Interesting news from Certified Financial Planner Board of Standards.

In a move that will elicit comments of " they didn't do that already? " from most trial lawyers, consumer advocates and the general public, the Certified Financial Planner Board of Standards issued suggested changes that would require it's advisors to assume a fiduciary obligation to the client unless the client and advisor agree to a different standard. The rule change, if implemented, would impact the 51,000 financial planners, stockbrokers and insurance professionals who hold the CFP designation that is so ubiquitous in the planning industry.

The CFP's proposal, as reported in the online Wall Street Journal, defines the fiduciary standard as acting " in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances; an in a manner he or she reasonably believes to be in the best interests of the client." Under existing CFP standards, advisers are only required to disclose conflicts of interest and compensation arrangements and to render services " in a manner that is fair and reasonable to clients."

As many professionals know, the "fiduciary issue" is also at the very heart of a debate that is starting to be heard in the settlement industry, as brokers and agents don't hold a fiduciary responsibility to act in the best interest of clients, but instead are generally considered to operate under a more relaxed standard of "suitability" guidelines or the law of agency. It is only with the advent of settlement planning and plaintiff representation in the settlement process that these issues of fiduciary responsibility, the laws of agency and suitability have begun to be raised.

We will be rolling out a comprehensive series on the topic of compensation disclosure, rebating, commission sharing,  fiduciary responsibility and the laws of agency right after Labor Day, but I'd advise settlement professionals and trial lawyers to begin to at least think about this issue and educate yourselves. Most settlement professionals use the terms planner, broker and agent loosely and carelessly with out the slightest idea of the legal implications and duties that each requires, and as the sea change of compensation disclosure and scrutiny of our marketing and business practices increases, you won't want to be in the dark about who you represent, how you present yourself and to whom you owe your allegiance in the settlement process.  

Posted on July 25, 2006 .