Readers welcome back to our fiduciary mini-series. Our first blog introduced the idea of what a fiduciary advisor is and why it has been an integral component of the CFP Board since its inception.
Today, we are going to discuss the other 11 rules that make up this 15-part system. Let’s get started!
You want to work with a financial advisor who upholds the same values you expect from yourself. This requirement makes advisors act with honesty and fairness in all of their dealings. With a fiduciary, there would be no schemes or purposeful misinformation or false statements. Instead, you can trust that the advice provided is within the professional’s skillet and only given to benefit you.
You need to work with an advisor whose skills are up to snuff. You wouldn’t want someone who doesn’t have the right education or training advising you on what to do with your hard-earned dollars.
This section really comes in when the client’s needs are outside the scope of the professionals’ regular application of knowledge like advanced tax planning, student loan guidance, or divorce planning. Should this gap arise, the advisor needs to do their best to become a subject-matter expert, obtain assistance from an expert, refer the client to an expert, and/or not include that topic in the scope of service.
Diligence is overwhelmingly embodied by CFP® professionals and the community at large community, and means that they conduct their work with care and concern for the clients.
Sound and Objective Professional Judgement
This idea extends beyond an advisor using proper judgment in regular day-to-day activities into disengaging from actions that could call their judgment into question. One of the top ways this could happen is through additional compensation.
Under this rule, an advisor can’t accept any gifts, gratuity, or non-cash compensation that could sway their judgment and compromise their objectivity. As an extreme example, an advisor couldn’t take front row tickets to a basketball game in exchange for pushing a particular mutual fund.
Operating professionally is a basic yet highly valuable addition to the CFP Standards of Conduct. It stipulates that advisors need to treat clients and other professionals with dignity and respect. Previously, professionalism belonged only to the code of ethics. But now that it is part of the Standard of Conduct, advisors can be liable for unprofessional behavior.
Confidentiality and Privacy
This section is a big one and has to do with your personal information. It ensures that your client information remains private and secure, and prohibits the advisor from disclosing any private information about you or your financial situation.
There are a few times when an advisor can disclose your information. Let’s take a look.
- The client provides written consent.
- The advice is given to a person acting in a representative capacity for the client.
- The scope of the information concerns any professional service needs for the advisor, like their attorney, accountant, and/or auditor.
- The advisor must disclose information per legal authorities.
Now, we bet that one got your attention. Pricing in the financial services space can be quite confusing and riddled with exceptions, add-ons, and more but under this statute, a CFP® professional must clearly display and articulate their pricing structure. Let’s look at the one that applies to the way we do business: fee-only.
Being a fee-only advisor means that the only way we get paid is by our clients. We don’t receive any commissions on the sale or recommendation of products/services. The Standards of Conduct require all fee-only advisors to do two things:
- A fee-only advisor can’t receive any third-party commissions.
- Any related parties can’t receive commission or compensation based on advice from the CFP® professional.
This guarantees that the advisor isn’t collecting any sales-related compensation and ensures that they are recommending a course of action that is best for you.
Due diligence when recommending and working with other professionals
Financial planning is not a siloed job. There are so many other professionals who are involved in the process: real estate professionals, investment custodians, estate planning attorneys, tax professionals, and more. The CFP Standards of Conduct require their advisors to make sure that the other professional will serve the clients’ needs in a fair, honest, and professional manner.
Comply with the law
Ah, the legal system. Among the many things it does (like making this list 15 items long) it also applies to the work of CFP® professionals. Advisors need to adhere to the letter of the law and conduct business in a legal, above-board manner. This stipulation includes any collaborations with other professionals as well.
Proper selection of technology
Didn’t see this one coming, did you? With technology playing such a significant role in our life, especially in the work of an advisor, the CFP Board has included technology selection as part of the advisor’s duties. Essentially, this means that the advisor needs to understand how the technology works and exercise good judgment before using, implementing, or recommending software to a client.
No Borrowing, Lending, or Commingling of Financial Assets With Clients
This last one is pretty straightforward: advisors have to manage assets in a way that keeps the client’s best interest, not theirs, in mind. This means that an advisor can’t borrow or lend money with clients unless the clients are family members.
The bottom line?
The CFP Board’s new Standards of Conduct formalizes the fiduciary standard for its advisors. This is excellent news for you because now you know that all CFP® professionals are required to uphold all of the above, and if they don’t, they can be disciplined for it.
All of this is to say that we take being a CFP® professional and fiduciary responsibility seriously. We want you to know how your money is being taken care of and continue to build a foundation of trust, honesty, and respect.Are you ready to see the difference when working with a fiduciary? Set up a time to talk with our team today.