An organization representing about 75,000 financial planning professionals “strongly urged” the U.S. Senate Banking Committee to include financial planner consumer protections that include increase regulation, oversight and competency and ethics standards for anyone calling himself a “financial planner.”

The Financial Planning Coalition wants Congress to include the stricter requirements in its final financial services regulatory bill.

Christopher Dodd

Senate Banking Committee Chairman Chris Dodd (D-Conn.) introduced his proposal for financial services reform March 15, excluding the provision, which would have the U.S. Securities and Exchange Commission create an oversight board over financial planners.

“The coalition has long advocated for increased financial planning regulation and we are committed to stronger regulatory standards for the industry to protect American consumers,” said its spokesman, Robert Glovsky, a certified financial planner, in a statement. “Instituting a financial planner oversight board in the final version of the financial regulatory bill will bring a new level of accountability to the industry, and build consumer confidence in the profession.”

Within Dodd’s bill, calling for sweeping reforms of financial services, the coalition wants Congress to approve consumer protections proposed by Sen. Herb Kohl (D-Wis.). His proposal would create an independent financial planner oversight board that would establish and enforce competency and ethical standards for anyone who markets himself as a financial planner.

Consumer protection the goal

“Basic competency and ethical standards need to be enacted into federal law to protect  consumers, particularly older Americans, from unscrupulous individuals who call  themselves financial planners,” Glovsky said. The coalition is a collaborative effort involving the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors.

Glovsky added that Kohl’s proposal includes “strong consumer protection provisions that will establish common-sense regulation, differentiating competent, ethical financial planners from those who only utilize the term financial planner for marketing purposes.”

Inclusion of the protection in the bill was opposed by some groups, who said the language was designed to force more people to complete CFP certification, thus bringing more revenue to the CFP board, according to press reports. Critics argued that the language was too broad, seeming to include life insurance agents, even if they have other designations, for it says registration is necessary for anyone who offers or advertises at least professional services.

A coalition poll, conducted in January, found that 83% of consumers want increased oversight of financial planners, the group said. Exactly 91% of poll participants said they were convinced by a statement describing the proposed regulations as including provisions to “ensure that financial planners pass tests measuring competency,” to “establish ethical guidelines” to “have the ability to discipline financial planners who fail to follow the guidelines,” and to “make all of this information available to consumers.”

P-C group voices concerns

Dodd’s bill, the Restoring American Financial Stability Act of 2010, also calls for the SEC to study for one year whether financial brokers should be required to meet the same fiduciary standards as registered investment advisors. The SEC would report in a year to Congress, then have a year to implement any necessary changes, according to Dodd’s bill. Originally, Dodd said he would force any broker who offers his clients financial advice to meet the fiduciary standard.

The insurance industry has fought the fiduciary standards, saying agents who sell proprietary products on commission would struggle with the requirements.

Meanwhile, the American Insurance Association, representing the property-casualty industry, said it has concerns with Dodd’s bill.

Leigh Ann Pusey, president and CEO of the AIA, said the group supports “common-sense reforms,” but feels that “penalizing insurers for the mistakes of riskier financial firms is not the appropriate public policy response.”

She added that the property-casualty industry has “remained a stable and reliable sector for consumers and investors alike” and so “forcing property-casualty insurers to pay into a prefunded resolution mechanism or arbitrarily including insurers in a systemic risk regulatory regime penalizes stability, leading those same consumers and investors to unfairly conclude that the property-casualty sector is unstable and unreliable.”

Existing insolvency and state guaranty mechanisms already protect consumers and ensure the sector will remain viable, according to Pusey.

“These mechanisms have a proven, decades-old track record of safeguarding insurance consumers,” Pusey said. “Even in the case of AIG, where problems from risky financial activities outside its regulated property and casualty subsidiaries led to its demise, we believe our industry could have withstood the collapse of its property-casualty insurance operations.”