CFP Board's Advocacy Initiatives

Legislative Initiatives:

• Financial Planner Oversight Board
• Financial Planning Coalition Opposes FINRA Oversight of Advisers
• Fiduciary Standard Initiative

• SEC’s Proposed Amendment to Its Custody Rule
• SEC and DOL’s EBSA Hearing on Target Date Funds
• DOL Proposed Class Exemption

Legislative Initiatives:

Financial Planner Oversight Board

The Financial Planning Coalition has proposed legislation that would establish federal regulation of financial planners by allowing a federal agency to recognize a financial planner oversight board that would set professional standards for, and oversee the activities of, individual financial planners. Financial planners would be prohibited from providing financial planning services, or holding themselves out as a financial planner or advisor, unless they register with the financial planner oversight board.

The Coalition seeks to apply principles-based regulation to individuals providing comprehensive financial planning services or holding themselves out as financial planners, not to the firms that employ them. This would leave intact other regulatory coverage for institutions and operate consistently with existing federal regulation for broker-dealers and investment advisers, as well as state regulation of insurance producers, accountants, and lawyers.

The financial planner oversight board would:

• Establish rules designed to prevent fraudulent and manipulative acts and practices;
• Establish baseline competency standards (e.g., education, examination, and continuing education);
• Establish standards for professional and ethical conduct, including the fiduciary standard of care as established under the Investment Advisers Act of 1940;
• Require registration or licensing of financial planners; and
• Perform investigative and disciplinary actions.

Webinar: Call to Action – Financial Planner Oversight Board

On October 19, 2009, the Financial Planning Coalition hosted a Webinar to provide CFP® certificants with an overview of the Coalition’s proposal for a national oversight board for financial planners, share updates on progress made to date, and address ways CFP® certificants can demonstrate support of the proposal. View the presentation slides >

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Financial Planning Coalition Opposes FINRA Oversight of Advisers

On November 3, 2009, the Financial Planning Coalition wrote to Members of the House Committee on Financial Services to express its opposition to an amendment to the Investor Protection Act of 2009 that would extend the regulatory authority of the Financial Industry Regulatory Authority (FINRA) to cover investment advisers who are associated with broker-dealers under FINRA’s authority. Read more.

Fiduciary Standard Initiative

CFP Board is working with a broad-based group of organizations that represent diverse interests and constituencies to ensure that all financial intermediaries who offer broad-based financial advice subjected to the high standards of a fiduciary. The organizations with which CFP Board is working include the Consumer Federation of America (CFA), the Financial Planning Association (FPA), Fund Democracy, the Investment Adviser Association (IAA), the National Association of Personal Financial Advisors (NAPFA), and the North American Securities Administrators Association (NASAA).

January 7, 2010: CFP Board and six other pro-consumer and public interest groupsdelivered a letter to members of the Senate Committee on Banking, Housing, and Urban Affairs expressing strong support for an investor protection provision in the Senate’s draft regulatory reform bill that would require all those who offer investment advice to be held to the highest standard of care to their clients – the Investment Advisers Act fiduciary duty. The joint letter was accompanied by a “myths-facts” sheet that rebuts arguments and misinformation about the Senate regulatory reform bill’s fiduciary requirement for investment advice.

October 26, 2009: CFP Board and five other pro-consumer and public interest groups urged Members of the House Committee on Financial Services to ensure that provisions in the Investor Protection Act of 2009 would subject all those who provide investment advice to a fiduciary standard of care that requires them to act in their clients’ best interests. In a letter to Members of the Committee, CFP Board, FPA, NAPFA, CFA, IAA, and NASAA wrote to express their shared desire for the “inclusion of a strong provision to ensure that all those who offer investment advice are held to the highest standard – the Investment Advisers Act fiduciary duty.”

This group followed up with the Committee on November 2, 2009, sending a letter affirming the need for a strong, universal fiduciary duty for investment advice and expressing concerns over the degree to which that goal is threatened by changes made to date during the Committee's consideration of the Investor Protection Act.

August 6, 2009: CFP Board, FPA, IAA, and NAPFA sent a letter to Mr. Richard Hisey and Ms. Hye-Won Choi, Co-Chairs of the SEC’s Investor Advisory Committee in response to the Committee’s July 29th press release. In the letter, the four organizations expressed concern that the press release could be read to suggest that the fiduciary duty must be susceptible to “definition” in order to provide a workable standard. “Instead of trying to define fiduciary duty, we urge the Committee instead to consider a recommendation to clearly and unambiguously extend the fiduciary duty that investment advisors owe their clients under the Investment Advisers Act to brokers who provide investment advice.”

More information on the SEC’s Investor Advisory Committee is available here.

July 14, 2009: CFP Board and six other pro-consumer and public interest groups sent a letter to Rep. Barney Frank (D-MA), Chairman, and Rep. Spencer Bachus (R-AL), Ranking Member, of the House Committee on Financial Services, expressing concerns about section 913 of the Obama Administration’s proposed Investor Protection Act of 2009. The group stated that “revisions will be needed to unambiguously provide for the extension of the overarching fiduciary duty that investment advisers owe their clients under the Advisers Act to brokers and others who provide investment advice, that this fiduciary duty is explicitly recognized in law, and that the legislation does not in any way undermine the fiduciary duty that already exists under the Advisers Act.”

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Regulatory Initiatives:

SEC’s Proposed Amendment to Its Custody Rule

On May 20, 2009, the Securities and Exchange Commission (SEC) proposed amendments to Rule 206(4)-2, relating to custody of client assets, under the Investment Advisers Act of 1940. The definition of custody would continue to include arrangements in which a registered adviser is authorized or permitted to withdraw client funds or securities maintained with a custodian upon the adviser’s instruction to the custodian. CFP Board submitted comments to the SEC in a letter dated July 28, 2009 that focused on two of the proposed amendments.

One of the amendments would require that all registered investment advisers with “custody” of client funds and securities engage an independent public accountant to conduct an annual surprise examination to verify those client assets. In its letter, CFP Board recommended that the SEC exempt from the surprise examination proposal all advisers that use independent qualified custodians to hold all client assets, are deemed to have custody solely because they have the authority to withdraw fees from client accounts, and rely on the custodians to send account statements to clients. Additionally, the SEC should require such advisers to send a statement to clients listing their annual fee and itemizing the fees that they have deducted year-to-date. This will serve as an additional check on such advisers’ activities, and will provide clients with the ability to compare custodian statements with their advisers’ statements. CFP Board also suggested that the SEC require such advisers to include in the statement a written notice telling clients to compare account statements received from the custodian with those received from the adviser.

Another amendment would require any registered investment adviser or a “related person” of the adviser who maintains custody of client assets to obtain a written internal control report from an independent public accountant registered with the Public Company Accounting Oversight Board that includes an opinion regarding the controls relating to custody of client assets. A related person would be defined as any person, directly or indirectly, controlling or controlled by the adviser, and any person that is under common control with the adviser.

CFP Board expressed its support of the SEC’s internal control report proposal, recognizing that it is designed to address the type of fraud that was perpetrated by Bernard L. Madoff, and is reasonable to provide the needed protection where an adviser maintains custody of client assets directly or through a related person. While requiring that all advisers maintain custody of client assets with an independent custodian would be consistent with the general practice of the majority of CFP® professionals, CFP Board recognized that maintaining client assets with an independent custodian may not be feasible under all business models and circumstances. In its letter, CFP Board said the internal control report proposal would provide needed protection for investors when is not feasible or desirable for an adviser to use an independent custodian.

A press release regarding CFP Board’s comment letter is available here.

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SEC and DOL’s EBSA Hearing on Target Date Funds

On June 18, 2009, the Securities and Exchange Commission and the Department of Labor’s Employee Benefits Security Administration held a hearing at the Department of Labor building in Washington, D.C. on issues relating to investments in target date funds and similar investment options by 401(k) plan participants and other investors. The hearing was announced on May 19, 2009. Requests to testify at the hearing, testimony of witnesses, and other materials are available on the Department of Labor’sWeb site.

CFP Board Chair Marilyn Capelli Dimitroff, CFP®, outlined CFP Board’s proposals to enhance consumer safeguards for investors who use target date funds. Ms. Capelli Dimitroff’s testimony is available here.

Target date funds are investment vehicles that allocate their investments among various asset classes and automatically shift that allocation to more conservative investments as a “target” date approaches. This shift in asset allocation can vary significantly among funds using the same target date. In recent years, target date funds have grown increasingly popular in employer-sponsored retirement plans.

CFP Board testified that these funds are fundamentally misleading to investors because they are allowed to be managed in ways that are inconsistent with reasonable expectations that are created by titles used on the funds. It is not an answer to say that misleading fund names can be cured with effective disclosures. It is necessary to face the reality that disclosures are very often not read and more often not fully understood. Disclosures are simply not adequate to counteract the reasonable expectations created by a fund’s name.

In 2008, target date funds with 2010 in their name had losses ranging from 3.6 percent to 41 percent. “We believe that a loss of up to 41% of assets from a fund labeled 2010 is completely inconsistent with an investor’s reasonable expectation that his or her assets would not be subject to such high market volatility,” Dimitroff said.

CFP Board recommended that the SEC amend its misleading names rule to provide that a target date fund’s name is a materially deceptive and misleading name unless the fund’s investments fall within an acceptable range of asset allocations consistent with its name. If efforts to put such standards into place are not undertaken or not effective, the Department should proceed on its own to regulate target date funds that are used in 401(k) plans, or, repeal such funds’ eligibility as qualified default investment alternatives in employer-sponsored retirement plans.

A press release regarding Ms. Capelli Dimitroff’s testimony is available here. You can also access a statement by Ms. Capelli Dimitroff regarding her testimony here.

On October 28, 2009, CFP Board submitted a written statement to the Senate Special Committee on Aging as part of the record for the Special Committee’s hearing titled “Default Nation: Are 401(k) Target Date Funds Missing the Mark?” In its written statement, CFP Board expressed serious concerns that target date funds can be fundamentally misleading to investors because they are allowed to be managed in ways that are inconsistent with the reasonable expectations created by the funds’ names. CFP Board urged the Special Committee to work closely with the SEC and Department of Labor to establish appropriate protections to ensure that target date funds can continue to be used in retirement savings plans as qualified default investment alternatives with confidence that they reflect appropriate, industry-sanctioned investment decisions on behalf of plan participants.

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DOL Proposed Class Exemption

On August 22, 2008, the Department of Labor (DOL) proposed a class exemption for the provision of investment advice to participants and beneficiaries of self-directed account plans and IRAs. The rule would permit, among other things, the provision of investment advice described in section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974 by a fiduciary adviser (or any employee, agent, registered representative, or affiliate thereof) to a participant or beneficiary in an individual account plan or individual retirement accounts (and certain similar plans).

CFP Board submitted comments to the DOL in a letter dated October 6, 2008. In its letter, CFP Board supported the DOL’s proposal to exempt from ERISA restrictions individualized investment advice by fiduciary advisers to participants and beneficiaries of participant-directed individual account plans or individual retirement accounts. CFP Board noted that the intent of the proposed exemption—to increase the availability of individualized investment advice—is consistent with its mission to increase the public’s access to competent and ethical financial planning.

CFP Board supported the disclosure requirements, which generally track the requirements in CFP Board’s Rules of Conduct. In addition, CFP Board noted two specific proposed requirements that may undermine the intent of the proposed exemption and urged the DOL to consider modifications. Specifically, CFP Board urged the DOL to eliminate or modify a requirement that participants or beneficiaries receive specific computer-generated recommendations before they could receive individualized advice. CFP Board further urged the DOL to modify an annual audit requirement in a manner that would not unduly burden small fiduciary advisers.

The DOL’s release regarding the final rules is available here. The effective applicability date of the final rules has been delayed until November 18, 2009, to allow additional time for the DOL to evaluate questions of law and policy concerning the rules.

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