The CFP’s Revised Code of Ethics and Standards of Conduct Takes Effect

In late March, 2018, the Certified Financial Planner (CFP) Board of Standards announced the unanimous approval of a new Code of Ethics and Standards of Conduct.

This replaces the current Code of Ethics, Rules of Conduct, and Financial Planning Practice Standards and Terminology for all CFP-licensed professionals.

In order to produce this revised Code, the CFP Board sought significant industry input by:

• Holding 17 public forums
• Establishing 2 public comment periods focused on proposed changes
• Reviewing approximately 1,500 written comments and hundreds of oral comments
• Conducting a wide-ranging survey

Several technical revisions were recently made to the document to increase clarity.

A red-lined version of the Code is available here for parties interested in the full scope of those most recent amendments.

It is important for all CFP professionals to note that the new Code of Ethics will take effect October 1, 2019.

Below is a summary of the most notable changes.

1. An Expanded Fiduciary Standard

Under the revised Code, a CFP professional must thoroughly disclose and manage any potential conflicts of interest and adopt business practices reasonably designed to prevent such conflicts from compromising their ability to act in the client's best interests when providing financial advice.

2. Fiduciary Duty is Ongoing

In its description of fiduciary duty, the revised Code uses the words, "at all times," indicating there will be no situation in which the CFP is exempt from the duty to put the customer's interests ahead of firm interests, Regardless of the type of business where the professional works.

In [Roadmap To the Code of Ethics & Standards of Conduct], the CFP provides a roadmap of such fiduciary duties. This includes:

• Duty to clients
• Duty to firms and subordinates
• Duty to the CFP Board

When providing financial advice, the obligation falls on the CFP professional to individually ensure that they are acting as a proper fiduciary when providing services to the client.

3. Information to Provide to Clients

CFP professionals are required to provide information to the client prior to or at the time of engagement when providing financial advice that does not require financial planning, which should include:

• A description of the products and services to be provided
• An explanation of how the client pays for the products and services
• A breakdown of the additional types of costs that the client may incur, including:
  • Product management fees
  • Surrender charges
  • Sales loads
• A notice detailing how the CFP professional, their firm, as well as any associated party, are compensated
• A list of relevant public websites where public disciplinary or bankruptcy histories can be found

Additionally, the CFP professional is responsible for implementing, monitoring, and updating the financial planning recommendation when it falls within the scope of engagement.

4. "Financial Planning" is Refined

A shortened definition for financial planning, revised for clarity, was included.

The new definition reads as follows:

"Financial planning is a collaborative process that helps maximize a client's potential for meeting life goals through financial advice that integrates relevant elements of the client's personal and financial circumstances."

5. Compensation to be Clearly Disclosed

The CFP Board feels that clients need clear and understandable information about compensation, particularly when distinguishing between "fee-based" and "fee-only" compensation.

"Fee-based" compensation's meaning was defined by CFP Board Chairman Richard Salmen:

"[Fee-based] is (a term) frequently used in the profession but does not have a universally accepted meaning. The new Standards make clear that "fee-based" is equivalent to "commission and fee". A CFP professional who represents his or her compensation method as fee-based must clearly state either that the CFP professional earns both fees and commissions, or is not fee-only, also applying to "any other term that is not fee-only" the same constraints that apply to the term "fee-based."

A supplementary document was also released in May 2019 to provide additional guidance on other important best practices.

This includes the following:

• Provide clear, plain English definitions of a "fee-only" CFP professional
• Use visual tools and charts to help CFP professionals determine if they are providing financial advice and financial planning
• Examples of conflicts of interest and suggestions for how to mitigate them
• A detailed graphic illustrating the practice standards for the financial planning process
• Specific requirements for information that CFP professionals are obligated to provide clients

CFP Releases Supplementary Guidance and Supporting Documents for New Code of Ethics

To assist CFP professionals, a wide range of supporting documents have been produced to help navigate the altered regulations:

• Redline Showing Technical Revisions to New Code of Ethics and Standards of Conduct (PDF)
• Side-by-Side Comparison of the New Code of Ethics and Standards of Conduct to the Current Standards of Professional Conduct (PDF)

Further Assistance Available-Contact Jacko Law, PC

Should you or your firm require assistance in navigating the new Code and to help establish protocols to meet the updated expectations contained in the CFP Code of Ethics and Standards of Conduct-contact Jacko Law Group, PC.