After a nearly 18-month process of working to update its Standards of Professional Conduct, the CFP Board’s Commission on Standards has released newly proposed Conduct Standards for CFP professionals, expanding the breadth of when CFP professionals will be subject to a fiduciary duty, and the depth of the disclosures that must be provided to prospects and clients.
In fact, the new CFP Board Standards of Conduct would require all CFP professionals to provide a written “Introductory Information” document to prospects before becoming clients, and a more in-depth Terms of Engagement written agreement upon becoming a client. In addition, the new rules also refine the compensation definitions for CFP professionals to more clearly define fee-only, limit the use of the term fee-based, and updates the 6-step “EGADIM” financial planning process to a new 7-step process instead.
Overall, the new Standards of Conduct appear to be a positive step to advance financial planning as a profession, more clearly recognizing the importance of a fiduciary duty, the need to manage conflicts of interest, and formalizing how CFP professionals define their scope of engagement with the client.
Ironically, though, the CFP Board’s greatest challenge in issuing its new Standards of Conduct is that the organization still only has limited means to actually enforce them, as the CFP Board can only mete only public admonishments or choose to suspend or revoke the CFP marks, but cannot actually fine practitioners or limit their ability to practice. And because the CFP Board is not a government-sanctioned regulator, it is still limited in its ability to even gather information to investigate complaints in the first place, especially in instances where the complaint is not from a client but instead comes from a third party (e.g., a fellow CFP professional who identifies an instance of wrong-doing).
In addition, the CFP Board’s new Standards of Conduct rely heavily on evaluating whether the CFP professional’s actions were “reasonable” compare to common practices of other CFP certificants… which is an appropriate peer-based standard for professional conduct, but difficult to assess when the CFP Board’s disciplinary proceedings themselves are private, which means CFP professionals lack access to “case law” and disciplinary precedents that can help guide what is and is not recognized as “acceptable” behavior of professionals. At least until/unless the CFP Board greatly expands the depth and accessibility/indexing of its Anonymous Case Histories database.
Nonetheless, for those who want to see financial planning continue to advance towards becoming a recognized profession, the CFP Board’s refinement of its Standards of Conduct do appear to be a positive step forward. And fortunately, the organization is engaging in a public comment process to gather feedback from CFP certificants to help further refine the proposed rules before becoming final… which means there’s still time, through August 21st, to submit your own public comments for feedback!