On October 1, 2019, the CFP Board’s new Code and Standards became effective. For those who haven’t received or read them yet, they are available here. The CFP Board will begin enforcing the new Code and Standards on June 30, 2020.
Although there are certainly other changes, the two biggest changes from the prior Code and Standards for investment advisers are:
- Fiduciary Duty. The current Standards impose a fiduciary duty on a CFP® professional when providing Financial Planning. The new Standards extends the application of the fiduciary duty to all Financial Advice. “Financial Advice” is defined by the CFP Board as communication between the CFP® professional and the client which, based on its content, context, and presentation, may be reasonably viewed as a recommendation that would influence the client to take, or not take, a specific action with respect to the development or implementation of a financial plan, or advising a client with respect to financial assets to invest purchase, hold, gift, or sell those assets. The communication may also include the selection and retention of other persons to provide financial or professional services to the client. Finally, discretionary authority over the financial assets of a client is deemed financial advice. Whether Financial Advice is given is an objective inquiry. “The more individually tailored the communication is to the client, the more likely the communication will be viewed as Financial Advice.” If a CFP ® professional provides or makes available marketing materials, general financial education materials or engages in general financial communications, s/he has not provided Financial Advice as long as a reasonable person would not view the services as Financial Advice.
- Monitoring Obligations. The new Standards requires a CFP® professional to (a) address monitoring and updating responsibilities (including by communicating very specific information to the Client concerning the scope of the respective responsibilities), (b) monitor the Client’s progress, (c) obtain current qualitative and quantitative information, and (d) update goals, recommendations, or implementation decisions. The standard makes clear that several of the requirements apply only when the CFP® professional has monitoring or updating responsibilities. As a default, a CFP® professional will be responsible for implementing, monitoring, and updating the Financial Planning recommendation(s) unless specifically excluded from the Scope of Engagement.
I am working with numerous clients seeking to ensure compliance with the CFP Board’s new Code and Standards, and am happy to discuss your firm’s situation.