Financial planners set rules with investors in mind

Certified financial planners nationwide plan to adopt tighter rules that, in short, disclose the best interest of their clients in all matters while federal regulation on the issue remains in limbo.

The move, effective October 2019, will apply to 80,000 members of the nonprofit Financial Planning Association. That’s about a fourth of financial planners nationwide, said Charlie Fitzgerald, a CFP with Moisand Fitzgerald Tamayo in Orlando, who serves on the board that created the new fiduciary policy.

“It breaks down into essentially two pieces: Duty of care, and duty of loyalty,” Fitzgerald said.

He said the care standard has long been addressed by continuing-education requirements, but the loyalty factor holds the biggest changes.

“Most advice falls under a suitability standard — a sales standard,” he said. “Now that’s not good enough — you must put clients first and foremost in giving your advice.’’

Conflicts of interest will exist any time money changes hands, he said, because planners are earning a living. But the key is for consumers to understand their available options through their planner and perhaps elsewhere, and know how the planner would be paid for his or her work.

By the time a client signs on the bottom line, Fitzgerald said, “The consumer must know where the conflicts of interest lie, understand the compensation of adviser and their firm, what the costs might be in the transaction or the advice, and understand clearly what they’re getting.”

The new measures could be of particular help in Central Florida, because people who move here can keep their old advisers from home while seeking out a local planner to help manage their money.

“People who have relocated for retirement, they tend to have a financial planner,” said Colby Winslow, a CFP with Creative Planning who until this year served as president of Financial Planning Association of Central Florida.

Retirees might keep some business with a broker that’s part of a large national practice but seek out a local financial planner, he said.

Such clients are at times targeted, Fitzpatrick said, whether it’s because they have more wealth or aren’t as savvy checking out a planner.

Younger, first-time clients might be seeking financial help for a windfall such as an inheritance: “They’re not yet at retirement, maybe 15 to 25 years away, and don’t want to make a mistake,” Winslow said.

Planners will be required to tell all clients which approaches to managing their money are in their best interest both verbally and in writing. That goes beyond several federal and state requirements, Fitzgerald said.

“It’s not just what the CFP professional thinks is the best, but it’s what would a “jury of his/her peers” say about his/her financial advice,” he said.

Similar regulations had been drawn up by Department of Labor in 2016. Those measures were delayed when President Donald Trump took office. Some investment companies also challenged them in court, recently winning a ruling that the labor department had overreached its authority; that decision is likely to be appealed, multiple wire services reported.

The Securities and Exchange Commission is expected to propose fiduciary-responsibility regulation as well. Information about the SEC version that has been leaked to the news media implies that it would apply to retirement and non-retirement accounts, would regulate conflicts of interest and would dictate who can and cannot call themselves a financial adviser.

“That remains to be seen — it’s a trend that’s been going on for several years, and we’re saying we’re not going to wait for the government,” Fitzgerald said. “We know it’s the right thing to do. The public needs this, so we’re doing this.”

Fitzgerald said the delay in carrying out the new rules is designed to accommodate larger firms.

Customers should have a few questions ready for any financial provider, Winslow said.

“Understand what their approach is: Are they a fiduciary?” he said. “And ask how they get compensated — for product, or for fees, how that happens.

“That’s what it usually comes back to: Compensation usually drives behavior,” he said.