at will," he
explained, saying this makes it hard to claim financial planning is a true profession. "Doctors can't drop the Hippocratic oath whenever they feel like it."

   When it comes to CFP licensees disclosing their non-fiduciary status to clients, Diliberto asks, "How big will the print be?"

   In a statement posted on its Web site today, the CFP Board defended its decision not to impose a fiduciary standard on all its certificants, saying the standard isn't applicable in all situations.

   "The standards should apply to all people with a right to use CFP Board's trademarks, and many of those people have jobs where it would not make sense to call them fiduciaries," the CFP Board stated. "For example, a CFP certificant providing employee financial education or other teaching services is not engaged in the type of activity where a fiduciary standard is appropriate."

   The debate also reflects the schism that currently exists between CFP mark-holders who are investment advisors-who under SEC regulations are already subject to a fiduciary standard-and CFP licensees who are brokers, who are subject to a less stringent "suitability" requirement. Observers have noted that a blanket fiduciary requirement for CFP certificants would cause a significant disruption in the brokerage industry.

    The CFP Board says it will accept public comments on the draft changes up until September 25 and will consider the public input at its October 24 meeting. A public hearing will also be held regarding the draft at the board's August 5 meeting in Santa Monica, Calif.