How to Choose a Planner
Fiduciary Duty: Your Best Interests Should Come First
When you hire a CFP® professional, you are hiring a trusted advisor who has made a commitment to putting your interests first. As part of their certification, a CFP® professional commits to CFP Board to act as a fiduciary—which means to act in the best interests of the client at all times when providing financial advice and financial planning. CFP Board is not a regulator and CFP Board doesn't guarantee a CFP® professional's services. However, CFP Board may sanction a CFP® professional who does not abide by this commitment and welcomes tips from the public. You want a financial advisor who has made a commitment to you to act as a fiduciary. Therefore, whomever you choose as your financial professional, including a CFP® professional, you should be sure to ask for—and get—a written engagement that requires them to have a fiduciary obligation to you.
Someone who is acting as a fiduciary in accordance with CFP Board’s Standards is required to fulfill the following three duties. We’ve included an example for each duty to illustrate how the duty plays out in real life.
the duty of loyalty
This means your interests are placed above the interest of the CFP® professional and the CFP® professional’s firm. The CFP® professional commits to either avoid conflicts of interest or fully disclose material conflicts of interest to you, obtain your consent and manage the conflicts in your best interests. In other words, even when there is a conflict, a CFP® professional commits to CFP Board to act in your best interest and act without regard to the financial interests of the CFP® professional or the CFP® professional’s firm.
How It Works: You want to invest in a stock mutual fund. Your CFP® professional’s firm offers only proprietary stock mutual funds. To satisfy CFP Board’s standards, a CFP® professional needs to disclose the conflict of interest to you and obtain your consent to the conflict. Then, in making recommendations, to abide by CFP Board’s standards, the CFP® professional must select a proprietary stock mutual fund that is in your best interests.
The duty of care
This means to act with the care, skill, prudence and diligence of a prudent professional in view of your goals, risk tolerance, objectives, and financial and personal circumstances.
How It Works: You receive a sudden windfall of $100,000 that you don’t intend to invest for six months. You ask your CFP® professional where you should hold the money in the meantime. To satisfy CFP Board’s standards, before giving you a recommendation, a CFP® professional needs to look at reasonably available choices, and consider factors such as the interest rates offered and the risks entailed, to recommend an option that would serve your best interests.
THE DUTY TO FOLLOW CLIENT INSTRUCTIONS
This means complying with all objectives, policies, restrictions and other terms that you and the CFP® professional have agreed to under your engagement and all reasonable and lawful directions of you, the client.
How It Works: You have a sibling who has started her own broker-dealer firm. You ask your CFP® professional to execute trades in your brokerage account using your sibling’s firm to help boost the sibling’s business. Your CFP® professional finds that the cost to trade using your sibling’s firm is higher than the current firm that executes trades in your account. Your CFP® professional informs you of the higher cost and explains how that could dampen your investment returns. If you still prefer to use your sibling’s firm despite the higher cost, your CFP® professional needs to follow your instructions and execute the trades using your sibling’s firm, if that is permitted by the CFP® professional’s firm and the regulations that govern their services.
Further Reading
FIDUCIARY DUTY: RESOURCES YOU CAN USE
CFP Board’s Code of Ethics and Standards of Conduct reflects the commitment that all CFP® professionals make to high standards of competency and ethics. Violations of the Code and Standards may subject a CFP® professional to discipline by CFP Board; when you use the Find a CFP® Professional tool, the profiles show disciplinary actions that CFP Board has taken against the individual.
The tool provides links to other sources of information about CFP® professionals that may be more recent or that may contain information that has not led to CFP Board discipline and does not appear on CFP Board’s website. The information may include customer disputes, disciplinary actions taken by a regulator or employer, certain criminal matters, and certain financial matters (such as bankruptcy proceedings and unpaid judgments or liens).
As a nonprofit professional body, CFP Board’s Code and Standards and disciplinary process — including its online complaint and tip center — provide extra assurance to consumers about the commitment of a CFP® professional to ethical standards.