CFP® Board Moves Towards a Unified Fiduciary Duty Standard, as other Financial Institutions and Regulators Sadly Continue to Fight the Move

Aug 14, 2018 / Author Victor Bayata
protecting investors

As one of the more reputable organizations in the industry, the Certified Financial Planners Board (CFP®) appears to be on the forefront of the efforts to protect investors from financial wrongdoing. This time, the CFP® Board announced new standards that would require financial professionals— including brokers — to act in the best interests of investors when providing any financial advice. The previous rule applied a fiduciary standard to CFP®s only when the advisors were involved in financial planning; now it applies to every advisor holding the designation. The new rule will become effective in October of next year (2019).
Specifically, the CFP®’s new proposed Code of Ethics and Standards requires CFP® professionals to:

  1. Act with honesty, integrity, competence, and diligence.
  2. Act in the client’s best interests.
  3. Exercise due care.
  4. Avoid or disclose and manage conflicts of interest.
  5. Maintain the confidentiality and protect the privacy of client information.
  6. Act in a manner that reflects positively on the financial planning profession and CFP® Certification.

The new revision of the CFP® Board ethical standards was open for comment until February 2, 2018. Not surprisingly, but sadly, several financial institutions like UBS, Morgan Stanley, and Ameriprise Financial expressed their disagreement and urged the CFP® Board not to enact the new proposed fiduciary standards. Specifically, the firms argue that they have more than 18,000 CFP® certificates and that they have invested considerable time and resources to encourage financial professionals in obtaining and maintaining the designation. As discussed below, this suggests that these big financial firms would not have encouraged its financial advisors to become CFPs® if they had known it would require advisors to act in the client’s best interest.

Wall Street Argued New Standard Could Cause Confusion

As part of the joint communication sent by several financial institutions to the CFP® Board, the self-interested Wall Street firms argued that the CFP® Board new standard would conflict with other new proposed industry standards and would only contribute to confusion. The financial institutions’ position that the CFP® Board’s new fiduciary standard for all its members would only cause confusion is actually yet another attempt to trump a universal fiduciary standard because it interferes with their bottom line: Making money. The CFP®’s new rule would dampen the sale of products that carry higher fees for the investor (and higher revenue for the firms). This could translate in a loss of billions of dollars in fee revenue for the financial industry. The CFP®’s new rule represents a move in the industry towards a common standard of acting solely in the interest of investors which would also increase accountability for the continuous misdeeds of Wall Street.

In an effort to convince the CFP® Board not to enact the new fiduciary standard (which would greatly benefit investors across the country), financial institutions claim that it should be the Securities and Exchange Commission (SEC) responsibility (and not the CFP® Board) to come up with a unified fiduciary standard. Although the self-interested financial institutions have no ability to demand the exact standard to be enacted by the CFP® Board, they took the following position with the CFP® Board:

“Our recommendation remains: We do not believe it is in the public interest to have multiple standards of care and urge CFP® Board not to move forward without the benefit of SEC action so we can collaborate on developing a harmonized best interest standard that will serve the best interests of investors. Further, we believe that CFP® Board should acknowledge that where a regulated firm is meeting the requirements of its primary regulators, including but not limited to any standards of care promulgated by the SEC, these actions are sufficient for purposes of compliance with the Standards of Conduct.”

Major Wall Street Firms Acting Like Self-Interested Hypocrites

We believe these Wall Street firms are not only acting in their own self-interests, but also being hypocritical. While criticizing the CFP® Board for acting on a Fiduciary Standard and urging the CFP® Board to wait on the SEC for a more uniform rule, these same firms actively lobby and interfere on the development of these very same rules at the SEC and elsewhere. In other words, many financial institutions say the lack of a uniform standard will only cause burden and confusion, while actively blocking and lobbying against a uniform fiduciary standard. Evidence of this hypocrisy is set out below.

A recent article by Money magazine exposed some of the efforts by many financial institutions to trump a uniform fiduciary standard. Specifically, the Money magazine article (a copy of which can be found here), reveals that industry lobby groups formulated a purported “grass roots campaign” to undermine the Department of Labor Fiduciary Duty Rule (which is the genesis of the CFP® Board’s new proposed Rule). As part of this securities industry driven “Grass Roots Campaign”, a study was conducted by the Financial Services Institute. However, the Money Magazine article revealed that the impressive sounding “Financial Services Institute” actually represented the interests of independent brokerage firms like LPL Financial, Ameriprise Financial and Raymond James Financial (three of the firms also opposing the CFP® Board new Code of Ethics).

Grass Roots Or Astro Turfing?

The purported “grass roots campaign” claims consumers sent a combined total of more than 100,000 letters expressing their opposition to the rule to their senators, local congressman and Labor Secretary Perez. According to the Money Magazine article, the Department of Labor released over 14,000 of these form letters from investors. The article then notes that when Money magazine “reviewed the first 100 of these so-called investor letters, 64% were from financial advisors and those related to financial companies. Only about 30 were from investors with no immediately discernible ties to financial companies, while the remaining six letter writers chose to withhold their identity.” (emphasis added).

This is a perfect example on how far certain investment firms will go to avoid being held to a fiduciary standard. This demonstrates how far certain Wall Street firms and other big brokerage firms will go to avoid being legally required to act in their clients’ best interest. This standard is a given in the legal, medical, and accounting field, but not so in the securities industry.

The firms that opposed the CFP® Board’s move to improve the industry through a fiduciary standard to all advisors carrying the CFP® designation are:

  • Ameriprise Financial Services, Inc.
  • Wells Fargo Advisors
  • Morgan Stanley Wealth Management
  • Edward Jones
  • LPL Financial
  • UBS Financial Services, Inc.
  • RBC Wealth Management US
  • AXA Advisors

Vernon Litigation Group

Vernon Litigation Group is a team of financial litigators that represent clients in courtroom litigation, arbitration, and negotiations throughout the United States. Our lawyers represent investors in federal court, state court, mediation, and arbitration (including FINRA, JAMS, and AAA arbitration). For more information, visit our website at www.vernonlitigation.com or contact Vernon Litigation Group by phone at 1-877-649-5394 or by e-mail at info@vernonlitigation.com.

Victor Bayata is a partner at Vernon Litigation Group. He focuses his practice in the areas of business and investment litigation, arbitration (including FINRA, JAMS and AAA arbitration), employment disputes involving financial advisors and other investment professionals, and securities-related matters.

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