I’m going to start at the end.

The CFP Board has requested comments about its proposed new Standards of Professional Conduct. This is an opportunity to contribute to the evolution of the profession. Please, please take them up on their offer. The comment period ends Monday, August 21, 2017. To read the proposal and comment go here.

The CFP Board’s mission describes its role in the financial planning profession which is “…to benefit the public by granting the CFP certification and upholding it as the recognized standard of excellence for competent and ethical personal financial planning.”

Clearly, the Standards of Professional Conduct are critical to this role. Given the importance of standards and the criticism the CFP Board has received in the past for failing to gather input on important matters, it would be a significant wasted opportunity if few comments were shared.

The new proposal raises the bar for the practice of financial planning by a significant degree. Ray Ferrara and the Commission on Standards are to be commended for some great work.

Under the new standards, CFP certificants are to be held to a fiduciary standard at all times when giving “financial advice”. The proposal goes on to define financial advice in a way that is appropriate. This approach is easier to grasp than the current language surrounding “material elements.”

Those that choose to switch hats to a sales role may still do so but the CFP Board will continue to expect fiduciary duties to be met even if financial services regulations only require a lower level of care such as suitability or caveat emptor. 

This is a step that the true financial planning profession has been working toward for decades, a sound answer to former FPA President Mark Johannessen’s call to “raise the bar.”

I liked how the proposal clarifies when the Practice Standards apply. The new language is an improvement over the prior wording relating to a financial planning engagement.

The proposal also does an admirable job of clarifying the ability to use the term “fee-only”. They moved toward making sure the word “only” means only when used by CFP certificants. The standards explicitly warn about misleading use of the term “fee-based.”

Compensation is also the topic of the provision that jumped out at me most in the proposal. The CFP Board only controls an individual’s right to use the mark. It has no control over firms. Some firms market “fee-only” when they are not or otherwise obfuscate compensation. 14f of the proposal puts the responsibility for being accurate back on the shoulders of the practitioner by requiring the CFP professional to correct their firm’s misrepresentations and accurately represent the compensation method.

Having heard many cases against CFP licensees when I served on the Discipline and Ethics Commission, it was all too common for a licensee’s defense to center around “my company made me do it.”  While that can be a legitimate defense for some actions, I was pleasantly surprised to see the proposal included this accurate compensation description requirement. I see no condition in which a CFP professional should allow a client to be misled about compensation method. Compensation issues cut right to the heart of professionalism, trust and ethics.

As good as this proposal is, there is room for improvement. I will share just a few here and make more thorough comments via my comments to the CFP Board.

In places, like Item 4 of the Code of Ethics, CFP licensees are expected to “Avoid or disclose and manage conflicts of interest. The “or” can be interpreted as a choice. I would reword that so it is clear that licensees do not get to choose between avoiding or disclosing/managing. It is stronger to allow “disclose and manage” only when a material conflict is unavoidable. If the standards included “...and manage in the clients’ favor”, they would be even stronger.

I liked the incorporation of “financial advice,” but I would have added a statement about holding out. I think it is reasonable that anyone using the title “Financial Adviser(or)” should be presumed to be giving financial advice.

Actually, I would have incorporated a holding out presumption akin to a proposal made by Canadian securities authorities called Multilateral Instrument 33-107. It really cuts through the bull. I liked it so much I included it in my 2004 Journal of Financial Planning paper “My Final Exam.”

It describes holding out as:

“using a title that includes any of the words “financial,” “retirement,” “wealth,” “security,” “asset,” or “money” in combination with any of the words “adviser,” “advisor,” “consultant,” “specialist,” “expert,” “manager,” or “counselor,” or a title similar to “financial planner,” or… as providing a service described using an expression that includes the word “planning,” or…any of the words “financial,” “retirement,” “wealth,” “security,” “asset,” or “money” in combination with any of the words “advising,” “consulting,” “specialty,” “expertise,” “management,” or “counseling,” or an expression similar to “financial planning”…

These days, there doesn’t seem to be any sales people in the financial world. Everyone is an advisor.  That’s fine if the people who use the title actually give advice and are held accountable for acting as an advisor.

But we all see a pervasive problem for the public. Many who hold out as advisors aren’t giving advice. They are just selling.

It is pretty simple, if you don’t want to be held to the fiduciary standard of an advisor, make sure your title doesn’t suggest you are an advisor. And, yes that would even include “Certified Financial Planner”

A CFP licensee should first be presumed to be in the advice business. It shouldn’t be the client’s chore to figure out what’s what. The burden for being clear should be on advisors.

The SEC has failed to offer clarity to the public. FINRA is part of the problem. Congress? Give me a break.

What the CFP Board has done with this proposal is good because their definition of financial advice addresses the actions taken and actions that should be taken regardless of title but…what a huge statement the CFP Board could make if they took a stand on the name game! The media would love it and the public would be better served.

My name game and conflicts suggestions would raise the bar further, but I don’t want to diminish how bold the proposal is as it stands at this moment. I think it took guts to make these proposals and it will take guts for the board of directors to approve them. The standards will be very good for the profession but it may not be so great for the CFP Board. If that is true, I hope the effects are temporary.

Requiring more of a professional than the regulators or a planner’s employer requires is likely to give many CFP candidates and potential candidates pause. Some employers will lose their enthusiasm for the marks. Some current licensees will resign.

This would not be good for the CFP Board initially but it would be good for the profession. The public doesn’t need licensees that want the mark mostly for marketing purposes. The public needs professionals held to a high standard. Filling the public’s needs is why professions exist.

There may be a loss of licensees or a slowing of the growth of licensees but I think we would be losing people that need to get lost, so to speak. These standards make the marks more valuable. There is a fair chance that as that value is recognized more real professionals will be drawn to the marks.

There are many competent professionals that do not have the right to use the marks. Increased value may help them get over the hump and go through the certification process. Or not. Regardless, the level of professionalism of CFP licensees should trend higher.

Long term: With the bar set higher, new entrants to the profession should be dominated by people that see the credential as the CFP Board hopes it will be—the recognized standard of excellence for competent and ethical personal financial planning.

Dan Moisand, CFP, has been featured as one of America’s top independent financial advisors by several publications, is a past president of FPA and is a popular speaker on all things related to retirement advice and the profession of financial planning.  He practices in Melbourne, Fla. You can reach him at www.moisandfitzgerald.com.