Financial Planning Coalition Gets It Right

The Financial Planning Coalition (FPC) released a statement this morning clarifying its position on the Obama Administration regulatory reform proposal.



The FPC applauded the Obama Administration proposal to require a fiduciary standard of care to brokers, repeating a position first articulated in its release of June 18, the day after the Obama Administration’s white paper on regulatory reform was released. However, the FPC now also expressed concern that the fiduciary standard would be “watered down” by the proposal.



The FPC is a recently created group comprised of the Financial Planning Association, National Association of Personal Financial Advisors, and the CFP Board of Standards. Please note that my blog of June 18 swiped at FPC for not mentioning that the fiduciary standard could be watered down by the Obama proposal.



Apart from qualifying its support for the Obama Administration proposal, today’s FPC statement, which I’ve highlighted for quick scanning, clears up an important part of the Obama Administration’s June 17 white paper. The 88-page white paper called for establishment of a Consumer Financial Protection Agency (CFPA) to help protect consumers from bad financial advice. Some observers interpreted this to mean an entirely new regulatory regime would replace the current regulatory framework. Not so.



FPC explained that the CFPA’s jurisdiction “would cover consumer financial products such as credit cards, savings accounts, and mortgages, and possibly insurance, but notably leaving securities transactions and investment advice to the SEC.”



This makes a lot of sense. While coverage in the trade press would have led you to believe that the CFPA was taking over responsibility for regulation and enforcement of advisors, it’s clearly not. Point is, wrangling over regulatory reform is going on behind closed doors and we know little about the structure of what’s to come, much less who the winners and losers will be.



With that qualification, I’ll speculate that our government bodies and existing institutions are likely to be relied on more heavily as reform is implemented. My guess is FINRA will gain power to regulate RIAs advising consumers.



FPC’s effort to prevent the watering down of the fiduciary standard of care for clients is important. If brokers are fiduciaries but can continue to be compensated on commissions, then the fiduciary standard of care has no teeth. And if the U.S. government bans commission compensation of independent financial advisors, as was done last week by Great Britain’s Financial Services Authority, an extremely unlikely reform, then telling the difference between fiduciaries will be difficult.



Clearly, once the fiduciary standard of care is defined under a new regulatory regime, it could be watered down as to be almost meaningless. The reform measures may not make it easier for a consumer to know the difference between an advisor who puts a client’s interest above his own and one who does not.



The FPC’s release today is laudable for pointing this out and for giving advisors tools to speak out. The bottom of the FPC release contains “message points” advisors can borrow to write letters to legislators.









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