Fiduciary/Best Interest Development
- In November 2018, the CFP Board updated its Code of Ethics and Standards of Conduct by extending the fiduciary duty owed to clients. Previously, the Standard applied to financial planning, but the new Standard – which will be effective October 1, 2019 — will cover financial advice to clients.
- The Standard says that in providing financial advice, a CFP professional “must act as a fiduciary, and therefore, act in the best interest of the Client.” This duty includes duties of loyalty and care and a duty to follow client instructions.
- The duty of loyalty requires, among other things, that the interests of the client be placed above those of the CFP professional and his/her firm.
- The Standard also imposes requirements when a professional takes on a duty to monitor.
- Among other things, the Standard will require CFP professionals to make full disclosure of material conflicts, and adopt and follow business practices reasonably designed to prevent conflicts from compromising the professional’s ability to act in the client’s best interest. Before providing advice, the professional must obtain the client’s consent, which may be implicit.
- CFP professionals are also required by the new Standard to make disclosures of their services, compensation, how the client pays for the products or services being recommended, and a description of additional costs the client may have to bear.
- CFP professionals are not subject to a private right of action under the Standard, but are subject to discipline by the CFP Board.
Sources
Code of Ethics and Standards of Conduct
