NEW YORK (Reuters) – U.S. financial planning groups are launching an effort to develop new state regulations for their industry, three years after a similar effort failed at the federal level.
Three industry trade groups, working together as the Financial Planning Coalition, have hired a consultant to identify states that may be receptive to passing laws that require licenses for financial planners, officials from a member organization told Reuters.
The effort, just begun, aims to close what many planners see as regulatory gaps that allow nearly anyone – regardless of ability or background – to call himself or herself a financial planner.
Financial planners typically offer advice to clients about long-term financial goals, including retirement, insurance, and paying for college. But some people who use the term, the coalition says, are not qualified to give advice.
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A push for new regulations is likely to spur debate in statehouses and resistance from legislators who depend on campaign contributions from financial services businesses. States with hefty concentrations of financial professionals, such as New York and Florida, are likely to resist the idea, industry sources said.
But smaller less populated states or those with weak regulatory structures may be receptive, say industry people familiar with the matter, citing Arkansas, Alaska and Louisiana as possibilities.
The coalition, which includes the Financial Planning Association, the Certified Financial Planner Board of Standards Inc and the National Association of Personal Financial Advisors, is already meeting resistance. An organization of state securities regulators says existing rules allow them to adequately monitor financial planners.
“A new layer of regulation in addition to the oversight received from state securities, insurance and banking regulators is not necessary for financial planners,” a spokesman for the North American Securities Administrators Association said in an email.
Some critics suggest that the coalition’s interest in new regulations may be motivated by a desire to protect the trademarked title “Certified Financial Planner.”
To win the designation, advisers must pass an exam, satisfy educational requirements and meet other criteria established by the Certified Financial Planner Board of Standards Inc, or CFP Board, a non-profit organization.
The CFP Board denies that is the case and says it just wants to protect consumers, a spokesman said. The coalition says it wants the same level of regulation for its profession as others that have licensing requirements.
“There is no comprehensive, integrated regulation of financial planners” that spans state and federal authorities, the spokesman said.
NEW EFFORT, OLD GOALS
The consultant’s study will take a year, Paul Auslander, president of the Financial Planning Association, said during a recent interview with Reuters.
Among the goals: developing state requirements for entering the financial planning profession, Auslander said. Plans for those prerequisites are unclear but could include passing the CFP Board’s exam or meeting other criteria, Auslander said.
The coalition’s new effort follows a failed attempt in 2010 to persuade federal lawmakers to include a provision for a financial planning oversight board and regulation in the Dodd-Frank financial reform law. Congress instead directed the U.S. Government Accountability Office to study the issue.
In 2011, the GAO reported that the “great majority” of financial planning services were covered by existing rules, but that regulators, including the U.S. Securities and Exchange Commission, were not doing a good job of tracking complaints about these advisers.
State securities regulators say they have since plugged that gap. They have long reported to each other about problems among registered advisers in their states. But that reporting now includes a separate category for examination results from investment advisers who have financial planning clients, according to NASAA.
The group says that the current low level of problems reported with financial planners – less than 1 percent of enforcement actions – demonstrates the lack of need for new regulation.
FUNCTIONAL REGULATION
State securities regulators do not license financial planners but typically require them to register under broad regulations for giving investment advice.
At least 18 states, including Georgia and Missouri, follow a uniform securities code that uses the term “financial planner” in their definition of those who must register.
States whose laws do not mention “financial planners” can still oversee them because of services that planners typically provide, said Patricia Struck, who leads NASAA’s investment adviser committee.
Some planners may argue that they do not give investment advice but instead advise clients about limited issues, such as paying for college. Regulators, however, “tend to view that with some skepticism,” said Struck, who also heads the securities division at Wisconsin’s Department of Financial Institutions
Still, there is a strong need to better regulate integrated advice, such as financial planning, which typically touches on both securities and insurance, said Barbara Roper, investor protection director of the Consumer Federation of America, an advocacy group. “Our current regulatory structure doesn’t deal well with that,” Roper said. (Reporting by Suzanne Barlyn; Editing by Linda Stern and Steve Orlofsky)
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