Today the Board of Directors of the Certified Financial Planning Board of Standards Inc. (CFP Board), which controls the CFP designation, approved a second round of revisions to its code of ethics that were proposed in March, essentially strengthening the duty of care CFP certificants must use with regards to their clients.

When the new code of ethics takes effect, in July of next year, CFP professionals who provide financial planning services will have to do so with the duty of care of a “fiduciary,” or acting in the “best” interests of their clients. All other CFP professionals will have to “at all times place the interest of the client ahead of his or her own.” It seems like a fine distinction, but fiduciary is a loaded term, and “best” is a more demanding standard than better. Under the old code of ethics, CFP certificants were required to “exercise reasonable and prudent professional judgment,” while financial planning practitioners with the credential were required to act “in the interest of the client.”

The code of ethics is not legally binding, but it governs all 52,000 CFP certificants. CFP certificants who do not abide by the code can have their credentials taken away from them.

The second round of revisions were made after there was a flap over the fact that the original round of revisions would have allowed Series 7 CFPs (governed under the Securities and Exchange Act of 1934) to “opt out” of the fiduciary duty required of other financial planning practitioners. Brokers are legally required only to advise clients to select “suitable” investments, whereas most financial planning practitioners are investment advisor reps or IARs and already have a legally binding fiduciary responsibility to their clients.

It was part of the ongoing battle in the industry over who can provide what kind of advice to clients under what legal standards. Review of the CFP Board’s ethical standards began in 2005, followed by two drafts and rounds of public comment.

For more on this, check out this interview with Marilyn Dimitroff, Chair of the CFP Boards Ethics Task, and read this story: