CFP Board to Congress: SEC Regulation BI Needs Clarity, Greater Consumer Protections

New Code and Standards Should Serve as Example

The Securities and Exchange Commission’s Regulation Best Interest is well-meaning but doesn’t go far enough, the Chair of Certified Financial Planner Board of Standard’s (CFP Board) Board of Directors testified today before a Congressional subcommittee. 

“While we appreciate the opportunity the rule proposals represent, our concern is that they offer the appearance, but not the reality, of increased investor protection,” said Susan MacMichael John, CFP® in testimony before the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets. “However, if the proposed rules are strengthened, we believe the Commission may realize its goal of increasing investor protection.”

In contrast to the SEC regulation, John said CFP Board’s new Code of Ethics and Standards of Conduct that become effective October 1 provides clear and unambiguous protections requiring all CFP® professionals to be held to a fiduciary standard when providing Financial Advice.

“The new Standards provide clarity for the public by extending the application of the fiduciary duty from financial planning services to all Financial Advice,” John said in her oral testimony.  “The Standards are responsive to today’s complex financial marketplace, where consumers seeking investment advice find it virtually impossible to distinguish a salesperson from an advisor.”

The Standards, which must be followed by those who voluntarily hold the CFP® certification, have significant differences with Regulation BI in three unique ways, John said:

1. “Best Interest.” CFP Board’s Standards unambiguously define “best interest” as “fiduciary,” including both a duty of care and a duty of loyalty.  Under Reg BI, “best interest” is not defined.
2. Duty of Loyalty. Reg BI does not contain a distinct, well-defined, stand-alone duty of loyalty, whereas the duty of loyalty is prominently featured in the Standards.  
3. Conflicts of Interest. The Standards contain a straight-forward, effective solution to deal with conflicts of interest, regardless of how they originate. Reg BI distinguishes between different types of conflicts and has disparate ways of handling them.  

Joined by its partners in the Financial Planning Coalition – the Financial Planning Association and the National Association of Personal Financial Advisors – CFP Board has been a consistent advocate for increased fiduciary protections for consumers. 

“Faced with an increasingly complex universe of financial products and services, Americans today depend on competent and ethical advisors to help them make decisions critical to their financial security. When they seek financial advice, however, they face a marketplace in which it is virtually impossible to distinguish a salesperson from an advisor, or between those advisors who are legally obligated to provide advice in the investor’s best interest versus those who are not,” John said on behalf of the Coalition in her written testimony. “A clear fiduciary standard applied equally to all financial professionals who provide personalized investment advice, including broker-dealers, would help clarify the investment decisions Americans face every day.”

John, who has 30 years of experience as a CFP® professional, concluded her oral testimony by saying that the regulation needs to reflect the reality that consumers trust their advisors – even when they shouldn’t – which is why a strong Regulation BI is needed.

“Many smart, educated, accomplished individuals fail to do basic due diligence to check out the financial advisor they choose to work with. And, they all trust their financial advisor to work in their best interest,” said John. “The client, it seems, trusts and is loyal to the advisor, no matter what.”