Why the CFP Board Should Not Govern the Financial Planning Profession

Is the financial planning profession unregulated?

The following statement appears on the CFP Board of Standards website:

Despite providing advice to millions of Americans about critical financial decisions and retirement planning, financial planners are not regulated as a separate and distinct profession. Any person may hold himself or herself out as a “financial planner” without being required to meet basic competency or ethical standards.

The suggestion that non-CFP financial planners are unregulated and unqualified is a common theme in the CFP Board’s multi-million dollar public awareness advertising campaigns. This position, however, is patently false. In fact, the reason why Release 34-83063 made scant reference to the use of the term “financial planner” is because this title (along with “investment adviser”) is already restricted exclusively to advisers who are licensed with and regulated by the SEC under the Investment Advisers Act of 1940.

While the Advisers Act is intentionally broad in its language and scope, any ambiguity over whether the Act governs the actions of financial planners was erased in 1987 with the adoption of SEC Release 1092, which was aptly titled, Applicability of the Investment Advisers Act to Financial Planners and other Persons Who Provide Financial Services. An excerpt from the release reads, “The SEC has classified persons who regularly provide nearly any type of financial planning services for compensation as investment advisers.[1]“ This information is also clearly disclosed on the SEC Investor Information section of its website under the section titled “Financial Planners.” The section reads, “Financial planners who give investment advise [SIC] to their clients must register with the SEC or the appropriate state securities regulator”.

The CFP Board’s assertion that non-CFP financial planners are not held to ethical standards is similarly baffling and without merit. As SEC Registered Investment Adviser Representatives, all financial planners are subject to the anti-fraud provisions of the Advisers Act, which prohibit misstatements or misleading omissions of material facts and are subject to personal liability and criminal prosecution if they fail to act in accordance with the SEC’s stringent fiduciary standard. All of these legal and moral obligations are clearly explained on the SEC’s website section titled, General Information on the Regulation of Investment Advisers.

Of course, it is technically true that anyone, such as the fictional disc jockey in the CFP Board’s widely-promoted “Can You Tell the Difference?” television campaign, can hold himself/herself as financial planner (or a doctor, lawyer, CPA, etc.), but doing so without being licensed and registered with the SEC is, in fact, a criminal act. Conversely, the suggestion in this and other of the CFP Board’s “public awareness” campaigns that the CFP marks automatically connote higher ethical standards and trustworthiness is both unsupported and irresponsible, as there are many well-publicized examples of unsavory individuals who have attained the CFP marks to build credibility and trust in order to defraud their clients.

Is the CFP Board’s fiduciary standard the same as the SEC’s?

For years, the CFP Board of Standards has been actively engaged in a public relations campaign intended to portray the Board as a noble crusader for a unifying fiduciary standard that may be applied to both brokerage representatives and SEC registered investment advisers. At the same time, the CFP Board has been critical of the SEC’s reticence to address the brokerage “suitability” standard and of the SEC’s proposal to replace suitability with a “Best Interest Standard,” instead of simply applying the same fiduciary standard, as defined under the Advisers Act, to brokerage reps that it applies to investment advisers. In a recent Investment News column, self-described ethicist and former CFP Board member, Dan Candura writes, “All fiduciary standards share a commitment to act in the best interest of the client, provide full disclosures of conflicts of interest and inform the customer about costs and compensation. What is different about the CFP Board’s standards is that they apply more broadly than most, including the SEC and DOL.” He goes on to state, “CFP Board [sic] is a voluntary certification for an individual who seeks to serve the public by providing higher standards than those imposed by traditional regulators.”

As with the Board’s assertions that the financial planning profession is currently unregulated and that non-CFP financial planners are not subject to ethical standards, the suggestion that the CFP Board’s fiduciary standard is higher than or even equivalent to the SEC’s standard is inaccurate and misleading. In fact, a side-by-side comparison of the language each body uses to describe its definition of “fiduciary,” shows that, not only is the SEC’s standard decidedly higher and more rigorous, the CFP Board’s wording is cleverly crafted to promote its own self-interests at the expense of consumers.

The SEC’s definition of its fiduciary standard is presented in SEC Publication: Regulation of Investment Advisers. It reads as follows:

Fundamental to the Act is the notion that an adviser is a fiduciary. As a fiduciary, an adviser must avoid conflicts of interest with clients and is prohibited from overreaching or taking unfair advantage of a client’s trust. A fiduciary owes its clients more than mere honesty and good faith alone. A fiduciary must be sensitive to the conscious and unconscious possibility of providing less than disinterested advice, and it may be faulted even when it does not intend to injure a client and even if the client does not suffer a monetary loss.

Several obligations flow from an adviser’s fiduciary duties.

Full Disclosure of Material Facts. Under the Act, an adviser has an affirmative obligation of utmost good faith and full and fair disclosure of all facts material to the client’s engagement of the adviser to its clients, as well as a duty to avoid misleading them. Accordingly, the duty of an investment adviser to refrain from fraudulent conduct includes an obligation to disclose material facts to its clients whenever failure to do so would defraud or operate as a fraud or deceit upon any client.

Conflicts of Interest. This disclosure of material facts is particularly pertinent whenever the adviser is faced with a conflict – or a potential conflict – of interest with a client. As a general matter, the SEC has stated that the adviser must disclose all material facts regarding the conflict so that the client can make an informed decision whether to enter into or continue an advisory relationship with the adviser, or take some action to protect himself or herself against the conflict.[131]

Footnote #131 – “The Investment Advisers Act of 1940 thus reflects a congressional recognition of the delicate fiduciary nature of an investment advisory relationship, as well as a congressional intent to eliminate, or at least to expose, all conflicts of interest which might incline an investment adviser – consciously or unconsciously – to render advice which was not disinterested.

For its part, the CFP Board of Standards has been under fire for years for allowing (and even actively recruiting) brokerage representatives and insurance agents to attain and use the CFP marks in their businesses, even though their employment licenses do not require them to act as fiduciaries. As business school professor Samnath Basu, Ph.D. opined several years ago in a piece entitled, Restoring Trust in the CFP Mark, “A painful truth is that many financial practitioners are sales people masquerading as planners or advisors in an industry whose ethical practices have a shameful track record. Stockbrokers and insurance agents who earn commissions from buying and selling stocks, insurance and other financial products realize that a CFP credential will help grow the volume of their business or branch them into other related and lucrative products and services.”

To address this criticism, the CFP Board in 2017 announced a series of revisions to its Standards of Conduct that it claimed will extend the full reach of its fiduciary standard to all insurance and brokerage CFP holders. These new rules will go into effect on October 1, 2019. Excerpts that are germane to the SEC standard comparison read as follows:

Fiduciary Duty

At all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client. The following duties must be fulfilled:

Duty of Loyalty. A CFP® professional must:

1. Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional’s Firm;
2. 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; and
3. Act without regard to the financial or other interests of the CFP® professional, the CFP® Professional’s Firm, or any individual or entity other than the Client, which means that a CFP® professional acting under a Conflict of Interest continues to have a duty to act in the best interests of the Client and place the Client’s interests above the CFP® professional’s.

Disclose and Manage Conflicts of Interest

When providing Financial Advice, a CFP® professional must make full disclosure of all Material Conflicts of Interest with the CFP® professional’s Client that could affect the professional relationship. This obligation requires the CFP® professional to provide the Client with sufficiently specific facts so that the Client is able to understand the CFP® professional’s Conflicts of Interest and the business practices that give rise to the conflicts, and give informed consent to such conflicts or reject them. A sincere belief by a CFP® professional with a Material Conflict of Interest that he or she is acting in the best interest of the Client is insufficient to excuse failure to make full disclosure.

1. In determining whether to infer that a Client has consented to a Material Conflict of Interest, CFP Board will evaluate whether a reasonable Client receiving the disclosure would have understood the conflict and how it could affect the advice the Client will receive from the CFP® professional. The greater the potential harm the conflict presents to the Client, and the more significantly a business practice that gives rise to the conflict departs from commonly accepted practices among CFP® professionals, the less likely it is that CFP Board will infer informed consent absent clear evidence of informed consent. Ambiguity in the disclosure provided to the Client will be interpreted in favor of the Client.
2. Evidence of oral disclosure of a conflict will be given such weight as CFP Board in its judgment deems appropriate. Written consent to a conflict is not required.

According to the CFP Board, these new standards require all CFP certificants to act as fiduciaries at all times when providing financial advice. While the above comparison of the two standards may, at first read, suggest that the CFP Board is moving to adopt a fiduciary standard similar to that of the SEC, closer examination finds that there are two major gaps in the CFP standard that allow CFP’s who operate outside of the SEC’s purview as brokerage reps and/or insurance agents to conduct business as usual.

The first difference is the extremely careful wording of the CFP Board’s disclosure language that requires financial advisor to disclose the forms of compensation he/she receives and the potential conflicts of interest that may arise, but does not specifically require the advisor to disclose the amount or percentage of compensation he or she will receive on each transaction. Given that there are many instances in brokerage and insurance sales where compensation is opaque to the consumer, this is a big deal. To illustrate this by example, a broker or insurance agent who is operating as a CFP, but not as a financial planner under the SEC’s purview, would, per the CFP fiduciary standards, be required to disclose that he/she may receive sales commissions, that these commissions may not always be transparent, and that this presents a very real potential conflict of interest. However, upon make a product sale, such CFPs are not specifically required under the new 2019 CFP Standard of Conduct to disclose the amount of revenue they will receive.

Simply put, there is a big difference between informing a client that one may receive commission-based compensation and disclosing to the client that he/she will receive a $10,000 commission on the sale of life insurance policy or a private equity offering! In contrast, if this same adviser is holding himself out as a (non-CFP) financial planner (thus falling under the SEC’s regulatory wing), the amount of compensation is considered to be a “material fact,” that could be relevant to the consumer’s decision-making process and must be disclosed. This distinction between the SEC’s requirement to disclose all “material facts” vs. the CFP Board’s more ambiguous “material conflicts” is a huge difference that has gone largely overlooked in the public discourse.

A second important distinction between the organizations’ fiduciary standards is that the CFP Board’s new standard of conduct offers the brokerage and insurance agent CFPs broad leeway in the manner in which disclosures are made. It specifically states that written disclosure is not required and that the Board will appropriately consider and accept oral disclosure. In the event of a client complaint, this loophole affords the brokerage (non-SEC registered) CFP to simply claim that disclosure was made and that the client either does not remember or is lying. If the CFP is clever, he or she may make notes in his CRM that the disclosure was made, even if it wasn’t, so that the notes may be used to bolster against future claims. In stark contrast, the SEC requires all advisers who hold themselves out as financial planners (both CFP and non-CFP), to provide all prospective clients with SEC Form ADV at or before the inception of the relationship and must also provide updated copies at least annually. This document, which must also be filed with the SEC each year, must disclose in “plain English” all material conflicts of interest and all potential methods of compensation.

Although public and industry awareness of the enormous gap between the CFP Board’s watered-down fiduciary standard and the far more rigorous SEC fiduciary standard remain lacking, I am far from alone in making the point. In a 2017 article entitled Board to Death: Is the CFP Board’s New Fiduciary Standard Really Better Than No Standard at All?, Think Advisor columnist, Bob Clark, also highlighted the deftness of the Board’s history of wordsmithing, “Consequently, the key question is whether this revised standard is, in fact, a real fiduciary standard, or yet another fake standard that is likely do more harm than good. In that regard, the recommendations should close the loopholes in the existing Standards of Conduct that allow CFPs to be part-time fiduciaries…Toward that end, the Board’s recommendations appear to be surprisingly comprehensive and on point. I say “appear” because, as I’ve learned, with any quasi-regulatory document, the practical application of the proposed changes can vary greatly from the way they appear at first blush and ultimately depends on a specific word here or a slightly unconventional definition there.”

Similarly, Knut Rostad, President of the D.C.-based, Institute for the Fiduciary Standard, was quoted in a

March 29, 2018 Financial Planning magazine article that the CFP Board’s new standards, “fall very short of a real fiduciary standard. It’s not even a close call given what is not required of CFPs…This effectively leaves B-D CFPs following the suitability standard.” In a separate article Rostad submitted to Advisor Perspectives, he goes on to say, “Here’s the rub. CFPs mostly work in brokerage sales organizations where things like transparency and disclosure are hard – if not impossible. An [Fiduciary] Institute survey released on March 8 [2018] revealed that just 15% of CFPs are fee-only. A full 85% reported full or partial commissions.”

Are CFP’s better educated and/or more qualified than non-CFP financial planners?

One of the points that the Financial Planning Coalition routinely makes and that is indisputably accurate is that the SEC has no specific educational or experience requirements for becoming a financial planner or an investment adviser. All one needs to do is pass the three-hour FINRA Series 66 – Uniform Combined State Law Examination and complete the necessary registration paperwork. As financial planning industry thought leader and CFP advocate Michael Kitces expressed in a recent Nerd’s Eye View post, “…it’s not enough to just have a fiduciary duty for financial advisors to act in the best interests of their clients, but it’s also essential for the advisor to have the technical competency and training needed to know what’s in the best interests of the client in the first place!” In the piece, Kitces goes on to suggest making the CFP designation the minimum competency standard for the profession.

I believe most practicing financial planners would fully support the SEC establishing basic experience and educational standards, such as a bachelor’s degree or higher in finance, economics or accounting. Such competency standards would undoubtedly lend credibility to the profession and benefit consumers. What arouses the ire of non-CFP financial planners, however, is the implication by Kitces and other CFP promoters, including the CFP Board, NAPFA, and the FPA, that the marks somehow represent a higher minimum designation than an undergraduate finance degree.

To begin, the CFP training program is essentially a correspondence curriculum. It has no formal academic standing or accreditation. In fact, prior to 2008, no college degree was required to sit for the exam, and, even today, no academic experience in finance, economics, or accounting is required to attain the marks. To again quote Professor Basu, “It is important to remember that the requirement of a bachelor’s degree was instated only for those credentialing after 2007, before which many planners could hit the pavement straight from high school or even beforehand.” Tens of thousands of CFPs attained their marks before this nominal requirement was imposed.

According to Kitces, only around 30% of financial planners currently hold the CFP mark. However, what was conspicuously absent in his above-referenced commentary was any evidence to back up his assertion that CFP certificants are more academically qualified than non-CFP financial planners. To the contrary, there is good reason to suspect the opposite is true because all financial planners are required to provide all prospective clients with a plain English document (Form ADV Part 2B) that begins with the following disclosure:

Educational background and business experience – The brochure supplement must describe the supervised individual’s formal education after high school and his or her business experience for the past five years.

Simply put, a financial planner with no academic and/or related work experience must make this disclosure in plain English on his/her ADV 2B. It seems logical that financial planners who actually have an academic background in finance and related industry experience would not feel any great need to attain the marks. On the other hand, a prospective financial planner with an undergraduate degree in, say, travel-industry management or art history is arguably no more qualified than the deejay in the “Can you tell the difference?” PR commercial, and would be more compelled to attain the CFP mark in order to gain some semblance academic credibility.

Further evidence that the CFP mark does not automatically confer knowledge or ethics is provided in a recent podcast hosted by Kitces entitled, Insights From The History Of Financial Planning Since The First CFP Class. In the piece, Kitces interviewed one of the graduates of the first CFP certification class to inform younger listeners that the original purpose of the designation was to lend credibility to insurance agents to help them compete better in product sales against securities reps. The concept was to leverage the CFP credibility into “mega-selling.” The discussion guides listeners through the unseemly days of the late 1970s and early 1980s when CFPs temporarily set aside their focus on pushing high-commission insurance products to push even higher commission-paying, ill-fated, and often fraudulent oil and gas tax shelters. The discussion also traces the origins of the College for Financial Planning in Denver in the 1980s. In a manner similar to that of many of today’s “diploma mills,” the term “college” was chosen to give the appearance of academic credibility when, in fact it was merely the organization that owned and conferred the CFP mark.

I enrolled in the College for Financial Planning’s more developed curriculum in the mid-late 1990s, and it was far less rigorous than my undergraduate economics degree. Micro- and macroeconomics were separate 300-level, semester-long courses in college, but were covered in just a few pages in the College for Financial Planning curriculum. My senior economics seminar in 1987 was on the stock market. A Random Walk Down Wall Street was required reading, as were published papers by Markowitz, Sharpe, Fama and French, Black and Scholes, etc. For its part, the CFP curriculum barely paid lip service to those academic contributions that form the underpinnings of portfolio management. Econometrics and statistics – another 300-level staple of any college economics program and arguably among the most important quantitative skills of planners who provide retirement sustainability guidance today – was non-existent in the CFP exam prep program. Even William Bengen’s landmark 1994 paper, Determining Withdrawal Rates Using Historical Data, didn’t find its way into the curriculum until into the 2000s. Instead, the CFP guide books presented me with concepts, such as how whole-life insurance could be an excellent tool for college funding. (The heavy insurance-sales bias was a primary factor in turning off my desire to attain the mark.)

Regardless of the extent to which the CFP curriculum has evolved today from its insurance sales-based roots, the notion that a correspondence course for a few thousand dollars with no significant admissions standards provides the same or higher level of quantitative skills development as a finance degree from an accredited college or university is absurd. While I do not object to the CFP program as a legitimate path to the planning profession, especially for those who have no prior academic experience in finance, the suggestion that the designation trumps the quarter-million dollar investment (today’s dollars) I made in obtaining an actual finance degree is offensive. Tens of thousands of practicing CFPs attained the marks decades ago, and never once has the CFP Board suggested re-certifying existing members who were granted the designation when the intellectual barriers to entry were lower or non-existent.

Should the CFP Board be granted regulatory authority over the financial planning profession?

As noted in the introduction, the Financial Planning Coalition is spending a great deal of time, effort and money lobbying state and federal legislators and various regulatory authorities to make the CFP mark a required standard for the financial planning profession. A June 2, 2018 Financial Planning magazine article titled, FPA Lobbies for Stronger Advisor Regulations on Capital [sic] Hill notes, “FPA is lobbying for the restriction of the use of the term ‘financial planner’ exclusively to those who have earned the CFP designation.” This requirement would effectively grant the CFP Board of Standards full rule-making and regulatory authority over the financial planning profession.

Kitces, who has become a paraclete for the CFP mark, predicts that these lobbying efforts will indeed come to fruition. In the previously cited Nerd’s Eye view post, Kitces advises, “…if you’re a financial advisor who wants to ‘future-proof’ your own career, then you really should be reinvesting into advancing your education with programs like CFP certification…there will probably be some transition period, so if you’re within 5-10 years of retirement already, you’ll likely be safe to just ride out the status quo. But if you’re younger than that, and still have a longer time horizon in the business, there’s increasingly a risk that once the first round of the fiduciary rule to act in clients’ best interests is done, the next round is going to be about competency standards… which means it may be a good idea to get started future-proofing your own career sooner rather than later!”

Such prognostications beg consideration as to whether the CFP Board is really a qualified steward of the public’s trust. One of the best places to begin is by examining the Board’s past and current behavior both in terms of its representations to the public and the manner in which it governs its own membership base. I have provided examples of how the CFP Board has misrepresented itself to the investing public for the purpose of advancing its own political agenda. The latest example of the CFP Board’s unfitness to lead the planning profession can be found in the hypocrisy with which the Board has criticized the SEC for failing to address investor confusion when the CFP Board’s tireless efforts to recruit brokerage reps and insurance agents to attain and use the marks is a major contributor to the problem. However, very little digging is required to come up with a far longer list of transgressions that raise serious questions about the Board’s ethical conduct and trustworthiness.

A 2013 Financial Planning article entitled, Is the CFP Fiduciary Promise for Real, quotes former NAPFA board member and head of the financial planning program at Alfred State University, Ron Rhoades as saying, “Simply put, many consumers may be under the impression, as a result of the CFP Board's advertisements, that [its] certificants are trusted advisors when, in fact, many do not always practice in such fashion." The article notes that, “Rhoades has accused the board repeatedly of perpetuating fraud against consumers by creating this impression.”

That the CFP Board’s ethical lapses and self-serving actions have continued well beyond the organization’s murky origins described in Kitces’ podcast is further documented in story lines such as, CFP Board chairman steps down amid ethics concerns (Reuters 11/2/2012), Global Junkets Lavished On Directors Fuel CFP Board High Life (FA Magazine 4/3/2014), Is the CFP Board Losing Credibility in the Eyes of Advisors? (Wealth Management 4/11/2014), Did CFP Board Shorten Exams to Lure Certificants? (Think Advisor 1/17/2014), The Curious Case of the CFP Board and a Double-Dipping CFP (Think Advisor 9/24/2012), and Show me the money: Financial advisory trade groups pay handsomely (Investment News 12/2015).

Among the most vocal and credible critics of the CFP Board is Don Trone. Trone is the founder and CEO of 3ethos, a founding principal of fi360, and the former president of the Leadership Center for Investment Stewards. In a July 2017 Think Advisor op-ed piece, “Just Say No to the CFP Board’s New Standards,” Trone did not mince words in expressing his opinion of the CFP Board: “The Board doesn’t give a hoot about certificants, nor about the best interests of the public. The Board’s fiduciary initiatives are being fueled by politics, power, ego and greed.” He goes on to say,

…integrity is a characteristic that the Board fails to demonstrate. Consider the following practices by the Board that run counter to good governance and to a fiduciary standard of care:

• There are no open elections for directors.
• Directors are required to sign a confidentiality agreement.
• Any conversation with a director – public or private – requires the presence of senior staffers.
• Board minutes are not made public. Of particular concern is the absence of minutes identifying the directors who are taking part in determining the exorbitant salaries of senior staffers.
• A corollary to the previous point: Formal ethics complaints against directors are viewed first by the staff and not by an independent ethics committee. This provides the staff the opportunity to bury an ethics complaint against a director who may later have a hand in determining the staff’s compensation.
• And, directors are not represented by independent legal counsel.

If the CFP Board were a country, it would be North Korea.

The Board has done more harm to the fiduciary movement than any other organization. And given the absence of transparency and of good board governance, certificants need to understand that there is no self-correcting mechanism to drain the swamp.

Trone’s opinions condemn the CFP Board’s qualifications to serve as regulator, and he is hardly an island in this debate. In fact, there are plenty of other highly regarded industry figures who staunchly opposed the CFP Board’s power grab. Among them is prominent RIA founder and author, Ric Edleman, who was quoted in an RIA Biz interview as saying, “I do not believe the Board, despite its name, properly sets the right standards for our profession. It is little more than a self-serving entity operating under the guise of serving the public interest. The interests it actually serves are merely those of itself and its members.”

Another prominent industry figure who has stood up to the CFP Board is Colorado fee-only CFP and Wall Street Journal columnist, Alan Roth. In an interview with financial writer and Advisors4Advisors President, Andrew Gluck, Roth, who authored a scathing account of the CFP’s ethics review process titled, Is the Fiduciary Standard a Joke?, recounted an uncomfortable experience he had with CFP Board of Standards CEO, Kevin Keller, “Roth’s allegations get personal. During the process of filing his complaint against the alleged fake fiduciary, Roth says he came to be invited by CFP Board CEO Kevin Keller to join the Disciplinary and Ethics Commission. That’s the committee responsible for reviewing complaints and recommending sanctions against CFP licensees. Keller told Roth he wanted him on the committee ’so that I could write about the process from the inside,’ according to Roth’s WSJ post.”

Roth says he would come to view Keller’s invitation as disingenuous. “I initially accepted his invitation – but then I received an agreement to sign giving the CFP Board the right to review and approve the article I would write on the process before publication,” Roth says. Both Roth and his editors at WSJ found the terms set by the CFP Board “unacceptable.”

Gluck concludes the article with the statement, “This incident makes the CFP Board look like it does not deserve the public’s trust, and that’s a serious problem.”

Yes, you can tell the difference!

My goal is to raise awareness of the fundamental differences between the fiduciary standards that are applied to SEC registered financial planners and the standard applied by the CFP Board to its members. In cutting through the CFP Board’s decades-long misinformation campaign, it should be clear that the fiduciary standard applied by the SEC requires much greater disclosure and offers greater investor protection than the CFP Board’s self-serving, watered-down version. The CFP Board has fostered investor confusion by allowing thousands of non-SEC regulated insurance agents and brokerage reps to present themselves as financial planners by using the CFP mark, and the Board’s demonstrated pattern of bad behavior over its history render it unfit to serve as the standard bearer for the financial planning profession.

In terms of a path forward, as the SEC noted in its recent requests for comments, providing clarity and resolving investor confusion are a top priority. In comments I submitted in response to SEC Release No. 34-83063, Form CRS Relationship Summary; Required Disclosures in Retail Communications and Restrictions on the use of Certain Names or Titles, I proposed two simple solutions to the so-called “two-hats” standard of care problem that is at the heart of the investor confusion issue.

The first is to prohibit brokerage reps and insurance agents who are not registered with the SEC as investment advisors/financial planners from using the CFP mark. This would end the misperception that they are acting as financial planners under the SEC’s fiduciary standard. The second solution is to require all dually-registered reps to adhere to the SEC’s fiduciary standard at all times (i.e., regardless of whether they are wearing the “broker hat” or the “investment advisor” hat). Under this rule, dually registered B-D reps and insurance agents would still be allowed to receive commission-based sales compensation, but all such compensation would be required to be disclosed for each transaction. This would end the problem of opaque commissions and is entirely consistent with current SEC rules that permit commission as a form of compensation as long all “material facts” are disclosed. Disclosures of all conflicts of interest and ADV delivery would, of course, be required as well. My comments also advocated for a minimum education standard for SEC registration consisting of an undergraduate degree in finance, economics or accounting, or attainment of the CFP mark. The latter would still offer a path the financial planning profession for college graduates who do not have prior academic experience in finance.

John H. Robinson is the owner/founder of Financial Planning Hawaii and a co-founder of software maker Nest Egg Guru. He has written numerous papers on ethical issues pertaining to adviser compensation and has been included on Investopedia’s list of the Top 100 Most Influential Advisors for the past two years.

[1] The SEC does carve out a few exceptions including a notable registration exemption for financial planners who do not provide investment guidance. This exemption has created a loophole that has allowed many companies that promote mortgage conversion strategies to pass themselves off as “Financial Planners.”

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