A Tale of Two Disclosure Obligations for CFPs
From the Desk of Jim Eccleston at Eccleston Law LLC:
As part of the new CFP Board Code of Ethics & Standards of Conduct, CFP professionals’ obligations differ depending on whether they are simply providing financial advice or are engaging in “financial planning.” If a CFP professional is providing financial advice, the fiduciary duty applies regardless of whether that CFP is engaging in financial planning. However, if the CFP professional also is engaging in financial planning, that CFP also must adhere to the Practice Standards for the Financial Planning Process as well as enhanced disclosure requirements.
The information that must be disclosed when engaging in financial planning overlaps significantly with the required disclosures when providing financial advice. However, when providing financial advice, only the privacy policy is required to be provided to the client in writing. Conversely, a CFP professional who is providing financial planning to a client must make a number of disclosures in writing, including how the client pays, how the CFP professional is compensated, and the CFP professional’s disciplinary history. When providing financial planning, a CFP professional also must provide the terms of engagement, which is not required to be given to a client when providing financial advice. Material conflicts of interest may be provided orally when providing financial advice or financial planning.
The CFP Board Code of Ethics and Standards of Practice defines “financial planning” as a “collaborative process that helps maximize a client’s potential for meeting life goals though financial advice that integrates relevant elements of the client’s personal and financial circumstances.” The CFP Board also provides examples of what constitutes “relevant elements of the client’s personal and financial circumstances.” Those examples included the client’s need for or desire to: manage assets and liabilities, manage cash flow, identify and manage risks, identify tax considerations, and pursue philanthropic interests.
It is important for CFP professionals to know when their interactions with a client go beyond financial advice and become financial planning. This distinction will determine which set of standards will be used to judge their conduct.
CFP professionals who receive an inquiry or a complaint from the CFP Board should contact the professionals at Eccleston Law for a free consultation.
Eccleston Law also practice a variety of other areas of practice for financial investors and advisors including Securities Fraud, Compliance Protection, Breach of Fiduciary Duty, FINRA Matters, and much more. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.
Tags: eccleston, cfp, code of ethics, disclosures
