Comments on Second Exposure Draft of Proposed Revisions to CFP Board's Ethical Standards

On March 9, 2007, the Board of Directors of Certified Financial Planner Board of Standards, Inc. (CFP Board) released a Second Exposure Draft of proposed revisions to CFP Board's Standards of Professional Conduct for a 45-day public comment period, which ended on April 25, 2007. The individuals and organizations listed below have provided CFP Board with comments regarding the Second Exposure Draft, and the content of the comments is available below.


Comments

Updated April 25, 2007


C.E. SCOTT BREWSTER, CFP®, MBA, EA

Date: March 12, 2007

Subject: Proposed Revisions of the CFP Board's Ethical Standards

I am grateful that the CFP Board has made the most recent draft of the CFP Board's Ethical Standards a more open and transparent process. However, after reviewing the fiduciary standards requirement, I am still concerned about the message it sends to advisors and the public. I know the code of ethics only covers Certified Financial Planner Licensees, but it is us CFP® licensees that the public overwhelmingly turns to and trusts, so protecting the public is a moral obligation.

The proposed ethic standards seem to enable advisors to give advice that is not in the clients "best interests" provided they are not providing "material elements of the financial planning process." It is widely known that many advisors have held themselves out as financial planners and provided what they were able to classify a non-financial planning advice without the public realizing it and thereby avoid any obligations to act in the clients "best interests."

Several public polls have made clear that the public is unaware that some advisors are required to act as fiduciaries while other advisors are not required to do so. All people know is that they are consistently hearing of horror stories of advice given that was clearly not in the clients best interest and the harmful effects their advice can bring. The whole profession is painted with the same brush because the public cannot tell us apart. It is imperative for the public's protection that they have an easy way to tell when they are getting advice from a fiduciary acting in their "best interest."

More than the reputation of our financial advisory profession is at stake. Americans going forward will need to be more financially self reliant, and without access to the best advice possible there will be much unnecessary suffering. While I care about the public's perception of my profession, this is nowhere near as important as the effect that not protecting the public will have on our society's well-being.

Imagine doctors had the option of classifying part of what they do as non-medical advice and thus were not required to act in the best interest of the patient in all medical situations. What would that say about the medical profession?

I am not saying that all doctors will suddenly become unethical because of the lifting of the Hippocratic Oath. I am not saying that even with the Hippocratic Oath there are not bad doctors. I am just asking what you would think of the medical profession if its oath would not require doctors to act in their clients' best interest in all situations.

I hope that our profession can move forward from the days when many people view us as the snake-oil-peddling doctors of the past. Hopefully, we can move towards a better future where people view us as an ally who helps them secure their dreams. If our own board of standards allows for ethical compromises how can the public view us as an ethical profession? I ask the CFP Board of Standards to please help us move forward. This step here is one that could affect our profession and people's financial well-being for decades to come.

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JOHN W. ECKEL, CFP®, CFA®

Date: March 12, 2007

I fail to understand why the Board does not extend fiduciary responsibility to areas outside of financial planning (such as managing investment portfolios). And as a CFP practioner I am beginning to feel uncomfortable and embarrassed by this gap. The explanation that the Board offered had to do with a CFP professional selling his house in a personal transaction. This must be one of the lamest excuses I could imagine. The difference between a personal transaction and a professional service is obvious to everyone. When I first entered the industry I was not particularly interested in becoming a CFP certificant since I remembered the many controversies over limited partnerships and the role CFP's played. As a profession we have certainly moved beyond that. But I do not understand why, at this point in time we cannot simply state that a CFP certificant has the obligation to act as a fiduciary in all their professional dealings with clients. I feel that the value I hold for the CFP certificate is much lower without a "fiduciary standard" that applies across the spectrum of all dealings with clients. The CFA Institute (formerly AIMR) takes a very straightforward approach and one which could also be utilized by the CFP Board. According to CFA Institute's Standard of Practice regarding Fiduciary Duties: "...This standard relates principally to those members who have discretionary authority or responsibility for the management of a client's assets or who have other relationships of special trust..." I ask the CFP Board to have the courage to make the difficult decision to come down squarely in the camp of requiring CFP certificants to acknowledge a fiduciary duty whenever the CFP certificant has discretionary authority or responsibility for the management of a client's assets or have other relationships of special trust. Please take this action to make me feel proud of being a CFP practioner. Thank you.

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JEFFREY REEVES

Date: March 13, 2007

Subject: Code...

After 30+ years in the financial services industry and ongoing dialogue with numerous CFP Practitioners, I believe the Code of Ethics is - and I say this with due respect as I personally ascribe to the code insofar as I can - too vague.

Who particularly decides what is in the client's best interest? If you ask one advisor she might say universal life insurance; another says mutual funds; a third wants the client to buy term and invest; a fourth some other strategy; and I would likely disagree with all of them yet each could justify the approach they proposed. How then does this code clear up "confusing language and create an enforceable duty of care"?

To my thinking "buy term and invest" is totally irresponsible. To another variable contracts are never in a client's best interest. Who gets to decide? The only true measure is the result. And even then, how do you decide? What about the opportunistic few who sell the idea of "separating equity" from one's home with maximum mortgages and investing the difference in "investment grade life insurance"? If these advisors are lucky, 80 of 100 similarly qualified clients who follow this practice end up with gains while 20 lose everything. Does that justify the strategy? Are you then going to subject every claim of failure to exercise "duty of care" to a unique set of evaluation markers?

I do not envy the task you have set yourself to. I suggest, however, that you consider incorporating the long standing "prudent man rule". The "Prudent Man Rule" is based on common law stemming from the 1830 Massachusetts court decision - Harvard College v. Armory. The "Prudent Man Rule" directs trustees "to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested". This approach to advisor responsibility has eroded dramatically in the past 30 years (see http://en.wikipedia.org/wiki/Prudent_man_rule ) to the detriment of the public and for the advantage of the companies that "sell" investments - regardless of whether the "selling" is acknowledged with commission or disguised as fee based advice.

I could write an essay on this subject - and I might, come to think of it - but the conclusion is the same. Vague discussions of "duty of care" that impose no specific and commonly accepted standard of behavior are neither meaningful nor enforceable.

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JOHN SULLIVAN, CFP®, ChFC, CLU, AIF®

Date: March 14, 2007

Subject: Second Draft

Bless your hearts! If I have any more children, I shall name them 1.4 and 2.2! How simple and how stunning! Reveal conflicts of interest and put the client's interests first! This will draw the good and drive away the bad from this certification that we all have worked so hard to achieve and worked harder to adhere to. This will make the CFP(tm) marks the "gold standard" of the industry and will be a large part of the beginning of an ethical revolution in financial services. Now, someone needs to the same for honest lawyers!

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MORRIS ARMSTRONG, CFP®, ChFC, CDFA™, AIF®

Date: March 15, 2007

Subject: Standards

After reviewing the new revisions of the Standards and ethics proposals I would like to suggest that the CFP Board of Standards refrain from using the term "Fiduciary" at all. It is very apparent that you believe Certificants engage in a wide variety of activities, some which may viewed as being outside the 6 steps of planning by the CFPBOS, but John Q. Public may not share your perceptions.

What the new revisions really propose in obfuscated language is that a CFP licensee must abide by the rules and regulations governing the activity which he is engaging in. Some of them will invoke a fiduciary standard of care while others may not. This has always been the case.

It is imperative that John Q Public not be under the mistaken belief that a CFP licensee is always operating under a fiduciary standard. The best way to avoid the confusion is simply to refrain from suggesting it.

I would also like to take to task the CFP Board for using as an example of when a CFP is not fiduciary; when they are teaching a class. There is simply no client engagement.

While I can appreciate all the work that you do I think it is important that you not consider 300 responses out of 52,000 licensees as a large number crying for revisions. There were 51,700 people who may have felt that the first draft was acceptable.

Again, my point is please do not confuse the already confused public through the association of fiduciary and CFP unless it is all or none. The public should not have to guess.

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CHUCK LEWANDOWSKI, CFP®

Date: March 15, 2007

Comment submitted through online survey

I am concerned about my role as "fiduciary". A CPA is not a fiduciary but they are held to high standards. Unintended consequences are yet to be experienced. As a CFP., am I expected to create an enagagement document for every client who wishes to purchase an investment? If I am held to a "high ethical standard" and actually fulfill the role of an ethical practitioner, why does it matter if I am "fee only", "commission based" or any combination thereof? Nice document , but who is going to define how it applies to every day situations?

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ADAM J. LEAVITT, CFP®

Date: March 16, 2007

Comment submitted through online survey

Comparatively, I support the second draft of the proposed revisions. There will be difficulties in enforcing a fiduciary standard but the current bipolar format is a regulatory maze anyway. I believe the long-term health of the financial planning profession requires a foundation of consumer trust and the confusing format is only erroding it. Ultimately, the consumer will become more educated and will begin "voting" for planners who put the client's interest above his/her own. Obviously, I have faith in free markets. However, the CFP board has an opportunity to be preemptive and require this fiduciary standard now.

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NANCY D. MCGEE, CERTIFIED FINANCIAL PLANNER™

Date: March 16, 2007

Subject: Comments

When advising the client, you are in a superior position and necessarily wear the cloak of a fiduciary.

Including the fiduciary element may help reduce the circumstances where the advisor ( or Wirehouse/Bank,etc. ) disclaims the fiduciary role, yet operates in a superior position to the client. We have too many shades of grey in our industry.

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PAUL COAN, CFP®, ChFC, CEA

Date: March 16, 2007

Comment submitted through online survey

This draft is much closer to the profession we aspire too than the first release. The first release looked like the only thing that mattered was attracting more members. Thank you for re-evaluating your position and creating what appears on the surface as something we all can be proud of. I would suggest that 1.4 be reworded. We should hold a fiduciary standard to all dealings with clients. Not only in the financial planning process or material elements of the process. I can not imagine one reason why a CFP certificant should not put the clients interest first. It does not matter if they are doing financial planning, insurance sales or even investment management. As a NAPFA member I do believe in the Fee-Only model for my practice. But it is not the only way to be compensated. Clients do not care if you get paid. They actually prefer it. But to hide material facts like compensation from a client is not putting the clients interest first. If you believe in what you are doing, then you should believe in it enough to disclose it to the client. The CFP Board of Standards should not allow a certificant to say they are not going to be a fiduciary when placing product because it is not a materail element of the planning process is beyond me. This is a step in the right direction, but some fine tuning would is still needed.

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CHRIS PETERSON, CFP®

Date: March 16, 2007

Comment submitted through online survey

I agree with the thrust of the proposal. However I do not believe it is in the best interest of our profession to get ahead of the regulatory bodies in setting the standard of service that will be provided. In a "Financial Planning engagement" I do not see any issue. However if the engagement falls short and involves insurance or brokerage product sales, requiriing a "best interest" standard that is a higher legal standard than the current suitability is troubling. I agree that we should all work in the clients best interest and that in fact we do. But we can not put ourselves at risk legally by getting ahead of the current regulatory system. The end result will be the loss of a great many highly qualified practitioners that will terminate their affiliation with us because the benefit of the mark does not out weigh the potential liability.

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JOHN R. POWER, CFP®

Date: March 16, 2007

Comment submitted through online survey

This is a huge improvement over the 1st draft. There is no "weasel-wording" here. Either you are, or you are not. There is no "opt-out" for certificants who want to use the mark but not comply with the standard. Wire-houses and their employees will not be happy. This doesn't give them the wiggle room they wanted and the original draft offered. I am pleased the CFP Board has come around to understand that its responsibility is to the public and not the certificant and designee and their employers. This set of code and standards is pretty unequivocal. There will be attorneys that will argue otherwise. I like the clear identification of a written agreement (e.g. contract). That is a requirement of a registered investment advisor in Massachusetts. In dialog with some certificants, they do not think of themselves as investment advisors and haven't registered as such. Some seem to think that if they aren't doing a "money manager" function or similar activity, they are not RIAs. If they were to check the law in Massachusetts they would find that if they give advice on investments, for a fee, they are defined as RIAs and should be registered. If they had done so they would already have contracts as required by law. I hope this version will fly without too much modification. It is clearer and more direct than its predecessor and a definite improvement over what is presently in place.

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A.T. "AL" BENELLI, CFP®

Date: March 19, 2007

Comment submitted through online survey

I believe the Board has acted prudently and in the best interest of the overall integrity implied by the CFP certificate itself, in the wording of this second-exposure draft. I am hopeful for it's ultimate adoption.

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BRUCE DAVISON, CFP®

Date: March 19, 2007

Comment submitted through online survey

I think the parsing of terms creates additional actionable liability for all professionals in this field without significantly impactng or improving the level of professional service provided to clients / consumers. Attempts to legislate ethical behavior to this degree are often over-reaching and onerously expensive in the final analysis. Sarbanes-Oxley comes to mind. In the final analysis this seems to be as much about protecting turf as it is about actually assuring that the public is better served. Woe to us if we get our way at the price of opening ourselves to more unwarranted scrutiny from the plague of trial lawyers searching to loot our E&O carriers, and if possible our own pockets, by cleverly twisting our own words to their aims. Ultimately, we prove our superior worth by earning it in the market place, not by spending endless hours on committees rehashing minutia that give us the illusion of having impact. Memebers, should not surrender our self respect or our ability to speak for ourselves to a gaggle of "planning purists," who - though well intentioned - may by consequence relegate all but the wealthiest consumers to a world where assistance with their personal planning is limited to the voices of the T.V. and radio ranters.

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ADRIAN EDDLEMAN, MBA

Date: March 19, 2007

Subject: Ethics and Educational Requirements

Thank you for allowing the comments of the public and non-CFP financial practitioners. Below you will find comments submitted via the survey process. These comments are not intended as insulting, though some are harsh. Rather they are intended as a truthful opinion of past and present direction. I applaud the CFP Board for finally taking the presumably unpopular steps regarding improved educational and ethical standards, however, I would caution the Board in not going far enough.

The CFP Board purports to align the organization based on the four "E's" of Education, Experience, Exam, and Ethics. Finally, the basic requirement of simply having a degree to sit for the exam has been implemented, however, the requirement for what are acceptable areas of study still fall short of what we would call an educational requirement. A degree in music, though worthwhile, does not more adequately "educate" an individual for the financial services industry. Some basic requirements in economics and finance must be required from an accredited university!

Regarding the "E" in Ethics, our opinion is that thus far the CFP Board has been a failure in providing the public ethical financial practitioners. We believe the new terminology is a misleading step forward. In our opinion the new standard stills falls short by failing to require a fiduciary obligation for implementation. Either a firm/individual acts as a fiduciary or they do not! You cannot have it both ways. Individuals and firms who attempt to provide "advice" in a fiduciary capacity and then implementation in a "suitable manner," are simply fooling themselves and the public.

In our opinion, to require a fiduciary standard for "Financial Planning," but not all services is a mistake that will further confuse the public, and allow practitioners a "way out" for failure to do what is in the clients best interest. Though I maintain education, experience, and ethical standards greater than those even currently proposed by the CFP Board, I have not bothered to take the exam because I feel the standards are too low and poorly represent how I wish to portray "best" industry practices.

If we as financial service practitioners desire to be taken seriously as a professional group, we must truly hold ourselves accountable to the highest standards possible at all times! This may mean that some who choose not to uphold those standards are not considered part of the profession, but at least we have a profession instead of simply an organization.

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BEN KAUFMANN, CLU, CFP®, ChFC, CIC

Date: March 19, 2007

This may be a bit premature, but I have been thinking of the March 2007 Newsletter. The CFP Board's "Standards of Professional Conduct" is hogwash! This "ethics" is not well thought out. This whole thing kind of reminds me of the time I spend in military school where we had the "honor" system, and us cadets always said that the cadets had the system and let the administration have the honor! Trying to create all of these things vascilitates from administration to administration. In addition, different areas of the country have different ways of doing things, and the attempt to create a standard for everone will not work. The highest ethical and standard, as far as I am concerned, is treating your clients as you would want to be treated.

I have been a CFP® certificant since 1982, and did so in order to be able to more professionally take care of my clientele with having better knowledge of financial matters. Since then, the CFP Board and the whole direction has changed into an elite group, with no semblance of what the CFP® designation really means. I do not think we have had good leadership either from the professional and layman's situation. The CFP [Board] organization is no stronger than its individual members and all of the members I have talked to, with the exception of one, are not in favor of what is being created.

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DAVID L. MACE, CFP®

Date: March 19, 2007

Comment submitted through online survey

My impression of the CFP Board's 2nd Exposure Draft is that they listened to those opinions expressed by the FPA and CFP practitioners when the original draft came out. The language is easier to understand and incorporates the true meaning of a fiduciary. This is a huge step in further solidifying the true professional role a financial planner takes in helping clients with their finances.

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GARY SOBEN, CFP®

Date: March 19, 2007

Comment submitted through online survey

The CFP board needs to re read the Investment Advisory act of 1040. This issue shouldn't even be decided by the CFP or Financial Planning Board. This will do a disservice to the Industry. This will do nothing more but put independents and clients at risk and not serve the best interest of the Clients.

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PATRICK CARROLL, CFP®

Date: March 21, 2007

Comment submitted through online survey

Question 7 is worded wrong. I agree that CFP a CFP® professional should always place the interests of his or her clients first. I do not agree that a CFP should be considered a fiduciary. The proposed revisions to CFP Board's Standards of Professional Conduct add another layer of unneeded regulation and complexity to everything a CFP does. The Code works as it is written now. What is the purpose of making such sweeping changes? Why are we trying to add additional layers of regulation to our practices? I have been licensed as a CFP since 1988. I see no need to make the changes as written!

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BRADFORD H. THARP, CFP®, CLU, ChFC

Date: March 21, 2007

Comment submitted through online survey

This entire effort to revise ethical standards smells like a marketing strategy. Are we mostly attempting to protect the public, or to enhance the income potential of about 5% of CFP® certificants who choose to operate under a common business model? 1) Education vs Business Model - Well over half of the 54,547 CFP® certificants simply wanted to achieve an outstanding education. We sell mutual funds, stocks and insurance, and need to better understand the big picture. We want to effectively communicate with CPAs, estate planning attornies, insurance agents, and employee benefit managers about our client's financial needs. We don't view the respected CFP® mark as a commitment to a particular business model. For those certificants who want to band together, perhaps create a new tag line for them, such as CFP® Fiduciary Practioner. If needed, call other 40,000+ certificants CFP® Qualified. 2) Fee-Only - "Fee-Only" absolutely must meet a higher standard to protect the public. The suggested definition continues to allow self-proclaimed Fee-Only certificants to potentially mislead clients. Fee-Only must indicate that the certificant is paid only by 1) a flat fee (i.e. $7000 for the requested comprehensive plan), or 2) by an hourly rate (i.e., $300 per hour with an estimate of 7 hours to complete the desired college funding and retirement planning modules). Fee-Only must EXCLUDE all forms of asset-based compensation, current or future, including a percentage fee for assets under management, a percentage fee of client net worth, performance-based fees, front-end commissions, back-end surrender charges and 12b-1 fees. Let's be TRULY ethical. From the client's perspective, there is no difference between paying an ongoing 1% C-share 12b-1 fee, and an ongoing 1% fee to manage no-load mutual funds and stocks. A percent is a percent is a percent. If we manage money, we are making a commission based on client assets--call it a management fee if you want, call it a sales load, but don't call it "Fee-Only." Reserve Fee-Only for those few thousand CFP® certficants who refuse to make any money, any way, on implementing their planning recommendations. 3) Broker-Dealer Agreement? Not all broker-dealer firms may agree to allow a registered representative to use the CFP® mark under the fiduciary standard, at least not right away, and not for brokerage sales. What does the Board recommend for these certificants? Do we pay the renewal fee but not use the CFP® logo? If some firms ask certificants to drop the CFP® mark, what other designation does the Board recommend for them? Leaders of competing designation programs probably cannot stop smiling. 4. Carefully consider the legal limits of always putting a client's interests ahead of our own. If taken to the extreme, any fee or commission charged to a client for planning services could seem to place the certificant's interest ahead of the client's. 5. Please do not rush to meet an artifical deadline for revising the ethics standards. About 45,000 certificants either are not aware of what's recommended, or do not know how the changes might affect their current business model. A few hundred comments hardly represent 54,547 certificants.

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CURT WEIL, CFP®

Date: March 21, 2007

Comment submitted through online survey

Thank you, thank you for considering comments on the first exposure draft and coming back with a much better draft. Thank you also for the spirit in which this version was introduced to us, a spirit of openness and collegiality that seems to have been long missing. Thank you also for making it easy to compare existing standars to proposed.

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CHUCK BOWES

Date: March 22, 2007

Subject: Standards

Having just sat for the CFP exam last weekend this topic is fresh in my mind and important to my future in the business. Through out my 2 1/2 education curriculum (through UC Berkeley) and my exam preparation I have interacted with dozens of CFP candidates from all walks of life and it is very clear there are two very different points of view.

There are those who really believe in offering true independent objective advise and therefore could care less about being help to a fiduciary standard and in fact believe it offers them a competitive advantage. And those who view getting the CFP only in terms of helping them compete against the "independent" advisors - when forced to by a consumer. I have yet to meet a aspiring CFP candidate that works for a wire house who opens up an "advisory account" as their default/preferred way of dealing with clients. 100% of them say "I only open up an advisory account if I have to in order to win the business".

Granted these are gross generalizations and nothing I'm sure you are not aware of. However, it brings in to focus the end user of the CFP credentional - the consumer.

It seems to me we should be focused on how to make the CFP creditional something that truly benefits them and the only way to do that is making it very simply, unequivocal, and crystal clear that as far as they are concerned a CFP is very different than an non CFP. There is no way the general public will EVER understand the difference between a "judiciary CFP" and a "non-fiduciary CFP". The simpler it is to educate the general public the more it will gain credibility with the general population and the more influence and power the CFP creditional will have when interacting with congress, the SEC, and the likes of Jonathan Clements and Suzy Orman - and therefore the more benefit to the consumer.

Therefore I believe the code should very clearly state that whenever an end user/consumer is dealing with a CFP they are dealing with a fiduciary - period. No grey area. That does not mean that people who have the CFP that are NOT dealing with end consumers have to be held to the standard, but that when anyone who uses the CFP brand in anyway is dealing with a consumer they are held to a fiduciary standard regarding their interaction with the consumer. Regardless if it is a "brokerage" account or an "advisory" account.

I applaud your recent steps in updating the code and thank you for being open to comments

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GEOFF BOYER

Date: March 22, 2007

Subject: RE: Participate in Town Hall Meeting to Discuss Proposed Changes to CFP Board's Ethical Standards

While I would love to take credit for the following idea, I believe it would violate some part of the Code of Ethics if I did. The concept comes as part of a discussion by Bob Veres, and I believe it has tremendous merit.
Perhaps the CFP Board ought to consider it as a solution to the problem:

Why not state that a CFP practitioner must act as a fiduciary whenever he or she is giving financial-related advice to consumers, period. This would mean that when the dentist [who is also a CFP]is drilling into somebody's teeth, there is no fiduciary requirement. If the wholesaler is explaining the unique benefits of a small cap value fund to an advisor, it wouldn't trigger the fiduciary issue. But if a broker with the letters "CFP" on his business card starts talking about annuities and separately-managed accounts with a new prospect, then the fiduciary standards would apply in all their force and ramifications, regardless of any split hairs over whether the advice met the definition of "financial planning" or its "material elements."

He also states what I believe may be a central core of the issue:

This brings us to the crux of the debate, the reason why advisors and CFP Board members are having so much trouble understanding each other. Taking a second look at the "Loophole That Wouldn't Die" in light of the CFP Board's webcast, and then looking at the responses I received from my first column, I can see that there is a huge division between what CFP planners think the mark represents, and what the CFP Board thinks.

The planning community sees the CFP mark as comparable to the MD or CPA; that is, a mark that distinguishes a professional from an amateur.

The CFP Board, on the other hand, appears to be taking the position that the mark is really an educational credential, similar to the Ph.D.

Since I could not express my views any better than this, I took the liberty of passing them on to you as presented to me.

I believe Bob has focused the issue well, and has offered an excellent solution.

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LENARD S. COHEN, CFP®

Date: March 22, 2007

Comment submitted through online survey

1. Written disclosure rules 1.3 and 2.2 are not practical in a very large number of engagement situations. While these items are discussed, it is overkill to expect or require that a written statement be prepared for each engagement. Too many engagements are really transactional in nature. 2. Section 1.4 is incomplete. While it expresses an important and positive statement, it should be explicitly stated that sometimes the best solution for the client cannot work for the practitioner. For example, we should let clients know that no-load funds are available, but we should not be expected to recommend them if there is no alternative compensation. Generally, though, section 1.4 is an important statement, In fact, it should override the section 4.4 statement on suitability. Suitability is a very weak standard.

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ILENE DAVIS, CFP®

Date: March 22, 2007

Subject: RE: Participate in Town Hall Meeting to Discuss Proposed Changes to CFP Board's Ethical Standards

I earned my securities license in 1982. As soon as I became licensed,
I started studying for my CFP and earned that in 1984.
THE REASON: Before I became a broker, I had been an investor - at a reasonably young - 25 - age. It took me some years, and some more education, to realize that not once did MY GOALS, MY NEEDS, ever enter the discussion.

One reason I started studying for my CFP as soon as I became a broker was because to me, the only real reason for investing money that could be spent today was to pay for future needs.

Sadly, I think too many people who hold a CFP designation use it to add credibility to their sales effort and nothing more.

It seems to me that to be true professionals, we need to not just say we will put our clients needs first, but to have some sort of documentable system. Whether its using the calculator I've designed that is under evaluation, or another financial planning software program, it seems to me that just like the doctor or dentist that keeps a long term record of our physical health, a financial planner should keep a track record of the assumptions made on a clients long term needs, and how the investments recommended are likely to fulfill that proposed need.
FOR EXAMPLE: if a financial advisor doesn't first find out from a
client when they want to retire, how much income will be needed in current dollars, what inflation / investment rate should be used to make calculations, and how long that person expects to live and need money, plus how much they expect from pension / social security, inheritance, etc. HOW CAN THEY POSSIBLY MAKE AN INVESTMENT RECOMMENDATION THAT IS SUITABLE FOR THE CLIENTS NEEDS.

In my opinion, failure to do these kinds of calculations BEFORE MAKING AN INVESTMENT RECOMMENDATION, is not only unprofessional, it should be unethical.

I realize that implementing such an idea could benefit the sales of my calculator, but in every profession, tools are required to be purchased, and with a one time (no annual license fee) charge of just $50, I think my calculator is a tool that is worth considering.

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MATTHEW D. GELFAND, Ph.D., CFA, CFP®

Date: March 22, 2007

Subject: Second Exposure Draft

I echo the comments below of Bob Veres, to wit, fiduciary standards for CFP certificants should apply whenever such certificants provide financial services of any type at any time to the public. It should be a basic matter of professional ethics that CFP professionals put the interests of clients or customers first whatever their job title or the nature of their employer. Others who wish to carry the CFP designation but do not use it to practice as a financial professional -- teachers, dentists (cf. Veres's article below), or others -- then would be exempt from the fiduciary standard. But brokers providing financial services -- not just financial planning or investment advice -- to customers should be held to the same standards as any CFP practitioner.

Below I quote a passage from Veres's article which cogently makes the case that I support.

"The planning community sees the CFP mark as comparable to the MD or CPA; that is, a mark that distinguishes a professional from an amateur. The CFP Board, on the other hand, appears to be taking the position that the mark is really an educational credential, similar to the Ph.D. If you look at it from the CFP Board's perspective, creating standards that also apply to nonplanners--wholesalers, dentists, educators and CEOs of the FPA -- requires you to create exceptions to any general fiduciary rule. And if brokers are able to slip through those exceptions the way dentists do, well, we can't very well help that, can we? Maybe we can... Would it be possible to do what doctors do? There are MDs who do research, who wholesale for drug companies and even provide financial advice, and in those roles they are not held to the Hippocratic Oath. The Oath only holds if they are working with patients. Why not state that a CFP practitioner must act as a fiduciary whenever he or she is giving financial-related advice to consumers, period. This would mean that when the dentist is drilling into somebody's teeth, there is no fiduciary requirement. If the wholesaler is explaining the unique benefits of a small cap value fund to an advisor, it wouldn't trigger the fiduciary issue. But if a broker with the letters "CFP" on his business card starts talking about annuities and separately-managed accounts with a new prospect, then the fiduciary standards would apply in all their force and ramifications, regardless of any split hairs over whether the advice met the definition of 'financial planning' or its 'material elements.'"

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STANLEY E. HARGRAVE, M.S., CFP®

Date: March 22, 2007

Comment submitted through online survey

It would seem to me to be a simple matter to do the following: If anyone in communication with the public, et al, attaches the CFP designation to their name AND they are not performing fiduciary or planning functions MUST make the following disclosure in writing on all communications where the CFP designation is used. The professional responsible for this project or engagement is NOT representing himself as a CFP® as part of his/her professional responsibilities herein.

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DANA J. HORNQUIST, CFP®

Date: March 22, 2007

Comment submitted through online survey

I like the Boards definition of Fee-only and fiduciary. This is the right direction and focus the CFP Board should be taking.

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SAM HULL, CFP®

Date: March 22, 2007

Subject: Second Exposure Draft of proposed revisions

A big round of applause! The CFP Board showed guts in their willingness to stop, listen and then admit that perhaps a fatal mistake was inadvertently made in the first draft revision of the Code of Ethics and Rules of Engagement. Your openness in this phase of the process is laudable and shows me that you are finally really listening to us -the soldiers in your army whose mission it is to bring good financial planning to the public.

I have a few suggestions to both tighten up the connections between the elements of the definitions as put forward in the Code of Ethics and then a few comments on Section 1.4 of the Rules.

To my somewhat logical mind, I think it would be much clearer if you could make the flow more logical.

1. First define what it is you are talking about as "financial planning"

"Financial planning is the process of determining whether and how an individual can meet life goals through proper management of financial resources. Financial planning activities under the jurisdiction of the CFP Board of Standards involve the delivery of all or part of the financial planning process through the establishment of a financial planning engagement relationship with a certificant"

This recognizes the obvious- not everyone who does financial planning is a CFP licensee (regrettably) and these Rules only apply to those occasions when a client who enters into a relationship with a certificant (thus excluding casual conversations or people selling their house through a broker).

2. What is a financial planning engagement? The proposed definition is good as is.

"An engagement exists when a certificant performs any mutually agreed financial planning service for a client."

3. Who is a client? The proposed definition is good as is.

"A client is a person, persons or entity who engages a certificant and for whom professional services are rendered."

4. Who renders those services? A practitioner, but tighten up the proposed definition of a financial planning practitioner just a little to specify only those persons over whom the Board has jurisdiction.

A financial planning practitioner is a certificant who engages in financial planning using the financial planning process

5. The financial planning process is already well defined.

The financial planning process denotes the process which typically includes, but is not limited to, one or more of these six elements:

1. Establishing and defining the client-planner relationship
2. Gathering client data including goals
3. Analyzing and evaluating the client's current financial status
4. Developing and presenting financial planning recommendations and/or alternatives
5. Implementing the financial planning recommendations, and
6. Monitoring the financial planning recommendations

Why is this any improvement? To my mind it clearly explains what is the product (financial planning), the process (the six step financial planning process (which is the heart of what we do), the user (the client) , the legal relationship (an engagement) and the seller (a CFP certificant) and all the cross-references tie together. In the proposed second draft there was a mixture of terms - person, certificant leading to confusion as to who is being governed ("person" "practitioner" and "certificant").

I have no problem with the proposed definition of the term "fiduciary", although I wish we could avoid that unfortunate legal term altogether. Rule 1.4 is just fine as a starting place and case law and BOPR rulings will bring it into sharper definition over time.

There has been some flurry or concern in the media over the phrase "material elements" as applied to the financial planning process. Webster/Merriam defines those two words as follows:

Material (Webster) "having real importance or great consequences".
Element: (Webster) "one of the factors determining the outcome of a process"

My reading of this term as it will be applied by the Board is that virtually any application of the financial planning process will involve the application of "material elements, since that phrase is really only stating that material elements are "the factors having real importance or great consequences in determining the outcome of a process". Since we have already defined the six-step financial planning process as being what is unique about the profession of "financial planning", anyone who uses one or more of the six steps has to be applying material elements.

A minor point in the examples shown as exclusions from material elements- I would remove the example of "engaging solely in sales activity related to insurance products" Insurance salespeople can often sell complex or unsuitable products such as equity-indexed annuities to senior citizens or variable annuity products as a receptacle for tax- deferred retirement plan rollovers. Both of these instances are facing legal pressure, as you know.

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CHRIS JACCARD

Date: March 22, 2007

Subject: Ethics, Fiduciary standard

To date I have told prospective clients, colleagues, etc that the CFP certification reflects a minimum education standard -- and that other factors are more important than the CFP mark (eg. Fiduciary standard, experience, company conduct/culture). This is the primary reason that I continue to maintain my membership with NAPFA, as it requires very high standards of its advisor membership; thus, differentiating my role and service from other CFP certificants.

I submit that if the board expects the CFP designation to be more well regarded it has to do the following: Write stricter standards (i.e. reduce loophole for fiduciary standard); strictly enforce professional and ethical standards; perform more outreach and education.

I think the standards and reputation of the CFA Institute speak to the above list by example -- one that could be successfully emulated.

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RON KELEMEN, CFP®

Date: March 22, 2007

Comment submitted through online survey

I think that a CFP practitioner must act as a fiduciary whenever he or she is giving financial-related advice to consumers, period. The ability to opt out of a fiduciary relationship is bogus--we've all seen the fine print that the croporate suits produce, asking clients to sign a waiver, arbitration agreement, and other types of disclosures. Under the proposals, it's just too easy to get into legalistic nuances about "material" aspects of financial planning. And it is just too easy to do only one element (ie, investment planning), and avoid being held to fiduciary standards. Those that work in financial services--such as wholesalers, etc. or other professions don't need to be fiduciaries as long as they do not do any direct work for clients.

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KEN WEINGARTEN, MBA, CFP®

Date: March 22, 2007

Subject: Rules of Conduct Feedback

From Bob Veres' latest E-Column which I received this morning:

*****
Why not state that a CFP practitioner must act as a fiduciary whenever he or she is giving financial-related advice to consumers, period. This would mean that when the dentist is drilling into somebody's teeth, there is no fiduciary requirement. If the wholesaler is explaining the unique benefits of a small cap value fund to an advisor, it wouldn't trigger the fiduciary issue. But if a broker with the letters "CFP" on his business card starts talking about annuities and separately-managed accounts with a new prospect, then the fiduciary standards would apply in all their force and ramifications, regardless of any split hairs over whether the advice met the definition of "financial planning" or its "material elements."
****

It really should be this simple. Anything less does a disservice to our profession.

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JEAN FULLERTON, CFP®

Date: March 23, 2007

Subject: CFP standards

I appreciate all the work you folks have done on the CFP standard.
My comment is that I would like to see the standard match the expectations of consumers. If a consumer goes to a financial professional for advice, and pays for that advice by fee and/or commission, then they expect that advice to be in their best interest. If I work for a medical school buying textbooks, and I'm talking to a textbook salesman who also happens to be a doctor, I don't expect unbiased advice. But if I'm an elderly woman going to a doctor for medical advice, even if the doctor is employed by the hospital, I expect the doctor to give me the best advice, regardless of his own financial interests or the interests of his employer. There's a reason some respected financial journalists tell consumers NOT to seek the advice of financial advisors. I would like to see that change. I would like to see the CFP mark mean, not only "this person is educated in financial planning" but also "you can trust this person".

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MICHAEL HAUBRICH, CFP®

Date: March 23, 2007

Subject: FWD: Bob Veres E-Column: Closing the Loophole

Bob Veres recommendation in his e-column for applying fiduciary standards is spot on (see below my e-mail). If you drill into a consumer's personal finances, you are a practitioner and as such shoudl be held to a fiduciary standard. I am interested in any opinion why this solution to applying fiduciary standard won't work.

After we get by the application, the board still has the challenge of the precise definition of fiduciary. I am happy to see the board take this matter seriously with good due process.

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MICHAEL HELFFRICH CFP®, MBA

Date: March 23, 2007

Subject: RE: the fiduciary debate (from a CFP registrant)

First - thank you for listening. I understand your responsibilities to the public and am responding for the first time to an issue which is crucial to the existence of the CFP mark.

My comments are simple.

Everyone who holds the mark should be held to a fiduciary standard any time he/she/they are providing information of a financial nature to any consumer.

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GARY D. JURDEN, CFP®

Date: March 23, 2007

Subject: Proposed Changes to CFP Board's Ethical Standards

I believe the proposed changes to the CFP Board' Ethical Standards does not go far enough on who must be held to a fiduciary standard. There are CFP certificants that are not currently meeting with clients, i.e. wholesalers, managers, that do not need to be held to a fiduciary standard. But any CFP certificant that meets with a client and offers advise on an investment, insurance, taxes, or estate planning should be held to the fiduciary standard.
I believe the public expects that of a CFP certificant and they deserve to get it.

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RICHARD J. PETRUCCI, JR., J.D., CPA, CFP®

Date: March 23, 2007

Subject: Re: Participate in Town Hall Meeting to Discuss Proposed Changes to CFP Board's Ethical Standards

I have the following comments regarding the Second Exposure Draft of Revisions to CFP Board's Standards of Professional Conduct:

1. The current Standards of Professional Conduct define the terms "Personal financial planning subject areas" and "financial planning subject areas." The proposed Standards of Professional Conduct do not define these terms. I maintain that the term "financial planning" should be specifically defined to include the subject areas delineated in the current Standards of Professional Conduct. Otherwise, there could be disagreement and/or confusion within the organization or among the general public as to which topics are intended or are not intended to be included within the definition of "financial planning."

2. Neither the current nor the proposed Standards of Professional Conduct makes any distinction between CFP® certificants who are actively involved in the practice of financial planning as a profession and those who are engaged in a different profession. For example, an estate planning attorney in the private practice of law who is also a CFP® certificant, or a Certified Public Accountant in the private practice of public accounting who is also a CFP® certificant, would be held to the same standards and be required to follow the same procedures as a CFP® certificant with respect to that attorney's or CPA's estate planning clients. Because the attorney and CPA are governed by the rules of ethics / professional conduct governing their respective professions, I maintain that the imposition of the CFP Board's Standards of Professional Conduct: on the attorney or CPA who is also a CFP® certificant in these circumstances is an unfair burden.

3. There should be an "inactive" designation for CFP® certificants, as there is for attorneys and CPAs (and other professionals as well). This "inactive" designation would allow the CFP® certificant to keep his or her license and not have to meet the CPE requirements or pay the full membership dues while he or she is engaged in a different profession. This would apply, for example, to an attorney who is a CFP® certificant but who is employed full-time as in-house counsel to a company, or to a CFP® certificant who is employed full-time as a licensed real estate agent. In these circumstances, the attorney or real estate agent should be able to register as "inactive" with the CFP Board. If at some time in the future the attorney or real estate agent would like to work either part-time or full-time as a financial planner, he or she can re-activate his or her license.

I appreciate your consideration of my comments and recommendations.

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PHIL BOUR, CFP®

Date: March 24, 2007

Subject: Revised Standards

I respectfully suggest that you omit "material elements" in the explanation of a "fiduciary". If a CERTIFIED FINANCIAL PLANNER™ professional is giving any advice that has to do with financial-related products and/or services to consumers then the certificant must be held to a fiduciary standard.

The consumer simply does not understand anything else when they see and hear CFP® professional. If what a certificant is doing is financial in scope then it is always material.

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GORDON CARPENTER, CFP®

Date: March 24, 2007

Subject: Rules of Conduct

I read with interest and frustration the material published by the board and observers regarding this subject. Clearly, the board is influenced by the many outside interests promoting their position(s). I can sense it in the text, I can imagine the pressure to wordsmith the documents so as to leave the loopholes necessary to appease all of those who carry the CFP mark or employ those who carry it. I am shocked by this from Karen Schaeffer, the CFP Board's current chairperson, saying that the Board "wanted to make sure that [the Code of Conduct] applied to everybody we have jurisdiction over." It sounds like a senator saying that he/she must act in the best interest of his constituency; which of course he should since he is there representative. Your board is not my representative; your board sets the standard of conduct that I must follow in order to use the mark. There is a huge difference. If I need a representative I'll call the FPA.

The board of standards sets the standard, one standard period! The standard is not intended to serve everyone and cannot be all things to all people.it is just a standard. It is my understanding that the standard applies when you are doing anything that falls within any one of the Practice Standards drummed into my head when I spent over 1000 hours preparing for the board exam. Whether I am selling a security or writing a financial plan if I wish to use the mark then I must be held to the standard...period.

If this board doesn't have the interest or the courage to set the standard and let the chips fall then we need to create a board or some other organization that will and that we can be proud to answer to. Further, what message are we sending to the clients we seek to serve when our board cannot be clear on when the client is important enough that we should be held to our highest standard; and when they are not.

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BOB PONTON, CFP®

Date: March 26, 2007

Subject: Second Exposure Draft

I fully support the Second Exposure Draft.

The draft is a clear, concise and workable framework for financial professionals to provide ethical and principles based financial planning to the public in a consistent and unambiguous manner.

I have two concerns in the defining of our practice going forward:

1. There are financial service providers, who may view the draft as too restrictive, inconsistent with their current business model/practice and/or over-reaching. To such bubbas, I would respectfully suggest that they seek/consider some other credentialing.

2. The draft will demand on-going and careful scrutiny to ensure its requirements are not "misconstrued" or "adapted" by some providers to justify their practices, which in fact may be inconsistent with the draft's intent.

You have set the bar high and well.

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ROBERT KREITLER, CFP®

Date: March 27, 2007

Subject: Comments on proposed rule 1.4

Rule 1.4 says: "A certificant shall at all times place the interest of the client ahead of his or her own." (Note; this is at all times, not just when he or she is doing financial planning.)

This should stand up to the most basic questioning.

Five year old child: "If you place your client's interest first, doesn't this mean you work for nothing?"

Parent; "This is not what they mean. If I don't charge I will be out of business and then I can't help my clients."

Five year old child: "Why didn't they say this? I worry that you will go to jail or loose your license."

The certificant who is a fee only advisor could circumvent this problem by setting the fee before the person becomes a client. Renewals would of course be a problem.

The certificant who is a stock broker (commission) has a different problem. To follow the rule the stock broker would need to recommend no load funds most of the time, or as the five year old says, risk going to jail or loosing one's CFP designation. Of course, following a literal interpretation of the rule is not possible if the stock broker wants to stay in business.

Unfortunately, this suggested rule only reinforces the concern that some in the financial planning community want our community limited to fee only planners. It would be a real loss for the profession, their clients and the country if commissioned based planners could not be CFPs.

My concern is an important point that needs to be addressed. Some judge may rule on this in the future and he will likely view the wording as would a five year old child. After such a long review and discussion period for this rule that the Board has been through, how can he believe the rule means anything other than what it says? Let's say what we mean and mean what we say.

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RICHARD ALMEIDA, CFP®

Date: March 30, 2007

Subject: Comments on Second Exposure Draft

Comments on Second Exposure Draft of Revisions to CFP Board's Standards of Professional Conduct

Although the Second Exposure Draft of revisions to the Board's Standards of Professional Conduct contains a number of key improvements over the first draft, there are still inadequacies in the definition of "fiduciary", the description of a fiduciary's duty of care and the specificity of disclosures. As discussed below, these comments are closely interrelated.

Definition of Fiduciary

No less than six Proposed Rules are based on "the duty of care of a fiduciary as defined by CFP Board"", yet that definition is based only on the good faith and beliefs of the fiduciary. Without any mention of a need to act solely or exclusively in the best interest of the client, this definition is too subjective.

Duty of Care

If placing "the interest of the client ahead of his or her own" were to be applied literally, no commission-based certificant would ever be in compliance with Proposed Rule 1.4. For example, if he or she recommended, and the client accepted, a financial product with a front-end load, someone other than the client would receive an immediate benefit and it would likely be several months before the client broke even. In the case of imbedded 12(b)-1 fees and other trailing commissions, the impact would be even more direct. Every payment to the certificant would have an equal and opposite effect on the interest of the client.

Disclosures

The disclosures required in Proposed Rule 2.2a do not appear to include stating costs in terms of dollars, or even percentages. A certificant need only provide "Information related to costs to clients..", and "Terms under which the certificant and/or the certificant's employer may receive any other source of compensation.." Without specific, quantitative disclosures, it might be difficult for a client to determine whether his or her interest was really being placed ahead of the certificant's, or the certificant's employer. On the other hand, by making full disclosure, a commission-based certificant could obtain informed consent from the client for transactions that would otherwise be prohibited.

Date: April 24, 2007

Subject: Comments on Second Exposure Draft

I found Marc Lackritz's article in the April 16 issue of Investment News highly disturbing in its narrow interpretation of the recent D.C. Court of Appeals decision on the broker-dealer exemption rule. According to Mr. Lackritz, the effect of the ruling is to limit the range of services available to the customer and the choice of payment methods for these services. Do broker clients now have a choice of no-load mutual funds and variable annuities? Can they buy funds without 12(b)-1 fees and VAs without redemption charges? Do they have a choice of broker to handle their trades? What about the payment method of compensating advisers for advice only and not for selling their employers' products?

The CFP Board of Standards should take heed of Mr. Lackritz's (and the SIFMA's) position. It is yet another demonstration of the need for the Board's revised Standards of Professional Conduct to include a stronger definition of a fiduciary's duty of care and a requirement for more specific disclosures.

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CHRIS BUTLER, CFP®

Date: April 2, 2007

Comment submitted through online survey

I am a trust officer, and have been acting in a fiduciary capacity for close to 20 years. We use this distinction in our organization in our discussions with clients and in our pursuit of new relationships as something that sets us apart. There is nothing sinister in this standard, nor do we look over our shoulder for the next lawsuit. Rather, the standard is somewhat liberating, in that there is a clear defined level of care and duty to all client, which can be quantified and measured. If the goal is to bolster confidence in, and grow the public's trust of the CFPr marks, why would we not want to be held to the high standard of a fiduciary? I would encourage the Board to extend these standards to all activities in which we engage. I agree with those who say "either we are a fiduciary or we are not!"

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JANET TYLER JOHNSON, CFP®

Date: April 3, 2007

Subject: 2nd Draft of Code of Ethics

With the recent victory of the FPA in their lawsuit against the SEC regarding the so-called "Merrill Lynch Rule," I think it is time for all of us who hold the CFP(R) designation to step up and visibly act in the consumer's best interests. I believe that the Code should state that any CFP(R) certificant who provides financial advice to clients should be held to the standards of acting as a fiduciary. CFP(R)s who are not working with clients, i.e. academics or wholesalers for mutual fund companies, etc. wouldn't have to worry about acting as a fiduciary. They are not giving advice to a client.

It is the consumer we are trying to protect, therefore, if we are giving them advice, we ought to be acting as a fiduciary.

Thank you to those of you that have worked so hard on these Code of Ethics. Your time and devotion to this important issue is appreciated.

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BRIAN R. CARLTON, CFP®

Date: April 4, 2007

Subject: Fiduciary Stand

Thank you very much for taking the Fiduciary stand. It will serve the public well!

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ROBERT C. ECKERT, CFP®, CPA

Date: April 4, 2007

Comment submitted through online survey

If a financial planner is ethical, then all this is meaningless. If he is not ethical, then this might help put him out of business. In either situation, the public is better served, and therefore, I laud your efforts.

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MARTY GREENE, CFP®, CLU, ChFC

Date: April 4, 2007

Comment submitted through online survey

Thank you for listening during the first round of feedback. I would only hope that you further clarify that full-time, commission-only insurance agents who do not offer themselves as "financial planners," even though they have earned the CFP (r) mark, do not fall under the disclosure requirements. The only reference to this situation is that "these activities may not be material elements of the financial planning process.." This directly affects hundreds of certificants, and their responsibilties have been defined over decades in the traditional agency relationship.

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WILLIAM C. JEROME, CFP®

Date: April 5, 2007

Comment submitted through online survey

Fiduciary. Fee Only. It's about time, good work!

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DEAN LYMAN, CFP®

Date: April 5, 2007

Subject: Current Ethics draft

Much better.

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ROSILYN OVERTON, CFP®

Date: April 5, 2007

Comment submitted through online survey

Percentage fees on asset management are not fees -- they are comissions and should not be called fees. I oppose distinction of financial planners on the basis of compensation method since there are conflicts of interest in every method. So-called fee-only planners who collect a percentage of assets under management are tempted to not properly protect their clients against the risks of life since they do not want to give up the assets required to pay insurance premiums, and there can be a tendency to inattention to the client's portfolio. Hourly fees can tempt the planner to spend more time than necessary researching a problem, and flat fees can tempt the planner into indolence. Attorneys use all the same methods of compensation and I have never heard of a fee-only attorney. The point is that it is the character and integrity of the planner that matters, not the method of compensation and therefore the distinction of fee-only is meaningless and insulting to those who choose other methods of compensation. Putting the client first at all times is the key concept.

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J. BURNS, CFP®

Date: April 6, 2007

Comment submitted through online survey

1. "CERTIFICANT IS STRANGE." USE CLEAR LANGUAGE LIKE ACTIVE AND INACTIVE. 2. ADD HOURLY AND PLAN COST TO "FEE ONLY". 3. ADD SOMEWHERE THAT CFP'S WILL ONLY HANDLE PRODUCTS/SERVICES THAT THEY ARE REGISTERED TO HANDLE BY THE REGULATORY AGENCIES. THANK YOU

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GEORGE CULLINAN, CFP®

Date: April 10, 2007

Comment submitted through online survey

In my experience, our clients already expect us to act as fiduciaries and hold us accountable as "prudent experts," not "prudent persons." The language used in this Code of Conduct doesn't change this with regard to our relationship with our clients. The only exception that I take with this document is in the Terminology section. "Commission" is always paid by the client. There is never a third party that pays the client's commission for them. The notion that the commission isn't paid by the client is false and misleading. No matter what product we're discussing, the client always pays the commission, either up front or over a period of time, the client is the only party that pays a commission.

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V. RAYMOND FERRARA, CFP®, CSA

Date: April 10, 2007

Comment submitted via mail

It is with many thanks that I write this letter regarding the second draft of the proposed ethical standards and the manner in which CFP Board is handling this matter. It has provided a breath of fresh air, and from my perspective, is a dawning of a new collaborative effort between CFP Board and a significant number of its stakeholders.

When the first draft was developed, there was an out-cry from the CFP® community, expressing a great deal of concern. Given the recent history of CFP Board, there was a concern as to what extent CFP Board might not only listen but hear the words that were spoken and unspoken. Passion is not nearly as well expressed in writing as it is verbally and face-to-face. Nonetheless, CFP Board listened and heard both the spoken and unspoken words, and as a result, the second draft is significantly better than the first draft, as well as better than what we have all worked with these past years.

Allow me to remain on the process for the moment. Your "Town Hall Meetings", although not announced far enough in advance, were an obvious attempt to have those face-to-face meetings, and we salute you for doing so. For those of us not able to travel, we appreciate the ability to share the experience via the internet, and this was another indication of CFP Board's attempt to be open with its stakeholders. While lacking confidence that much would change from the first draft during that earlier part of the process, events over the recent months have clearly indicated that this has the potential to be a "new age" at CFP Board. We appreciate immensely all that is happening.

As for comments on the second exposure draft...let me simply say, "A Very Good Job!" While it would be possible to nit pick at the document, (and I'm sure some people will), all in all, I find it acceptable and something which I can support and more importantly, something with which I can live. Please accept this letter as my endorsement to what you've done.

Again, I want to thank all of the members of the Task Force, the Board of Governors, and Staff for their unselfish efforts to further develop the cornerstone of our profession.

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JAMES M. KNAUS, CFP®

Date: April 12, 2007

Subject: Feedback

Excellent work on the Code & Rule revisions!

Two minor points:

  • Rule 4.5: Change the word delegates to assigns. [Authority is delegated, responsibility is assigned.]

  • In the definition of financial planning engagement, add the term for compensation.

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LARRY PIERCE, CFP®

Date: April 12, 2007

Comment submitted through online survey

I question if the definition of "Fee Only" should focus on the specific client relationship, rather than on the advisor. While I agree that some advisors can choose to define themselves as fee-only, i.e. fee-only 100% of their client relationships, the current definition seems to suggest that only "fee-only" advisors can enter into a fee-only relationship in a specific instance. I wonder if "fee-only" would be better defined by the specific client relationship through the disclosure document. Everything else about the relationship is already defined there.

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HAROLD EVENSKY, CFP®

Date: April 13, 2007

Subject: Evensky Comments of Exposure Draft

Please accept the following as my response to the Board's invitation to provide comments on the Second Exposure Draft for the Standards of Professional Conduct recent proposal.

Regarding FAQs
The proposal references exceptions to the fiduciary standard under the discussion "Activities that may not be material elements of the financial planning process include." These exceptions are grossly inappropriate. A member of the public, dealing with a CFP licensee, would and should expect a CFP license to place the clients' interest in all of these instances. The most extraordinary and unreasonable exception is

  • Engaging solely in sales activity related to insurance products. Once an individual presents him or herself as a CFP professional, there should be no "opt out" for "solely a sales activity." This is an unacceptable derivative of the Merrill Rule.

The other exceptions are also inappropriate. Each of the activities described have elements that place a clients interest at risk should the CFP party fail to place the client's interest first.

  • Preparing paperwork for a new account (e.g., properly and accurately providing information regarding experience, goals, risk tolerance, etc).
  • Acting as an order taker (e.g., issues regarding size and commission, break points, selection of trading platforms).
  • Completing tax returns without providing any other financial services (e.g., selecting/recommending the most cost efficient solutions)
  • Teaching a financial class or continuing education program (e.g., misrepresentation of the instructor's level of professional competence, sales pitch masquerading as education)

Proposed Standards
Rule 4.3 - The concept of "suitability" is well established in the non-fiduciary regulatory environment of the NASD. Furthermore, it is often presented in arbitration cases as a standard significantly less demanding than a fiduciary standard. Consequently, the use of the term "suitable," in 4.3 may raise unintended confusion regarding the level of applicable standards (i.e., the argument may be made that 4.3 is intended to be one of "suitability" not "fiduciary")

Principal 3
The current Principal makes an absolute statement that "A CFP Board designee, by virtue of having earned the CFP® certification, is deemed to be qualified to practice financial planning." That statement has a long history and has been considered, by many past Boards, as a critical acknowledgment of a fundamental significance of the mark. The proposed Principal deletes the statement. It should be included, if not in this Principal, at least in the Code.

Other
I may have missed the references; however, it seems that the obligation of a licensee to notify the Board should he or she be the subject of a complaint (e.g., SEC, NASD) or the obligation of a licensee to notify the Board if he or she become aware of improper activities on the part of another licensee have been eliminated. I believe both requirements are essential.

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JASON I. HOCHSTADT, CFP®

Date: April 13, 2007

Comment submitted via mail

In response to your invitation for comments on the proposed revisions to the CFP Board's Ethical Standards, I respectfully submit the following for your consideration:

A. Second Exposure Draft of Proposed Revisions to CFP Board's Ethical Standards - - located at http:llwww.cfp.netlaboutus/Exposure Draft.asp; "Frequently Asked Questions"

1. The fifth (5th) question asks, "What activities fall under the category of 'material elements of the financial planning process' and how will CFP Board make determinations in situations where an activity may or may not be a material element?", At the end of the second sentence additional language should be added to complete the sentence, along the lines of the following: "a CFP® certificant will be determined to be providing comprehensive financial planning services for such clients."

2. In the answer to the fifth (5th) question one of the activities listed that "may not be material elements of the financial planning process" is "engaging solely in sales activity related to insurance products."

Based upon your proposed definitions and terminology, a CFP® practitioner working for a captive insurance agency/brokerage firm and solely involved in the sale of life, disability income and long-term care insurance would not appear to fall within the category of providing "material elements of the financial planning process" and, therefore, would not be required to adhere to the rules of conduct, financial planning practice standards, other written disclosure requirements, etc. These CFP® practitioners would not be subject to the language in Standard 400-3, "Presenting the Financial Planning Recommendation(s), where it is written that, "If there are conflicts of interest that have not been previously disclosed, such conflicts and how they may impact the recommendations should be addressed at this time."

Additionally, since Rule 1.4 states that, "When the certificant provides financial planning or material elements of the financial planning process, the certificant owes to the client the duty of care of a fiduciary as defined by the CFP Board," this would not appear to be applicable to a CFP® practitioner involved solely in selling insurance products. The captive insurance agent who is a CFP® practitioner may not be able to offer products from different carriers and, therefore, may have a conflict of interest that should have to be disclosed to potential clients. Why should a CFP® practitioner engaged in financial planning or material elements of the financial planning process have to disclose compensation or conflicts of interest if insurance is being recommended and sold to a client, whereas the CFP® practitioner solely selling insurance as a captive agent is not subject to these disclosure requirements?

3. In the eighth (8th) question, the second sentence states that, "The current Code of Ethics organizes the Rules using the six Principles - Integrity, Objectivity, Competence, Fairness, Confidentiality, Professionalism and Diligence." I believe the six should be changed to seven (7).

B. "Second Exposure Draft (142 KB PDF file)"

1. Pages 5 - 6 , Section 1.2 under "Rules Of Conduct:"

I do not think that all of Section 1.2(a) (essentially the financial planning process) or the rest of the Section should be required to be discussed with prospective clients. In Section 1.3(d), the newly required written Agreement states that the Agreement shall specify "the services to be provided as part of the Agreement as a result of the discussion required by Rule 1.2." All of Section 1.2 should be integrated within Section 1.3 (which may render Section 1.3(d) no longer necessary). What if there is a dispute or lawsuit, and the CFP