As most Certified Financial Planner professionals are aware, the CFP Board adopted
the new Code of Ethics and Standards of
Conduct in March 2018, with an effective date of Oct. 1, 2019. This gap was
intended as a grace period for CFPs to
review and update current processes to
comply with the revised Standards.
While the effective date for compliance
remains Oct. 1, 2019, the enforcement date
was moved to June 30, 2020. For conduct that occurs between Oct. 1, 2019 and
June 29, 2020, the CFP Board will continue to enforce violations of the previous
Standards of Professional Conduct. But
starting June 30, 2020, CFP professionals
may then be subject to disciplinary action
for any violation of the new Standards.
As the revised Standards contains several important changes, including a significant expansion of the advisor’s fiduciary
duty, I spoke to my colleague, Jeff Lang,
regarding the new CFP Rules and how
they might impact a firm’s practices.
Jeff advised that under the revised
Standards, all CFP professionals pro-
viding financial advice are required to
act as a fiduciary, and thus in the best
interest of the client at all times, not just
when the advisor is providing finan-
cial planning. This requirement applies
regardless of whether an advisor is paid
through a fee or through sales com-
pensation, which includes commissions.
The Standards sets forth the following
duties to be fulfilled by fiduciaries:
• Duty of Loyalty
• Duty of Care
• Duty to Follow Client Instructions
to, or at, the time of engagement to pro-
vide financial advice. This includes:
• A description of products and ser-
vices to be offered;
• The manner in which clients pay for
these products and services;
• How the CFP, their firm and related
parties are compensated;
• and disclosure of public disciplinary
or bankruptcy information leveraging public websites.
Fortunately, the CFP is able to leverage
existing documentation, such as the Form
ADV brochure or client agreements, to
meet many of these requirements.
In addition, Jeff said the Standards contains a new concise definition of financial
planning that is more easily understood
by clients and prospects. The financial
planning process (including application
of the Practice Standards] has been substantially updated and reorganized. It
now has more detailed requirements captured in a new seven-step process.
The Standards also sets forth
guidelines for determining when the
Financial Planning Practice Standards
must be applied to a client relation-
ship. Additional guidance is offered to
address situations where compliance
with the practice standards is required,
but the client does not agree to the pro-
vision of financial planning services.
Other important updates include:
• Requirements for selecting, using
and recommending technology;
•Additional guidance on the CFP
enforcement process and information on expanded obligations for
reporting disciplinary matters to
the CFP Board in a timely fashion;
• Additional guidance on use of the
terms “Fee-Only” and “Fee-Based”
to describe compensation.
Remember, the Standards target CFP
professionals and not their respective
firms. Regulators, such as the Securities
and Exchange Commission and FINRA
do not supervise or enforce the Standards.
However, to the extent that firms include
policies and procedures to govern the
advisor’s activities, regulators may consider these during their review/exam of firms.
This isn’t an exhaustive summary,
and CFP professionals should be sure
to study the Standards carefully. The
CFP Board has published several guidance documents, including the Roadmap
to the Code and Standards, Frequently
Asked Questions, Case Studies Applying
the New Standards, and a Commentary
to assist advisors in understanding and
implementing the new Standards.
Thomas D. Giachetti is chairman of the
Investment Management and Securities Practice
Group of Stark & Stark, a law firm with offices
in Princeton, New York and Philadelphia that
represents investment advisors, financial
planners, BDs, CPA firms, registered reps
and investment companies, and is a regular
contributor to Investment Advisor. He can be
reached at email@example.com.
THE COMPLIANCE COACH
By Thomas D. Giachetti
New Ethical Standards Are Now in Effect!
Are you ready for the new rules laid down by the CFP? Here’s a primer on
what to do.