More Regulations on the Way for Financial Planners?

An article I found today at Financial-Planning.com caught me by surprise. It indicates that the three major financial planning organizations, the CFP Board, the FPA, and the NAPFA, were coming together to explore a unified approach to guiding congressional legislation aimed at reforming the financial services industry. In a nutshell, they are looking at what further regulations, if any, should be imposed on financial planners to protect consumer interests in light of recent heavy economic losses.

Leadership of the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors are conducting a review of regulatory gaps in the delivery of advice to consumers and issues regarding appropriate standards of conduct for the financial planning profession. Financial planning is currently regulated indirectly through licenses held by investment advisors, securities brokers and insurance producers or consultants, but is not regulated as a profession.

In the coming months, the three organizations will seek feedback from planners on the regulation of their profession. They will also contact organizations that share their belief that high ethical standards and qualifications for advisory services are more necessary than ever.

While I'm all in favor of a healthy dose of oversight, accountability, and a strict level of ethical conduct, I have to chime in that more stringent regulations on financial planners is not essential to address the present situation. My suspicion is that this is a cosmetic move to increase credibility as investor losses mount, and overall trust in the profession has taken a beating.

So far, the financial planning industry, and the professionals that belong to these organizations and carry their official designations, such as CFP, have usually held themselves to higher standards of ethical conduct and exhibited a more realistic analysis of financial markets than their non-planning oriented counterparts. In fact, one reason for the popularity of financial planning is that it tries to apply a more analytical, real-world, fact-based approach to investment decisions than the recommendations  and "hot tips" by the salesman, hucksters and momentum traders in the industry.

The bulk of the regulatory problems that we are facing are less of a result of the ethics and expertise of the financial planners, but on the lack of transparency and oversight of the instruments being sold, and a complete loss of integrity across the regulatory systems themselves, to which I would include the SEC, and the ratings agencies. If an advisor sells a AAA rated instrument that goes bad, who should get the blunt of further regulations, the advisor or the ratings agency?

I'll be following this topic closely, because I definately think there is some clean-up and regulatory oversight required in the industry, but the certified and concientious financial planners are generally the bastions of integrity and whose interests have been most closely aligned with the consumer without additional regulations.

//Gary

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Financial planning is currently regulated indirectly through licenses held by investment advisors, securities brokers and insurance producers or consultants, but is not regulated as a profession.