Understanding the CFP Board’s New Standard on Technology for Financial Planning Software

Recognizing it likely was overdue in providing robust technology standards for CFP® professionals, on October 1, 2019, the CFP Board unveiled its new Code of Ethics and Standards of Practice. The regulations are effective now, but the CFP Board begins enforcing them on June 30, 2020.

The new Code of Standards, among other things, introduces a new duty for servicing clients. Standard A.14 requires CFP® professionals to exercise a “duty to use reasonable care when selecting, using, and recommending technology.”

This new standard helps CFP® practitioners meet their “Duty to Care” for financial planning clients by exercising as much skill, prudence, and care when choosing wealth management technology as when working on their plans.

But what does the new tech standard entail and how can advisors perform due diligence to meet the new technology standard?

Implementing Technology Responsibly

Technology use is essential today to all client relationships, and CFP® professionals have multiple digital options for servicing financial planning clients.

Financial planning technology is a reliable way to produce advice for clients, especially in making essential decisions for their financial lives. However, the new standard requires that CFP® professionals continue exercising professional expertise and independent judgement when guiding financial planning clients. While technology often helps generate better advice, it’s not wise to rely entirely on the technology for that purpose.

As with any financial guidance, requirements remain in place for CFP® professionals to act responsibly in using technology.

One New Rule—Three Parts

To help CFP® practitioners clearly understand the new technology standard for client engagement, the CFP Board divided the rule into three main parts. They are:

1. A CFP® professional must exercise reasonable care and judgment when selecting, using, or recommending any software, digital advice tool, or other technology while providing professional services to a Client.
2. A CFP® professional must have a reasonable level of understanding of the assumptions and outcomes of the technology used.
3. A CFP® professional must have a reasonable basis for believing that the technology produces reliable, objective, and appropriate outcomes.

Application of these three parts requires CFP® practitioners to understand the essential elements of the technology to which these standards apply.

According to the standards, “technology” includes any digital tool used to service clients, such as client relationship management (CRM), portfolio management or portfolio generation, and data aggregation tools.

In applying a reasonable level of care and judgement when selecting, using, and recommending these tools, the standard clearly outlines that it’s essential advisors act with considerable due diligence during the buying and evaluation process.

When implementing new technology, advisor’s duty of care as a fiduciary extends to developing and maintaining deep knowledge of assumptions, calculations, and outcomes of any technology used in creating clients’ plans. It’s crucial CFP® professionals are both competent and confident in using wealth management technology. Advisors need to fully comprehend the capabilities of the technology used in client services.

It’s also important to remember that the new rule holds all the people in a firm accountable to the new standard, not just individual practitioners. In the end, the firm is ultimately responsible for ensuring adherence to the new tech standard.

Implementing Technology Under the New Standards

Before any firm deploys additional technology for use with clients, they’ll want to address the new standard’s myriad implications.

CFP® professionals put planning at the core of their business. So, it’s natural as technology becomes more readily available, and more complex, that they want to offer it to clients as quickly as possible to meet their expectations. But CFP® professionals now have a strict responsibility to completely understand the ways in which the technology they’re deploying works for their clients. For planning-led advisors, this will help create the best possible experience for clients.

The CFP Board’s new tech standard provides specific guidance on technology use by firms for financial planning. To comply with the rule, firms are best served by approaching technology use with the same planning-led mindset they take to all client services.

If you’re considering new technology for your firm, start your due diligence now and see how eMoney financial planning software can help you best serve your clients.