After two year’s of debate, the Certified Financial Planner Board of Standards released on Wednesday what may be its final version of the new code of conduct for CFP professionals.

The proposed standards of conduct require advisors to act as fiduciaries whenever they are providing financial advice. The existing standard requiries CFP mark holders to act as fiduciaries when providing financial planning. The proposed standard broadens the definition of when CFP professionals have to act as fiduciaries, which always has been a central tennent of the CFP Board. 

One change involves when an advisor has to disclose a host of information about services provided and fees charged. The original proposal said such information had to be provided at the beginning of any discussion with a potential client. The new version says this detailed information has to be disclosed at the time the person is engaged as a client.

The rules clarify compensation definitions, including what is considered fee-only or fee-based, a conflict that has erupted into heated battles between the board and some advisors in the past.

An advisor who is receiving commissions from some activities or sales has to make clear to clients that he receives commissions as well as fees and not try to use the ‘fee-based’ designation to delude clients into thinking he or she works only on fees. Fee-only is seen by many in the profession as a more ethical standard of compensation.

The revisions clarify that CFP designees using the fee-only description cannot receive any commission compensation from sales of products. It also says no 'related party' can receive commissions and defines who qualifies as a related party. The board considered banning the term "fee-based," completely but decided against it in favor of a clearer definition, the board said.

The CFP Board said it does not make any judgment on what compensation model is most desirable, but wants clients to have clarity about what they are paying, said Leo G. Rydzewski, CFP Board general counsel. Advisors using the fee-based description have to make it clear to clients that they receive both fees and commissions.

The board took into consideration written comments, survey answers and town hall commentary presented over the last several months during an extended commentary period before revealing the new rules.

CFP Board has required its certificate holders to act as fiduciaries, putting the best interests of the client first, since 2007. The first draft of revisions to the decade-old rules was released in June. An extended comment period was then added when financial industry representatives and consumer organizations asked for additional time to comment.

A final month-long comment period will be held Jan. 2 to Feb. 2 and the final rules are expected to be released during the first quarter of 2018. The rules will go into effect in January 2019, said Blaine Aikin, CFP Board chairman, during a press briefing Tuesday.

The rules are expected to have a far-reaching effect on the industry, according to Kevin Keller, CFP Board CEO.

“When we make changes to standards it imposes a significant obligation on firms to adjust their practices. The rules apply to the nearly 80,000 CFP professionals, but firms do not have two sets of standards: one for CFP designees and another for other advisors. They have one set of standards.

“We want to raise the bar for the financial planning profession by making sure they adhere to a fiduciary standards when providing financial planning, but at the same time making sure real world practice is taken into consideration,” he added.

Some of the changes made following the comment period, such as delaying when detailed information needs to be revealed to a potential client, were made because of the comments received.

The new rules define a fiduciary as one who:

• places the interests of the client above the interests of the CFP professional and the CFP professional’s firm.
• seeks to avoid conflicts of interest, or fully discloses conflicts to the client and obtains the client’s consent.
• acts without regard to the financial or other interests of the CFP professional and his firm.

The fiduciary also is required to work towards the client’s goals and follow the client’s instructions.

“The cat is out of the bag as far as the public is concerned with financial planners being fiduciaries,” Keller said. “The public now expects advice to be delivered that is in their best interests.”

The CFP Board said in written comments that accompanied the rules that strict requirements to adhere to a fiduciary standard will not limit the advice available to low-income people.

The CFP Board "does not believe that the proposed fiduciary standard will negatively affect the availability of advice or the range of products for moderate- and low-income consumers. To the contrary, small account holders and moderate-income investors stand to benefit most from a fiduciary standard [because] financially unsophisticated consumers are most at risk of receiving financial advice that is not in their best interests,” the board said.

The rules spell out a code of ethics that requires a CFP professional to:

• act with honesty, integrity, competence, and diligence.
• act in the client’s best interests.
• exercise due care.
• avoid or disclose and manage conflicts of interest.
• maintain the confidentiality and protect the privacy of client information.
• act in a manner that reflects positively on the financial planning profession and CFP certification.

The rules also define in detail the standards of conduct a CFP professional should adhere to, including being competent to provide financial planning, which means having the relevant knowledge and skill to apply that knowledge.

“When the CFP professional is not sufficiently competent in a particular area to provide the professional services required, the CFP professional must gain competence, obtain the assistance of a competent professional, limit or terminate the engagement, and/or refer the client to a competent professional,” the rules stipulate.

CFP Board is one of the few financial professional organizations that actively investigates and enforces its regulations, said Rydzewski, adding that this gives the board credibility in the profession.