Monday, March 22, 2010

The Financial Planners Act of 2010

Once again, Wall Street has managed to get their loopholes in yet another piece of legislation. The Financial Planners Act of 2010 defines what financial planning is and requires anyone who holds themselves out as financial planners to be registered as a "registered financial planner" and subject to a yet to be named financial planner oversight board. This is already a requirement of the Investment Advisers Act of 1940.

The definition of financial planning is defined in this FP Act and anyone who works for a broker/dealer, bank or insurance agency can offer financial planning services, as defined, without having to be a registered financial planner. There is even a loophole that they can have the Certified Financial Planner designation on their business card, but still not be considered as holding themselves out as a financial planner. Or, they could have the Chartered Financial Consultant designation or the Personal Financial Specialist designation and as long as they do not hold themselves out as financial planners, then they do not have to do things in the best interest of the client.

Forgive me but doesn't this seem a*% backwards? Take for example, someone like me who is a Certified Financial Planner and also an Investment Adviser Representative for a Registered Investment Adviser. I am required to do things in a client's best interest. I pay fees to keep my CFP designation. I pay fees to be an Investment Adviser Representative and fees to be a  Branch Office of a Registered Investment Adviser and yet more fees to be a Registered Investment Adviser firm. With this new act, I will now have to pay more fees to be a "registered financial planner." However, the loophole financial planners who do not have to register will not be subject to the ethics and disciplinary oversight of this new board. Yet, they can put CFP on their business card just like me. Of course, this will in no way shape or form confuse clients, will it? How is a client to know who is a registered financial planner and who is not? Will I be allowed to put registered financial planner on my business card and marketing materials? I doubt it. The confusion will persist for clients in trying to figure out if a CFP is also a registered financial planner.

It doesn't take a smart person to figure out that if I can get by with a loophole, then I am going to try and get by with the loophole. Why should I pay more fees and be subject to an oversight board if I just avoid holding myself out as a financial planner? I suspect the broker/dealers will not allow their registered representatives to hold themselves out as financial planners. I further suspect that insurance companies will not allow their agents to hold themselves out as financial planners. Finally, I am sure that banks will do the same. The end result is the people who are already holding themselves out as financial planners and are already registered as investment adviser representatives will now be registered financial planners.

When you think about it, is any real meaningful thing being accomplished here? Other than adding another layer of bureaucracy, I do not think so.

Hopefully, at some point in time with proper education of consumers it will mean something to be a registered financial planner. Time will tell.