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CFP® Professionals’ Fiduciary Duty When Providing Financial Advice

The “Focus on Ethics” article series takes a close look at topics important to understanding CFP Board's new Code of Ethics and Standards of Conduct.

May 24, 2018

The fiduciary duty is the crown jewel that animates a CFP® professional’s commitment to high standards. CFP Board first adopted a fiduciary duty in 2007, when it issued revised Standards providing that a CFP® professional owes to the client a fiduciary duty when providing financial planning or material elements of financial planning. Consistent with CFP Board’s vision and mission, and in furtherance of a strategic plan that is committed to a fiduciary standard, CFP Board’s new Code of Ethics and Standards of Conduct (“Code and Standards”) expands the application of the fiduciary duty to all Financial Advice.

The definition of Financial Advice in the new Code and Standards is broad, and has no exceptions or exemptions. Financial Advice is defined as:

A. A communication that, based on its content, context, and presentation, would reasonably be viewed as a recommendation that the Client take or refrain from taking a particular course of action with respect to:

  1. The development or implementation of a financial plan;
  2. The value of or the advisability of investing in, purchasing, holding, or selling Financial Assets;
  3. Investment policies or strategies, portfolio composition, the management of Financial Assets, or other financial matters;
  4. The selection and retention of other persons to provide financial or Professional Services to the Client; or
B. The exercise of discretionary authority over the Financial Assets of a Client.

The new Code and Standards defines Financial Planning as follows:

Financial Planning is a collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of a Client’s personal and financial circumstances.

As set forth in the definition, Financial Planning is provided “through Financial Advice.” Financial Planning, therefore, requires Financial Advice, and must be delivered with the duty of a fiduciary.

Read more Focus on Ethics articles about the new Code and Standards.
See the full Focus on Ethics series

The new Code and Standards provides that a CFP® professional must act as a fiduciary, and therefore, in the best interest of the client, at all times when providing Financial Advice. The new Fiduciary Duty is more detailed, and requires a CFP® professional to fulfill a duty of loyalty, a duty of care, and a duty to follow client instructions. The new Code and Standards provides explanations of each of these duties drawn from the common law of fiduciaries.

The duty of loyalty requires a CFP® professional to:

(1) Place the interests of the Client above the interests of the CFP®professional and the CFP®Professional’s Firm;

(2) Avoid Conflicts of Interest, or fully disclose Material Conflicts of Interest to the Client, obtain the Client’s informed consent, and properly manage the conflict; and

(3) Act without regard to the financial or other interests of the CFP®professional, the CFP® Professional’s Firm, or any other individual or entity other than the Client, which means that a CFP® professional acting under a Conflict of Interest continues to have a duty to act in the best interests of the Client and place the Client’s interest above the CFP® professional’s.

The duty of care requires a CFP® professional to act with the care, skill, prudence and diligence that a prudent professional would exercise in light of the Client’s goals, risk tolerance, objectives, and financial and personal circumstances.

The duty to follow client instructions requires a CFP® professional to comply with all objectives, policies, restrictions, and other terms of the Engagement and all reasonable and lawful directions of the Client.

CFP® professionals support the expanded fiduciary standard. More than 99% of CFP® professionals who responded to a survey agreed that a CFP® professional should be required to act in the Client’s best interest when providing Financial Advice.

The two leading Financial Planning membership organizations also support the standard. FPA applauded CFP Board “for taking the bold and necessary step in expanding the fiduciary standard for CFP® professionals.” NAPFA also commented that the proposal “supports CFP Board’s efforts to [broaden] fiduciary requirements for CFP® professionals. Working under fiduciary principles is the most transparent – and we believe the most objective – way of serving the public. Consumers have come to expect advice delivered in their best interest and will now be able to count on a CFP® professional to provide it at all times when giving financial advice.”

Investor and consumer organizations, including AARP, Americans for Financial Reform, Better Markets, Center for American Progress, Consumer Action, Consumer Federation of America, Institute for the Fiduciary Standard, National Consumers League, and the National Employment Law Project, offered the same view. According to Consumer Action: “By extending the fiduciary duty to all financial advice, clients will receive fiduciary-level advice whenever CFP® professionals offer any kind of financial advice, no matter the services being provided. This is a crucial distinction and one that provides a model for advice standards throughout the financial industry, regardless of the business model and pricing used by the CFP® professional.”

The new Code and Standards provides that a CFP® professional must at all times act as a fiduciary when providing Financial Advice to a Client. As noted above, since Financial Planning requires Financial Advice, a CFP® professional also must at all times act as a fiduciary when providing Financial Planning to a Client.

Access More Guidance Materials

This compliance resource is part of a full library of resources that CFP® professionals can use to comply with the Code and Standards. More guidance materials can be found in our Compliance Resources Library.

Browse the Compliance Resources Library