The History of CFP Board's Fiduciary Standard
The work of a financial planner is all about helping clients. People hiring a financial planner expect to receive advice designed to be in their best interests, not those of the financial planner.
This is the result of a decades-long evolution to enhance the financial planning profession and the requirements of CFP® certification for the benefit of the public.
In this spirit, CFP Board recently adopted a new Code and Standards that expands the application of a CFP® professional’s fiduciary duty. As part of their certification, a CFP® professional now makes a commitment to CFP Board to act as a fiduciary at all times when providing financial advice to a client. This is the result of a decades-long evolution to enhance the financial planning profession and the requirements of CFP® certification for the benefit of the public.
The establishment of the Securities and Exchange Commission in 1934 and the passing of the Investment Advisers Act of 1940 (the 40 Act) serve as the unofficial emergence of laws governing the regulation of the financial services industry. The 40 Act first established the concept, later confirmed in court, that investment advisers have a fiduciary obligation to clients. Because the 40 Act does not extend to the full range of services provided by financial service professionals, an ongoing topic of debate has been the whether a fiduciary standard or some other standard of conduct is most appropriate for advice that is not subject to the 40 Act.
Against this historical background, CFP Board developed (and has continued to evolve) its own fiduciary standard.
Evolution of CFP Board’s Fiduciary Standard
In 2007, CFP Board adopted an updated Standards of Professional Conduct that established a fiduciary standard for CFP® professionals. Under that standard, a CFP® professional made a commitment to CFP Board, as part of their certification, to act as a fiduciary — i.e., in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client — when providing financial planning or material elements of financial planning to a client. This was a significant commitment at the time because CFP Board’s prior standards required a CFP® professional to make this commitment only when holding custody of client assets.
The distinction CFP Board’s Standards made between the standard of conduct for financial planning services (fiduciary) and for other services (non-fiduciary) in many ways reflected the regulators’ distinction between standards of conduct for investment advice (fiduciary) and brokerage services (non-fiduciary). However, because financial planning is a subset of financial advice and a CFP® professional often provides both financial advice and brokerage services when working with clients, some felt it was not always clear when a CFP® professional was covered by CFP Board’s fiduciary standard.
CFP Board has addressed that and other issues through a multi-year process to review and update the Standards. CFP Board issued two drafts of a new Code and Standards for public comment and considered more than 1,500 written comments and hundreds of oral comments — from CFP® professionals, firms, regulators, trade associations, consumer groups, and a broad array of additional stakeholders. After a deliberative, inclusive and transparent process, CFP Board adopted the Code and Standards, which became effective on October 1, 2019, and will be enforced beginning June 30, 2020.
CFP Board’s new Code and Standards takes a bold step forward. Under the Code and Standards, a CFP® professional makes a commitment to CFP Board to act in the best interest of their clients not just during the financial planning process, but at all times when providing financial advice. The fiduciary duty is defined in detail and includes a Duty of Loyalty, Duty of Care and Duty to Follow Client Instructions. The Duty of Loyalty states, among other things, that a CFP® professional must either avoid conflicts of interest or fully disclose material conflicts of interest to the client, obtain the client’s informed consent, and properly manage the conflict.
At its core, the concept of a fiduciary standard is to protect consumers who make important financial and life decisions with the assistance of financial planners. The fiduciary duty in the Code and Standards raises the bar for the profession and benefits the public.
Code and Standards Resources
In an effort to bring its Code and Standards to life — particularly its new fiduciary standard — CFP Board has developed a suite of compliance resources, including a series of case studies that provide specific factual situations and ask a question about the CFP® professional’s actions or duties under the new Code and Standards.