Salmen said that “whatever the SEC comes up with we will deal with, but we’ve been on a two-and-a-half year journey to update our standards and that doesn’t depend on an SEC timetable.”
The fiduciary standard is one of 14 different requirements in the new code, which requires CFP professionals to adhere to a “clear duty of loyalty and care and follow client directions,” said CFP Board General Counsel Leo Rydzewski.
While the code is compensation and business neutral, it requires that those who are fee-based clearly disclosure to clients that they earn both commissions and fees or are not fee-only advisors.
The code also requires disclosure of conflicts of interest that may be inherent in any transactions an advisor is recommending. However, “disclosure is not enough,” Rydzewski said. The revised code makes it clear that CFP professionals must adopt and follow business practices reasonably designed to prevent material conflicts of interest that would compromise their ability to act in the client’s best interests. “These are important revisions to the code,” Rydzewski said.
Some 500 State Farm agents were required by the insurer to give up their CFP certifications in 2010, when the board first implemented a fiduciary standard in its code. No such company exodus or reaction to expanded fiduciary duties is being anticipated this time around, CFP officials said.
As a nod to firms’ demands, the Board scaled back disclosure requirements in the original draft of the code, removing a requirement that advisors provide a pre-engagement disclosure form to prospective clients. The change was made as a “practical consideration to firms’ operating policies,” Rydzewski added. Instead the disclosure has been mandated at the time a client engages a CFP professional.
Currently one in four advisors are CFP professionals and board research shows that the CFP designation is the most sought-after and recognized professional certification among consumers. That consumer recognition is likely to continue to grow, in part thanks to a new $25 million CFP Board TV ad campaign. The ads, devoted to raising the standing of CFP professionals, are slated to run in Fall 2018 and Spring 2019, Keller said. Since 2011, the board has spent some $75 million on its public awareness campaign.
“Now with our fiduciary requirements and other changes, we are further separating ourselves from the pack to be the leading certification,” CFP Board President Kevin Keller said. “Firms that adopt and embrace our standards have a better opportunity to retain advisors, attract the next generation of financial planners and are better positioned with the public at large.”
The Consumer Federation of America “strongly supports the CFP Board’s bold and timely decision to extend the fiduciary standard to all financial advice,” said CFA Director of Investor Protection Barbara Roper, who was a member of the commission that wrote the new code. “This reflects an understanding that it is the fiduciary duty to always act in the customer’s best interests that distinguishes advice from a sales pitch. It also represents an enormous step forward in promoting the professionalism of financial planning and financial planners. When the standards take full effect, the CFP mark will be invaluable to investors who want the assurance that the financial professional they rely on is committed to acting in their best interests at all times.”
The Board considered more than 1,500 comments over two comment periods, totaling 90 days, since proposing the new standards in December 2017.