CFP Moves Forward with Revised Code of Ethics, Extends Enforcement Date to June 2020

The Certified Financial Planners (CFP) Board of Standards, Inc. released its revised Code of Ethics and Standards of Conduct last year. The most significant change under the new standards is that now all CFP professionals, including broker dealers, must adhere to the fiduciary duty when delivering any financial advice. Previously those with a CFP designation were only required to act as a fiduciary while providing financial planning services.


CFPs Held to Higher Standard

Professional organizations, including the American Securities Association, Financial Services Institute, as well as many of the large brokerage firms have spent months lobbying for the CFP Board to lighten the standards and align more closely with the Securities and Exchange Commission’s recent Regulation Best Interest requirements, which requires brokerage firms to follow increased regulations beyond its previous suitability standard.

The CFP Board has held firm, explaining that those holding the prestigious CFP designation should be held to a higher standard than federal and state legal requirements. The organization is even prepared to potentially lose thousands of its nearly 85,000 registered professionals over the more stringent requirements.

Earlier this week, however, the CFP Board did extend its enforcement date from its original date this October to June 30, 2020. This extension, the Board claims, will allow firms plenty of time to adjust their operations and business practices in order to reach compliance. It now also aligns with the SEC’s REG BI reform compliance dates.

 Components of the New Code and Standards

The CFP Code and Standards document further describes the components of the fiduciary duty, including the Duty of Loyalty and the Duty of Care. It lists the few exceptions where a CFP would not be considered bound to the fiduciary duty, which include responses to directed orders, general marketing materials, general financial education, and general financial communications.

In addition to expanding the application of its fiduciary duty, the new code outlines information that must be provided to clients. The firm’s privacy policy must be provided in writing for both financial advice and financial planning. Other types of material information may be provided orally when delivering financial advice and must be documented when delivering financial planning services. The CFP Board outlines these requirements in its Financial Advice Engagements Disclosure Guide and a Financial Planning Engagements Disclosure Guide.

Preparing for Compliance

The operational changes required, especially for brokerage firms, may be significant and costly to implement. To ensure your firm is prepared for the compliance implementation, chief compliance officers should become educated about the changes as soon as possible.

While resources are available at the CFP board web site, including a Roadmap and video series explaining some of the key components, and case studies, utilizing a consultant is an efficient way to plan for changes your firm will need to implement and any challenges you may face. Creating a checklist and planning ahead for all of the requirements will ensure those hoping to keep their CFP designation may remain in good standing.

Core Compliance and its team of experts can help educate your firm on the changes and provide guidance on complying with the new code. Our team of experts can also assist your firm develop trainings that will educate your employees and remain consistent with company procedures and culture.  Contact us today for assistance.

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