Journal of Financial Planning: February 2014
Rick Adkins, CFP®, ChFC®, CLU®, is president and CEO of The Arkansas Financial Group, Inc. in Little Rock, Arkansas. He served as the 2003 Chair of the Board of Governors of the Certified Financial Planner Board of Standards. Email Rick Adkins
While you’re reading this well into the first quarter of 2014, I’m actually writing it in the glow of Thanksgiving 2013, anticipating a very merry Christmas season. I was long ago disabused of the idea that there really was a Santa Claus by my neighbor, Cathy Cobb, who had older sisters. I still remember the smug look on her face as she watched her revelation crush my childish belief in the jolly ole elf. Yet, I still enjoy the holiday season.
As an adult, I had come to believe a fantasy as wildly naïve as my earlier belief in Santa Claus: I actually believed that there was someone or some entity out there regulating the profession of financial planning. In retrospect, each time an event happened that appeared to move this ideal toward becoming truth, something happened to squelch that hope. As my task as a columnist is to write about “professional issues,” here’s where I see things—for us to even have a profession about which to have issues:
Financial planning is not yet a legally recognized profession, licensed by the various states, and regulated by licensing boards established by the state legislatures. No matter how badly some of us wish otherwise, the existence of a financial planning profession remains a passionate figment of our well-intended imaginations. If you want financial planning to become a profession, band together with like-minded individuals to establish the legislation to create a licensure and regulatory structure within your state.
Financial “services” is the greatest threat to there ever being a financial planning profession. The public continues to be confused by the fact that anyone holding an insurance or securities license (being in “financial services”) can pretty well call themselves anything they can dream up. Although in many states it is now a violation of law for one holding an insurance license to use titles such as “financial planner,” “financial adviser,” or “financial consultant” as a marketing term, there appears to be little proactive enforcement of the law. Just pull out your Yellow Pages and see who is listed under “financial planning consultants.”
CFP Board has limited ability to act as a regulator. Although I love the message in CFP Board’s mission statement, “…to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for competent and ethical personal financial planning,” CFP Board is somewhat hamstrung. In spite of the mission statement, it really has a two-fold survival challenge: (1) preserve and protect the 501(c)(3) exemption granted by the IRS, and (2) protect its intellectual property rights in the trademarks CFP and Certified Financial Planner™.
In my opinion, the CFP Board has been, and continues to be, the most misunderstood organization within the world of financial planning, due to a failure of its own certificants to understand these dual challenges and motives. If you have ever read something about CFP Board and found yourself asking, “Why on earth are they doing that?” the answer generally lies in a (c)(3) or trademark reason.
An additional regulatory impediment is that financial planning is not a transaction. Securities and insurance regulation was generally built around rules associated with specific transactions (“Did they fall inside or outside the box created by rules?”) Financial planning as a profession will never be “regulate-able” in that manner. Financial planning is a process, not a transaction. Financial planning can be a very messy, complex process where the time for taking certain action or the giving of certain advice doesn’t lend itself well to rules. Advice is ultimately driven by the unique facts, circumstances, and preferences of the client. That’s why principles, not simply rules, have always driven professional discipline. I’m always amused when I hear people talking about regulating financial planning. Exactly what are they regulating, the assumptions used in the plan, the complexity of variables used in the plan, the calculation methods used in the plan, or the manner in which the recommendations were implemented and monitored?
Until CFP Board devises and adopts a disciplinary model more like the various state medical boards or boards of accountancy, rather than FINRA or other transactional bodies, it will find regulation of financial planning across this vast country to be a formidable challenge. Moreover, CFP Board still faces the challenge that the worst discipline it can impose is to prevent someone’s usage of its two trademarks. This is why I’m astounded at the progress made by the board while facing these challenges.
The SEC has a focused regulatory mandate and limited budget. The SEC may be the closest entity available to provide true regulation of financial planning. Yet, its role in this regard is still incidental in nature, as Congress did not pass the Financial Planners Act of 1940. In spite of this, most financial planners find themselves regulated by this body, and the public benefits from that regulation. The overall value of this regulation lies not in its rules, but in the broadness of the self-disclosed information provided by the investment advisory firm, describing what it does and does not do in Form ADV. These disclosures, when coupled with the fiduciary obligations to which an adviser is held, present a powerful regulatory structure.
Unfortunately, the SEC finds itself in a dilemma similar to CFP Board. Congress has failed to appropriate resources sufficient for the SEC to carry out its regulatory mandate. Although the SEC has a regional structure in place that can cover the country, the funds for adequate personnel to staff those offices is limited. The nature of an SEC audit requires looking well beyond transactions; it involves examining what the firm is doing related to the financial planning process, even if the emphasis is on investment advice. So, unless more funds are made available, either through appropriation or the permitting of user fees, the ability of the SEC to achieve what it is capable of doing in terms of regulating financial planning will remain limited.
At the end of the day, follow the money. The greatest challenge facing financial planning as a profession is that too many people with too much money are giving too much of it to those who have a vested interest in preventing financial planning from becoming a recognized profession. Only a cataclysmic event could overcome that. Oh wait, didn’t we just have two of those with the market collapse of 2008 and the Madoff scandal? From those events we got Dodd-Frank that was going to fix everything. Why hasn’t it? Follow the money.
We’ll eventually end up with a watered down fiduciary rule that lets people continue to place their own interests ahead of their customers’ interests. If these disasters didn’t empower change, I fear we are doomed. Why do you think the SEC hasn’t received adequate appropriations? The money forces have a vested interest in preventing it. The last thing they want is a regulator who truly puts the public’s interest first having power to disrupt their games. Even CFP Board isn’t immune to financial conflicts. When two-thirds of the certificants hold an insurance or securities license, there’s a delicate balance on the extent you can push the ideas of fiduciary obligation and full disclosure. I remember some of those debates more than 10 years ago. I applaud those who made it happen.
While I would like to tell you a nice Christmas story where the angel gets his wings or we all have a very, merry time, when it comes to regulation of financial planning, I can’t do that. I’m grateful to those who still struggle to effect regulatory change. CFP Board, FPA, and NAPFA continue their valiant efforts. I simply fear that this won’t be enough. I plan to continue to enjoy the time I’m given and look forward to a wonderful time serving clients. May you do the same.