Beginning July 1, 2008, Certified Financial Planners (CFPs) will be subject to stronger Standards of Professional Conduct guidelines as set forth by the Certified Financial Planners Board of Standards Inc.
"When CFP Board's ethical standards were first introduced, the very concept of financial planning as a profession was newly formulated," reads a frequently asked questions document at the Board of Standards Web site. "The business and regulatory environment that existed then was very different than the current environment. These latest revisions are intended to maintain CFP Board's high ethical standards, strengthen them in several important ways, and present the standards in a manner that will be easily understood by CFP certificants and the public they serve."
The changes, as described by the Board of Standards include:
- The baseline duty of care for those holding CFP certification has been raised from the current "reasonable and prudent professional judgment" standard to a requirement that a CFP certificant "shall at all times place the interest of the client ahead of his or her own."
- For CFP certificants providing financial planning services, the duty of care has been raised from the current duty to "act in the interest of the client" to the "duty of care of a fiduciary," which is partly defined as acting "in the best interest of the client."
- Requirements for disclosures to clients and prospective clients and requirements for documentation of the relationship with a client have also been strengthened. The updated standards also clarify that the disclosure requirements for CFP certificants apply to current clients as well as prospective clients.
Under the current regulations, CFP Board designees must disclose material information relevant to the professional relationship, including conflicts of interest and all contact information. New regulations uphold that requirement, adding, among other things, an "accurate and understandable description of the compensation arrangements being offered" and any services that can be construed as financial planning. All disclosures must be made in writing.
More information, including an extensive FAQ and side-by-side comparisons of current and revised terminology, principles, and rules, can be found at www.cfp.net/aboutus/standards.asp.
