CFP® Professionals’ Fiduciary Duty When Providing Financial Advice

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:

The new Code and Standards defines Financial Planning as follows:

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.

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:

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.