CFP Board Best Interests Standard

While basic minimum standards to sell life insurance are low under state-based insurance laws (forty hours of training and passage of a state insurance exam), some financial advisors have voluntarily decided to distinguish themselves with professional designations with options like the CFP board best interests standard. State licensed insurance agents can obtain further training and professional designations including: CFP®, CLU, ChFC, CFA or CPA. Each of these professional designations place some additional education, ethics and practice standards on those who hold them. For example, those that hold the CFP® CERTIFIED FINANCIAL PLANNER™ designation must now have a bachelor’s degree, pass a comprehensive exam and have three years of experience in the field. CFPs must also subscribe to minimum ethical standards that changed materially in 2019.

This year those who hold the CFP® and offer insurance advice will make substantive changes in how they offer life insurance products to clients under new standards that go into effect in 2019. The new rules set forth the ethical standards for CFP® professionals, replaces the CFP Board’s current Code of Ethics, Rules of Conduct, Financial Planning Practice Standards and Terminology effective October 1, 2019. The new Code and Standards includes the application of the fiduciary standard that requires CFP® professionals to “act in the best interest of the client at all times when providing financial advice”. This would apply to any situation where a CFP® licensee would give advice or recommend life insurance products. The advice or placement of life insurance can no longer be segregated from a financial plan under the new rules.

Other relevant ethical standards which would impact the CFP® in the placement of life insurance contracts include requirements that they:

  • Act with honesty, integrity, competence, and diligence
  • Avoid or disclose and manage conflicts of interest
  • Act in the client’s best interests

Exercise due care including in the recommen­dation of a product including life insurance

It is clear that these duties to the client require the CFP® to go beyond delivering a contract that they may have given little thought to. At a minimum they create an obligation that the CFP® give greater thought and care in the recommendation and put the duty to client ahead of that to the life company and their own financial interest. In fact, the duty of care would also require that the CFP® professional must provide professional services with competence (relevant knowledge AND skill to apply that knowledge). When not sufficiently competent in a particular area, a CFP® professional must:

  • Gain competence
  • Obtain the assistance of a competent professional
  • Limit or terminate the engagement
  • Refer the client to a competent professional

There are now firms that have built an entire business model around allowing fee-based advisors with the CFP board best interests designations to outsource these services in a way that is in compliance with these standards and delivers results that are significantly better for clients.

Learn more about the client’s best interest here.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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