CFP proposes new standards
The CFP® board recently decided to rephrase their ethical standards. I think this is a good move but it really is just for marketing purposes. I don’t think it’s a move to be applauded and held high. You can read the proposed standards here.
The proposed standard says this:
…a CFP® professional “shall at all times place the interest of the client ahead of his or her own.” The new language would replace the standard of “reasonable and prudent professional judgment”
This sounds like a good idea and indeed would probably make my mom and dad feel better. However, I don’t think it will change the way a CFP® operates or make them any more honest than they already are (as a person).
I just don’t see someone saying, you know… I was going to sell them this highly loaded annuity but that pesky ethics statement stopped me. If they were going to make a decision based on their own best interests, they still will. If they really want to make a move in the right direction, they should be performing some serious audits looking at suitability and planning prudence.
You know, real oversight to ensure that their members were not just signing a code of ethics but actually following it. Code of ethics are silly, it’s similar to teaching business ethics in college. It won’t make anyone more ethical. The only way to really succeed at this is to find the violators and punish them publicly.
This is not to say I don’t think this is a good idea. It is at least a move in the right direction that other letter providers are not doing. At least the CFP® board is saying that they have ethics and an ideal they try to follow.
Matt Abar said,
March 19, 2007 at 9:38 pm
I’m extremely happy with the new regs. What we’re fundamentally deciding here, is whether CFPs have a fiduciary responsibility to put the interests of their clients ahead of their own. Some current CFPs want that, and some CFPs don’t like that level of responsibility.
The CFP board has thankfully come down on the side supporting fiduciary responsibility. While this will undoubtedly lose them a few CFPs, it maintains the high standards that actually make it worthwhile for new candidates to pursue the designation.
One of the reasons former CFP chair Sarah Teslik was so reviled was that she was trying to change the Standards in the other direction, so that CFPs would *not* have any fiduciary responsibility to their clients. Well that, and she said some really kooky things on Nightline that reflected poorly on our industry.
So this should wrap up an ugly chapter in the CFP’s history, with the CFP continuing to be the gold standard for investment advisors.
Mike Benson said,
March 19, 2007 at 9:43 pm
My point is that saying we are ethical is pointless. It takes actions not words. I agree that saying it is at least something. Now they need to start really enforcing it.
Matt Abar said,
March 19, 2007 at 9:56 pm
Well, the first step is definitely to have the regulations clearly spell out the level of responsibility a CFP has to his clients. So I disagree that this is just for marketing purposes; there’s been a slow steady demand for a rewrite of the regulations for years.
As far as whether we need stricter enforcement of the regulations… I’m not so sure–partially because I don’t know the specifics of how it works now. You have a point that a CFP with a low moral bar may do unethical things regardless of how the regulations are worded. But I’m currently under the impression that such a CFP probably wouldn’t retain his designation for very long. Eventually he would be reported by his client(s) and the disciplinary process would kick off, resulting in him losing the CFP designation.
WealthFly » The RAND Report’s Unfortunate Conclusion said,
January 30, 2008 at 10:48 am
[…] don’t care and would just as soon use a commission-based broker. It also means Mike was right back in March when he said the CFP “code of ethics is silly and pointless”–at least in the eyes […]