It’s time for advisors to think more carefully about technology, because regulators are starting to pay attention.
Advisors holding the Certified Financial Planner designation will soon fall under a new regulation governing their use of technology, but may not be ready for its potential long-term impacts, according to Celeste Hernandez Revelli, eMoney’s director of financial planning.
On June 30, the CFP Board’s new technology standard, technically the financial advice industry’s first such rule, takes effect, applying a reasonable care and judgment standard to the selection, use and recommendation of technology when serving clients.
“I don’t think any regulatory body put a stamp on technology as in standards just yet. The CFP Board is the first regulatory body to do so,” said Hernandez Revelli. “It’s clearly still high level at this point, really just an attempt to acknowledge the growing use of technology among financial professionals and how they’re servicing clients.”
Hernandez Revelli said that since technology has become a cornerstone of advisor-client relationships, it has a role in how advisors act as a fiduciary for their client. But the CFP Board did not go so far as to require that advisors act in a fiduciary capacity when choosing software and devices.
Specifically, the new standard states that CFP professionals are required to “exercise reasonable care and judgment when selecting, using, or recommending any software, digital advice tool, or other technology while providing professional services to a client.”
“Even with all the great financial planning software out there, advisors shouldn’t just rely on the technology to provide advice for the client,” said Hernandez Revelli. “The new standard requires advisors to exercise their own professional expertise and independent judgment, demonstrate that they understand assumptions, calculations and outcomes, and were acting [responsibly] in every way they could when using and recommending technology, including doing due diligence, understanding how the technology works and how it perpetuates the client relationship.”
While the new standard is far from a comprehensive regulation guiding advisors’ use of technology, said Hernandez Revelli, it is a good start.
The difficulty for advisors is that the new rule is a qualitative one, and “all of those words don’t have measurements around them yet,” said Hernandez Revelli. “They haven’t said that you need to go through certifications or have a certain level of knowledge to prove you’re competent. They just haven’t come out with those quantitative interpretations of the rule.”
CFP professionals and firms who use CFPs to serve clients will have to exercise caution when selecting technology vendors, said Hernandez Revelli, because the standard places all of the compliance risk on them.
“There is no guidance saying that there needs to be documentation about how software was chosen or selected,” said Hernandez Revelli.
But the CFP Board doesn’t seem to be targeting potential conflicts of interest that can come with advisors using investment options made available by a technology provider, she said, or from choosing a simplified, all-in-one tech provider as opposed to creating a technology stack by finding the best individual components one by one.