rubber stamps labeled rules and regulations

As the financial services industry braces for the Securities and Exchange Commission to drop new regulations governing broker-dealers' standards of conduct, advisors that carry the Certified Financial Planner (CFP) designation are prepping to be held to a broader fiduciary standard, starting October 1 of this year.

Under the CFP Board's existing code and standards requirement, CFPs are held to a fiduciary standard when providing financial planning.

When the Board's new standards apply, CFPs will be required to serve as fiduciaries when providing all elements of financial advice.

The difference between financial planning and financial advice is far more than semantic, says Maureen Thompson, vice president of public policy at the CFP Board.

“The new standard says you are a fiduciary all of the time,” Thompson told BenefitsPRO.

Under the existing standards, CFPs are fiduciaries when working on a client's financial plan, but not necessarily when actually implementing a savings and investing strategy. For instance, the fiduciary standard does not extend to the actual selection of investments under the existing standard, explained Thompson.

CFP Board's new code and standards defines the difference between financial planning and financial advice. “While financial planning requires financial advice, not all financial advice requires financial planning,” according to an FAQ furnished by the Board.

The distinction whether a CFP is providing advice under the fiduciary standard is an objective—and not a subjective—determination, the Board says.

The new standards will not thin the existing rank of CFPs, or discourage more financial professionals from seeking the accreditation in the future, said Thompson.

“We faced those questions when we first implemented a fiduciary standard in 2007,” she said. The new standards, some four years in the making, are the first update since then.

“There's real demand for fiduciary services and the new standards reflect that,” added Thompson. “Back in 2007, a number of CFPs said they would drop the designation in response fiduciary requirements.”

But that didn't happen. To the contrary, the ranks of CFPs grew substantially. In 2009, when the first tier of fiduciary standards were put in place, there were 60,634 credentialed CFPs. Today there are 84,420, or a 40 percent increase.

“We don't see the new standards as a gamble,” said Thompson. “We see them as the right thing to do.”

Best interest defined

The SEC's Regulation Best Interest will apply a best interest standard to broker-dealers when they recommend a security to clients. Consumer advocates have been critical of the proposed version of the rule for not being stringent enough.

CFP Board has also raised concerns over Reg BI. The best interest standard the rule hopes to enforce is too vague, and not clearly defined, the Board has argued in comment letters and in testimony before Congress.

“While we appreciate the opportunity the rule proposals represent, our concern is that they offer the appearance, but not the reality, of increased investor protection,” said Susan MacMichael John, a CFP, in testimony before the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets during a March hearing.

“However, if the proposed rules are strengthened, we believe the Commission may realize its goal of increasing investor protection,” MacMichael John said.

The CFP Board argues its new standards clearly define best interest as a fiduciary standard that clearly includes a duty of loyalty to customers, as well as ways to deal with conflicts of interests if they arise.

CFP Board's Thompson is cautiously optimistic the SEC will go further in defining a best interest standard in its final regulation. Other proponents of a stronger regulation have expressed doubt that the final rule will be materially different from the proposed rule. The SEC will have to hold a public hearing and open vote to finalize the rule, which some speculation says could happen as early as this June, though the SEC has yet to schedule an open meeting date.

1 in 3 workers don't know if their employer offers a retirement plan

Under one scenario, Reg BI could stimulate fiduciary accreditations as financial service providers seek to distinguish themselves amid consumers' heightened awareness of conflicts in security sales.

“There is now greater access than ever to competent, ethical financial planning and financial advice,” said Thompson. Still, investing, and specifically, saving for retirement is “intimidating and confusing.”

New research from the CFP Board underscores that imbalance. A survey of 1,500 Americans shows only half are saving for retirement, and only a quarter feel prepared for retirement.

Astonishingly, 30 percent said they did not know if their employer offered a retirement plan.

More than two-thirds do not work with a financial professional. Of those that do, 88 percent said they've benefited from doing so.

“The data clearly shows that people that do get advice from a professional are more confident and secure,” said Thompson.

“We've seen over time that people who don't hire advisors worry about fees, or they worry they don't have enough money to invest,” she added. “But the reality is that increasingly, CFPs are working under different fee arrangements, like hourly fees, to serve a wider variety of customers. And more are lowering their minimum requirements, and providing additional services.”

Suitability plus? Lawyers say SEC proposal lacks clarity

CFA Institute says SEC has immediate authority to clarify broker roles

Instant Insights /

Tougher fiduciary standard not expected to thin ranks of CFPs

More From HR Executive

Related Stories

Recommended For You