Is a Certified Financial Planner a Fiduciary?
A Certified Financial Planner is indeed required to act as a fiduciary in all instances where they provide advice or guidance to a client. In other words, this means that a CFP must always act in the client’s best interests. By contrast, advisors and brokers that are not certified are only required to make “suitable” recommendations. If you forgo the guidance of a Certified Financial Planner, you may end up spending more money and missing out on opportunities.
What is the Certified Financial Planner’s Code of Conduct?
According to CFP.net—the official website of the CFP Board—all Certified Financial Planners are required to abide by the following Code of Ethics:
- Act with honesty, integrity, competence, and diligence.
- Act in the client’s best interests.
- Exercise due care.
- Avoid or disclose and manage conflicts of interest.
- Maintain the confidentiality and protect the privacy of client information.
- Act in a manner that reflects positively on the financial planning profession and CFP® certification.
The Code of Ethics continues from there. Insofar as a Certified Financial Planner must act as a fiduciary, they are required to uphold a Duty of Loyalty, a Duty of Care, and a Duty to Follow Client Instructions.
The CFP Board defines these duties in the following way:
- “Duty of Loyalty. A CFP® professional must:
- Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional’s Firm;
- Avoid Conflicts of Interest, or fully disclose Material Conflicts of Interest to the Client, obtain the Client’s informed consent, and properly manage the conflict; and
- Act without regard to the financial or other interests of the CFP® professional, the CFP® Professional’s Firm, or any individual or entity other than the Client, which means that a CFP® professional acting under a Conflict of Interest continues to have a duty to act in the best interests of the Client and place the Client’s interests above the CFP® professional’s.
- Duty of Care. A CFP® professional must act with the care, skill, prudence, and diligence that a prudent professional would exercise in light of the Client’s goals, risk tolerance, objectives, and financial and personal circumstances.
- Duty to Follow Client Instructions. A CFP® professional must comply with all objectives, policies, restrictions, and other terms of the Engagement and all reasonable and lawful directions of the Client.”
Which Financial Advisors Are Not Considered Fiduciaries?
Advisors who are not fiduciaries are completely within their rights to put their own interests before your own—and if that sounds less than desirable to you, you’re certainly not alone. Although you can safely assume that a CFP is a fiduciary, you should always ask other financial planners and advisors if they are acting in a fiduciary capacity. After all, even someone who is not a Certified Financial Planner may be a fiduciary—but you’ll definitely want to double check. Registered Investment Advisors and Attorneys are two examples of fiduciaries who are not CFPs.
On the other hand, Stock brokers and real estate agents are two common types of non-fiduciary providers of financial guidance. Here’s what you should know:
- Real estate agents may be required to act in the best interest of the seller, but not the buyer.
- Stock brokers may earn fees based on commission, for example, by selling certain stocks instead of others. As long as these sales are technically “suitable”, then the broker is acting within their rights.
When you’re working with a new financial advisor, it’s always a good idea to check out their background on Finra’s BrokerCheck service.
Certified Financial Planners at IntentGen Financial Partners
If you’re searching for a Certified Financial Planner in Naperville, IL, then you’re right where you need to be. If you sign up for any of our Wise with Money Partnerships, a CFP will review the plan that you develop together with your personal financial advisor. Ready to learn more? Contact us today.