2019 CFP® Ethics Class Finally Closes Loopholes; Historic Progress For Profession Hot
The progress of civilization is slow and always somehow surprising. So it is with the evolution of the financial planning profession.
Six years ago, A4A reported on how CFP Board's standards of conduct opened gaping loopholes in the fiduciary standard. We examined scenarios" like the one shown below published by CFP Board to show the loophole.
Effective October 1, 2019, CFP Board finally closes them with its new ethics standards. CFP Board requires certificants to learn about the new ethics standards effective October 1, 2018. The new standard and new ethics class are a real plus for consumers, which is why it is good for real financial professionals.
Until now, CFP Board said a practitioner owed a fiduciary obligation only when engaged in comprehensive financial planning. A CFP® could give college-saving advice and not owe the client a fiduciary obligation. You could give advice on taxes, insurance and "modular" areas of financial planning without owing an obligation to act in the best interest of the client. That’s history! Chalk one up for civilization!
Moreover, after 20 years, CFP Board finally ruled clearly on when CFP®s can advertise as “fee-only.” In 1997, the National Association of Personal Financial Advisors (NAPFA) threatened to enforce a trademark on the term, “fee-only,” and this relatively small group of highly principled planners challenged traditional Wall Street brokers and independent advisors with securities sales licenses on the national stage for the first time. It caused an uproar before NAPFA abandoned enforcing the trademark. It would have cost a fortune in legal fees.
In a cautionary trail illustrating the meandering path of progress, Mark Spangler, president of NAPFA at that outlandish moment in the formation of the profession in 1997, was sentenced in 2014 to 16 years in a federal prison for defrauding clients and friends of more than $56 million. It was a difficult lesson to learn that fee-only did not alone guarantee integrity.
The new CFP Board ethics standard makes clear that you cannot receive any type of commissions and hold yourself out as fee-only. Period! That means advisors who are CFPs® and sell insurance through a separate entity no longer can advertise themselves as fee-only.
CFP Board upped the bar of the online version of the 2019 CFP ethics class, which worked to the advantage of information scientists at A4A. Bill Eneix, who tries to be ethical always and is responsible for solving video production systems at A4A and Advisor Products, has experience with the latest software in education and has turned CFP Board’s 2019 ethics class into a diagnostic tool for determining who can call themselves a fee-only advisor. To get through the tabs in this screen in the software, you need to make choices and can determine right there in the software whether you qualify to call yourself a fee-only advisor.
Having covered the regulation of advisors for over four decades motivated me in producing the Advisors4Advisors version of the 2019 CFP® ethics class. To speed the painfully slow progress in the effort to make financial advising a profession, A4A is crowd-sourcing a database of stories about ethical problems faced by practitioners and sharing it with consumers. Please share ethical problems you resolved in conformity with CFP Board Code of Ethics in exemplary fashion. A4A will review, edit, and publish submissions in video or text or both. If your submission is accepted, you’ll receive credit in a public directory of contributors to the 2019 CFP ethics class.
Bill Schretter, CFP®, who taught the ethics class in Ohio for years, is reviewing submissions and guiding A4A’s coverage of the 2019 CFP® ethics course. Bill Schretter managed a large independent broker/dealer compliance department, ran the financial planning division of a national bank and recently started his own RIA, and I am grateful to Bill for his integrity, energy, and guidance.
The new CFP® ethics class is packed with new ways to make progress and the A4A team is on a mission to spread the opportunity around. Please record yourself speaking to a camera, narrating a slide presentation, or write an article, about how you managed an ethical issue in an exemplary manner in compliance with the CFP Board of Standard’s Code of Conduct. Contributors will be listed on a publicly available page optimized for sharing online and link back to your website (if you wish). What should you write about? Some ideas are below:
- Use of fear in advertising to encourage clients to act
- Misleading a client by sharing the pros of a strategy or that it will achieve a specific guaranteed objective but failing to provide the cons of that strategy to the detriment of the client
- Feeling the pressure to recommend products not in a client’s best interest
- Advising clients on paying off their mortgage versus investing
- Disclosing financial planning fees, asset-based sliding scale and retainer fees
- Terminating a client who wanted services you did not provide
- Terminating a client for not following a plan
- Report unethical practices of another financial advisor, including a CFP® professional
- Holding yourself out as a fiduciary and accepting commissions for sale of investment products or insurance commissions.
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