The CFP Board and its Support for the Fiduciary Standard
Let’s explore whether the CFP Board, the most powerful and prominent organization supporting the advisory profession, can do more to support the adoption of a full fiduciary standard. We’ll also ask whether the CFP Board actually owns the trademark for “certified financial planner,” as it claims.
Bob Huebscher attended a dinner at Kevin Keller’s house in Washington, DC, a few weeks ago, along with Dan Moisand. They are the CEO and chair of the CFP Board, respectively. That was when the CFP Board revealed its plan to create a 501c6 arm to more freely and publicly advocate for the benefits of becoming a planner. We support this initiative, as Bob Veres has discussed in his Inside Information publication.
Indeed, we are not critics of the CFP Board. But we believe it could be doing more to advance fiduciary standards. First, however, let’s look at the trademark issues.
The trademark issue
A reader alerted one of us (Bob H.) that the CFP Board does not own the trademark for “certified financial planner.” A search of the U.S. Patent and Trademark Office website revealed that this is correct. Its status is listed as “TSDR,” and it says, “The trademark application has been accepted by the Office (has met the minimum filing requirements) and has not yet been assigned to an examiner.”
In a written response to this issue, the CFP Board said it “has an enforceable trademark for ‘certified financial planner.’ This is an application for registration of that trademark.” (our italics)
But Bob H. checked with an attorney familiar with trademarks, and she confirmed that the rights in a pending trademark application are very limited. One does not have the rights of a federal trademark registration until the USPTO reviews and approves an application.
The attorney confirmed that the following statement is accurate:
While an application holds your place in line and does not allow someone else to file a same or similar trademark, it does not give you any additional enforcement rights. Essentially, you cannot ask someone to stop using a trademark based on your federal rights while your application is pending, because you do not yet have the rights of a federal trademark registration. You may still have limited “common law” rights which can be enforced. (our italics)
So what does the CFP Board have that is enforceable? The Board applied for, and received, a trademark on a service mark, which does have the letters ”CFP” on it. The CFP is not, as many have pointed out, a license; people who pass the various CFP certification requirements are actually paying the CFP Board for the right to use the trademark that is owned by the CFP Board.
Until and unless the CFP Board is able to patent the CFP and legally protect it the way the CPA is as intellectual property, the CFP designation will not be a license. This is, incidentally, why the Board is insistent that there be a little ”r” superscript after the CFP letters when used in a professional context, and the ”TM” superscript after the mark. It is also why some with the CPA designation call call themselves ”a CPA” but a financial planner who has passed the CFP requirements would need to say they are a ”CFPR practitioner.”
But this is not always made clear to the public, or even to the people who have earned the mark. And, in an ancient argument, some advisors and even a private college have argued that nobody should be allowed to patent and reserve for themselves three sequenced letters of the alphabet. It will be interesting to see if the Patent and Trademark Office gives the CFP Board the right to enforce against someone who puts ”CFP” on his business card and tells the court that it stands for ”Cute Financial Professional.”
We hope the CFP Board will be more transparent and more clearly disclose the status of its ownership of the trademark for “certified financial planner,” and specifically that it does not have enforceable rights until its application is approved.
Advancing the fiduciary standard
Let’s turn to the larger question of whether the CFP Board is doing all it should or could to promote the fiduciary standard.
Here is the guidance that the CFP Board provides to advisors with respect to avoiding conflicts of interest, a critical component of upholding the fiduciary standard:
A “Conflict of Interest” arises when:
- A CFP® professional’s interests (including the interests of the CFP® Professional’s Firm) are adverse to the CFP® professional’s duties to a Client; or
- A CFP® professional has duties to one Client that are adverse to another Client.
A Conflict of Interest becomes “Material” when a “reasonable Client or prospective Client would consider the information” about the conflict to be “important in making a decision” about the engagement with the CFP® professional, such as whether to retain, or continue to retain, a CFP® professional or whether to implement a recommendation.
But... the CFP Board does not require written disclosure, and it does not require consent from clients that they understand and accept whatever disclosure is made. Its guidance says:
Whether a Client has provided informed consent depends on the facts and circumstances and may be inferred when not explicit. For example, silence after disclosure may constitute informed consent if the disclosure contains sufficiently specific facts that are understandable to a reasonable Client, but may not constitute informed consent if that is not the case.
There are several problems with this approach that a true fiduciary advisor would point out. There is no specific requirement for CFP advisors to disclose their compensation system. Brokerage firms operating with a commission-based compensation system (otherwise known as "the grid") can do just enough to satisfy the CFP Board’s requirements, essentially arguing that they are paid fees (by, of course, the brokerage firm). This was documented by Knut Rostad, the co-founder and president of the Institute for the Fiduciary Standard. He exposed the six-page document that Northwestern Mutual used to instruct its sales team in how to meet the CFP Board’s requirements, despite the fact that they were selling commission-based products and incented via the “grid” system, where payouts increased as more products were sold.
Receiving compensation based on production or sales is embracing a conflict that can easily be avoided, and therefore violates the fiduciary standard. Yet Northwestern's agents were able to meet – or, more accurately, circumvent – the CFP Board’s standards by instructing its representatives to disclose its conflicts, having its representatives not require consent that they understood and accepted that disclosure, and armed its representatives with the sales language to overcome any client objections.
Another obvious problem is the definition of when a conflict becomes material. If the CFP Board were enforcing a true fiduciary standard on all of its registrants, then all conflicts would be defined as material, period. The idea that the conflicts only matter when they are ”important in making a decision” about whether to engage the advisor or implement a recommendation leaves unnecessary room for interpretation.
How? Imagine one of the most productive asset-gatherers at one of the brokerage firms sits down with a client and proposes to manage her assets. This person doesn't offer any financial planning advice, and the future relationship will consist of his office sending performance statements every quarter – for which he will charge a heft 0.80% fee on the assets. He doesn't mention that if this potential client were to get up out of the chair and walk down the street a couple of blocks, she could engage an independent financial planner who would provide full-service planning, tax and estate planning, and coaching to reach her goals – for the same 80 basis points.
In this common situation, is the broker who proposes to manage this person's assets failing to disclose a material conflict? We argue that the answer is “yes,” but those of you who are uncertain of the answer should be troubled by the lack of guidance inherent in the CFP Board’s policies.
Of course, one can envision other potential omissions that would fall short of the CFP Board's loose definition of materiality: the rep who believes (perhaps sincerely) that annuities are the only way to mitigate risk in client retirement portfolios; the advisor who might be using an antiquated tech stack and therefore cannot provide as thorough or as deep analysis as a less thrifty competitor down the street; or even the advisor who is primarily a rainmaker, who might leave the prospect with the impression that he will be handling the relationship going forward, when the plan is to hand it off to a staff associate.
Finally, the fact that the CFP Board doesn't require a written commitment to the client that he or she will adhere to a fiduciary standard looks very much like a compromise with the brokerage world. Fiduciary advisors have shown the client their signed fiduciary disclosure, and invited the prospect who is still wavering to take that same document to the broker she's talking to, and see if he's willing to sign it. Of course, the compliance team at the brokerage team always, in every case, forbids this. If the CFP Board required it, it would be a deal-killer for the brokerage world, and that tells you as much as you need to know about a brokerage CFP planner's actual commitment to the standard.
A better path for the CFP Board
The CFP Board is moving exactly as fast as the SEC is on requiring its certificants to adhere to fiduciary standards, which is nice way of saying that it is trying to please two opposite camps: the brokerage firms (strongly against) and the fee-only advisor community (strongly for). Over time, it looks like a dance. The SEC and the CFP Board move a little bit toward the fiduciary side, and then the chain gets yanked, and the progress toward fiduciary requirements is limited to something very incremental, leavened by something that appeases the yanking side.
In the case of the SEC, it was Reg BI making very incremental changes to the suitability standard while making it look to the public like ”best interests” is identical to a fiduciary standard. With the CFP Board, it was saying that anybody who gives financial planning advice has to adhere to a fiduciary standard. But it took no steps to enforce that aspect of the mark and, as illustrated by the Northwestern example, and going so far as to remove the compensation disclosures from the website. (It’s interesting to note, in all the enforcement actions that are announced, that none of them have anything to do with not acting as a fiduciary when giving advice.)
There is, however, a way forward that will avoid some of the chain-yanking. The SEC and CFP Board could require brokers who are required to put the firm’s interests above the client’s/customers to make that clear in their marketing materials and on their websites in language that the consumer would understand, and say there is no legal requirement for them to give advice in the best interests of their customers. And they should allow advisors who follow a fiduciary standard to make that distinction clear in their own marketing materials, and to point to the brokerage/sales agent disclosures on their rivals’ websites.
The compensation disclosure controversy could similarly be handled with a touch of creativity. If the CFP Board wants to obscure the compensation information for all CFP registrants on its website, then it could, instead, allow a search for all CFP advisors who agree, in writing, to adhere to full fiduciary standards with all advice given to consumers, and who doesn’t.
But, of course, as soon as those initiatives are proposed, the chain would be yanked, and the CFP Board (to focus on them) would face threats from the brokerage firms that they would stop supporting the CFP mark.
Those of us who are impatient for an embrace of full fiduciary obligations should recognize that there can be another kind of conflict: between the obvious right thing to do in the short-term, and the long-term approach that will strengthen the mark and the standards of practice. The CFP Board is proceeding cautiously toward a stronger fiduciary stance, slow-walking its progress in hopes that at some point it will acquire enough power in the marketplace that the brokerage firms will have no choice but to let go of the chain. Our hope is that, sooner rather than later, the Board will assert itself and replace its fiduciary ambiguities with concrete commitments.
Let's hear from you. Do you think these proposals should be taken seriously by the CFP Board, or is it still premature?
Bob Veres is the editor and publisher of Inside Information. Bob Huebscher is the founder of Advisor Perspectives and a vice chairman of VettaFi.