Does CFP Board’s Suggested Disclosure For Form ADV Mislead Consumers About Whether Their Advisor Is A Fiduciary? Hot

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CFP Board on its website offers guidance to CFP licensees maintaining that advice addressing a single subject area does not constitute financial planning. Single subject areas include estate, retirement, insurance, investing, and tax planning as well as employee benefits. Only when a practitioner advises a client on multiple subject areas would it be deemed as providing financial planning, according to guidance provided on CFP Board’s website, and only in those instances does a CFP licensee owe a fiduciary obligation to a client. A CFP can be a fiduciary sometimes and not others--a fact that emerged from my analysis last week and that many CFPs were surprised to learn.


To consumers seeking advice on estate planning, insurance, or other single subject areas, however, the distinction drawn by CFP Board between financial planning and a single subject area is likely to be totally unclear. A consumer who gets advice from a CFP about estate planning, for example, would undoubtedly call that advice financial planning and not understand the distinction made by CFP Board.


Not only would the obscure distinction be lost on most consumers, but CFP Board is suggesting that practitioners in their Form ADV state that they are acting as fiduciaries when dispensing financial planning.


“The Standards (of Professional Conduct) prominently require that CFP® professionals provide financial planning services at a fiduciary standard of care. This means CFP® professionals must provide financial planning services in the best interests of their clients,” according to sample language CFP Board suggests licensees use in Part 2 of Form ADV.


Consumers reading the sample language from CFP Board would reasonably conclude that CFP practitioners are acting as fiduciaries anytime they are provided advice. Consumers would not be aware of the hair-splitting definition made by CFP Board about what constitutes financial planning.


Without explicit disclosure that financial planning does not cover advice in a single subject area, consumers relying on a Form ADV would not know their CFP professional is not acting as a fiduciary when he is engaged to give advice on a single subject area.


Since the Form ADV is supposed to disclose all conflicts of interest, is CFP Board’s suggested language for use in Form ADV acceptable?


For the record, I have emailed and called CFP Board’s spokesman several times for the past week seeking a response to my post about CFP Board’s position on when a CFP is a fiduciary, and was told that the people who could answer my questions are travelling or unavailable. The offer to post CFP Board's response is still open.


CFP Board is in a difficult position because thousands of the 63,000 CFP licensees are affiliated with broker/dealers. In saying that these practitioners can provide advice in a single subject, such as insurance, without acting as a fiduciary, CFP Board, thus, enables these advisors to practice as CFP professionals while collecting commissions on product sales, which poses a conflict of interest impermissible to fiduciaries.  


What’s the net effect of the sample disclosure CFP Board wants its licensees to provide? For pure IA representatives who are not affiliated with BDs, it’s not a problem. As IA reps, they are fiduciaries and cannot disavow that obligation, even when providing advice in a single subject area. FOR CFPs affiliated with BDs, however, it’s another story.


If you’re a consumer relying on the advisor’s Form ADV that says your licensed CFP is a fiduciary when dispensing financial planning, you’d probably expect that your advisor is acting as a fiduciary when providing you advice on a variable annuity, life insurance, or other the sale of any other product. Trouble is, you’d be wrong.


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