When Your “Fiduciary” Isn’t

(Full disclosure: I am a CFP® professional and have been since 2009.  I believe that the CFP® designation is the base standard for financial planning professionals and feel strongly that clients should seek out a CFP® professional for their planning needs.)

A few weeks ago the CFP® board hosted an online seminar for CFP® practitioners titled “Is This Financial Planning?” If you think this is an odd question for a financial professional to need to ask, I agree.  But the reason for the delineation is significant.  You see, not everyone whose business card says CFP® after their name is a full-time fiduciary. The CFP® board has courted the realm of brokers, convincing firms from Merrill Lynch to Edward Jones that their brokers should also be CFP® professionals. But brokers aren’t professional fiduciaries – they are not required to put their clients’ best interests first at all times.

CFP® professionals are held to a fiduciary standard when they are doing financial planning. So when a broker who is also a CFP® is technically doing financial planning, the client’s interests must be first.  But as soon as the financial planning ends, that broker is no longer a fiduciary.  The CFP® broker can give great planning advice in the best interest of the client, then simply remove his “financial planning” hat and go back to slinging high cost variable annuities and proprietary illiquid “alternatives” with fees buried so many layers deep you’d never find them all.

Here’s the real issue.  If a CFP® professional doesn’t know the difference – if they have to watch this webinar to help them figure out it – how is an investor ever expected to know the difference?  Half the time the broker is held to a fiduciary standard and half the time they are not.  Is there a little light in the broker’s office that turns on when the client is getting advice that is best for them?  Maybe it’s a stoplight that is green when the broker is acting as a CFP® and red when they are slinging product. That would be helpful, but the broker doesn’t have much incentive (nor is s/he required) to inform the client that certain activities are not considered “financial planning” and therefore may not be in the client’s best interest.

Now I am a big believer in the CFP® marks, or I wouldn’t carry them myself. It is a good educational program and the bare standard by which anyone holding themselves out as a financial planner should meet. The board has done a great job of spreading the value of financial planning to the public and should be commended for that.  But on this issue – the “part time fiduciary” – they are dead wrong. CFP® brokers should either be held to a fiduciary standard at all times or not be allowed to hold the marks.  If the CFP board believes in a fiduciary standard, that’s an easy decision to make.

In case there was anyone wondering why investors are confused by and lack trust in the financial services industry, this is a great example.

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