Editor's Note: The Financial Planning Coalition offers a statement, FPC Advocates For Basic Profession-Wide Standards.  Click here to read it.


By Paul M. League 

The CFP Board, FPA and newest partner NAPFA are once again at the front of a fast-brewing controversy with their creation of the Financial Planning Coalition (FPC).

The word "coalition" implies a broad-based stakeholder consensus that many contend just doesn't exist. In unfortunately consistent historical character, the FPC continues to ignore stakeholder support and opinions, leaving planners confused and unclear about what the FPC is really up to.

The FPC claims that there exists an "increased need to regulate," and that they know who needs this extra regulation and who that regulator should be. Finding logic in this agenda is an oxymoron!

Imagine, the FPC is actually asking legislators to add layers of rules and regulators over persons who, arguably, are the best of the best. Do you, who are likely 100% compliant and are already overregulated by the Financial Industry Regulatory Authority (Finra), or the Securities and Exchange Commission (SEC), and/or state insurance departments, state bars, the AICPA and state licensing bodies, really need or require added regulations or regulators? Of course not ...

Financial planners tell us that all they want is to see current regulators enforce current laws, with perhaps only some minor legislative adjustments that could make a meaningful change (e.g. stopping persons from holding out as financial planners or investment advisors who are not duly qualified).

Nigel B. Taylor, QFP, CFP, has suggested a simple one-word fix to the two-prong identification test of the Investment Advisers Act of 1940 that would broaden who it applies to: "... one who holds out for compensation (including commissions) AND [replace with OR] provides advice as to the benefits of investing in registered securities ..." is subject to the Act. Insurance sales agents, for example, would then no longer be able to legally hold out as anything other then what they are, ending the use of the misleading kinds of terms that Finra Rule 2210 intends to curtail. With this minor "word-tweak" the who, what and by whom one is regulated is solved.  

What's Really Going On Here?

The FPC is creating additional barriers around obtaining the CFP designation for the purpose of further bolstering that designation, while at the same time orchestrating a base-end run around the traditional requirement of state licensure and state regulation for planners (e.g. the kind of licensure that now exists for the accounting, legal and other professions), seeing this as the quickest path to "professionalizing" the CFP designation and financial planning. It wants a new self-regulatory organization in the form of the Financial Planning Oversight Board that it can and will greatly influence through the use of its multimillions in questionable excessive fees that it takes from its stakeholders in the way of re-certification, exams, educational programs, etc.

For inexplicable and actually anti-financial-planner-friendly reasons, they are lumping financial planners with investment advisors in a manner that destroys the distinctiveness of these professions. Financial planners are generalists who employ a unique, integrative perspective as the integral component of their "advice-giving." Financial planners are not investment advisors and visa versa.

Sorting It All Out

Broker-dealers, Finra and the SEC, as well as bodies like North American Securities Administrators Association and Securities Industry Financial Markets Association, don't want the same thing that the FPC does. These entities differ on the need for increased regulation, on who will regulate what, and on standardizing a "fiduciary duty" definition. No standardized federal or state definition of "fiduciary duty" exists because such matters have always been proven best handled by a judicial case-by-case hearing of the facts. This is one reason that IAQFP.org opposes the FPC call for a federal definition and also years ago opposed the CFP Board's "practice standards" (which were supported by FPA) because, as we warned, they have increased practice costs, decreased available financial planners and raised the risk of litigation for all financial planners.

Finra-regulated B-Ds want IA 40 Act, SEC-regulated advisors to be subjected to the same degree of regulation, enforcement and examination requirements that they and their registered reps are. B-Ds believe this would result in increased oversight and regulation using existing regulations and regulators. Therefore, B-Ds are not talking about the same kind of regulation or regulator as the FPC and those B-Ds we have spoken to are fully prepared to accept either Finra or the SEC as the one regulator.

Most parties do agree that a regulator should have responsibility for overseeing those persons who call themselves an "investment advisor," "wealth manager," or "financial planner," a matter which is addressed in Finra Rule 2210. The roots of this controversy rest in a lack of understanding by some people of the different and unique kind of "advice" that financial planners give.

IAQFP.org contends that increased regulation like that proposed by FPC is not necessary. In March 2005, IAQFP.org sent a letter to the SEC recommending, among other things, that it remove the "B-D exception rule" regarding "incidental advice" for those who actually hold themselves out as financial planners (and similar titles as since addressed in Finra Rule 2210).

Understanding the differences in how planners practice and the kind of "advice" they render is critical to this discussion. Many planners don't give investment advice and don't have licenses to do that or anything else, but are nonetheless practicing planners. Such planners often refer clients to licensed persons to implement parts of their modular or comprehensive plan recommendations. Other planners may have certain professional licenses but may not use them and instead charge an advice fee. And still others who have financial planning credentials and licenses in other professions (accounting, law, insurance, securities, etc.) may choose to be compensated through a combination of commissions and fees. Authorities need to understand such varied practice models way before listening to parties like the FPC. The FPC has failed to make its case.

Paul M. League, QFP, CFP, is chairperson and president of the International Association of Qualified Financial Planners.