2020 Regulatory and Advocacy Update

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Editor’s note: As an FPA member, you may not be aware of the variety of legislative and regulatory issues that your professional membership association is advocating for on your behalf. This update serves to inform you of those issues. Some regulations, including the Department of Labor’s Proposed Retirement Investment Advice Rule Package, were in flux at the time of this original posting. This article will be updated with the most current information, as it becomes available.

To elevate the profession, FPA—in partnership with its chapters, members, and coalition partners—has positioned itself as an advocacy force at all levels. The work the association is doing to forge relationships with policymakers ensures voices are heard and positions are known by those who bear the power to influence the trajectory of the profession.

FPA has the backs of its members and will work tirelessly to be sure the voice of the financial planning community is resonating on The Hill, in state capitols, and by regulatory and certifying bodies.

Protecting Your Business

The Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act (TCJA) created a 20 percent deduction on “qualified business income” for owners/shareholders of pass-through businesses, such as S corporations, partnerships, and sole proprietorships. Owners and shareholders of certain types of businesses—the “specified service trades or businesses”—are limited in their ability to apply the 20 percent deduction if their overall taxable income exceeds certain thresholds. Financial planners fall within this definition.

In November 2019, FPA joined the Federal Tax Coalition, which consists of Cetera Financial Group, Commonwealth Financial Network, Financial Services Institute, Investment Adviser Association, LPL Financial, National Association of Personal Financial Advisors, and Raymond James.

In December 2019, FPA, along with those coalition partners, urged Congress to clarify via legislation that financial service professionals— including financial planners—shall not be considered a “specified service trades or business” so that financial planners would be eligible for the 20 percent deduction without the income threshold limits.

In a letter to ranking members of Congress, the coalition wrote: “The current statutory language unfairly and unintentionally disadvantages financial advisers, financial planners, and investment advisers and diminishes their ability to invest in and build their businesses. They employ thousands of individuals across the United States and are community leaders, supporting millions of clients. They also provide assistance on a wide range of issues, dealing with challenges such as how to create a savings plan, and how to plan for family transitions.

“Right now, real estate brokers and insurance brokers are able to enjoy the benefit of the 20 percent passthrough deduction. While we recognize that financial advisers, financial planners, and investment advisers are regulated differently than real estate and insurance, as small business owners, they face the same burdens and challenges. Congress should not pick winners and losers,” the coalition wrote.

The latest: FPA will continue to push for this throughout the year.

SEC Regulation Best Interest. Regulation Best Interest was proposed in 2018 and approved by the SEC in June 2019, requiring broker-dealers to act in their customers’ best interest; yet those brokers are not required to adhere to the same regulatory requirements as investment advisers.

Claiming that Reg BI created an unfair competitive advantage for broker-dealers, XY Planning Network sued the SEC in September 2019 to vacate Reg BI. Seven states and the District of Columbia also filed suit, claiming Reg BI undermines consumer protections for retail investors, increases confusion about the standards of conduct for broker-dealers and investment advisers, and makes it easier for brokers to market themselves as trusted advisers. In January 2020, FPA filed an amicus brief in support of XY Planning Network’s lawsuit seeking to overturn the regulation. Reg BI does not support FPA’s longstanding position that when giving personalized investment advice it should be done under a fiduciary standard of care for the benefit of the public.

“FPA strongly disagrees that the SEC should have adopted a regulation that allows brokers to avoid registration as investment advisers who are permitted to provide similar investment advice as financial planners do without being subject to the same standard of care—the fiduciary duty standard of care,” FPA wrote in the amicus brief.

On June 26, the Second U.S. Circuit Court of Appeals rejected the challenge to Reg BI, clearing the way for implementation of the compliance date of June 30.

FPA called the court ruling upholding Reg BI a “disappointing outcome for American investors who expect to receive investment advice that is truly in their best interest. That means advice provided with a clear fiduciary standard of care, similar to the fiduciary standard that all CERTIFIED FINANCIAL PLANNER™ professionals must now adhere to when providing financial advice.”

The latest: FPA will continue to advocate for common-sense rulemaking that protects the interests of FPA members and American investors.

Department of Labor Investment Advice Rule. The Department of Labor’s 2017 Fiduciary Rule, which would have required all advisers giving retirement planning advice or working with retirement plans to act as a fiduciary, never went into effect and was vacated in 2018.

Two years later, the DOL reintroduced a proposed Investment Advice Rule on June 29, 2020. The Financial Planning Coalition, comprised of FPA, CFP Board, and NAPFA, immediately committed to review the proposed rule and provide comments, focusing on whether the DOL rule would provide additional protections for retirement savers under ERISA beyond those under Reg BI.

In August, the Financial Planning Coalition submitted a comment letter to the DOL, expressing strong disagreement with the proposed rule, stating that it will allow for conflicted advice.

In its comment letter, the Coalition stated: “Congress enacted ERISA in 1974 to establish special rules to protect Americans’ retirement assets in tax-advantaged retirement savings vehicles. In doing so, Congress recognized that it was in the public interest to encourage all Americans to save for a secure and independent retirement. Given the importance of maximizing Americans’ retirement assets, Congress intentionally established requirements for financial advice under ERISA that are distinct from and more rigorous than those that apply under insurance and securities laws to nonretirement assets, including the explicit requirement that advice be in the sole interest of the plan and plan participants.”

The Coalition cited CFP Board’s revised Code of Ethics and Standards of Conduct as a framework for comparison, stating that CFP Board’s standards provide for an unambiguous fiduciary standard while the DOL’s proposed rule falls far short of that high standard.

The concern that the proposed rule fails to meet a high fiduciary standard is due to two key provisions in the rulemaking: the plan to reinstate the “five-part test” for determining what constitutes investment advice under ERISA, and the proposed prohibited transaction exemption.

The Coalition’s comment letter concludes that the DOL proposal should reflect the realities of today’s retirement marketplace, stating: “The Coalition respectfully requests the Department to withdraw in its entirety both the final rule reinstating the 1975 five-part test and the proposed prohibited transaction exemption based on the SEC’s Regulation Best Interest. In its place, the Department should initiate rulemaking and propose comprehensive retirement investment regulations that reflect the realities of today’s marketplace and protect the hard-earned retirement savings of millions of Americans.”

The latest: The comment period closed August 6. The DOL may modify the proposed rule before proposing the final rule. The rule becomes effective 60 days after the final rule is published.  

SEC Investment Adviser Advertising and Solicitation Rule. While FPA shares the SEC’s belief that the Investment Adviser Advertisements and Compensation for Solicitations rules should be modernized to provide increased transparency, the SEC’s proposal in response to technological advances will have widespread and costly implications on registered investment advisers. The proposal expands the scope of both rules by including additional forms of communication and different types of compensation, all of which fall outside the current rules and will require a significant change to compliance procedures for advisers and solicitors.

The latest: FPA submitted a comment letter on February 10, and remains committed to working with the SEC to maximize investor protections consistent with a reasonable level of regulatory burden on service providers.

Taxation of financial planner services. FPA opposes efforts to tax financial planner services. Over the past several years, multiple states have evaluated taxation of financial planning services as a means to increase state revenues as states face budget shortfalls. FPA opposes the taxation of financial planning services because it would increase the costs for financial planning services, and these increased costs could be passed on to clients or impact the viability of financial planner practices.

Protecting the Right to Organize Act of 2019. FPA opposes the Protecting the Right to Organize Act of 2019. This legislation would institute stricter requirements for classifying a worker as a contractor instead of an employee, which could have implications on gig economy workers. It would also provide greater penalties for employers that violate the Act by creating a private right of action. This legislation could inhibit access to financial planners and inhibit the business practices for financial planners.

The latest: This legislation passed in the House in a 224 to 194 vote on February 6. If it passes the Senate, it will move on the President to be signed into law.

Financial transaction tax. FPA joined the Financial Transaction Tax Coalition to oppose the financial transaction tax. A financial transaction tax is a levy on transactions of stocks, bonds, and derivatives. This is essentially a tax that would be passed on to investors.

Protecting Your Profession

SEC Accredited Investor Rule. The Financial Planning Coalition advocated for including the CFP® designation in the accredited investor definition.

The latest: The Coalition submitted a comment letter on March 16.

State-level fiduciary regulation/legislation. As we have seen over the past couple of years, the move toward a fiduciary standard of care is evidenced with more states considering rulemaking. FPA supports regulation/legislation that would require broker-dealers, registered representatives, investment advisers, and investment adviser representatives to be held to a fiduciary standard of conduct when providing personalized investment advice.

Earlier this year, FPA supported the Massachusetts Division of Securities’ fiduciary proposal, as CFP® professionals complying with the revised Code and Standards would also be in compliance with the Division’s proposal. With over 800 FPA members in Massachusetts, FPA submitted a comment letter to the Massachusetts Securities Division on January 7, encouraging the Division to clarify how conflicts of interest should be managed, among other suggestions.

That letter noted that, although the proposal “explicitly states that the fiduciary duty cannot be disclosed away, it provides no process for ensuring that conflicts of interest inherent in both the broker-dealer and the investment adviser business models do not adversely impact investors. In contrast, the [CFP Board] Code and Standards clearly outlines how to manage conflicts as a part of the duty of loyalty element of the overall fiduciary duty.”

FPA also urged the Massachusetts Securities Division to consider the Code and Standards’ “broad definition of ‘financial assets’ as a guidepost, and we encourage regulatory cooperation across state agencies to streamline a common approach.”

Regarding the use of titles, the letter shared, “FPA applauds the Division’s inclusion of restricting the use of the term ‘financial planner’ by creating an ‘expectation that the broker-dealer, agent, investment adviser, or investment adviser representative will monitor the customer’s or client’s account(s) or portfolio on a regular or periodic basis…’” FPA also suggested that the Division clarify which certifications or professional designations may be used for financial planners.

The latest: FPA will continue to support regulation and legislation that would require a fiduciary standard of conduct when providing personalized investment advice and will be ready to work with FPA members and chapters when the opportunity arises.

Regulation of financial planners. FPA 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. FPA supports regulations that require financial planners to meet established requirements to practice, including examination, education, experience, and ethics as modeled after the CFP® certification.

FPA believes financial planning is a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial conditions.

We define the term “financial planner” as those who hold the CFP® certification or, at a minimum, those who meet the following professional standards:

  • Abide by a set of high ethical standards
  • Adhere to a fiduciary standard of conduct
  • Attain a minimum education requirement
  • Attain a minimum experience requirement
  • Adhere to a continuing education requirement; and
  • Hold a financial planning certification from a body that enforces the certification and has been accredited by either the American National Standards Institute or the National Commission for Certifying Agencies

State securities regulation on non-traditional fee models for financial planning services. FPA is working within the Financial Planning Coalition on this issue.

NASAA model rule on investment adviser continuing education. NASAA is requesting public comment on a proposed IAR continuing education program, including a proposed model rule to implement the proposed IAR CE program. The goal of the program is to ensure that IARs receive continuing education on the securities business relevant to their duties and obligations.

The latest: The Financial Planning Coalition submitted a comment letter on April 13, requesting that NASAA include an exemption for CFP® professionals in its model rule.

Protecting Your Certification

Professional Certification Coalition. FPA joined the Professional Certification Coalition in 2018. This Coalition addresses efforts by legislatures that would prohibit the use of private organization’s certifications. Since 2018 several states have attempted to prohibit individuals from using their private certifications, including the CFP® certification. FPA joined this Coalition to combat that effort so that our members can retain the right to use the CFP® certification in any state. The Coalition supports H.R. 5339, which would expand 529 education savings accounts to cover professional certification and credentialing programs.

CFP Board Code of Ethics and Standards of Conduct. In January, the FPA Board of Directors sent a letter to CFP Board regarding the Report of the Independent Task Force on Enforcement to CFP Board, encouraging the full implementation of the task force’s recommendations to protect the integrity of the CFP® marks on behalf of our members and all CFP® professionals.

The latest: FPA released a compliance toolkit, designed to help members comply with the new standards (enforcement began June 30). The toolkit includes downloadable resources, including a model fiduciary engagement agreement, financial action plan, and more.

CFP Board’s Revised Proposed Procedural Rules. CFP Board enforces its Code and Standards through the peer-review process set forth in the Procedural Rules. In March, CFP Board proposed revised Procedural Rules, and in April, the FPA Board of Directors submitted a comment letter outlining five concerns with the proposed rules. The concerns were related to standard of proof, witnesses, procedural rules, peer-review process, and qualification and training for hearing panel participants.

The latest: CFP Board announced the final updated Procedural Rules on May 29.

Protecting Your Clients

Tax-deductibility of financial planning fees. FPA supports that financial planning fees be tax-deductible for clients on the state and federal levels, which could increase access to—and drive consumers to seek—financial planning services.

Earlier this year, in light of the COVID-19 pandemic, FPA joined with CFP Board, NAPFA, IAA, and FSI to ask Congress to restore and expand the pre-2017 (pre-Tax Cuts and Jobs Act) tax deduction for investment advisory fees and financial planner fees without the 2 percent adjusted gross income (AGI) threshold.

The 2 percent AGI limit permitted tax deductions only to the extent they exceeded 2 percent of a taxpayer’s AGI, which unfairly benefited upper-income households more than middle-income households. This deduction should be available to all American households regardless of income.

The five organizations wrote in a letter to Congress: “We ask that Congress restore and expand this deduction under 26 U.S.C. § 212 to encourage savers to seek advice and guidance from financial professionals as they navigate this crisis to ensure that it does not imperil their retirement, college plans, home buying, or even basic needs. This deduction would significantly benefit individuals and families struggling with their finances as a result of COVID-19.”

The latest: FPA will continue to push for this throughout the year.

Financial exploitation of vulnerable adults. FPA supports legislation that allows our members discretion with “may” reporting language to the state securities regulator and state adult protective services agency when a qualified individual, such as a securities broker or investment adviser, has a reasonable belief that financial exploitation of an eligible adult has been attempted or has occurred. The “may” language allows our members to exercise discretion when reporting suspected financial exploitation but does not require them to report it, while providing protection against administrative or private legal action should a member report.

The latest: On January 13, FPA testified in support of Massachusetts H.B. 4281, which is before the Joint Committee on Children, Families, and Persons with Disabilities. FPA was able to work with Massachusetts legislators while the legislation was being drafted to include the “may” reporting language.

Financial literacy. FPA recognizes that financial literacy is a vital component of helping Americans live healthy financial lives, and that financial literacy education in the United States is a particularly important goal. FPA encourages schools to teach the basic components of personal financial management to help with vital financial functions, such as understanding credit, savings, loans, home and rent responsibilities, and how to manage debt responsibly. Doing so will help with the overall goal of preparing students for independence and financial wellness.

The latest: FPA understands there are many avenues to achieving financial literacy and stands ready to assist in support of that task. 

Sidebar: FPA’s Advocacy Policy and Vision

  • FPA advocates for elevating the financial planning profession.
  • To elevate the financial planning profession, FPA advocates for the concept of one profession/one designation.
  • FPA advocates that the one designation be the CFP® marks.
  • FPA advocates for distinguishing financial planning from other types of financial advice.
  • FPA advocates for our core member, the CFP® professional who practices financial planning.

Therefore, FPA’s advocacy policies support the following vision: That financial planning is delivered by a CFP® professional under a fiduciary standard of care, which supports establishing financial planning as an honorable profession—recognized in law and by the public—based on the CFP® marks and practiced by professionals who are required to adhere to the standards that the CFP® marks represent.