An Update on Fiduciary


The Financial Planning Association’s (FPA) National Conference last weekend could have been presented by “The F-Word”: Fiduciary. The weekend brought together 2,000 CFP® professionals, all of whom adhere to the fiduciary standard. This is the standard of care, which requires that financial professionals to put the interests of clients first. (Those financial professionals with the CFP® certification from the Certified Financial Planner Board of Standards (CFP) are fiduciaries, as are CPA Personal Financial Specialists, members of the National Association of Personal Financial Advisors (NAPFA), as well as 17,000 of the 24,000 members of the FPA. That principal might seem obvious to consumers. Of course someone who is talking to me about my financial life should put my interest before his or his company’s interest, right? That’s why according to a recent survey conducted by the CFP, 9 out of 10 Americans agree that when they receive financial guidance, the person providing the advice should put the consumers’ interests ahead of theirs and should have to tell consumers up front about any conflicts of interest that could potentially influence that advice.

Unfortunately, while many consumers are increasingly turning to professionals to help guide them (40 percent of respondents, up 12 percent from five years ago), many of these individuals are working with folks who are not required to put the interest of clients first.

This survey was conducted as a quiet battle is going in Washington DC. Earlier in the year, President Obama endorsed a Department of Labor proposal, which would require all financial professionals to act in a customer’s best interest when working with retirement investors. The Securities Industry and Financial Markets Association, the lobbying arm of the financial world, said “This proposal would lead to a number of negative consequences for individual investors.” A number of large firms that provide retirement services echo the SIFMA sentiment and have submitted alternative proposals to DOL.

The Financial Planning Coalition, which is comprised of the CFP Board, the FPA and NAPFA support the fiduciary rule and note that the change “is a long overdue and much-needed update to the 40 year-old definition of ‘fiduciary’ under the Employee Retirement Income Security Act (ERISA).” The coalition dismisses alternative proposals from financial services organizations and firms, saying that they would dilute “the basic requirements of a true fiduciary standard under either ERISA or securities law.”

Paul Auslander, the former Chairman of the Board of Directors of the Financial Planning Association and Director of Financial Planning at ProVise Management Group, LLC, told me that considering that most consumers believe that they are receiving untainted financial advice, the rules should be updated to do so.

“It’s no wonder that consumers are confused,” says Auslander: “Many professionals call themselves ‘advisOrs,’ but only those who are registered under the Investment Adviser Act of 1940 are ‘advisErs’.” Notice the spelling: Financial advisors (with an “o”) “tend to be titles for salespeople in financial services, while those who are advisers (with an “E”), are likely to follow the fiduciary standard”.

As a veteran of the industry, I asked Auslander why some companies are pushing back so hard against the change. He believes that there is a unique business opportunity that these fearful firms are missing. “The company that has the professional guts to be the first to plant the flagpole on top of the fiduciary mountain will be richly rewarded by consumers, who will flock to the early adopters of a true, legally-binding client-first model. It's mind boggling to me how few senior executives get this.” And for those financial professionals who are resistant, Auslander reminds them “Doing the right thing is a huge differentiator, and being legally obligated to be accountable for your company's actions is the only way to do it.”

To find a fiduciary adviser, you can use the Financial Planning Association's tool, the CFP Board's search engine or for fee-only advice (those who do not take any commission), you can go to NAPFA.