Groups retrench on defining planners

Bowing to the political clout of the insurance and securities industries, the Financial Planning Coalition has given up its effort to get Congress to establish a definition of financial planning that would have brought thousands of insurance and securities brokers and money managers under the sway of an oversight board that the FPC seeks to create.

The coalition has been lobbying Congress to define a planner as anyone conducting two or more elements of the financial planning process, spanning a range of tax, retirement, investment, estate and educational activities.

Now, however, it has dropped that effort but still hopes to hold any of the approximately 300,000 people marketing themselves as financial planners to minimal competency, ethics and education standards.

The coalition also is continuing its push for legislation that would require all financial planners to adhere to a fiduciary standard of care when giving investment advice.

“We want to establish a baseline standard in law that says, “This is what it means to enter the financial planning market,’” said Richard Salmen, chairman of the Financial Planning Association, which is part of the coalition.

That standard, he said, likely would be lower than the standard applied to those holding the designation granted by the Certified Financial Planner Board of Standards Inc., another member of the coalition.

“Our goal as a coalition is to be pragmatic, not just idealistic,” Mr. Salmen said.

Legislating a definition of financial planning was always a long shot, consumer advocates said, but one seized on when Congress and the incoming Obama administration began considering far-reaching regulatory reform.

The FPC was formed in December 2008 by the CFP Board, the FPA and the National Association of Personal Financial Advisors.

Insurance groups such as the Million Dollar Round Table and the National Association of Insurance and Financial Advisors, seeking to preserve their members’ abilities to sell annuities and other products as part of “holistic” financial planning services without another layer of regulation, effectively overwhelmed the coalition’s efforts on Capitol Hill.

Among the “myths” that the FPC said they have been spreading is that financial planning isn’t a separate profession, even though an insurance-industry-sponsored study found that agents professing to be “planning experts” produced significantly more income than colleagues focused on product sales.

Even advocates of a uniform fiduciary standard, such as the Investment Advisers Association, found the definition of financial planning overly broad. They fretted that advisers with no interest in planning could have been subsumed under the definition because of incidental tasks performed for clients.

What’s more, the coalition is having a hard time pointing to financial planning abuses as a root cause of the economic and financial woes affecting consumers, said Barbara Roper, director of investor protection at the Consumer Federation of America.

The financial regulatory-reform package passed by the House of Representatives in early December avoided defining financial planning but called for a study of the planning industry that would have to be completed within six months of passage of a final bill.

The Senate Banking Committee hasn’t yet issued its final version of a companion bill.

‘WILD WEST’

“It would be a victory just to be able to get a study [on financial planning] out of Congress,” said Mercer Bullard, president and founder of Fund Democracy Inc., a consumer advocacy group.

“The bottom line is, the financial planners just don’t have the firepower,” he said. “With their tiny wedge in the securities world, the insurance people were able to scare [the House] into maintaining the Wild West of variable annuities that we live with today.”

The FPC hasn’t publicly disclosed its former or revised legislative proposals, but its leaders said that they and their outside lobbying firm are focusing on getting Congress to adopt a strong fiduciary standard for anyone who gives financial advice. Investment advisers currently adhere to the standard, which requires them to put a customer’s interests first, while broker-dealers under securities law must merely ensure that advice they give or products they sell are “suitable” for a customer.

Getting a fiduciary standard into a financial-reform bill would be sufficient, said Ms. Roper, who added that financial planning issues can easily get lost amid a frenzy of headlines about systemic-risk regulation for banks that are “too big to fail” and controversial proposals such as establishing a consumer protection agency.

The House bill already contains a provision — engineered by The Charles Schwab Corp. and other discount brokers who attract self-directed investors — that she said waters down the fiduciary standard by limiting it to the moment of advice rather than applying it to a continuing process.

The insurance lobbyists, for their part, continue to furiously oppose a fiduciary standard that would require agents selling variable annuities or other products as part of a financial planning process to disclose their compensation schemes, according to FPC leaders and others.

“The insurance agents are out there selling these absolutely horrendous variable annuities and calling themselves financial planners or financial advisers, and are genuinely concerned they won’t be able to do that under a fiduciary duty,” Ms. Roper said. “My problem is getting bipartisan support for a strong fiduciary duty — when senators have 20,000 issues on their plate and constituents saying that a fiduciary duty will kill their mom-and-pop businesses.”

Lee Allen, a spokesman at NAIFA, referred calls to the group’s lobbyist, who didn’t return calls seeking comment. Jennifer Schimka, a spokeswoman at the Million Dollar Round Table, declined to comment.

“Like most things, opportunities for abuse are there,” said Joseph E. Frack, chief executive of the Society of Financial Service Professionals, which provides continuing-education, ethics and networking programs to about 15,000 members who are affiliated primarily with the insurance industry. “If you’re not looking at things from a suitability viewpoint, and quality products and strong ethical standards, then you leave the door open for abuse.”

Mr. Frack said that his group has no position on the coalition’s proposals since it isn’t an advocacy group and doesn’t lobby.

E-mail Jed Horowitz at [email protected].

Related Topics: Certified Financial Planner Board Of Standards Inc. (CFP Board), Financial Planning Association (FPA), ING Group, National Association Of Personal Financial Advisors (NAPFA)