Understanding the Ethics behind the CFP designation
Letter to Advisor's Edge - January 29, 2002
In the December cover story entitled "From moral principles to more profits", David Christianson strayed from his experience within the CAFP, and claims an expertise in interpreting Financial Planners Standards Council's Code of Ethics that he does not possess.
Unfortunately for all those who read and believed Mr. Christianson statements regarding our Code, they result from his misinterpretation of Rule 402. He mistakenly and, much to our dismay, repeatedly claims that our Code allows CFP professionals to "opt out" of their fiduciary responsibilities in some circumstances. It does not.
Let's clarify what a fiduciary responsibility or duty is.
When one person (the fiduciary) undertakes to act in a professional capacity on behalf of another party (the client), a fiduciary responsibility ensues. The law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client, or from acting for his own benefit in relation to the subject matter without the knowledge of the client. The client is entitled to the best efforts of the fiduciary on his behalf, and the fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client.
A person acting in a fiduciary capacity is required to make truthful and complete disclosures to those placing trust in him, and he is forbidden to obtain advantage at the latter's expense.
The FPSC Code applies to CFP professionals actively involved in the practice of personal financial planning, in other areas of financial services, in industry, in related professions, in government, in education or in any other professional activity in which the marks are used in the performance of their professional responsibilities. The use of the CFP designation imposes an obligation not only to comply with the mandates and requirements of all applicable laws and regulation, but also to take responsibility to act in an ethical and professionally responsible manner in all professional services and activities.
Rule 402 actually states " In rendering services (such as taking an order for securities or insurance coverage) that do not encompass the CFP professional functioning as a financial planning practitioner, the CFP professional shall inform the client of the scope of the services that shall be rendered and that the CFP professional is not taking on the responsibilities of a financial planning practitioner."
Rule 402 does not define, as Mr. Christianson thinks, a circumstance in which a CFP professional may "opt out" of a responsibility to always place the interests of the client first and foremost in any professional relationship. Far from it, a CFP professional is required to ensure that the client fully understands the scope of the services to be rendered in order to avoid any misunderstanding of the process to be applied. This extra step is not opting out of a professional obligation, but rather the recognition of a professional responsibility to the client.
Don Johnston
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