Recently, both the CFP® Board and the Securities and Exchange Commission have set higher standards of care & transparency when dealing with clients.  While both are welcome developments, they are still catching up to our pledge to uphold a fiduciary duty to our clients since Lighthouse Financial Advisors was founded in 1999! A fiduciary duty is the legal obligation of one party to act in the best interest of another. Brokers fear being asked if they have a fiduciary duty.

 

As noted in our May 2, 2018 blog, the CFP® Board is strengthening its code of ethics to require advisors to act as fiduciaries at all times when working with clients.  The policy was set to go into effect Oct 1, 2019, but enforcement is delayed to June 30,2020.  This is to allow time for increased enforcement capabilities and to allow CFP® certificants and employers at firms that do not require a fiduciary standard to catch up to the new rules.

 

Meanwhile, the SEC adopted Regulation Best Interest: The Broker-Dealer Standard of Conduct, which requires that broker-dealers act in the “best interest” of their “retail customers.” While any progress is welcome to see on a Federal level, under the new SEC reforms, brokers still do not have to operate under a fiduciary standard.

 

While we are overseen by the SEC, we are also CFP®’s and members of the Alliance of Comprehensive Planners. From day one we have held ourselves to the higher Fee-Only Fiduciary Standard, and could not agree more with how even the SEC Commissioner Robert Jackson put it, consumers “should seek out true fiduciary advice from financial professionals who have chosen to hold themselves to higher standards” than those set by the SEC. We couldn’t agree more!

 

THE OFFICIAL CFP® FIDUCIARY DUTY STANDARD – At all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client. The following duties must be fulfilled:

  1. Duty of Loyalty. A CFP® professional must:
    • Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional’s Firm;
    • 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
    • Act without regard to the financial or other interests of the CFP® professional, the CFP® Professional’s Firm, or any 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 interests above the CFP® professional’s.
  2. Duty of Care. A CFP® professional must 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.
  3. Duty to Follow Client Instructions. A CFP® professional must comply with all objectives, policies, restrictions, and other terms of the Engagement and all reasonable and lawful directions of the Client.