Financial Reform Could Include Legislation on Financial Planners

If a proposal from Democrat Senator Herb Kohl finds its way into the financial reform bill, and if that bill is passed, the financial planning profession could soon be regulated.

Currently there are no restrictions or laws governing people who call themselves financial planners. This is in stark contrast to other financial professions. For example, an investment adviser has to be registered with the SEC, and an insurance agent needs a license to sell insurance policies. There are many laws that govern what these professionals can and cannot do when selling their products or when providing a particular service.

The concern is that with anyone being able to use the job title of financial planner, people could be duped into thinking that the advice or products that they are being sold is sound and would be beneficial to them. A person with hardly any expertise or experience about financial planning could make tall claims to consumers, and end up doing damage to their financial health.

The legislation is being pushed by the CFP Board of Standards, which currently certifies financial planners. The board is worried that genuine financial planners are suffering because of the actions of those who practice this profession without the requisite knowledge.

The board wants to standardize the profession and enhance its reputation so that customers know what to expect from a financial planner. Such a move would benefit those who have gone through the right training to deserve to be in this profession.

The bill includes various restrictions around the financial planning profession. First of all, it would ensure that financial planners are competent enough to be giving advice to consumers. This would stop spurious people from exploiting unsuspecting clients and raise the bar for aspiring financial planners. Only those who have been tested on the knowledge required to give sound financial advice will be allowed to practice this profession.

Secondly, the bill would require financial planners to perform their fiduciary duty of protecting the interests of their clients and adhere to a strict code of ethics. They would also have to follow certain best practices. This would protect clients from exploitation, and if a planner intentionally ignores his duty, action could be taken against him.

The bill would be good news for consumers if it can be passed. The financial reform legislation is facing strong resistance from the Republicans and there is no guarantee that it would get the necessary votes.

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