As a member of the first
graduating class of Certified Financial Planners in 1973, I embarked on an
ethical journey that has never changed course. From the time I entered the
financial planning industry in 1968, there was never a doubt in my mind that
ethics, along with a winning investment strategy, should serve as the core
principle of a successful wealth management career.
Fortunately, I was not alone in my beliefs. Late in 1973, as a
member of the International Association of Financial Planners (now the Financial
Planning Association or FPA), I volunteered to chair the committee that wrote
the industry’s first code of ethics. Unfortunately, over the years, we have seen
assaults from all sides, culminating in the now infamous Merrill Lynch Rule
offensive, which sought to eliminate fiduciary responsibility from the industry.
For those who are unfamiliar with the history of the Merrill
Lynch Rule, I offer the following:
• In 1940, the SEC created the Investment Advisors Act, which
stated that those who manage money for clients in exchange for an ongoing fee
are truly advisors to their clients. It went on to say that advisors should be
held to a higher ethical standard than others.
• In 1999, Merrill Lynch announced a "noncommission" program
that would charge a percentage of assets for investment advice, along with
unlimited trading.
• In late 1999, Merrill Lynch realized it would have to follow
the same SEC rules that govern Registered Investment Advisors. It petitioned for
a rule allowing brokers to charge ongoing management fees without adhering to
the same fiduciary standards outlined in the Investment Advisors Act.
• In 2005, the SEC unanimously approved the rule allowing
brokers to offer fee-based accounts without registering as investment advisors.
Hence, the Merrill Lynch Rule.
• The FPA subsequently sued the SEC. In March, the U.S. Court
of Appeals overturned the Merrill Lynch Rule.
• In May, the SEC asked for a four-month stay on the ruling,
allowing brokers time to react.
During the course of the debate, the Certified Financial
Planner Board of Standards revisited its ethics policy and took the high road on
ethical behavior and fiduciary responsibility. The support for a strong policy
that drove us in 1973 still exists. The term "fiduciary" required advisors to
act in clients’ best interests—not a responsibility to be taken lightly. To
that end, the industry founded the Center for Fiduciary Studies to create the
curricula necessary for attaining the Accredited Investment Fiduciary Analyst
designation.
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