CFPs: Start planning for new code of conduct today
Though the CFP Board pushed back the enforcement date for its new standards of conduct, advisors and brokers should waste no time in tuning up their policies and procedures to ensure they are in compliance with the new guidelines, experts warn.
"It's not too soon to start thinking about this issue, and in fact it's critical that firms start thinking about how they are going to manage their CFP designees," Clifford Kirsch, a partner with the law firm Eversheds Sutherland, said recently in an online presentation discussing the CFP Boards' new standards.
At the core of the CFP Board's Code of Ethics and Standards of Conduct is the presumption that all certificants will be bound to a fiduciary standard when providing financial advice. As a threshold matter, that will mean that most activities are covered under the new standards, according to Eversheds partner Michael Koffler.
"Financial advice is a defined term in the standards, and it's pretty broad," said Michael Koffler. "It includes a recommendation on all sorts of things."
That encompasses not just working with clients on a financial plan — something already covered under the CFP Board's current fiduciary standard — but also extending to the advisability of selling or investing in individual stocks or recommending a third-party professional to help with some aspect of the client's finances.
"One of the questions we received is: does this cover selling a commission-based product? The answer is yes," Koffler said. "It is broad enough to cover not just acting under a fee arrangement but also a commission arrangement as well."
Under the new standards, CFP designees will also need to watch how they are handling conflicts of interest. In many cases, they will have to take steps to ensure conflicts are appropriately mitigated and kept insulated from the advice the broker or advisor provides to clients.
The group cited "confusion" among certified planners sparked by passage of the SEC's less-strict Regulation Best Interest.July 16
The suggestion comes amid opposition from brokerage firms to an expanded fiduciary obligation.July 9
“We are not delaying and we are not changing the standard,” Chairwoman Susan John says of pressure to weaken the board’s tougher guidelines in line with the SEC’s Reg BI.July 2
"If you don't avoid the conflict you have to disclose it and you have to properly manage the conflict," Koffler said. "That's a big deal because what that requires the certificant to do is to ensure that the conflict that he or she has does not taint or affect the advice that he or she provides, and that's the standard that one has to satisfy."
The CFP Board's own guidance and commentary on the standards "make very clear that the duty is not satisfied by disclosure alone, it's really doing this other piece," he said.
The extent to which brokers and advisors will want to revise their compliance protocols at the firm level can be a gray area. After all, the CFP Board grants its certification to individual planners, not to the firms they work for. However, many firms are heavily staffed by CFPs, and some market their practice around that designation.
The new standards will take effect Oct. 1, and will be subject to enforcement next June. Ahead of those deadlines, firms will need to decide how they want to restructure their policies and procedures to reflect the expanded fiduciary duty.
Firms might choose to say little or nothing about the CFP's standards, and instead leave it to the individual designees to handle, according to Kirsch. On the other hand, some firms might want to develop comprehensive policies and procedures surrounding the guidelines. But if they go that route, they need to understand that while the SEC and FINRA don't enforce CFP Board rules, they will hold firms accountable for following through on their own policies.
"To the extent that you take on policies and procedures that address this," Kirsch said, "when FINRA does look at you, it's fair game to sort of raise how are you supervising this."