For Advisers: CFP Board’s Recent Moves on Ethics Enforcement

Highlights of this new code that CFP professionals should be aware of
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The CFP Board (Certified Financial Planner Board of Standards) recently began enforcement of its Code of Ethics and Standards of Conduct that went into effect last year. The code is far-reaching and defines the ethics and standards of conduct the financial advisers who are CFP professionals must adhere to in dealing with their clients.

Here are some highlights of this new code that CFP professionals should be aware of.

Consumer Access to Information

The CFP Board has beefed up their website to make it easier for consumers searching for an adviser with the CFP designation to access FINRA’s broker check website, as well as the SEC’s IAPD (Investment Advisor Public Disclosure) page that provides information and disclosures for firms registered with the SEC and various states. The disclosures on these sites include records of any disciplinary actions against the advisers.

Along with access to these sites, the CFP Board will now require CFP professionals to provide disclosures of a wider range of information to the board within a 30-day timeframe.

Also, the board will be conducting updated background checks on all 87,000-plus CFP designation holders to investigate and rule on matters that may constitute misconduct by these advisers.

This is all part of the CFP Board’s goal to build trust in the CFP designation among the investing public.

Fiduciary Duty

The Code of Ethics includes an enhanced fiduciary duty, as part of the overall standards of conduct in the code, that is owed by CFP holders to their clients. This includes duty of loyalty, a duty of care and a duty to follow client instructions.

The duty of loyalty section includes these duties:

  • The expectation that the CFP professional will place the interests of their clients above their own interests.
  • CFP professionals will avoid conflicts of interest where possible, they will disclose any conflicts to their client, they will obtain the client’s consent and they will manage these conflicts.
  • They will act without regard to the CFP professional’s own interests or that of their firm or those of any other entity other than the client’s. Even if the CFP professional is acting under a conflict of interest, they still have the obligation to act in the client’s best interests and to place those interests above their own.

Enhanced Enforcement

As part of this enhanced code of ethics, the CFP Board has enhanced its enforcement efforts in terms of accessing and sharing data about CFP professionals who may have committed infractions.

The board has developed a process to capture new information from the Broker Check and IAPD databases to be informed when new disclosure information about a CFP professional becomes available.

They’ve created a database that includes information regarding securities and insurance licensing issues that is to be used when evaluating candidates for the CFP designation in the future.

The board has developed methodology to review information from a national database regarding criminal records, the filing of any tax liens, bankruptcy proceedings and civil lawsuits involving CFP professionals.

Increasing the frequency of their requirement for those looking to renew their CFP license to attest to their adherence to the ethics code from bi-annually to annually. They are also in the process of updating the questions that will be used in this attestation process.

What it Means for Advisers

For those advisers who hold the CFP designation, this enhanced scrutiny is generally a good thing in that it provides another level of reassurance for clients and prospects that you are held to a higher standard of ethics and compliance. You can certainly bring these enhanced disclosure and enforcement processes to the attention of your clients and prospects as additional evidence of the benefits of hiring a CFP professional.

In some cases, the enhanced standards of conduct and their related disclosures may cause a problem for some advisers whose business includes the sale of financial products. They will need to be sure that their disclosures regarding their compensation from the sales of these products meet these new requirements.

Overall, these new rules, along with the new Reg BI rules and the potential for a new fiduciary standard from the Dept. of Labor means that advisers will need to ensure that their processes and their internal compliance departments are set to meet these new requirements.