Why the CFP Board Should Not Govern the Financial Planning Profession

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The CFP Board wants its credentials to be a mandatory requirement for all advisers who hold themselves out as financial planners. If its lobbying efforts to this end are successful, the Board would then become the de facto regulator of the financial planning profession, which is the organization’s goal. But the Board’s disingenuous position on the fiduciary standard and its long history of putting its own interests ahead of those of consumers and its members make the Board decidedly unfit for this role.

August 7th marked the close of the public comment period for three proposals put forth by the Securities Exchange Commission (SEC) aimed at bolstering the standard of care provided to clients of brokerage firms and providing consumers with greater clarity regarding the distinction between SEC-regulated Registered Investment Advisers and FINRA-governed broker-dealers. While all three releases received scores of comments, SEC Release 34-83062 , which introduced the SEC’s proposal for a new “Best Interest” standard of conduct for broker-dealers, garnered by far the most media attention and sparked the greatest debate. However, Release 34-83063 , which, among other things, sought comment as to whether the SEC should restrict the use of certain professional titles or designations, should be of interest to all those who fall under the broad “financial services professionals” umbrella.

Regardless of where one falls on the title/designation restriction debate, there is general agreement that investor confusion over the meaning and standing of various titles and registrations is widespread. As a case in point, the FINRA consumer information site lists a staggering 203 known designations used by financial professionals. Release 34-83063 goes into extraordinary detail in laying out the findings of several major studies documenting how consumers as a whole do not understand the distinctions between the myriad titles nor their different regulatory and disclosure implications. To remedy this problem, the SEC proposal, as outlined in the Release, is to restrict broker-dealer representatives from using any variation of the terms “Adviser” or “Advisor” in their communications with the retail public, as those terms are closely associated with “investment adviser” as it is defined under the Advisers Act. The restriction would not apply to “hybrid” reps, and broker-dealer reps who are not dual-registered would still be permitted to use common monikers, such as “Financial Consultant” and “Wealth Manager.” In the release, the SEC also acknowledges that the proposed title restriction alone is unlikely to resolve investor confusion. To further address the problem, the Commission proposed requiring the delivery of separate “Relationship Summary” reports for broker-dealers, registered investment advisers, and hybrid B-D/RIA personnel. These proposed reports are intended to clarify the nature of the client relationship, disclose potential conflicts of interest, and describe the standard of care the client can expect.

Interestingly, Release 34-83063 is largely silent on the use of the title “financial planner,” except to note that a Federal Reserve Consumer Finance Survey found that a higher percentage of consumers (49%) preferred to get advice from financial planners than from other professional designations. As a group, bankers, accountants, and lawyers were the second highest moniker preference (36%). This is noteworthy because the CFP Board of Standards, in coordination with the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors ( NAPFA), has been aggressively lobbying state and federal legislators and the SEC to restrict the use of the term “financial planner” exclusively to CFP certificants. Together, these three organizations comprise the “Financial Planning Coalition” – a lobbying organization aimed at carving out financial planning as a separate profession and making the CFP® certification a required standard for all financial planners. This article separates fact from fiction in the Coalition’s rhetoric.