Over two years ago, the CFP Board began the long process of updating the standards of professional conduct for all CFP certificants for the first time since its last changes took effect in mid-2008. The CFP Board issued a revised proposal in December and its second— and likely final — public comment period ended in early February.

Overall, I continue to commend the board and its Commission on Standards for their efforts to advance a fiduciary standard for all CFP certificants, and for taking feedback from stakeholders. They received more than 1,300 public comment responses to the first proposal, including a lengthy one from yours truly.

I also applaud the commission and supporting CFP Board staff for providing an effective red-lined version of the proposed changes, and a thorough explanatory letter that laid out the reasoning behind the proposed revisions. They also deserve commendation for initiating a second public comment period.

And while it’s notable that the CFP Board did concede ground on a few aspects of the proposed expansion of the fiduciary rule and its related disclosures, I believe it was fair and reasonable to acknowledge real-world regulatory-overlap conflicts, such as the concern that a CFP professional disclosure document could be deemed advertising under FINRA Rule 2210. The decision to issue a voluntary disclosure template for initial disclosures is a positive step forward, and hopefully the requirement for initial disclosures will be revisited in the next revision of the standards in the coming years.

All of that being said, the revised version of the proposed standards of professional conduct introduces new concerns and issues that must be addressed, particularly regarding the elimination of the rebuttable presumption that CFP professionals are doing planning — and the associated expansion of the implicit category of non-planning financial advice, with its own separate disclosure requirements.

In addition, I believe that certain aspects of the newly proposed standards could be refined and clarified in key areas, particularly with respect to certain compensation-related disclosures and terminology.

I hope that the CFP Board will take this and other stakeholder input into consideration and make further refinements to the proposed standards of professional conduct before they are submitted to the board of directors for final approval.

The rebuttable presumption: The CFP Board’s original proposal introduced the concept of a so-called “rebuttable presumption.” This provision states that when a consumer engages a CFP professional, it’s presumed that the advisor is providing planning services and thus, is held accountable for following the CFP practice standards. But a CFP professional could also rebut that presumption, claiming that he or she limited the scope of the engagement to non-planning services. In those circumstances, he or she would not be required to comply with the CFP practice standards.

Commenters objected to the rebuttable presumption on the grounds that it would limit consumer choice or require all CFP professionals to provide planning even if the client didn’t want it, or if it wasn’t appropriate to the situation. However, as the Commission on Standards notes in its commentary response, a rebuttable presumption that planning will be provided does not limit consumer choice. The proposed standards had already provided the general requirement that a CFP professional define the scope of engagement with the client. A CFP professional could reasonably limit the scope of the engagement to non-planning services and document why a full-scope planning relationship was not necessary to render advice.

In its revised proposal, however, the CFP Board decided to remove the rebuttable presumption from its additions to the practice standards. This is problematic for three primary reasons.

What constitutes advice? First and foremost, the removal of the rebuttable presumption effectively codifies two types of advice: that which is financial planning, and that which is non-financial-planning — which, per the glossary of the proposed standards, would essentially be recommendations regarding the purchase of various assets products, the management of assets or the selection of third-party providers that offer such solutions. In essence, the elimination of the rebuttable presumption — and the open ability to provide non-planning financial advice — simply reconstitutes “planning” vs. “product sales and investment management,” while euphemistically calling the latter “non-financial-planning financial advice.”

This is problematic because even the CFP Board’s own public awareness campaign advocates to consumers that “for financial planning, [consumers should] work with a CERTIFIED FINANCIAL PLANNER professional.” In other words, even according to the CFP Board itself, engaging with a CFP professional is synonymous with engaging planning services, to which CFP professionals are “held to the highest standard.”

In reality, however, under the revised standards, those CFP professionals are not actually accountable to the CFP Board’s practice standards, nor are they required to honor the planning process when providing non-planning financial advice.

Even more problematic, under the new Section 10(b) of the revised proposal, a CFP professional providing planning services is required to have a written document that establishes the terms of engagement and the scope of engagement. However, under Section 10(a), those providing non-planning financial advice are not required to disclose the scope of engagement — which by definition is more limited.

Photo by Scott Wener

This means quite literally that those who provide planning must define the scope of their advice, but those who provide non-planning financial advice are not required to disclose and explain to the consumer that they will not be providing planning advice.

At a bare minimum then, the revised proposal needs to be amended to expand the requirement for defining the terms of engagement and scope of engagement to apply to all of section 10 — and/or that section B.6 of the practice standards apply to all engagements of the CFP professional, not just planning engagements to which the practice standards apply. This would ensure that those who provide non-planning financial advice are actually required to disclose and define the scope of engagement to not include planning.

To the extent that CFP professionals will be permitted to provide non-planning financial advice, they should be required to explicitly disclose the limited scope of engagement. The CFB Board could provide a simple template for those that don’t want to make their own initial disclosure documents lengthier.

For instance, most large firms already provide clear disclosures to clients, e.g., “[Firm] does not provide tax or legal advice, and clients should consult their own tax and legal advisors before engaging in any transaction.” A similar disclosure for non-planning financial advice from a CFP professional might similarly disclose, “[Advisor] is not providing financial planning advice, and clients should consult their own comprehensive financial planner before engaging in any transaction.”

Murky evidentiary standards: The second issue that arises with the CFP Board’s elimination of the rebuttable presumption, is its related introduction of the “CFP Board evaluation.” The new proposal says that when a CFP professional denies the board’s allegation that he or she was required to comply with the practice standards, the board will begin a disciplinary proceeding, in which the advisor will be required demonstrate that his or her compliance was not required.

First, this is problematic because it should be a matter of whether the client alleges that the CFP professional was providing planning — and therefore should have followed the practice standards — not the CFP Board itself. Why would the CFP Board and its staff be making allegations against a CFP professional in any circumstance? Does the CFP Board now intend to investigate and potentially discipline CFP professionals based on the CFP Board’s own allegations, in the absence of a client allegation?

Second and even more important, it still remains unclear when and under what circumstances the CFP Board will allege that the practice standards should have applied. What standard will the CFP Board use to make such a determination?

In theory, this is why the rebuttable presumption of planning was appropriate in the first place. It would have created the presumption of planning, to which the CFP Board could then evaluate. In the absence of a rebuttable presumption, it’s entirely unclear when and how the CFP Board can allege that the practice standards should have applied, how often they should apply and under what circumstances.

Of course, all of this hinges on the stipulation that the CFP professional must adhere to the standards when: providing planning; advice that requires planning; or because the client has a reasonable basis to believe the CFP professional will or has provided planning.

Yet doesn’t the mere fact that a CFP professional markets the credential already create a reasonable basis that any consumer engaging a CFP professional will receive planning? Why would a planner represent the CFP marks to the public on their business card, website and other marketing materials, if not to imply something about the depth and scope of the advisor’s services pertaining to financial planning?

In other words, at what point can we acknowledge that the mere holding out of the CFP marks by a planner creates a reasonable basis for expecting to receive planning advice? The practice standards should apply to that CFP professional, unless the scope of engagement is clearly defined as otherwise.

The fiduciary standard: The third challenge that the CFP Board and its Commission on Standards must consider is how it will adjudicate cases that apply its new fiduciary standard to non-planning financial advice.

When the rebuttable presumption was present, most cases before the Disciplinary and Ethics Commission would have likely hinged on whether a) the practice standards were met, or b) whether the practice standards should be applied (i.e., whether the presumption of planning could be rebutted or not.)

With the expansion of the category of non-planning financial advice – which apparently the CFP Board anticipates will occur often, such that it was necessary to remove the rebuttable presumption in the first place – the question now arises: By what standards will the CFP Board’s Disciplinary and Ethics Commission adjudicate the application of a fiduciary duty to non-planning Financial Advice?

The question is significant, both because of the implied increase in the frequency of non-planning financial advice, and because even related fiduciary rules already present in the industry — such as the fiduciary duty under ERISA, or the fiduciary for RIAs — have never been applied to the full range of anything and everything that CFP professionals do, especially outside their scope of planning advice itself.

This could include any number of services: fiduciary evaluation of tax advice, estate planning advice, the sale of various types of annuity products, the sale of life insurance, the sale of a wide range of standalone investment products, fiduciary budgeting, fiduciary recommendations on when to claim Social Security, fiduciary long-term care insurance and more. All of these currently exist in a fiduciary vacuum, for which no standards have been applied in any public disciplinary forum.

To take just one common example, consider all these questions that arise from the sale of a standalone, commission-based annuity product:

  • How would it be determined if such a transaction was a permissible sale that meets the CFP professional’s fiduciary duty without doing financial planning first?
  • Absent practice standards, what due diligence process is the CFP professional expected to satisfy to meet his or her fiduciary duty?
  • To what extent can the CFP professional rely on the representations of the annuity company or the CFP professional’s insurance marketing organization?
  • What range of products must be considered?
  • What level of commission is or isn’t deemed to be a manageable conflict of interest? And what disclosures of that compensation are required?
  • What if it’s also a hybrid annuity or long-term care product?
  • At what point does the CFP professional also need to evaluate long-term care insurance as well, and under what framework, given the CFP professional is not doing planning?

As it stands, the CFP Board’s disciplinary process risks facing a never-ending stream of first-impression cases, around which such case law — or in the CFP Board’s context, so-called “Anonymous Case Histories” — will be established. This may ultimately establish a reasonable framework to evaluate the most common problem situations. But rulemaking via the disciplinary process is not fair to the majority of CFP professionals who may be attempting to comply in good faith, but still find themselves found guilty for an infraction they didn’t realize was wrong until after the fact.

If the CFP Board intends to formally codify non-planning advice, it needs to promulgate the non-planning practice standards that will apply, and issue further guidance about the framework that will be used to adjudicate such cases before they actually occur.

Issuing board guidance: One of the greatest concerns raised in the originally proposed changes to the standards of professional conduct is the substantial reliance of the Commission on Standards, whereby in the future, the Disciplinary and Ethics Commission will come up with definitions of what reasonable behavior of CFP professionals actually is.

In fact, in the latest version of the standards, there are a whopping 28 instances in which the DEC would be required to interpret whether a situation was reasonable or whether the CFP professional reasonably discharged their duties to the client. Reasonableness is applied in situations ranging from whether information about a conflict of interest was material enough to be disclosed, to the requirement that CFP professionals diligently respond to client inquiries. Some other scenarios include:

  • The obligation to take reasonable steps to protect client information;
  • Using reasonable care to select technology vendors; and
  • CFP professionals must adopt business practices reasonably designed to prevent material conflicts of interest.

Again, these are only material based on their own reasonableness standard.

Yet in the absence of any guidance about what exactly is “reasonable” in these various situations - especially with respect to “reasonably” managing conflicts of interest – the CFP Board is again creating a process of rulemaking by enforcement, where such standards will only become known in after-the-fact Anonymous Case Histories. Again, this is not fair to well-intentioned CFP professionals who may find themselves being prosecuted, simply because they lacked clear guidelines and disagreed with the DEC about what was reasonable in the first place.

In fact, this is exactly what was alleged in the case of Camarda versus CFP Board, and I have heard ongoing complaints for years that even after the Camarda case, CFP professionals cannot get interpretations from the CFP Board in advance of whether their particular situations do or do not comply with the CFP Board’s requirements. Accordingly, to the extent that the Commission on Standards is committed to the currently proposed documents, it is incumbent on the CFP Board to establish and formalize a process for drafting and issuing guidance.

This would include the following:

  • A framework for CFP professionals to request guidance in advance on specific situations, akin to the ethics committees of many state bar associations that provide attorneys with guidance on how to meet their professional conduct obligations in presented situations.
  • A means to formalize Anonymous Case History results into formal guidance so CFP professionals aren’t obligated to read every new disciplinary case,
  • A proactive structure to issue guidance in known-to-be-ambiguous situations, starting with how the CFP Board expects CFP professionals to manage common conflicts of interest, and
  • Clear interpretations of all 28 of the reasonableness instances currently included in the proposed standards.

Limiting fiduciary advice to compensated advice: A key aspect of any code of conduct for professionals is to define when a professional engagement actually begins. Otherwise, even a cocktail party conversation with a professional services provider could expose the professional to legal liability for a breach of professional standards.

In the context of financial services, it is well established that professional advice only occurs when two conditions are present: first, there must be an agreement — which may be either written or oral in various circumstances — and second, it must entail compensation. Section 202(a)(11) of the Investment Advisers Act of 1940 stipulates that an advice relationship only exists if the investment advisor engages in the business of advising others for compensation. And the Department of Labor’s recently introduced fiduciary rule also limits the scope of fiduciary duty to situations where the advisor “renders investment advice for a fee or other compensation.”

Of course, an individual can give very bad free advice as well. But there is at least an implicit understanding from consumers that uncompensated advice may not be specific to their situation, especially if it’s not also pursuant to an explicit contractual agreement to engage advice. In other words, the point of requiring compensation for an advice engagement is not to shelter free advice from standards, but to establish a crystal-clear line delineating when advice will be subject to professional standards.

In addition, from a legal perspective, the exchange of consideration — that is, compensation — is a requirement for a contract to be enforceable in the first place.

Yet the CFP Board’s standards have neither a requirement for a contract, nor a requirement for compensation or other consideration to be exchanged to bind the CFP professional into a fiduciary relationship. Instead, a client is simply defined as “any person … to whom the CFP professional renders professional services pursuant to an engagement,” where “engagement” is defined to be as little as an “understanding” of the client.

In other words, a conversation as simple as a person asking a CFP professional at a cocktail party, “What do you think of bitcoin?” where the CFP professional responds, “We’re not investing in bitcoin for clients due to concerns that it might be a bubble,” would amount to fiduciary advice. That’s because it suggests a course of action, which constitutes advice, and that makes it an engagement, since the person who asked the question had an understanding that the advisor was a CFP professional who should be knowledgeable about such matters.

The fact that the CFP professional didn’t intend it as advice, nor asked any specific questions about the client, wouldn’t even be material, because such non-planning advice wouldn’t have been subject to the practice standards anyway.

The CFP Board’s desire to protect consumers from anything that might possibly come out of a CFP professional’s mouth in the form of free advice or commentary is laudable. But from a real-world perspective, an exchange of consideration is a fundamental requirement for a contract under law (which is why every other fiduciary duty requires compensation to constitute an engagement), and it is essential to be included in the CFP Board’s standards of professional conduct, most easily by redefining a “Client” as:

Any person, including a natural person, business organization or legal entity, to whom the CFP® professional renders professional services for compensation pursuant to an engagement.

Indeed, the CFP Board’s definitions of what constitutes a client or a contractual fiduciary relationship are inconsistent with every other regulatory fiduciary standard that applies to advisors. The standards should consequently be updated to stipulate that a client is one who engages the CFP professional “for compensation.”

Refining disclosures: One of the most contentious areas in recent years has been the CFP Board’s enforcement of its compensation disclosure rules, and accordingly it is not surprising that the proposed standards have aimed to modify and clarify the disclosure of compensation.

While the latest proposed standards mark an improvement in several key areas in this regard, additional refinements are necessary for both consumer protection and to clarify the latest revision.

One of the issues raised in the original proposal of the new standards is that the CFP professional was required to disclose, both in initial disclosures to a prospect and at the time of engagement, how the CFP professional would be compensated. However, this framework raised the question of what “how” means: Is the CFP professional obligated to disclose exactly how he or she will be compensated — for example, a $1,000 fee, a 0.75% AUM fee and a 2.5% commission on certain investments — or simply the nature of the compensation, something akin to, “The CFP professional will be compensated with a combination of commissions and fees?”

The subsequent commentary from the Commission on Standards clarified that the expectation is not that the CFP professional would disclose exact dollar amounts, but instead would disclose the general nature of the advisor’s compensation.

It is a fair point to recognize that in many situations, a CFP professional will not know the final dollar amount of compensation at the beginning of an engagement. That’s because he or she may need to first go through the planning process before making any specific recommendations.

Nonetheless, it’s not clear why the standards cannot simply extend the disclosure requirement to stipulate that at the time of implementation, a CFP professional shall disclose the exact nature of their compensation after making a recommendation and before the client signs to implement. Alternatively, the implementation stage — i.e., the point at which the client signs additional documents to literally engage the CFP professional in the subsequent implementation step — could simply be recognized as a separate and additional engagement subject to its engagement standards at the time.

Otherwise, the CFP Board’s compensation disclosure requirements are rendered largely meaningless. Any CFP professional could effectively avoid virtually all compensation disclosure requirements by simply engaging each new client in a mini-planning stage, which could be as little as a single meeting for a nominal fee, and then obscure all subsequent compensation disclosures by simply declaring that they were unknown at the time of initial engagement.

Moreover, simply requiring an open-ended disclosure, e.g., “The CFP professional is compensated by fees and commissions,” utterly fails to distinguish between advisors whose compensation is 99% commission from those who are compensated 99% by fees — despite the real-world differences and potential for material conflicts of interest that those entail.

Thus, the standards should simply require multiple disclosures, not only at the time of initial engagement, but also at the time of implementation. Those disclosures should include the compensation in either dollar (i.e., fee compensation) terms or applicable percentage (i.e., commission compensation) terms.

From fee-only to commission (and back again): The rising popularity of the fee-only compensation model, especially among the media, has created real-world marketing incentives for advisors to market themselves as being fee-only planners. Yet at the same time, commission-based compensation can still be very lucrative, especially when working with ultrahigh-net-worth clientele — where very sizable life insurance policies are sometimes used for estate planning or business purposes.

As a result, some fee-only CFP professionals have taken to marketing themselves as fee-only planners, but in situations where a sizable commission-based opportunity arises, they switch to become commission-and-fee advisors for the time it takes to implement a commissionable insurance policy with the client. Then, they switch back to being fee-only again.

While the CFP Board’s proposed standards would require the CFP professional to disclose at least to that particular client that he or she will be compensated with commissions and fees, the ability to switch compensation models away from fee-only and back again raises challenging issues about the accuracy of the fee-only label for such advisors. Should such compensation model changes be disclosed to all clients, and to what extent? How often could a CFP professional make such changes without being required to disclose that information to all clients?

After raising this issue in the prior comment letter, the Commission on Standards suggested that such compensation model changes would be subject to the general Integrity clause that “requires CFP professionals to provide material facts that are necessary to make prior statements not misleading.”

Yet the actual application of this clause remains ambiguous to situations like the one presented here. The actual client who paid commissions received appropriate disclosures. But what are the CFP professional’s obligations to other clients? The explanation to the other clients was that the CFP professional was fee-only, and with those other clients he or she was. In addition, if the CFP professional is “commission-and-fee” for just the single day it takes to implement the insurance application with the new client, the CFP professional can allege that it didn’t impact any prior disclosures to other clients.

Still, when such compensation model changes occur repeatedly and systematically, the CFP professional is substantively fee-and-commission, not fee-only with most clients.

Given that such matters are already arising in the marketplace, it is essential for the Commission on Standards to further clarify when changes in compensation methodology for a single client do or do not necessitate disclosure of a switch in compensation methodology for all clients on an ongoing basis.

From commission trails to fee-only: Another lingering issue concerns advisors who aim to switch from commissions — and ongoing commission trails for servicing — to fee-only services.

As proposed, the standards require that the fee-only CFP professional would receive no sales-related compensation, even and including trailing commissions for prior products implemented with clients in years past. Thus, even if a CFP professional receives only 100% fees from every client he or she engages, the mere presence of a single dollar of prior trails eliminates the advisor’s ability to be considered a fee-only planner.

This is highly problematic for advisors aiming to serve clients on a fee-only basis going forward, because current law simply doesn’t allow prior brokers and insurance agents to terminate their own commissions if they are now being compensated by fees. Nor do most firms have any way for a non-commission-based, fee-only RIA to remain as broker-of-record or agent-of-record on an existing insurance policy or investment product that the advisor themselves implemented in the past.

The commentary of the Commission on Standards notes that “trailing commissions offer an economic incentive to retain the product that is inconsistent with a fee-only representation,” yet if the incentives of receiving ongoing AUM-based commission trails for servicing clients is deemed such a problematic compensation incentive, then why are all other AUM-based advisory fees permitted? How is retaining a 0.25% trail on a prior investment recommendation deemed unduly conflicted, but a 1% ongoing AUM fee for all of the RIA’s other clients requires no special handling as fee-only compensation?

In addition, under the law, the first 0.25% of a 12b-1 fee is technically a “shareholder servicing fee” anyway, and not actually a distribution (i.e., sales) charge. Insurance companies similarly provide both upfront commissions for sales and ongoing trails for servicing. In some cases, advisors do choose levelized commissions, which make ongoing trails a blend of both commission-based and servicing fees.

But this means a transitional safe harbor could simply be established for commission trails of 0.25% or less, consistent with industry-established servicing fee standards. In fact, ironically, switching most 0.25% commission trail products to a fee-only relationship would increase the cost to the client, given that the typical advisory fee is far higher than the typical servicing commission trail.

Furthermore, while the Commission on Standards suggests that the client could be switched to another broker-of-record or agent-of-record, this does not terminate the existence of the shareholder servicing trail commissions — which will simply be paid to that other broker or agent — even as the CFP professional must still charge for their own ongoing services.

This amounts to a mandate that CFP professionals switching from commissions to fees must compel their clients to be charged twice for servicing: once to the newly assigned broker or agent of record, and again to the CFP professional. There is typically no way for prior-sold products to terminate their existing servicing fee payments to the broker or agent of record.

And it’s important to recognize that in many cases, products with commission-based trails cannot be replaced in a manner that serves the clients’ best interests. In some cases, existing guarantees on old products are not available on new ones, life insurance rates rise as clients age and changes in products often entail substantive tax consequences.

This all means that in practice, clients are often compelled to keep existing products that will pay servicing trails to a broker or agent of record, and the only way the CFP professional can be paid is to double-charge the client — an advisory fee on top of the servicing fee already being paid — or be induced to make product changes against the client’s interests, just to operate as a fee-only CFP professional.

The end result of the rules as currently proposed is that CFP professionals who genuinely wish to serve clients on a fee-only basis in the future are actually being induced by the CFP Board’s proposed standards to increase costs to clients and/or try to justify potentially questionable product replacements that is tantamount to churning. This is because there often is no way to convert old existing products paying servicing trails into fee-only alternatives that don’t adversely impact the client’s tax situation or contractual product guarantees.
Thus, until existing commission-based products can actually be converted into bona fide fee-based products without causing adverse tax consequences or forfeiting existing contractual guarantees for clients, the standards of professional conduct should recognize the distinction between actual upfront commissions, and trailing servicing fees that happen to be in the form of “commissions” like 12b-1 fees.

The TAMP exclusion: One issue with the refinement to the definition of sales-related compensation — which renders CFP professionals ineligible to operate as fee-only — was that advisors who chose to outsource investment management could be deemed to receive sales-related compensation, even if they provided substantively identical services to firms that manage portfolios internally.

To address this, the Commission on Standards added a so-called TAMP exclusion that permits reasonable and customary fees for professional services to be collected by a TAMP and remitted to the CFP professional without being deemed sales-related compensation, as long as the compensation is not for referrals or solicitations.

As a further refinement to this structure, the Commission on Standards should consider more clearly delineating “sub-advisor” versus “third-party asset management” arrangements. The difference is that with a sub-advisor relationship, the CFP professional retains responsibility to determine both the appropriateness of the portfolio recommendation, and to conduct due diligence on the performance and execution of the manager. Meanwhile, with a third-party asset manager, the client typically contracts directly with the TAMP, and the servicing advisor is more functionally akin to a solicitor — even if the arrangement isn’t always explicitly characterized this way.

To more clearly draw this distinction, the TAMP exclusion should be further refined to explicitly declare that it applies only to sub-advisor relationships, and not ones where the client contracts directly with the third-party asset manager who then compensates the advisor. If not that, it at least should include a rebuttable presumption that when clients contract directly with the third-party asset manager — not in a sub-advisor relationship to the CFP professional — any compensation to the advisor will be sales-related compensation unless proven otherwise.

Obviously, not all TAMP relationships are the same. Those where CFP professionals use a sub-advisor relationship are more akin to outsourced investment management, while advisors who service the client in parallel while the client contracts directly with the third-party asset manager are more akin to solicitors. Consider either limiting the scope of the TAMP exclusion to sub-advisor relationships, or create a presumption whereby, if clients contract directly with the TAMP, any TAMP compensation to the advisor is sales-related compensation unless proven otherwise.

Refined definitions: To curtail the emergence of alternative compensation definitions like “fee-based” — which emerged since the codification of “fee-only” versus “commission-and-fee” in the 2008 version of the standards — the new, proposed standards introduced a provision that would explicitly bar the use of “fee-based” as a compensation disclosure to the extent that it inappropriately implies fee-only compensation.

However, as noted in my previous comment letter, to just ban the term “fee-based” simply invites the creation of new potentially misleading terms like “fee-oriented” or “fee-compensated” or “fee-for-service” that might still also include commissions. Instead, it was suggested to simply establish concrete categories of “fee-only” and “commission-and-fee” (and “commission-only”) for disclosure, instead of trying to engage in a whack-a-mole process of stamping out new terminology that may arise.

To address this, the revised standards still explicitly ban the term “fee-based” to imply “fee-only”, but expand the limitation to stipulate under section 12(a)(ii)(b) that the CFP professional should not use the term "fee-based,” “or any other term that is not "fee-only’” without also disclosing that the CFP professional earns commissions and fees and is not “fee-only.”

However, this part of section 12(a)(ii) is effectively redundant and moot. The ban on fee-based, or any other term, is irrelevant once the Standards of Professional Conduct already explicitly require one of only two disclosure categories — either “fee-only,” or “commission and fee.” If the Commission on Standards is willing to impose a requirement for either of these two categories — or possibly a third, “commission-only” — then the proposed standards can and should be simplified to simply state:

Section 12(a)(ii). Commission and Fee. CFP Board uses the term “commission and fee” to describe the compensation method of those who receive both fees and Sales-Related Compensation. A CFP professional who receives commission and fee compensation must:

  1. Clearly state that either the CFP professional earns fees and commissions, or the CFP professional is not fee-only; and
  2. Not use the term “fee-based” or any other term that is not fee-only in a manner that suggests the CFP professional or the CFP Professional’s Firm is fee-only if it is not.

The Commission on Standards might also consider adding a new section 12(a)(iii) to formally define commission-only as a CFP professional who receives only sales-related compensation.
A major step forward: Ultimately, the CFP Board’s proposed standards do represent a major step forward for CFP certificants, with the expansion of a fiduciary duty to all CFP certificants, not just those who are engaged in planning services.

Yet at the same time, lifting the CFP Board’s standards is a moot point without the actual accountability to follow through on enforcing those standards.

Accordingly, it’s crucial to recognize that even as the revised proposal for the new standards of professional conduct are a step forward, they introduce substantial new challenges to the CFP Board in its ability to actually enforce accountability. The CFP Board needs to be cautious not to issue proposed standards that it isn’t ready to, or doesn’t have the tools to properly enforce.

In addition, it’s crucial to recognize that at this point, the CFP Board’s enforcement mechanism of accountability is purely reactive — in response to complaints filed by consumers or other CFP professionals — and the CFP Board doesn’t even have a mechanism to proactively examine 0.1% of its CFP professionals every year, even as the SEC is criticized for a low exam rate that is more than 100 times that frequency.

All of which is to simply point out that I sincerely hope that the CFP Board’s efforts don’t end here with the issuance of new standards.

Instead, if the CFP Board is genuine in its desire to bolster accountability, it is crucial to extend the new standards into a framework for issuing guidance, bolster its investigative capabilities and even consider an expansion into periodic examinations — not merely to enforce, but also to better understand potential problem areas for future guidance.

In any event, I’m thankful that the CFP Board and the Commission on Standards gives all of us as CFP professionals and stakeholders the opportunity to participate in this process. I hope that the CFP Board will consider applying a similar process to future changes it makes to the other “3 E’s” in the future: exam, experience and education.

For those who want further detail, the CFP Board has provided a number of key documents, including:
Clean copy of the Revised Standards
Annotated version of the Revised Proposed Standards
Side-by-Side Comparison of the Current vs (latest) Revised Proposal for the Standards
Redline of the Initial Proposal versus the latest Revised Version of the Standards

You can also view my prior commentary about the proposed changes here, along with our summary of the latest revisions, as well as my original public comment letter and the full-length original version of my second public comment letter here.

What do you think? Does the latest version of the CFP Board’s proposed standards mark an improvement? Should there be a presumption that any CFP professional is providing planning services? Please share your thoughts in the comments below.

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