Under the group's guidelines, certified financial planners are required to offer clients disclosures about cost structures and conflicts that could materially impact the advice they offer, as well as a relatively new obligation to act in their clients' best interests, just as other advisors must under the regulations of the SEC or FINRA.
The CFP Board overhauled its standards of professional conduct in 2008, including for the first time the fiduciary duty provisions mandating that certificants consistently provide financial advice that is demonstrably to the maximum benefit of their clients. And that rule, more than anything else, has come to define the CFP Board's work in upholding its standards of professional conduct, according to Michael Shaw, the organization's managing director of professional standards and legal.
"There's no question the single biggest change to those standards was the incorporation of the fiduciary standard," Shaw said in a recent interview. "Whenever we talk about CFP Board's ethical standards, we start with fiduciary standard."
He noted that the fiduciary duty requirement only applies when a CFP professional is engaged in the provision of financial-planning services, pointing out that not all client relationships rise to that level.
But in instances when it does apply, the standard is very similar to the regulatory provisions that govern the broader class of investment advisors. Courts have generally adhered to the "best-interest" standard when considering questions of fiduciary duty, and that view is reflected in the CFP Board's definition of the term, which deems a fiduciary "one who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client."
"What we mean by that is recommending the best options within the business and regulatory environment in which a CFP professional practices," Shaw explained. "Business environment is dictated by the company they work for. Some companies require CFPs to sell only that company's products. Regulatory environment has to do with the state and federal regulations that apply to that individual's business. So we don't dictate that you have to work within a certain business environment or that you have to work within a certain regulatory environment. We simply say that whatever environment you're working in, sell the best products that are available in those environments."
Beyond the fiduciary responsibilities, certified financial planners are bound by the board's standards to make disclosures to clients about the cost structures of the products they are recommending and in cases when conflicts of interest arise.
Many cost structures or conflicts of the sort that require disclosure under the CFP Board's standards of professional conduct are entirely legitimate and above board, Shaw is quick to point out. The CFP Board sees nothing inherently unethical, for instance, in a company whose planners are permitted only to sell that firm's products, so long as they explain that framework to their clients.
"There's nothing wrong with that business model," Shaw said. "CFP Board is business-model neutral. That means you can work in any business model you want. You can sell only insurance. You can sell only brokerage products. You can work for a firm that provides nothing but financial planning services. It doesn't matter what business model you're in, but if you are in a business model that limits you with regard to the kinds of services or products that you can offer, that has to be disclosed to the client so the client can make an informed decision."
The same goes for planners who work under incentive programs that reward the sales of certain products.
Likewise, CFP professionals are required to provide clients with details about how they are compensated (such as commission, fixed fees, bonuses or salaries) and a full rundown of the costs of the financial products they are recommending, bringing to light expenses that a client might not otherwise ascertain, such as 12b-1 fees or surrender charges associated with an insurance policy.
"All of these disclosures are for the purpose of helping the client to make an informed decision, a fully informed decision so that client knows what they're buying," Shaw said.
The CFP Board launches investigations into questions of planners' misconduct as a result of information disclosed by the planners themselves or discovered by the board's staff, or in response to a complaint filed by a client or another party. Shaw said that about three-quarters of the investigations the board conduct originate from planners' self-disclosure, commonly on a declarations page the board collects when certificants apply to renew their credentials, with the remainder evenly split between staff discovery and third-party grievances.