WASHINGTON, DC – April 2, 2008 - The NASAA Public Policy Conference held in Washington, DC, on April 1, 2008, featured Senator Jack Reed and SEC Chairman Christopher Cox as keynote speakers.
CFP Board was represented by Michael Shaw, Esq., CLU, ChFC, who is Managing Director of Public Policy & Legal, on a panel on "Cutting Through the Confusion: The Future of Investment Adviser Regulation," moderated by Maryland Securities Commissioner Melanie Lubin.
In response to the question "Should the financial planning profession be regulated?" Mr. Shaw commented as follows:
Thank you, Commissioner Lubin – and thank you to Russ Lucalano and the staff at NASAA for inviting CFP Board to participate in this important discussion on the Rand Report.
For those who may not be familiar with Certified Financial Planner Board of Standards – otherwise known as CFP Board – we are a private, non-profit organization whose mission is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for competent and ethical financial planning.
I’ve been asked to address the question – "should the financial planning profession be regulated?" Let’s first look at the current oversight of financial planners. The financial planning profession is relatively young – it’s been in existence for about 30 years. During that time, it has grown from a service offered mainly by insurance agents and fee-only financial planners to one that today includes investment advisors, their representatives and registered representatives of broker-dealers.
The reason that financial planning has grown so rapidly is that clients want someone they can trust to advise them on all aspects of their financial situation – how much to save for college and retirement, help with tax and estate planning issues and guidance on how much and where to invest their money. Financial planning has evolved to a point today where it is both a process and a profession. Neither is regulated by the federal government nor any state government. Where government regulation comes in is with regard to advice, recommendations and transactions involving financial products.
The Rand Study pointed out, quite clearly, that the public is generally confused about the way that financial professionals are regulated. This confusion stems, in part, from the fact that the products and services offered by financial planners – which may include brokerage transactions, investment advice, and insurance products – are each regulated by a different set of rules and standards.
CFP Board is impacted by this confusion because 30% of its CFP® professionals are registered representatives and 28% are investment advisor representatives of SEC-registered advisor firms.
One of the issues in this discussion of how to address the current confusion is whether all providers of advice and financial planning should be held to the same duty of care to consumers. CFP Board believes that duty should be the "Fiduciary" duty. The fiduciary duty means that when someone is providing financial planning advice to a prospective or current customer, the duty owed is always putting the client’s best interests FIRST.
Placing the client’s interests first may sound like an overly simplified solution to the current problems and, perhaps a principle that some would think isn’t necessary to adopt as a standard. We have seen, however, in the absence of such a written principle, financial services professionals do not always act in their client’s best interest.
Putting the client’s interest first means providing full disclosure of any conflicts of interest. For example, informing a potential customer that you offer only proprietary insurance products or, if you’re conducting a brokerage transaction, that your firm requires you to trade from the firm’s account rather than on the open market. The fiduciary standard also requires an individual to disclose how he or she is compensated, whether it is by commissions, fees, or a combination of the two.
CFP Board believes that the focus of the debate on whether or not financial planning needs to be regulated should be on:
- Empowering consumers through education; and
- Improving the coordination among regulatory bodies to lessen the compliance burdens on financial professionals so they can devote more time and attention on service to clients.
I should add that CFP Board has recently revised its Standards of Professional Conduct, effective July 1, 2008, to reflect the higher fiduciary duty of care, and CFP Board has a rigorous enforcement process reflecting the best practices of professional organizations.
CFP Board believes that the financial planning profession should be held to higher standards for the benefit of the public. How those standards are enforced is open to debate, and we look forward to actively participating in that debate. Thank you.
# # #
CFP® - The Recognized Standard of Excellence in Personal Financial Planning
The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for personal financial planning. CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements. CFP Board currently authorizes more than 57,000 individuals to use these marks in the United States.
Michael Shaw, Managing Director, Public Policy & Legal