Review of CFP Guidelines for Financial Advisors

Financial advisors with the CFP designation should be aware of the CFP Board’s latest Code of Ethics and Standards of Conduct that took effect last year.

The current guidelines for ethics and conduct and how financial advisors’ practices benefit from the compliance were discussed by Dan Candura, president at the Candura Group, a Braintree, Massachusetts-based company that provides training and education for CFP professionals, at the Schwab IMPACT 2020 conference.

Candura, a CFP Board emeritus, gave an overview to help advisors understand the content of the revised code and standards, act in accordance with the CFP Board’s fiduciary duty, apply the standards to a financial planning practice, know when to provide specific information to a client and recognize and avoid or fully disclose and manage material conflicts of interest.

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The Certified Financial Planner Board of Standards began enforcing its updated and strengthened Code of Ethics and Standards of Conduct on June 30, 2020, after it took effect on Oct. 1, 2019. The latest version includes a CFP professional’s obligation to act as a fiduciary and in the best interest of the client at all times when providing financial advice.

In a written statement, the CFP Board says this version is a “significant strengthening of the prior standard, which required a CFP professional to act as a fiduciary only when providing financial planning. The fiduciary obligation includes a duty of loyalty, a duty of care and a duty to follow client instructions.”

“Requiring CFP professionals to comply with our strengthened Code and Standards raises the bar for the profession and benefits consumers who make important financial decisions with the assistance of financial planners,” CFP Board Chair Jack Brod wrote in a statement. “We are committed to upholding and effectively enforcing these important ethical and practice standards.”

[Read: How Can Financial Advisors Serve Clients With Fewer Assets?]

One update to the CFP Board’s Code of Ethics and Standards of Conduct states that a CFP must act with honesty, integrity, competence and diligence and in the client’s best interest. A CFP must also exercise due care. A CFP professional must avoid or disclose and manage conflicts of interest. They must also maintain the confidentiality and protect the privacy of client information and act in a manner that reflects positively on the financial planning profession and CFP certification, Candura says.

The CFP Board also made significant changes to benefit the public, including updated guidance on the disclosure of compensation information. When CFPs say they are fee-based, this means advisors receive both fees and sales-related compensation.

Another significant change the CFP Board made is the expansion of the fiduciary obligation. CFPs must act in the best interest of the client at all times when providing financial advice. Fiduciary duty includes the duty of loyalty, the duty of care and a duty to follow client instructions.

Candura also explained how CFPs can identify material conflicts of interest and deal with them. For example, conflicts of interest may arise over compensation and incentives, acting for multiple clients, 401(k) rollovers and affiliate products with higher commissions. Advisors should handle conflicts of interest by providing full disclosure, obtaining a client’s informed consent and properly managing the conflict.

[Read: Financial Advisor Versus Financial Planner: What’s the Difference?]

Candura also discussed a duty to report to the CFP Board and duty to cooperate. When an advisor reports to the CFP Board, he or she must file the report within 30 days of the event, provide a narrative statement, accurately and completely describe the material facts and the outcome or status of the matter. The report can be made online at the CFP website, which is cfp.net. The duty to cooperate includes providing documents and information, admitting or denying facts, appearing for oral examination and using reasonable efforts to obtain document information and witness appearances from third parties. The failure to report would constitute a violation of the code and standards even if the matter does not reveal misconduct.

The session also discussed how to identify the practice standards when providing financial advice that requires financial planning. CFP professionals must document information through CRM software, handwritten notes or emails. Advisors should always document when they are in doubt, Candura says.

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Review of CFP Guidelines for Financial Advisors originally appeared on usnews.com

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