By Duane Thompson
On January 1, 2009 the much-anticipated new Rules of Conduct for CFP® certificants will go into effect. The primary change is the adoption of a fiduciary standard for financial planning services.
In response, the Financial Planning Association has developed best practices, particularly for CFP practitioners working in a large firm environment who may encounter complex ethical issues under the new Rules of Conduct.
A 17-member, FPA task force, composed of planners with a mix of compensation methods and different business models, formed last summer to develop the best practices.
In addition to a checklist for an initial financial planning engagement, the task force developed checklists for six commonly encountered, non-financial planning transactions, which are subject to somewhat different ethical rules. The format follows in what might be a logical order of meeting with a client initially, determining the scope of services, then analyzing whether material elements of financial planning are involved, including certain disclosures of compensation and conflicts of interest.
The best practices are intended to offer a flexible approach to complying with the Rules of Conduct. Once a practitioner carefully reviews the various scenarios, he or she will begin to notice a pattern of responsibilities-disclosures, analysis of material elements of financial planning, scope of services agreed upon, and other duties-that should be addressed, no matter the product or service being offered. The more one adapts a format to his or her own practice style, the more diligent he or she should be in reviewing the Rules of Conduct to ensure compliance.
Finally, the task force developed a written disclosure for individual transactions. The Rules of Conduct do not require written disclosure in non-financial planning situations, but the form, called Form NFP-FPA (for non-financial planning professional services) is offered as a best practice, particularly for planners who are not registered investment advisers.
While FPA expects the concept to be of significant benefit to practitioners, members should be aware that there are no foolproof methods to avoid liability, nor should they be lulled into thinking that simply checking boxes is enough. As Johannessen noted in a letter to members announcing the release of the checklists, each and every client situation is unique. No checklist can substitute for an ethical commitment to serving the best interests of your clients, or to anticipate the specific fact pattern in a given engagement, Johannessen observed.
As members gain more experience in complying with the new standards, and using the checklists, FPA intends to periodically review and possibly add different scenarios to help members adopt standardized approaches to the financial planning process.