The Financial Planning Association
FPA Government Relations Office
By Electronic Mail
March 15, 2004
Jonathan G. Katz
Re: Release Nos. IA-2209; IC-26337; File No. S7-04-04; Proposed Rule: Investment Adviser Codes of Ethics
Dear Mr. Katz:
The Financial Planning Association ("FPA®")1 is pleased to submit comments with respect to the SEC's proposal that would require registered investment advisers to adopt codes of ethics. As discussed below, FPA believes that a code of ethics is an essential expression of the financial planning profession's responsibilities and -- subject to the following comments -- fully supports the SEC's efforts to require appropriate standards of conduct for registered investment advisers.
A. The Certified Financial Planner Board Code of Ethics
The Financial Planning Association is the membership organization for the financial planning community. It was created when the Institute of Certified Financial Planners (ICFP) and the International Association for Financial Planning (IAFP) unified on January 1, 2000. From its inception, the Financial Planning Association embraced a mandate that its members adhere to a code of ethics that reflects their commitment to help clients achieve their life goals.
In accordance with founding documents created by FPA's first board of directors, all FPA members must subscribe to its Code of Ethics ("FPA Code of Ethics").2 The FPA Code of Ethics code is comprised of the principles of the Certified Financial Planner Board of Standards Code of Ethics and Professional Responsibility ("CFP Board Code of Ethics"),3 but is applicable to all FPA members -- CFP® certificants4 and non-CFP certificants alike.
Approximately 18,000 of FPA's 28,000 members are CFP practitioners who have taken the extra step to demonstrate their professionalism by voluntarily submitting to the rigorous CFP certification process. In addition to significant education and experience requirements, they must pass a comprehensive exam that tests their personal financial planning knowledge and skills. CFP practitioners must also satisfy 30 hours of continuing education requirements every two years, including at least two hours of ethics courses.
Of significance to the current rulemaking, CFP professionals -- by virtue of their certification -- are regulated by the Certified Financial Planner Board of Standards Inc. ("CFP Board"). Though a written Declaration and Agreement form, these practitioners expressly acknowledge the CFP Board's right to enforce the Code of Ethics through its Disciplinary Rules and Procedures.
As a result of its recognition as a symbol of educational competence and financial planning excellence, FPA encourages the attainment of CFP certification by all individuals holding themselves out as financial planners or offering comprehensive financial planning services and recommends that consumers use the services of CFP professionals for their financial planning needs.5
In accordance with the CFP Board Code of Ethics, CFP practitioners agree to act fairly and diligently when providing financial planning advice and services, always putting the client's interests first. CFP practitioners are required to provide clients with information about their sources of compensation and conflicts of interest in writing, and must keep personal details obtained from clients confidential.
B. The Commission's Proposed Code of Ethics
As summarized below, many of the SEC's proposed code of ethics requirements duplicate provisions of the CFP Board Code of Ethics.
-Proposal that Each Investment Adviser Adopt Code of Ethics
As noted above, each CFP certificant agrees to be bound by the CFP Board Code of Ethics.
-Proposal about Standards of Conduct
As noted above, each CFP certificant agrees to adhere to standards of conduct (Part II of the CFP Board Code of Ethics) that apply in particular situations. We note specifically that Rule 102 states: "In the course of professional activities, a CFP Board designee shall not engage in conduct involving dishonesty, fraud, deceit or misrepresentation, or knowingly make a false or misleading statement to a client, employer, employee, professional colleague, governmental or other regulatory body or official, or any other person or entity."
-Proposal about Compliance with Laws
CFP Board Code of Ethics Rule 606 provides, in part , that "[i]n all professional activities a CFP Board designee shall perform services in accordance with … [a]pplicable laws, rules and regulations of governmental agencies and other applicable authorities."
-Proposal about Limited Access to Material Nonpublic Information
CFP Board Code of Ethics Principle 5 ("Confidentiality") and Rule 501 address the protection of nonpublic information. Principle 5 provides, in part, that "[a] CFP Board designee shall not disclose any confidential client information without the specific consent of the client…" Rule 501 states that "[a] CFP Board designee shall not reveal - or use for his or her own benefit - without the client's consent, any personally identifiable information relating to the client relationship or the affairs of the client…"
-Proposal about Reporting of Code Violations
CFP Board Code of Ethics Rules 603, 604 and 605 address the obligation of a CFP certificant to report code and other violations. Rule 603 provides, in part, that "[a] CFP Board designee who has knowledge… that another CFP Board designee has committed a violation of this Code of Ethics… shall promptly inform the CFP Board." Rule 604 provides, in part, that "[a] CFP Board designee who has knowledge… which raises a substantial question of unprofessional, fraudulent or illegal conduct by a CFP Board designee or other financial professional shall promptly inform the appropriate regulatory and/or professional disciplinary body." Rule 605 provides, in part, that "[a] CFP Board designee who has reason to suspect illegal conduct within the CFP Board designee's organization shall make timely disclosure of the available evidence to the CFP Board designee's immediate supervisor and/or partners or co-owners."
We do not believe that CFP certificants should be required to adopt redundant provisions in the codes of ethics they would be required to adopt under the proposed rule. We propose instead that CFP certificants be permitted to incorporate by reference the CFP Board Code of Ethics and include in the SEC-required codes only those provisions that do not have an analogue in the CFP Board Code of Ethics. Conversely, for non-CFP certificants, we recommend use of the CFP Board Code as the basis for the codes of ethics required by the Commission.
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We would be pleased to provide any additional information requested by the SEC. Please do not hesitate to call the undersigned at (202) 626-8558.
Neil A. Simon, Esq.