Setting the Standard

A Brief Overview of the CFP Board’s New Code of Ethics and Standards of Conduct

Effective October 1, 2019, CFP (Certified Financial Planner) Board’s new Code of Ethics and Standards of Conduct (“Code and Standards”) was issued. The Code and Standards sets forth the ethical standards for CFP professionals, and replaces CFP Board’s current Code of Ethics, Rules of Conduct, Financial Planning Practice Standards and Terminology. The enforcement date for the new Code and Standards is June 30, 2020.

The new Code and Standards includes a range of important changes, including expanding the application of the fiduciary standard that requires CFP professionals to act in the best interest of the client at all times when providing financial advice. Through the new Code and Standards, CFP Board is advancing the role and value of the financial planning profession with a broader fiduciary standard that elevates public trust in CFP professionals. Below is a brief overview of the new Code and Standards.

Code of Ethics
CFP Board’s Code of Ethics reflects the commitment that all CFP professionals make to high standards of competency and ethics. A Certified Financial Planner must:

I) Act with honesty, integrity, competence, and diligence;
II) Act in the client’s best interests;
III) Exercise due care;
IV) Avoid or disclose and manage conflicts of interest;
V) Maintain the confidentiality, and protect the privacy of, client information;
VI) Act in a manner that reflects positively on the financial planning profession and CFP certification.

The CFP Professional’s Commitment to High Standards

CFP certification signifies the commitment that all CFP professionals make to acting in the best interests of their clients. This has made CFP certification the most respected and sought-after certification for financial planning professionals.

CFP Board’s newly-revised Code and Standards reflects this commitment to high standards. Under the Code and Standards, a CFP professional must act in the client’s best interests whenever providing financial advice. This is a bold step for CFP Board and the financial planning profession, and will bring major benefits to CFP professionals, their firms, and the public.

The CFP Professional’s Commitment to an Expanded Fiduciary Duty

The Code and Standards introduces several new requirements. The cornerstone is the obligation to act as a fiduciary, and therefore, act in the best interests of the client at all times when providing financial advice. This is a significant change from the prior standard, which required a CFP professional to act as a fiduciary when providing financial planning.

What does it mean to act as a fiduciary? A CFP professional must fulfill the following duties:

I) Duty of Loyalty — A CFP professional must place the interests of the client above the interests of the CFP professional and the CFP professional’s firm. A CFP professional also must avoid conflicts of interest, or fully disclose material conflicts of interest to the client, obtain the client’s informed consent, and manage the conflict.

II) Duty of Care — A CFP professional must act with the care, skill, prudence, and diligence that a prudent professional would exercise in light of the client’s goals, risk tolerance, objectives, and financial and personal circumstances.

III) Duty to Follow Client Instructions — A CFP professional must comply with the terms of the client engagement and follow all directions of the client that are reasonable and lawful.

Other Significant Changes

Conflicts of Interest

More detailed requirements for fully disclosing material conflicts of interest, obtaining informed consent, and managing those conflicts.
Practice Standards

Practice Standards

A substantially updated and reorganized financial planning process that has more detailed requirements and expands from a six- to a seven-step process.

A new definition of financial planning that will better enable a CFP professional to describe financial planning to clients and potential clients.

A detailed standard for determining when a CFP professional is required to comply with the Practice Standards for the Financial Planning Process.

A new standard for addressing situations when a CFP professional is required to comply with the Practice Standards, but the client does not agree to engage the CFP professional to provide financial planning.

Providing Information to Clients

An updated standard that requires a CFP professional to provide clients information, and describes when that information needs to be provided in writing, including: A description of products and services offered;

How the client pays for the products and services; and

How a CFP professional and the CFP professional’s firm are compensated for providing the products and services.

Compensation Methods

A specific standard for using “fee-based” and other similar terms that a consumer may confuse with “fee-only.”

Reporting Requirements

Expanded obligations for reporting potential misconduct to CFP Board within 30 calendar days.

CFP professionals have a demonstrated dedication to high standards for competency and ethics. Accordingly, the new Code and Standards should be thoroughly understood, and closely followed. More information is available at www.cfp.net/code.

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