"People on the Hill know what financial planning is now," says Tom Potts, president of the Financial Planning Association (FPA), and while it may "take a while" to get everything that financial planners want in Washington, "we're laying the foundation for the future." Potts was speaking in San Antonio on April 23, during the annual FPA retreat, where he and leaders of other organizations in the Coalition for Financial Planning presented a status report to attendees on the Coalition's efforts in Washington.
Potts expanded on that foundation-building work in a follow-up interview, along with FPA CEO Marv Tuttle, with Investment Advisor editor James J. Green in an interview in Hoboken, New Jersey, on May 12, before the Senate passed Thursday, May 20, Senator Christopher Dodd's financial services reform bill.
During the discussion, Potts and Tuttle also discussed the FPA's five standards of care: 1) to put the client's best interests first; 2) to not mislead clients; 3) to act with prudence; 4) to avoid conflicts of interest; and 5) to disclose and manage unavoidable conflicts in the client's favor.
Q: There was a fair amount of talk at the retreat about taking the fiduciary message to members of Congress, especially on the banking committee, and educating them about the issues of financial planning. Have you seen some success there?
Potts: Members of Congress are puzzled, in a way, when a group comes to them and says: "We want regulation." Usually, it's the other way around: "We don't need it, we're already covered." That's the confusion we're trying to clarify. The term "financial planner" has been misused and abused in so many ways over the years that we would like a clarification to where we have a recognized, regulated profession of financial planning. We think that just makes sense for the public.
Five standards of care spell out fiduciary duty
Q: What is the FPA trying to accomplish with the Coalition in Washington?
A: It's really about the five-point standard of care of the FPA. We spent quite a bit of time working on those standards of care with two task forces. We're trying to clarify the confusion [faced by consumers] as to what the titles mean and what responsibilities a planner is held to legally. They don't see the fine lines in an engagement [with any advice-giver]; we'd like to see a bright line established saying a person is an investment advisor who delivers services in a fiduciary manner.
Q: The public may not understand how planners can make money through fees or commissions on an investor's portfolio. How does earning a living fit in with financial planners' duty to serve their clients?
A: The good thing about accepted standards is that they create a safe harbor for practitioners that operate within that system. We believe in reasonable liability but not unintended liability. I don't know if that's the right way to phrase it, but that's what our standard of care is getting at: Is this the way you should conduct business with a client?
Q: So who could possibly be against that?
A: It could be that some people may see this language and believe, "Well, that means that if I do get compensation through commissions, then I can't be a fiduciary." But we're not saying that. As an organization, we're compensation-neutral and business model-neutral. It's not so much about that as how you actually conduct business with your client. The Menendez amendment clearly states that this fiduciary standard does not preclude compensation through commissions.
