As the CFP Board prepares to release a new set of standards of conduct for planners, investor advocates are calling for last-minute changes to strengthen the fiduciary responsibilities associated with the certification.
The board's proposed standards don't go far enough to address conflicts of interest and must also tackle advisors' compensation arrangements, says Knut Rostad, president of the Institute for the Fiduciary Standard. Rostad said he would like to see the CFP Board's fiduciary standard follow in the spirit of the Department of Labor's rule and the fiduciary responsibilities that grew out of the Investment Advisers Act.
"In contrast, the board advocates compensation neutrality and pledges allegiance to commission and fee equality as fundamental to its standards," Rostad said on a conference call. "This premise is a pretty much direct rejection of fiduciary convention found in the advisers act and the DoL rule."
The CFP Board's agnostic stance on compensation models might be traced to the diversity of business models among its certificants. A new survey from Rostad's group finds that just 15% of CFPs operate in a fee-only practice. The remaining 85% either work under commissions, a blended compensation model or did not report their compensation structure.
The portion of fee-only advisors who are CFPs is down from previous surveys, which Rostad attributes to an increase in certification among brokers.
That creates a fundamental problem for investors, he says. The CFP Board has been running marketing campaigns promoting CFPs as trusted advisors in a bid to establish its credential as the gold standard of investment advice. But if those advisors are advertising themselves as fiduciaries while operating in a model rife with conflicts, where is the investor left?
"Here's the rub: CFPs mostly work in brokerage sales where these things are hard, or, frankly plain impossible," Rostad said.
"Without guidance ... brokers rely on industry training, culture and experience," he added. "BDs live by suitability rules, and these are the home field to hidden conflicts."
A spokesman for the CFP Board did not address the specific criticisms of its fiduciary proposal, but offered a statement on the process of revising its standards of conduct.
"We very much appreciate and value comments and input from all of our stakeholders," the board says. "There have been more than 1,400 comments provided to CFP Board, we have met with hundreds of individuals and have had dozens of meetings over the last two years. CFP Board will consider these comments as we revise our standards."
The second comment period on the proposed standards ended in early February. The board is expected to issue final standards later this year.
Critics of the fiduciary proposal would like to see the board reinstate language that would stipulate that CFPs are always providing planning services — and thus bound by a fiduciary duty and other CFP standards — unless they affirmatively state that they are acting in a more limited capacity.
Rostad and his allies are also pressing the board to take a firmer stance on conflicts, urging elimination and mitigation over disclosure. They would also like to see language requiring transparency and clarity on conflicts and fees.
"Tell me plainly," Rostad said. "No legalese and no B.S."
There is disagreement among fiduciary advocates on whether the CFP Board's standards are a net benefit for investors as written. Some see any fiduciary obligations as a step forward —even if they don't go far enough. Others see great harm in the potential for investor confusion and bad business practices executed under a fiduciary designation.
In the latter camp is Rick Kahler, president of the Kahler Financial Group, an RIA based in Rapid City, South Dakota.
Kahler is calling on the CFP Board either to impose a stringent fiduciary duty or to roll back the clock to the days when the CFP designation only signified a level of education, rather than an elevated standard of client care.
Kahler finds the marketing campaign branding CFPs as trusted advisors particularly troubling. That promotional effort has been a bad-faith exercise representing all CFP holders as adherents to the highest code of ethics when the board's own standards of conduct fall well short of that mark, he argues.
"At best I think our campaign has been misleading," he says. "At worst I think it may border on being fraudulent."
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