CFP Board Prepares Advisers for Updated Standards

Amid conversations about who should regulate the financial advisory profession, the CFP Board has set new standards for the advisers who bear the Certified Financial Planner (CFP) designation. 

The Board approved updates to its Code of Ethics and Standards of Conduct at its March 2018 meeting. According to Kevin Keller, CFP Board CEO, "The cornerstone of the new standards [...] is the extension of [CFP professionals'] fiduciary duty."

The Code and Standards is the official set of ethical guidelines for CFP professionals. The Board sets and enforces these standards and other requirements for the 82,000 CFP professionals around the world. According to the Board, "Everyone who seeks CFP® certification is subject to a background check, and those whose past conduct falls short of CFP Board's ethical and practice standards can be barred from becoming certified." 

The Shape of the New CFP Standards

The Board not only introduced new standards to reflect the changing landscape of the financial planning industry, it also revised existing standards. “We had a lot of redundancy across multiple documents. This was a thorough and very substantial rewrite,” said Richard C. Salmen, CFP Board chair, during a press conference at the Financial Planning Association Annual conference in Chicago this week.

New standards include “more detailed requirements” for advisers looking to manage and disclose conflicts of interest, a reorganized and updated financial planning process, and new information standards that describe what information CFP professionals should provide to clients. There were additional guidelines around the use of the term “fee-based,” as well as expanded obligations for CFP professionals to report misconduct to the CFP Board within 30 calendar days.

The updated guidelines also provide new requirements regarding CFP professionals’ expanded fiduciary duty. Whereas those with the designation previously only were required to act as a fiduciary when providing financial planning advice, advisers are now required to act in their clients’ best interests at all times when providing financial advice. 

Broader Industry Implications

While the Board announced the revised standards in March  2018, CFP professionals were given 18 months to comply. In order to get all CFP professionals into compliance by October 1. 2019, the Board has hosted four public forums on the standards. The Board will host four more forums in December 2018 and additional meetings across the country in 2019.

The Board has sought to make the process transparent. In addition to hosting public forums, the Board received more than 1,000 comments during two separate public comment periods, said Salmen. Over the course of the roll-out, the Board will continue to issue case studies to help advisors and firms understand and apply the standards. The Board has sought to help professionals and firms apply the rules to their own practice. "The commitment that we've made [...] is to provide channel-specific guidance" to members of the certificate community, said Keller.

"You don't want to have a 'gotcha' mentality," wherein advisers are unaware of the updated rules, said Salmen, which is why the Board is "working actively to answer [advisers'] questions ahead of time."

Reworking the standards has broader implications outside of the certificate community. At many firms, a significant number of advisers and planners may hold the designation. As standards change, firms will frequently elect to update their codes of ethics – and compliance and account documents – to reflect the new guidance. "At its core, CFP certification and the practice standards advocate a repeatable process," said Keller. "There's nothing more that compliance people love than a repeatable process, preferably one that's documented along the way."

Setting a New Standard for Advice

While the CFP Board can set the standards for professionals who have the designation, in turn charting a course for the rest of the industry, it lacks enforcement capabilities. While federal regulators such as FINRA or state regulators must certify investment or insurance professionals, no similar regulatory body exists for financial planners. The CFP Board partially fills that gap, but it can only police advisers who have – and wish to use – the CFP designation. "CFP Certification is still voluntary," said Salmen. While CFP professionals can tell clients and prospective clients that they are held to the standards set by the organization, that body cannot bar someone from being a planner without the credentials. "The only thing [the Board] can do is tell somebody whether or not they can use the CFP marks" or publicly issue a letter of admonition.

At the same time, the Board's standards are one of the hallmarks of the designation. According to Keller, "It's the CFP Board's code and standards and the willingness of people to commit to following those standards [...] that makes CFP certification stand out."