NEW YORK – The group that grants the Certified Financial Planner credential proposed new rules for financial advisers last week that embrace a client-care standard many in the industry had sought.
The Certified Financial Planner Board of Standards, based in Denver, put forth changes to its ethics code and practice standards that would require advisers to assume a “fiduciary” obligation to clients unless the adviser and client agree to a different standard.
The rules apply to more than 51,000 financial planners, stockbrokers and others who hold the CFP designation. The CFP is one of the most common credentials for financial advisers, and consumers are often counseled to ask about it when seeking an adviser.
The CFP’s proposal defines the fiduciary standard as acting “in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and in (a) manner he or she reasonably believes to be in the best interests of the client.”
Under existing CFP rules, advisers must disclose conflicts of interest and compensation arrangements, and render services “in a manner that is fair and reasonable to clients.”
In May, the National Association of Personal Financial Advisors, which represents more than 1,000 fee-only financial planners, urged the CFP board to adopt the tougher fiduciary standard. Shortly thereafter, the Financial Planning Association, which represents more than 22,000 advisers and other financial professionals, released a survey showing that 86 percent of its members believe the CFP ethics code should include fiduciary duty for financial-planning engagements.
The fiduciary issue is at the heart of an industry divide between investment advisers, who help clients manage their money for a fee, and brokers, who traditionally have sold stocks and bonds for commissions. As Wall Street brokerages have moved into fee-based financial advising, independent financial planners and advisers have complained that brokers don’t share their legal obligation to put clients’ interests first. Brokers reply that they are heavily regulated and obliged to make “suitable” investment recommendations.
The CFP board’s rules don’t carry legal authority, but violators can lose the right to use the CFP trademark in their marketing materials and other communications. Last year, 23 people had their CFPs suspended or revoked.
In addition to the fiduciary standard, the CFP’s proposed changes require that an adviser’s agreement to undertake work for a client be in writing. The proposal also enhances disclosure requirements.
The board will solicit public comments on its proposed changes and consider them at its Oct. 24 meeting.
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