Fiduciary standard debate enters new phase

Jill on Money

It’s time to drop my annual F-bomb: fiduciary.

The big news this spring is that the Certified Financial Planner Board of Standards has announced a change to its Code of Ethics and Standards of Conduct. Starting Oct. 1, 2019, CFP professionals must act in the best interest of the client at all times when providing financial advice. This is the socalled fiduciary standard, which has been in the news ever since the Department of Labor created its own rule in 2016.

As a reminder, the vast majority of brokers and insurance reps who sell securities products are held to a lower standard of care called “suitability,” which means that what they recommend has to clear the low bar of what is suitable, though not necessarily in your best interest.

The labor department fiduciary rule would have forced those overseeing the nearly $3 trillion in retirement savings to work in their clients’ best interest. But it has been in limbo since the Trump administration decided to put it on ice, delaying it until July 2019. Although most investment companies already had made changes to their businesses to comply with the new rules, they also had mounted legal challenges, one of which recently found that the labor department had overreached its authority and struck it down, though the decision will be appealed.

But the Securities and Exchange Commission is expected to propose its own fiduciary rule, perhaps as soon as the end of this quarter. Leaked information about the SEC version 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 advisor.

The fear is that the SEC fiduciary standard would be a watered-down version of the original idea. But that’s not why the CFP Board decided to act now. The CFP Board’s stand on fiduciary began “more than a decade ago,” according to Richard Salmen, a CFP and the chairman of the CFP Board of Directors. Back then, the fiduciary duty applied to those CFP professionals who were providing financial planning services.

“We are raising the bar even higher now with a fiduciary standard that will apply anytime a CFP professional gives financial advice,” which should eliminate any confusion.

As the F-word enters another phase, here is an updated version of my “Questions to Ask a Financial Professional”:

Are you held to the fiduciary standard? Get this pledge in writing and make sure that it applies all of the time and to all accounts.

How will I pay for your services? The adviser should clearly state in writing how she will be paid. The three methods are: fees based on an hourly or flat rate; fees based on a percentage of your portfolio value; and commissions paid per transaction.

What experience do you have? Find out how long the advisor has been in practice and whether he or she is CFP, a CPA-PFS, a Chartered Financial Analyst or a member of the National Association of Personal Financial Advisors, all of which are held to a fiduciary standard.

What services do you offer? Some create a holistic financial plan alone and don’t sell financial products; others may only manage assets and many do both.

Is there anything in your regulatory record that I should know about? Conduct background checks with the SEC, FINRA, NASAA and the CFP Board.

Jill Schlesinger, CFP, is a CBS News Business Analyst. She welcomes comments and questions at askjill@jillonmoney.com.