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CFP Board's Advocacy Initiatives

Legislative Initiatives:

Regulatory Initiatives:

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), a historic and comprehensive financial regulatory reform bill. CFP Board, in conjunction with its Financial Planning Coalition partners and others, worked diligently to secure key provisions in the Dodd-Frank Act and continues to be engaged with a number of initiatives related to the Dodd-Frank legislation. Read a summary of Dodd-Frank Act provisions affecting CFP® professionals >

In January 2011, The Securities and Exchange Commission (SEC) and the Government Accountability Office (GAO) released studies required by the Dodd-Frank Act that are of importance to CFP® professionals. Section 913 of the Dodd-Frank Act required the SEC to study the gaps in regulation of broker-dealers and investment advisers. Section 914 required the SEC to study the need for enhanced examination and enforcement resources for registered investment advisers. Section 919C required the GAO to study whether there are any gaps in the regulation of financial planners and make recommendations for filling identified gaps. Click on the links below for a summary of each study's findings and recommendations, as well as CFP Board's position on the studies:

SEC Study on Investment Advisers and Broker-Dealers (Section 913)
SEC Study on Enhancing Investment Adviser Examinations (Section 914)
GAO Study on Financial Planners and the Use of Financial Designations (Section 919C)

On September 13, 2011, in a prepared statement for the record before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, the Financial Planning Coalition told Congress that the important investor protection provisions of the Dodd-Frank Act deserve broad bipartisan support, including Sections 913, 914 and 919(c). The Coalition urged the Subcommittee members to support the SEC as it moves forward to establish a strong and uniform fiduciary standard of conduct for broker-dealers and investment advisers and urged Congress to provide the SEC with the resources necessary to fulfill its regulatory mandate, including enhancing examinations of investment advisers. The Coalition also expressed its desire work with the Subcommittee members to address the issues identified in the GAO's study on financial planning.

Legislative Initiatives:

Fiduciary Standard

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).

September 13, 2011: In a prepared statement for the record before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, the Financial Planning Coalition urged Congress to put the interests of investors and small businesses first by supporting the SEC as it moves forward to establish a strong and uniform fiduciary standard of conduct for broker-dealers and investment advisers.

June 23, 2011: The Financial Planning Coalition sent a letter to the Securities and Exchange Commission (SEC), accompanied by a petition signed by more than 5,200 financial planners, urging the SEC to apply a fiduciary standard to anyone providing personalized investment advice to retail clients.

March 29, 2011: The Financial Planning Coalition sent a letter to members of Congress strongly urging them to support moving forward with key regulations that will help restore the investor confidence in our capital markets that is critical to leading America toward recovery.  The Coalition noted that the SEC is now in position to conduct a rulemaking to require that all financial advisors put their clients’ interests ahead of their own when they give personalized investment advice, an initiative the Coalition backs and considers to be a commonsense reform called for in the study.

December 16, 2010: The Financial Planning Coalition sent a letter to the Securities and Exchange Commission (SEC) providing comment on the study to enhance investment adviser examinations under Section 914 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, urging the Commission to adequately regulate investment advisers without delegating such responsibility to a self-regulatory organization such as the Financial Industry Regulatory Authority (FINRA).

November 30, 2010: The Financial Planning Coalition sent a letter to the Securities and Exchange Commission (SEC), responding to comments provided by the Securities Industry and Financial Markets Association (SIFMA) that set out to assess the impact of applying the Advisers Act to all brokerage activity, and urging the SEC to adopt a strong and uniform fiduciary standard for both broker-dealers and investment advisers when making personalized recommendations to retail customers.

September 15, 2010: The Financial Planning Coalition joined with AARP, CFA, IAA and NASAA to deliver a letter to the Securities and Exchange Commission (SEC), sharing the results of a new national investor survey showing that the vast majority of U.S. investors support a clear “Fiduciary Standard” for financial professionals. The survey, which makes a compelling case for imposing the Investment Advisers Act fiduciary duty on all those who give personalized investment advice about securities to retail investors, was presented to the SEC for consideration as the agency prepares the study of standards of care with regard to investment advice required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
August 30, 2010: The Financial Planning Coalition, in a letter to the Securities and Exchange Commission (SEC), is asking that the fiduciary standard of care—a key investor protection for all Americans who are investing for college, retirement and other needs—be extended to broker-dealers and other financial professionals who provide personalized investment advice to retail customers.
June 23, 2010: On June 23, 2010, the Financial Planning Coalition submitted a letter to Congressional leaders negotiating regulatory reform legislation urging them to oppose provisions which would have failed to meet the stated goal of requiring that brokers who provide investment advice about securities have the same fiduciary obligations as investment advisers and which would preempt the SEC’s authority to regulate equity indexed annuities. The Coalition urged the conferees to make critical changes to the fiduciary standard provision to protect investors.
June 14, 2010: CFP Board joined with consumer advocates, regulators and industry organizations, as well as U.S. Senators Daniel Akaka and Robert Menendez, to call on the U.S. Congress to require broker-dealers to meet the same fiduciary standard as investment advisers. This would provide critical protections to Main Street investors. In a letter to the conferees, the group stated: "Financial regulatory reform presents an historic opportunity to improve investor protection for Americans and restore confidence in the market. Requiring all financial professionals to act in the best interests of their customers when they provide investment advice is the single most important protection needed by the average Main Street investors." The group urged the House and Senate conferees to adopt the House-passed legislation that extends the fiduciary standard of care to all financial professionals who give investment advice.
May 18, 2010: CFP Board and five other pro-consumer and public interest groups delivered a letter to members of the U.S. Senate in support of the Akaka-Menendez-Durbin amendment to the Restoring America’s Financial Stability Act, which would direct the SEC to issue rules requiring brokers who provide personalized investment advice to retail customers to have the same fiduciary duty as investment advisers. In the letter, the groups also expressed opposition to another amendment that fails to deliver on the promise of fiduciary protections.
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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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.
The financial planner oversight board would have authority to discipline registered financial planners, including the authority to suspend or bar registrants. A process for appealing any such decision to the appropriate federal agency would be provided.

Results of New Poll Indicate Overwhelming Public Support of Establishing Standards for Financial Planning

On February 16, 2010, the Financial Planning Coalition sent a letter to the U.S. Senate Committee on Banking, Housing, and Urban Affairs announcing results of new poll indicating overwhelming public support for higher standards for financial planning. The Coalition urged the Committee to include regulation of financial planners as part of the Financial Regulatory Bill currently under consideration by Congress. Read the letter and poll results summary >

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.

On September 13, 2011, in a prepared statement for the record before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, the Financial Planning Coalition raised concerns about a legislative proposal to establish an SRO for investment adviser oversight and reiterated serious concerns regarding the possibility of FINRA being designated as such an SRO.

CFP Board Opposes Efforts to Preempt SEC Authority over Equity Indexed Annuities

On June 17, 2010, CFP Board wrote to Congressional leaders negotiating regulatory reform legislation to oppose a proposed amendment that would strip the SEC of its authority to oversee sales practices in connection with equity indexed annuities. In its letter, CFP Board urged Congress to ensure adequate investor protections in the sale of equity indexed annuities by allowing the SEC to exercise its appropriate authority over these products. Registration of these products with the SEC will increase disclosure to investors regarding their terms, risks, and costs; deter abusive sales practices; and provide victims with more effective remedies.

On June 23, 2010, the Financial Planning Coalition submitted a letter to Congressional leaders negotiating regulatory reform legislation urging them to oppose provisions which would have failed to meet the stated goal of requiring that brokers who provide investment advice about securities have the same fiduciary obligations as investment advisers and which would preempt the SEC’s authority to regulate equity indexed annuities. The Coalition urged the conferees to make critical changes to the fiduciary standard provision to protect investors.

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Regulatory Initiatives:

SEC Proposal on Broker-Dealer Reports

On August 26, 2011, CFP Board submitted a comment letter to the SEC in support of its proposal to strengthen the rules that apply to broker-dealers with custody of client assets.In its letter, CFP Board characterized the Broker-Dealer Reports Proposal as a welcome effort to close regulatory gaps demonstrated by the Bernard Madoff Ponzi scheme scandal.CFP Board believes the Broker-Dealer Reports Proposal is a much-needed companion rule to the Investment Adviser Custody Rule that will enhance the Commission's ability to oversee the custody activities of broker-dealers.

SEC Proposal on Investment Adviser Performance Compensation

On July 11, 2011, CFP Board submitted a comment letter to the SEC, supporting its proposed rule amending the qualified client standard of Rule 205-3 under the Investment Advisers Act of 1940 to adjust for inflation the dollar amount tests every five years. CFP Board expressed the belief that the amended rule should help provide investors with the protections contemplated by Section 205 of the Advisers Act. Additionally, CFP Board supported the Commission's proposal to exclude the value of a client's primary residence from the net worth test, given that ownership of a home is not necessarily indicative of investment experience or sophistication, or the ability to assume the risks associated with performance fee arrangements.

Department of Labor Proposal on Definition of “Fiduciary”

On February 3, 2011, CFP Board submitted a comment letter to the Department of Labor (DOL) regarding the agency’s proposed definition of the term “fiduciary.” CFP Board commended the agency for taking steps to enhance protections for plan participants and beneficiaries, expressing support for adoption of the Department’s proposal, and stating CFP Board’s belief that fiduciary status is appropriate for investment professionals under ERISA. CFP Board noted that the effect of being deemed a fiduciary under ERISA is different from that of being deemed a fiduciary under the Advisers Act and suggested that it may be appropriate and desirable to revisit the prohibited transactions provisions as they apply to particular relationships. CFP Board also urged the DOL to limit the scope of the “adverse interests” exception to the proposed definition to clarify that an adviser may not simply “opt out” of ERISA’s fiduciary status by disclaiming any intention to provide impartial investment advice, suggesting that the DOL expand the class of persons and plans to whom investment professionals may provide “investment education” without assuming fiduciary status to include plan sponsors and administrators, defined benefit plans, and individual retirement accounts (IRAs).

Department of Labor Proposed Regulation for Target Date Fund Disclosure

On January 14, 2011, CFP Board submitted a comment letter to the Department of Labor (DOL) regarding proposed regulations regarding target date fund disclosure. In its letter, CFP Board commended the DOL for taking steps to provide plan participants with better information regarding target date funds. While CFP Board generally supports the adoption of the DOL's proposed regulations, it expressed concerns that the proposed regulations do not go far enough to address the concern that plan participants do not sufficiently understand the extent to which many target date funds are managed in ways different than what may reasonably be expected. To that end, CFP Board recommended the DOL incorporate certain concepts from the Securities and Exchange Commission's rulemaking into the final rule.

Additionally, CFP Board recommended that the DOL require clear and prominent disclosures that will alert investors when a target date fund's equity allocation differs materially from the average allocation of peer funds with the same target date at the target date, at the landing point, and during the five-year periods immediately preceding those dates.

SEC Proposal on Mutual Fund Distribution Fees

On November 5, 2010, CFP Board submitted a comment letter in response to the SEC’s comment period on proposed changes to mutual fund distribution fees.

In its comment letter on the SEC’s mutual fund distribution fees proposal, CFP Board expressed its support for the SEC’s decision not to eliminate any mutual fund share class structures. Investors should have the ability to obtain investment advice and purchase securities in different ways, whether by paying an explicit investment advisory fee, by paying for advice as part of the sales charges for a mutual fund or other security, or by choosing mutual funds from a supermarket or other platform. CFP Board believes it is necessary to allow for investor choice, and that the SEC’s proposal is a reasonable approach to providing choices among mutual funds.

CFP Board expressed support for allowing mutual funds to pay for distribution services out of fund assets, but did not express an opinion about whether 25 basis points is the appropriate amount for this fee.

CFP Board expressed support for permitting funds to deduct an ongoing sales charge subject to sales charge restrictions and an automatic conversion feature, but did not express an opinion about exactly what that fee cap should be. We recognize that in some instances, a financial services professional provides ongoing investment advice after the initial purchase of a mutual fund. However, we believe an ongoing sales charge that is capped at the maximum amount of an up-front sales charge is sufficient to pay for this continuing advice, rather than allowing a sales charge that continues indefinitely, as is currently possible with some C share class mutual funds. We do not believe the existing practice of some, but not all, mutual funds to have a class of shares pay a sales load indefinitely (e.g., C shares) is in the best interests of investors.

CFP Board believes that the key to enhancing competition and reducing costs in the mutual fund industry is to make it easier for investors to compare the products available from different financial services providers and the cost of purchasing those products. It is important for investors to be able to evaluate potential conflicts of interest before they purchase an investment company security. Rather than requiring additional disclosure as part of the trade confirmation after the transaction has already occurred, CFP Board believes the SEC should encourage better “up-front” disclosure at the point of sale.

SEC Proposal on Rules Governing Target Date Funds

On August 23, 2010, CFP Board submitted a comment letter in response to the SEC’s comment period on the proposed amendments to rule 482 under the Securities Act of 1933 and rule 34b-1 under the Investment Company Act of 1940, recommending that target date funds’ advertising and marketing materials need to have better disclosure, provide more specific information about their glide path and asset allocation, and include greater descriptions of asset classes.

Department of Labor/Department of the Treasury Request for Information Regarding Lifetime Income Options for Retirement Plans

In February 2010, the Department of Labor and Department of the Treasury requested comments on whether and how the Agencies should use their rulemaking authority to facilitate access to lifetime income options in defined contribution retirement plans and IRAs.

On May 3, 2010, CFP Board filed a comment letter with the Agencies, sharing that there is no consensus in the financial planning community over the use of annuities in retirement planning. The letter shared results from CFP Board’s recent survey of CFP® professionals, which found that while approximately 71% of respondents at least occasionally recommend commercial annuities when helping people plan for retirement, more than 90% did not believe retirement plan participants or IRA owners should be defaulted into annuities if they do not opt out of annuitization. In its comment letter, CFP Board cited this lack of consensus as reason to oppose proposals to require mandatory or default annuitization, expressing skepticism of proposals to require annuities as plan options. CFP Board urged the Agencies, to the extent they seek to establish requiring annuities as plan options, to use their authority to provide more comprehensive rules regarding the use of annuities in defined contribution plans and IRAs, while being careful to preserve important participant protections, including fiduciary oversight in employer-maintained plans.

CFP Board also expressed strong support for efforts to educate all Americans about the need to plan for retirement, noting that greater transparency and disclosure in annuity pricing and fees would be helpful.

IRS Proposal for Preparer Tax Identification Number Requirement

In March 2010, the Internal Revenue Service (IRS) requested comments on proposed regulation regarding assigning unique identifying numbers to tax return preparers. In the proposal, the IRS indicated that requiring all paid tax return preparers to register and receive a preparer tax identification number (PTIN) is necessary to allow the IRS to identify tax return preparers and track the tax returns and refund claims associated with them.

On April 26, 2010, CFP Board submitted a comment letter supporting the IRS’s efforts to register all paid tax return preparers, given taxpayers’ increased reliance on paid tax return preparers and the important public policy concern for ensuring consumers have access to competent and ethical tax return preparers, but raising specific concerns about the proposed regulation and the related competency testing and continuing professional education (CPE) requirements that the IRS acknowledged as forthcoming. In the letter, CFP Board encouraged the IRS to consider providing CFP® professionals with the same exceptions to competency testing and CPE requirements the proposal affords to attorneys, CPAs, and enrolled agents, citing the rigorous testing and CPE requirements already part of the CFP® certification requirements.

In an August 2010 comment letter, CFP Board provided comments on the proposed regulations regarding the imposition of user fees for individuals who apply for or renew a preparer tax identification number (PTIN). CFP Board stated its support for the requirement that all tax return preparers obtain a PTIN and its belief that the $50 annual user fee recommended in the proposed regulations is fair based on the cost to the IRS, the value derived by tax return preparers from preparing tax returns, and the public policy benefits that will accrue from enhanced oversight of tax return preparers.

In an October letter, CFP Board provided the IRS with comments on proposed modifications to regulations governing practice before the IRS. CFP Board applauded the IRS proposal to hold all tax return preparers meet strict ethical guidelines and suggested that the IRS should tailor the continuing education requirements to ensure competency of registered tax return preparers while providing flexibility in meeting those requirements. Finally, CFP Board urged the IRS to exempt CERTIFIED FINANCIAL PLANNER™ professionals from the competency testing and continuing education requirements established for registered tax return preparers, given the substantial income tax-related education and examination required to attain and maintain CFP® certification.

In a July 2011 comment letter, CFP Board responded to an IRS request for comments concerning the content and administration of the competency examination for registered tax return preparers, sharing guidance from CFP Board's long history of developing successful competency examinations and enforcement mechanisms for the CFP® certification. CFP Board also raised concerns about an exemption from the competency testing and continuing education requirements the IRS has provided to individuals who prepare all or substantially all of a tax return under the supervision of an attorney, CPA or enrolled agent. CFP Board noted that exemptions for non-professionals who have not demonstrated the necessary competency to prepare tax returns appears inconsistent with the IRS's reluctance to exempt CFP® professionals, whose professional standards meet or exceed those held by attorneys, CPAs, and enrolled agents.

Department of Treasury Financial Education Core Competencies Proposal

On September 13, 2010, CFP Board sent a comment letter to the Department of the Treasury in support of Treasury’s efforts to develop financial education core competencies. Treasury’s proposal defines five core concept areas—earning, spending, saving, borrowing, and protect—and identifies a baseline knowledge and set of behaviors associated with each. In its letter, CFP Board stated its agreement that more needs to be done to create a baseline of knowledge on personal finance topics for consumers and financial education providers, and that the development of core competencies represents a fundamental step in achieving this goal and will serve as a foundation for financial education in America.

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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