Tattoos? Odd, I know, but bear with me.

On March 29^th, CFP Board announced that its board of directors had unanimously approved revisions to its Code of Ethics and Standards of Conduct.  The new standards significantly raise the bar for CFP professionals.

They clearly put the onus on the certificant to avoid behaviors that have often caused confusion to the public. No more use of “fee-based” or similar terms to suggest fee-only. No more allowing misleading marketing by one’s employer to slide by a client without clarification. Most importantly, there is no more use of the excuse “I wasn’t doing financial planning” to attempt escape a fiduciary duty or the practice standards.

The new rules and standards aren’t perfect by any means. There are some disclosures that can be given orally, there is not enough emphasis on avoiding conflicts, they pulled the “rebuttable presumption” that a CFP licensee was providing financial planning, and they added a step 7 to the classic financial planning process.

Nonetheless, for the most part, CFP Board got things right. They kicked things off with this:

STANDARDS OF CONDUCT

A. DUTIES OWED TO CLIENTS

1. FIDUCIARY DUTY At all times when providing Financial Advice to a Client, a CFP professional must act as a fiduciary, and therefore, act in the best interests of the Client.

They then define “Financial Advice” as:

A. A communication that, based on its content, context and presentation, would reasonably be viewed as a recommendation that the Client take or refrain from taking a particular course of action with respect to: 1. The development or implementation of a financial plan; 2. The value of or the advisability of investing in, purchasing, holding, or selling Financial Assets; 3. Investment policies or strategies, portfolio composition, the management of Financial Assets, or other financial matters; 4. The selection and retention of other persons to provide financial or Professional Services to the Client; or B. The exercise of discretionary authority over the Financial Assets of a Client.

So, the fiduciary standard will still apply if one is providing financial advice even if one isn’t doing planning. That’s a big deal and it is outstanding.

A piece I wrote, “My Final Exam”, was published in the Journal of Financial Planning back in 2004. Yes, we’ve been talking about these issues that long—far longer actually. I was merely carrying the flag for a movement already in progress.

The piece describes a future regulatory environment for financial planners by telling the story of my last regulatory exam and how it differs from today’s regulatory structure. It spends quite a bit of time on the need to monitor use of titles and addresses “hat switching.” I suggested that by requiring a fiduciary duty to apply to all those holding out as planners/advisors, etc. at all times, the primary problem of hat switching was solved.

In my future world, planners could still perform multiple roles, but the standard of care would not change when they switched hats. There was no longer a need for people to know the difference between advice and brokerage accounts.

To me, consumers shouldn’t need a glossary to be protected.

Proper regulation centered on a uniform and bona fide fiduciary duty all the time, rather than 1,000+ page rule proposals outlining how to get around the standard. I envisioned a regulatory equivalent of a “CFP” tattoo on the forehead of practitioners. A standard someone could easily see and could not be easily removed. CFP Board has opened its palace of ink and I hope it stays busy.

CFP Board also inserted this:

In a disciplinary proceeding in which a CFP professional denies CFP Board’s allegation that the CFP professional was required to comply with the Practice Standards, the CFP professional must demonstrate that compliance with the Practice Standards was not required.

That last bit of language regarding the practice standards is an interesting, and I believe adequate substitute for the term “rebuttable presumption.” The issue the presumption was intended to address centered on whether the practice standards apply. This new provision puts the burden of showing whether the standards apply squarely on the shoulders of the licensee, exactly where it belongs.

One thing the CFP Board did not do was wait to act. Many of the groups that voiced opposition to the proposed revisions wanted CFP Board to wait until there was less regulatory uncertainty or at least wait until the SEC put something out on fiduciary.

Wait? There has been enough waiting. I can’t remember a time when there wasn’t regulatory uncertainty. As I told Tracey Longo of this publication back in February, “If true financial planners had waited for government to raise standards, we wouldn’t be using ‘financial planning’ and ‘profession’ in the same sentence today.”

Perhaps the most important thing CFP Board did not do is they didn’t cave to pressure. Read the public comments from SIFMA, Ameriprise, Wells Fargo, LPL, RBC, Morgan Stanley, UBS, FSI and ACLI and you will see a recurring theme. They all include a line like this one from Ameriprise, “Our firm is committed to acting in the best interests of our clients.” They then follow with the assertion that complying with the fiduciary duties and practice standards would be burdensome and could result in firms banning their personnel from using the marks in their marketing. That’s like a fat guy saying he believes in eating healthy while he devours a jumbo bucket of KFC.

I don’t know if a lot of CFPs will relinquish their rights to use the marks or not. I suspect a few will and some of them need to go anyway. They went after the CFP marks simply to trade on its credibility and sell more stuff. They don’t view financial planning as a profession. Good riddance.

But, frankly, there really aren’t many of these CFPs left. Most people that go through the considerable requirements to become a CFP certificant see the value of doing real financial planning.

Nonetheless, there will be victims. The people that are most likely to get screwed by all this are those CFP licensees that work for companies that follow through on their threats. These certificants, many of whom are already doing the right things and are part of the profession, may have a very tough choice to make. The more tied up to their firms they are, the lower the chance they will be able to stay certificants. I feel genuine pain when I think about those CFP licensees that are already doing good work and might be bullied like this but the problem is with their company, not CFP Board. 

Every weekend I see scores of commercials from big traditional sales-oriented companies touting planning. Well, CFP Board has provided a litmus test for who really is onboard with professionalizing financial planning. The only way a new requirement can be a burden is if one isn’t already engaging in the behavior. Those that won’t support the marks are admitting they aren’t really a source for financial planning or wanting to be part of the profession.

Some companies will indeed probably make this choice. Note: To get the 5^th circuit to cut down the DOL’s fiduciary rule, they literally proved they don’t give advice, they just sell. So, it is not a stretch that they could bail on the CFP marks in similar fashion.

While I feel bad for their personnel that are adversely affected by such a choice, I think such a stance could end up being good for the profession and therefore the public. It may become clearer to the public, where they can get competent and ethical financial planning advice, which is what matters most for their financial security.

I don’t know if the SEC will be at all embarrassed by CFP Board’s actions. I hope not. Rather, I hope they will be inspired to join the movement. If you can’t get behind regulating planning as a distinct profession, at least use existing law to protect consumer interests. Enforce the solely incidental part of the ’40 Act better and make switching hats to a non-fiduciary standard require more than a disclosure. Better yet, ban hat switching all together.

The SEC is floundering as it seeks to protect the broker dealer’s ability to present themselves to the public as advisors but not be held to an advisor’s fiduciary duty. The new proposal from the SEC only bans “financial adviser(or)” titles for people that are not registered to give advice at all and still leaves the less ethical hat switchers free to use the bait of advice and switch to a less than fiduciary standard of care.

Further, it gives the suitability standard a nice new name under its “Regulation Best Interest.” Alas, the shepherd is giving the wolves an even better sheep’s costume to replace the ones they had.

CFP Board has drawn a line in the sand and invited those that want to further the financial planning profession to step on over. They have cemented the CFP as the marks of the profession, not just a great educational credential. In short, they have shown the leadership the pioneers of this profession once fantasized they would.

CFP Board didn’t wait and didn’t cave to pressure and threats. No, they raised the bar. They did something real regulators talk about a lot but rarely act upon—CFP Board put the public’s interests first. There are still a few holes to plug but well done, CFP Board, and good luck with your tattoo business.

Dan Moisand, CFP, has been featured as one of America’s top independent financial advisors by Financial Planning, Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines.  He practices in Melbourne, Fla. You can reach him at www.moisandfitzgerald.com.