What’s in a name?

Certified Financial Planners fight to preserve value of what they call genuine financial advice

In an effort to protect the value of fiduciary responsibility, the Financial Planning Association is challenging a Securities and Exchange Commission ruling that seeks to protect the value of that very thing.


In an effort to protect the value of fiduciary responsibility, the Financial Planning Association is challenging a Securities and Exchange Commission ruling that seeks to protect the value of that very thing.


The FPA says the ruling does little more than provide a way for commission-based financial professionals to misleadingly act as professionals duty-bound to uphold the best interests of the client. The case is currently before the United States Court of Appeals.

The SEC ruling took effect in January of 2006. Known as the "Merrill Rule," after national brokerage Merrill Lynch, it seeks to separate broker-dealers from fee-based advisers in an attempt to help consumers understand the difference between a sales pitch and advice bound by fiduciary duty. Opponents say the ruling will only add to the confusion and ultimately hurt true financial advisers.

"From our standpoint, the rule is just not good," said Dan Foster, a certified financial planner with Ameriprise Financial in Vancouver. "It’s not an even playing field because it sets brokers apart from advisers, but lets brokers continue to act as advisers."

Foster is referring to a provision of the rule that allows brokers to offer financial advice only if they charge a fee or declare the advice "incidental," meaning only relevant to a sales pitch for a product. Foster said this lets broker-dealers off the fiduciary hook while still being able to pose as advisers.

"We’re basically saying that we answer to a higher level of fiduciary responsibility while brokers in our industry are putting themselves out as advisers,"
he said.

Robert Rockwell is the incoming president for the Portland chapter of the FPA. He said the Merrill Rule exempts broker-dealers who act as advisers from a congressional mandate enacted in 1940.

"The Investment Advisers Act of 1940 requires that investment advisers disclose any conflicts of interest as well as how they earn their money," Rockwell said. "The act says, ‘if you’re charging for advice, you’ve got to be honest.’ Now some brokers are calling themselves ‘financial advisers’ or ‘consultants’ while calling the advice incidental. Congress wrote the act to make advisers fully disclose. The SEC ruling reverses that by letting brokers give advice while not being held to the act."

Rockwell said this loophole will damage the credibility of true fiduciaries. Still others feel it is an insult to CFPs, putting those with much lower credentials in the same league in the eyes of the consumer.

"I’m (a Registered Investment Advisor), but I don’t market it, because I’m a CFP," he said. "You almost don’t even need to study to become an RIA. The barriers to entry are almost nil."

According to Foster, CFPs are the most rigorously qualified financial professionals.

"Why wouldn’t you want to hire the most qualified and educated professional to manage your money?" said Foster. "When you hire a CFP, you can be certain that you are getting a competent fiduciary professional."

Foster’s rhetorical argument is shared by financial professionals, and has been distilled into a legal position by FPA attorneys. This is his question:

"Why should brokers and RIAs be allowed to enjoy that reputation without being held to the same standard?" he said.

In its appeal, the association claims the SEC is operating under a double standard with the ruling, stating in a legal brief that there is no situation the SEC can describe in which a broker-dealer (acting as an adviser) would be bound by the fiduciary duties of the Investment Advisors Act of 1940.

The SEC countered that the new ruling does not violate the 1940 act because the type of advisory service offered by some of today’s broker-dealers did not exist when the act was written. Rockwell said the act should apply to anyone who offers professional financial advice.

"The SEC thinks it’s good to encourage broker-dealers to charge for advice," he said, "but the downside is that the public could see no difference between the two types of advice. People could get burned by broker-dealers and then judge all advisers on that experience," he said.

Still others who oppose the ruling say emerging financial planners could be affected.

"I’m 57 years old," said CFP Charles Bishop, with Vancouver-based First Pacific Associates Financial Services. "I’ve built a client base over 25 years so I don’t perceive a threat, but if I were 30 years old (and trying to build trust) I would be concerned."

Darreld Hutchins, Alsup-Hutchins Financial Group assistant branch manager, is a financial consultant and a broker with A.G. Edwards and Sons in Vancouver. He disagrees with the perception that brokers avoid fiduciary responsibility.

"I don’t think that’s the case at all," said Hutchins. "Nobody I work with feels that way. Just because somebody has a CFP behind their name doesn’t mean they’re better. It doesn’t mean they are more honest than traditional brokers and advisers."

Hutchins in November took the CFP exam, and will learn the results in January. The certification, he says, has no effect on his ethical behavior.

"Even if I don’t get the CFP, I will still operate honestly and treat my clients with respect," he said. "It comes down to if you’re working with a good person or not."