Fiduciary Status Sought for Financial Planners

The group that grants the certified financial planner credential Monday proposed new rules for financial advisors that embrace a client-care standard many in the industry had sought.

The Certified Financial Planner Board of Standards put forth changes to its ethics code and practice standards that would require advisors to assume a “fiduciary” obligation to clients unless the advisor and client agree to a different standard.

The rules would apply to more than 51,000 financial planners, stockbrokers and others who hold the certified financial planner designation. Certified financial planner is one of the most common credentials for financial advisors, and consumers are often counseled to ask about it when seeking an advisor.

The proposal defines the fiduciary standard as acting “in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and in a manner he or she reasonably believes to be in the best interests of the client.”

Under existing certified financial planner rules, advisors must disclose conflicts of interest and compensation arrangements, and render services “in a manner that is fair and reasonable to clients.”

In May, the National Assn. of Personal Financial Advisors, which represents more than 1,000 fee-only financial planners, urged the Certified Financial Planner board to adopt the tougher fiduciary standard.

Shortly thereafter, the Financial Planning Assn., which represents more than 22,000 advisors and other financial professionals, released a survey showing that 86% of its members believed the Certified Financial Planner board’s ethics code should include fiduciary duty for financial-planning engagements.

The fiduciary issue is at the heart of an industry divide between investment advisors, who help clients manage their money for a fee, and brokers, who traditionally have sold investments for commissions. As brokerages have moved into fee-based financial advising, independent financial planners have complained that brokers don’t share their legal obligation to put clients’ interests first.

Brokers reply that they are heavily regulated and are required to make “suitable” investment recommendations.

The Denver-based Certified Financial Planner board’s rules don’t carry legal authority, but a planner who violates the ethics code can lose the right to use the group’s trademark in marketing and other communications.