Regulation of Financial Planners

Are financial planners regulated?

Despite providing advice to millions of Americans about critical financial decisions and retirement planning, financial planners are not regulated as a separate and distinct profession. Any person may hold himself or herself out as a “financial planner” without being required to meet basic competency or ethical standards. Given the importance of financial planning to the financial well-being of millions of Americans, particularly older Americans, appropriate regulations are needed – similar to those applicable to doctors, lawyers and accountants – to require financial planners to meet competency and ethical standards.

But aren’t some forms of personalized financial advice – for example, investment advice – regulated?

Though select aspects of financial planning are regulated (i.e., investment advice, trading securities, selling insurance products), the provision of integrated financial advice – the central component of financial planning – is not directly regulated at either the federal or state level.

Why does regulation matter?

The lack of comprehensive regulation of financial planning and of those who provide this important service results in harm to consumers, who can be and are often exploited by unqualified and unethical individuals.

Further, fragmented regulation creates legal “loopholes” and conflicting standards of conduct for the different components of financial planning, allowing providers to choose the standard that is most financially advantageous to them, rather than what is best for the client.

The public is also harmed by:

  • The cost and burden of finding competent, ethical financial planners due to the confusing and conflicting assortment of titles and designations, as well as industry misrepresentation.
  • Individuals holding themselves out as financial planners who do not actually provide financial planning services.
  • Narrowly focused, single-product financial advice that is not integrated, comprehensive or in the client’s best interest.

The Coalition has conducted significant quantitative and qualitative research on the insufficient regulatory standards for financial planners.  The resulting white paper and two-page graphic summary reveal the need for rigorous competency and ethical standards for financial planners.

What needs to be done?

The Coalition supports the adoption of appropriate uniform regulation of financial planners that includes a mandatory fiduciary standard of care for all professionals providing personal financial planning advice. Specifically, the Coalition supports regulations that require financial planners to meet established requirements to practice, including examination, education, experience and ethics as modeled after the CERTIFIED FINANCIAL PLANNER™ certification. Such professional standards would ensure that families and consumers can readily identify a trusted, competent and ethical financial adviser. Just as consumers expect a medical doctor to have a M.D., a lawyer – a J.D., an accountant – a CPA, they should expect their financial planner to demonstrate expertise, experience, and accountability, and be held to standards the public can understand and trust, as with the CFP® certification.