The Financial Planning Standards Council (FPSC) revised and updated its standards and code of ethics recently, combining four different documents into one: The Standards of Professional Responsibility.
This document, the result of a two-year review, outlines the professional and ethical responsibilities Certified Financial Planner (CFP) advisors and brokers have to their clients and the public at large.
What’s important to note, says John Wickett, senior vice president of standards and certification at the FPSC, is that the document is not just for CFP candidates or curriculum planners. “This is not just a ‘nice to have’ guiding document. This is very explicitly (going to be) used in handling complaints and evaluating conduct,” he says.
A review of the FPSC standards takes place every five years, in consultation with existing CFP professionals (17,000 in Canada), allied industry groups, regulatory bodies and at least six different consumer advocacy groups. An active committee of experts, including a number of lawyers, did the upfront work needed to revise the standards.
The changes are not overly dramatic or drastic but they do include a few small details that will likely change the way some planners conduct business.
The first, and perhaps biggest change, is a good example. Although the ‘client first’ principle has long been an implicit guide, the code of ethics now explicitly states the obligation of CFP holders to place the client’s interest ahead of their own, “regardless of the legal relationship between the client and the CFP professional; CFP professionals must always put their clients’ interest ahead of their own.”
The code goes on to say the principle applies, even in instances where the CFP professional may not be clearly undertaking a financial planning engagement. In these cases, a further revision, one that is more prescriptive than principles-based, states that CFP holders “shall implement only those strategies that are both prudent and appropriate for the client unless the client provides specific written instructions to the contrary.” Such written instructions will likely need to be kept on file in cases where a planner is simply transacting business on behalf of a client.
Mr. Wickett says the change is essentially a codified balance to existing industry compensation practices and other pressures which can influence an advisor’s day-to-day business.
“In the interest of not leaving anything unsaid, we decided to just clearly state it. This is principle number one,” says Mr. Wickett.
Overall, he says the document, which merges or compiles the existing FPSC Code of Ethics, Rules of Conduct, Fitness Standards and Financial Planning Practice Standards into one, is a midway compromise between the different prescriptive and principles-based approaches to oversight. Although the code of ethics is very much a principles-based document (this piece, along with the rules of conduct and practice standards are rooted in and based on existing international standards), the more prescriptive rules of conduct help in instances and particular workplace scenarios that can pressure professionals and the plans they create. These provide more direct guidance but Mr. Wickett says the overarching approach is principles-based.
“The code of ethics supersedes the remainder,” he says, “but where there’s a benefit of more clarity, again, always in the vein of protecting the public, we add specificity.”
Given that changes appear minor on the surface, some might be compelled to put off giving the standards serious consideration but there are practical concerns CFP advisors will need to take into consideration. For example, says Mr. Wickett, planners “might need to tweak, a little, how they handle the process of disengaging from a client or the way they hand off a client portfolio to another planner.”
Specific changes to each document merged into the Standards of Professional Responsibility, are clearly outlined at the beginning of each section.
In addition to the code of ethics client-first principle, and the rule about requiring written instructions, other notable changes to the rules of conduct include new disclosure and communication requirements and new supervisory requirements when a CFP professional delegates or assigns responsibility to a subordinate or third party. Finally, it has also been made explicit that the fitness standards apply to all CFP professionals, not just to candidates.
A review of these standards takes place every five years to ensure their continued relevance.