CFP certificants will be held to one of two standards.
We think we know the all the rules, but every year we are required to complete a two-hour ethics review course, anyway. If we were lucky, we might have attended a very interesting presentation by our favorite convicted felon, Patrick Kuhze. More often than not, we spend two hours looking at dreadful slides and listening to someone droning on about the seven principles, the six steps of the financial-planning process and their related areas of best practices. Then, they usually throw out some scary example of a CFP practitioner being fed to the dogs for some seemingly minor infraction of the rules.
When I was asked to deliver an ethics presentation to my local FPA chapter using prepared materials, I thought, "How hard can this be? After all, it's not like there is anything new from the last session I attended a year ago, right?" Well, for this CFP practitioner there were a few surprises buried in the new standards. On the off-chance that you may have dozed off during your ethics review, allow me to share some of the more important changes that were adopted last year.
More of the F word
Not to be left at the dock, the CFP Board of Standards has weighed in with their own definition of fiduciary. Now CFP certificants (it dropped the term designee) will be held to one of two standards, depending upon whether or not they are providing financial-planning services.
If they are NOT considered to be providing financial-planning services, the standard of care required by the board is that a CFP Certificant "shall at all times place the interest of the client ahead of his or her own." While not as high as a fiduciary standard, it is arguably higher than the "suitability" standard required of registered representatives.
If they ARE providing financial-planning services, they must adhere to the board's new fiduciary standard, "One who acts in utmost good faith, in a manner he or
she reasonably believes to be in the best interest of the client." They must also provide additional disclosures to the client, and there must be a written agreement governing the financial planning services being provided.
What Constitutes 'Financial Planning'
According to the board, financial planning can be an engagement that includes, but is not limited to, the six steps of financial planning:
* Establishing and defining the client-planner relationship
* Gathering client data including goals
* Analyzing and evaluating the client's current financial status
* Developing and presenting recommendations and/or alternatives
* Implementing the recommendations
* Monitoring the recommendations
The subject areas of financial planning have been further revised in the technical corrections (adopted in July 2009) to the Revised Standards. You can obtain a redlined copy of the revised standards with the technical corrections here: