In 2010, the Dodd-Frank Act called for a study to determine the effectiveness of state and federal regulations to protect consumers from those who hold themselves out as “financial planners” through the use of misleading titles and designations. The Government Accountability Office heeded the call and said in a 2011 report that most of what financial planners do is already regulated—and that a specific layer of regulation just for financial planners seemed unwarranted.
Indeed, Thompson says, the only thing not regulated is somebody who does everything at once: sales, insurance advice, investment advice and estate planning. That means some financial planners end up holding three or more licenses and the field gets regulated piecemeal.
“The Investment Advisers Act [of 1940], it’s a little bit of a hybrid because they basically defined someone as an investment advisor if they give advice on securities for compensation as part of a going business. So that’s more functional. That’s the emphasis there because as we know well, there’s all kinds of titles … wealth manager, financial advisor, financial planner, investment advisor, investment counselor, you name it.”
Oh, Canada
Some professional associations are looking up north to Canada as both a model and a cautionary tale of what happens when you win title protection for financial planners.
The Financial Services Regulatory Authority of Ontario in April said it had approved FP Canada and the Institute for Advanced Financial Education as the first two credentialing bodies that could officially christen people as “financial planners” and “financial advisors” in Ontario. By making it official, the authority said it will “make it easier for these individuals to communicate their value to consumers and validate their education and expertise,” according to Huston Loke, the executive vice president of market conduct at FSRA, speaking in a press release.
But here’s where it gets bad, say CFP partisans: There are five different credentials in the Canadian version that allow you to use the title: Besides CFP, you can get over the hump with four other marks: the PFP (the Personal Financial Planner license), the QAFP (the Qualified Associate Financial Planner marks), the CLU (the Chartered Life Underwriter mark), or the RRC (the Registered Retirement Consultant credential).
Financial advisors get prickly about marks, especially those they feel are “less than” the certifications they deem more sophisticated. (Ask anybody who remembers the “CFP lite” associate license controversy from two decades ago.) The worry is that different marks are going to be lesser marks, and the name “financial planner” would thus be watered down if title protection isn’t firmly tied down.
Convincing the planning profession to agree on a common standard is difficult enough. Persuading public authorities to buy in is yet another mountain to climb.
Paradise Lost
Was the financial planning profession once poised to achieve title protection only to let it slip away? That’s something perceptive observers believe.
In an interview with Financial Advisor, Michael Kitces says that the battle for the “financial planner” protection was actually won in 2005—right before it was lost, ironically in one of the FPA’s greatest triumphs. “In 2005, the FPA actually got the SEC to issue title protection for ‘financial planner,’” he says. “It literally existed. We had it.”
But then, he says, the FPA challenged the protection and had it vacated in its fight with the SEC over the Merrill Lynch rule, which said broker-dealers were not investment advisors but also let them offer fee-based accounts and advice without having to register with the SEC under the ’40 Act. In essence, the FPA had to make a trade-off to protect members, Kitces says. (The SEC lost an FPA lawsuit when the Merrill Lynch rule was struck down by the U.S. Court of Appeals in 2007.)
“The FPA ultimately decided that it was worth challenging and vacating the rule of title protection to protect their members who were charging assets under management as RIAs and didn’t want to have to compete with broker-dealers charging assets under management without being fiduciaries,” he says. The aftermath of that lawsuit was the birth of the hybrid movement, he says, and the FPA didn’t pursue title protection for 15 more years.
These were the motivations behind the XY Planning Network’s petitions last year to reinstate the protection that existed in 2005. He wants the FPA to go on record supporting this petition and asks why it hasn’t happened.
“The big question from everyone now is, ‘What exactly is the game plan?’” he asks. “It’s not actually title protection unless some regulator enforces it.”