"CFP Board's Code of Ethics and Standards of Conduct reflects the commitment that all CFP® professionals make to high standards of competency and ethics. The Code of Ethics applies at all times, and sets forth principles that guide the behavior of CFP® professionals, ... The cornerstone of the Code of Standards is a CFP® professional's duty to act as a fiduciary and, therefore, act in the best interest of the Client at all times when providing Financial Advice."
Things just got a whole lot more complicated for CFP® professionals.
Under the "Duty to Provide Information to a Client", we will now need two disclosures, or one combined disclosure. The first one is a "Financial Advice Engagement Disclosure" and the other one is a "Financial Planning Engagement Disclosure." What's the difference? I'm glad you asked. The Financial Advice Engagement Disclosure is for clients who only want financial advice and not a financial plan. Whereas, the Financial Planning Engagement Disclosure is for clients who want a Financial Plan that may also include financial advice. Got that?
Well, it might help to understand what the steps are to a Financial Plan first. Here they are:
- Understanding the Client's Personal and Financial Circumstances
- Identifying and Selecting Goals
- Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action
- Developing the Financial Planning Recommendation(s)
- Presenting the Financial Planning Recommendation(s)
- Implementing the Financial Planning Recommendation(s)
- Monitoring Progress and Updating
Here are some items that a CFP® professional reviews as part of a Financial Plan:
- Net Worth
- Balance Sheet
- Liquidity
- Budget
- Debt
- Student Loans
- Tax Returns - Most Recent and Projected
- Asset Allocation
- Taxable Accounts
- Tax-deferred and Retirement Accounts
- Sector and Style Concentration
- Retirement Income
- Retirement Income Taxation
- Retirement Income Stress Tests - Worst Case Scenarios
- Social Security Optimization
- Medicare
- Cash Flows - Current and Future
- Life Insurance
- Disability Insurance
- Long Term Care
- Property and Casualty
- Education Planning
- Account Titling and Re-Titling
- Wills and Pour-over Wills
- Revocable Trusts - Beneficiaries and Successor Trustees
- Health Care Proxies and Living Wills
- Real Estate Titling
If you are a consumer of Financial Advice or Financial Planning, then be prepared to receive more communication from your CFP® professional in the form of written disclosures. Right now, I have a combined document of four (4) pages. Add that to my Investment Advisory Agreement which is ten (10) pages. Of course, my Form ADV 2A is twenty-five (25) pages. Don't forget my Form ADV 2B which is fourteen (14) pages. Further still, there is the new Form CRS that is another two (2) pages. Just to be safe, I think that I will need to add another three (3) pages to describe my services and a fee comparison, so potential clients can see what they are getting for their money. All totaled, we are looking at a total of fifty-eight (58) pages of disclosures. FIFTY-EIGHT PAGES!
Of course, if you are a consumer of Financial Advice or Financial Planning, then I fully expect you to read all 58 pages and sign off on the fact that you did.
Forgive me for being a little bit sarcastic, but does the United States Securities and Exchange Commission, better known as the SEC, truly believe in their heart of hearts that people are going to read fifty-eight (58) pages of disclosures? How about the CFP® Board? Do they believe it?
Written disclosures are not for the benefit of clients. It is for the benefit of regulators and attorneys who draft the documents. It is job security for both.
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