US CFP Board proposes adding fiduciary duty requirement

The Certified Financial Planner Board of Standards, a US body which oversees the awarding of the CFP mark to financial planners and other professionals in that country, is proposing to extend the concept of “fiduciary duty” to its code of ethics and standards of conduct.

If the comments the CFP Board of Standards receives are favourable and it goes ahead with the changes, it will be seen as a major reinforcement, in the US at least, of the idea that advisers should be required to put their clients’ best interests first when recommending investment, savings and retirement products.

It is said to be the first time the CFP Board has revised the standards by which its approximately 77,000 US members are obliged to adhere since 2009.

Currently in the US, “registered investment advisers” (RIAs) are legally obliged to put their clients’ interests first, and have been held to this  “fiduciary standard” since 1940. Until recently, though, those in the business of marketing retirement and insurance products, since as insurance brokers, have been required only to meet a lesser “suitability standard”.

Obama-era legislation extending the fiduciary rule to such brokers came into force earlier this month, but President Obama’s successor, Donald Trump, has called for a review of the legislation, and as the New York Times noted in an editorial last month, it’s unlikely to be enforced, meaning that US retirement investors in effect “aren’t safe yet”.

‘Solely in the client’s best interest’

In an outline of its proposal to revise its Standards of Professional Conduct on its website, the CFP Board explains that its draft proposal represents “a significant revision” to its standards, and would effectively “broaden] the application of the fiduciary standard for CFP® professionals – effectively requiring CFP® professionals to put a client’s interest first at all times”, while at the same time “enhancing and updating standards related to financial planning”.

The deadline for submitting comments is 21 August, after which, the CFP Board says, the final revised standards will be announced at an unspecified later date, along with an also-as-yet-unspecified effective date for implementation.

Early comments in the US financial media suggest that although many in the industry welcome the move, there may be some pushback to the plan, with some saying it will further encourage the current trend to recommend “passive” investment products, as the lower fees can be easier to defend if an investor’s returns prove disappointing.

To view the proposed new standards on the CFP Board of Standards’ website, comment on the proposed standards and even view a video about them, click here.  The CFP Board is also planning to hold public forums next month in eight US cities “to review and discuss” the proposed revisions. A list of these cities, along with the dates, times and locations may also be found there.

The Certified Financial Planner Board of Standards is based in Washington, DC, and was founded in 1985, with the mission of “granting the CFP certification and upholding it as the recognised standard of excellence for competent and ethical personal financial planning”.

ABOUT THE AUTHOR
Helen Burggraf
Helen Burggraf is the editor of International Investment. A US-trained journalist, she has worked in Rome, New York City and London, covering everything from the fashion and retailing industries to the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.

Read more from Helen Burggraf

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