As a consumer, you want the professionals you work with to treat you fairly and honestly. Unfortunately, that's not always what happens. Even ethically-minded professionals face demands on their business lives that often don't allow them to focus enough attention on ethical issues.
When dealing with a financial professional, it's important for you to hold the professional to a high ethical standard. In an attempt to distinguish itself and its professionals, the Certified Financial Planner Board of Standards has established a code of ethics for certified planners to follow. Because many companies that provide financial services, including Ameriprise
Code of ethics
The CFP Board includes seven basic principles in its code of ethics. These principles define your rights and the way you should expect a financial professional to treat you. In the view of the CFP Board:
- You have a right to a planner with integrity, one who earns your trust and treats you honestly.
- A planner's advice should be objective and focused solely on your needs.
- Your planner should be competent and well-educated about the financial planning profession, with a continuing commitment to stay informed about new developments in the financial industry.
- You should be treated fairly, and your planner should tell you clearly how your professional relationship will work, how the planner will be compensated, and any potential conflicts of interest that may exist.
- Your planner should keep any personal information you provide confidential.
- The planner you work with should have any required licenses or credentials necessary to do the work you ask the planner to do.
- Finally, planners should be diligent in performing any work they agree to do, not only in developing a financial plan for you, but also in helping you to implement it.
Financial professionals who seek the CFP Board's certifications are bound by this code of ethics. That's why attorneys and other advisors often recommend that clients look for board-certified financial planners.
Applying ethical principles
Although broad ethical principles give clients some degree of comfort, the application of those principles to specific situations can be somewhat vague. In order to clarify the application of its code of ethics, the CFP Board has included a set of rules more specifically discussing common issues that arise during financial planning.
The CFP Board's rules all relate to particular principles in its code of ethics. For instance, in defining the duty of integrity, the rules require planners to avoid misleading ways of soliciting business, fraudulent conduct, and mishandling of client's funds. To be objective, a planner must always act in the best interests of the client, using reasonable and prudent judgment in making any decisions. To remain competent, a planner must take continuing education classes and avoid giving advice in areas in which the planner lacks sufficient knowledge. In order to demonstrate fair treatment, planners must disclose specific information about conflicts of interest, including compensation from outside sources such as mutual fund, insurance, and brokerage companies. They must charge only a reasonable fee, and avoid engaging in client-planner personal business transactions that don't treat the client fairly.
Maintaining professionalism requires planners to act respectfully toward competing professionals, follow all applicable rules and regulations imposed by other organizations or government entities, and in some cases, alert appropriate officials about misconduct by other planners. Providing diligent service means defining the scope of the services the planner will provide, then taking the necessary steps to develop and implement suitable recommendations that meet the client's needs.
Recent draft recommendations for proposed revisions to the CFP Board's code of ethics would take further steps toward clarifying the terms of the professional relationship between planners and clients. The proposed revisions set out specific items that should be included in an agreement between the planner and the client at the beginning of the engagement: what the planner will do for the client, each party's responsibilities, and compensation arrangements. Under the revised rules, clients could generally hold their planners to the high standards of a fiduciary unless they agreed otherwise.
In addition, the proposed revisions set out some guidelines for handling particular types of situations. For example, the revisions would largely prohibit clients from borrowing money from planners or lending money to planners. In general, the proposed revisions would make the code of ethics easier to understand for clients who are generally unfamiliar with the ethical issues surrounding financial planning.
What to do if you have a complaint
One advantage of working with a planner who is subject to these rules is that there is an established procedure to follow if your planner violates ethical responsibilities. For planners who obtain and use the CFP Board's certification, you can file a grievance directly to the CFP Board on its website. The CFP Board takes all complaints seriously, evaluating them to determine the appropriate level of investigation. Once invoked, the disciplinary process can potentially include a preliminary determination of probable cause to believe a violation has taken place, a hearing before a panel of at least three people. This panel submits findings to the Board of Professional Review, which makes a final decision subject to appeal. Punishments range from private censure to full revocation of the planner's right to use the CFP Board's certification.
With the increasing complexity of the financial world, it's increasingly important to find professionals you can trust. By choosing a financial planner who is governed by strict ethical principles and guidelines, you can feel more confident that you will get the advice and assistance you deserve.
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Fool contributor Dan Caplinger is a financial planner who is subject to the CFP Board's code of ethics. He doesn't own any of the companies mentioned in this article. The Fool's disclosure policy is one expression of its own commitment to ethical conduct.