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CFP Board Changing Code of Ethics

By Kate Collier, BU Financial Planning Team

Less than two weeks after the partial implementation of the Department of Labor’s controversial fiduciary rule, the CFP Board took measures to ensure that CFP® practitioners are held to higher standards when advising clients on all aspects of wealth management.

What is the fiduciary standard?

According to the CFP Board website, the fiduciary standard of care requires that “a financial adviser act solely in the client’s best interest when offering personalized financial advice.”

However, the CFP Board’s Code of Ethics has been criticized in the past for the nebulous nature of its wording.

The CFP Board’s Rules of Conduct, though considered forward-thinking at the time of their re-proposal in 2006 and adoption in 2007, caused some confusion with section 1.4, which read:

“A [CFP] certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by CFP Board.”

Though the CFP Board maintained that fiduciary status must be upheld in all facets of the client-advisor relationship, critics of the Rules of Conduct claimed that the wording could be interpreted as requiring CFP® practitioners to exercise the fiduciary standard only in aspects of professional advisory duties, leaving the door open for misinterpretation, and seemingly allowing advisors to abandon their fiduciary duties while engaging in sales activities with their clients.

On June 20th of this year, the CFP Board released a new draft Code of Ethics and Standards of Conduct, making it clear that CFP® professionals must adhere to the fiduciary standard at all times while providing investment advice, closing the loophole that has sown confusion for years. Open to public comment until August 21, 2017, the CFP Board is gathering feedback before it finalizes its proposal.

Though questions have been raised about whether or not these rules will be adhered to by larger firms or even strictly imposed by the Board, the proposed changes to the Code of Ethics has drawn praise for the organization.

Since the June 9th implementation of the Department of Labor’s fiduciary rule, Republican lawmakers have been fighting the Department of Labor to abandon the regulations proposed under the Obama administration. According to Republicans, this new rule could actually do more harm than good, with Rep. Virginia Foxx, R-N.C., chairwoman of the Education and Workforce Committee, calling regulations “completely unworkable” and “complicated and burdensome,” making financial planning too costly for lower income investors.

In its place, Republicans have introduced the Affordable Retirement Advice for Savers Act (H.R. 2823), legislation aimed at overturning the fiduciary rule in place of an advice standard based on disclosure, criticized by many, including the Consumer Federation of America as allowing advisors “free rein as long as a few poorly worded boilerplate disclosures were provided […] giv[ing] investors no idea of the magnitude of the conflicts involved.”

No matter the outcome, the CFP Board’s proposed changes to their own Code of Ethics and Standards of Conduct guarantee that investors can continue to look to CFP® Professionals as the gold standard for advisors operating in their best interest.

Additionally, Boston University’s Financial Planning Program online Program Director, Carolynn Tomin, BA, CFP®, is on the Ethics CE Committee charged with developing the CFP® Ethics course which the CFP Board will be offering to CE Sponsors in the near future.