Errold Moody, a CFP licensee, has stopped actively using the trademark. Was it the brouhaha over CFP Lite that forced this protest? Was it Rule 402?

Nope. It's that most financial planners who offer comprehensive advice, he said, are breaking the law, trampling on the standard of ethics and violating the fiduciary relationship with their clients -- every single day.

How? By giving their clients insurance advice for a fee, without being licensed to do so.

Moody is sure -- 100% sure -- that most fee planners give some form of insurance advice, and it's their denial of their actions that has made him sever ties with any person or organization who says they're upholding a code of ethics. "Anybody that does financial planning that does not review the existing policies is a twit, and has lied," Moody said.

While Moody's response may seem extreme, a recent discussion in Financial Planning interactive's Career Building message board showed that many planners cannot agree on what the industry's response to the license requirements should be.

Fee-only planners who give insurance advice technically have two choices: either get a license or run the risk of going to jail. Currently, 32 states have licensing requirements for advisers who want to provide fee-based insurance advice. They are Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Idaho, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Oklahoma, Oregon, Puerto Rico, South Dakota, Texas, Utah, Vermont, Virginia, Wisconsin, and Wyoming.

Charging a fee for recommending insurance and then sending that client off to a commission-based agent is considered "double-dipping" and illegal in most states. Also, if a planner is caught giving advice without a proper license, state laws demand that they could be charged with a misdemeanor, fined or put in jail.

But many planners do not hold these licenses, stating there is a fine line between evaluating insurance policies and simply recommending that a client needs insurance. Many feel the extra licenses are unnecessary if they're not evaluating policies. Others just don't want to go through the hassle of having to take yet another exam.

Taking a conservative approach, Nancy Langdon Jones, a CFP practitioner in Upland, Calif., and moderator of FPi's Career Building discussion board, correlated the insurance component of financial plans to estate planning and trusts. She recommends insurance to her clients, but refers them to licensed professionals for implementation. "I'm not taking a policy they currently have and tearing it apart," she said. "I'm just making sure they've considered it."

Some states have been willing to revise their requirements. On Tuesday, for example, Texas legislators sent to the governor a bill (S.B. 414) that would consolidate insurance licensing and application requirements. This bill, reintroduced in January after being vetoed in the last session, included a provision for the state's CFP practitioners to be exempt from mandatory examination requirements for a Life and Health Insurance Counselor, the license needed in order to analyze a policy and make recommendations for a fee.

J.J. McNab, a financial planner and licensed California Life and Disability Insurance Analyst, noted that requiring planners who charge a fee for advice to obtain the analyst license ensures a level of competence.

And while insurance agents have fiduciary duties to the insurance company, not the client, the analyst has a responsibility to the client.

Moody said he's written several formal complaints to the California Department of Insurance and to the CFP Board emphasizing that some planners' actions are not only illegal, but also unethical.

And where do the planning industry's largest organizations sit on this issue? The Financial Planning Association and the CFP Board said they would prefer to stay out of what's ultimately state territory.

"I don't know if it's up to us to interpret ... state law," said Doug Nogami, spokesman for the CFP Board.

Duane Thompson, spokesman for government relations at the FPA, said his organization has supported various states for better public policy on insurance, but "the states are the regulators. We certainly encourage best practices, but we don't do individual compliance," he said.

"As a public policy, it would be helpful to revisit some of these laws," Thompson said, adding that they were originally adopted for insurance agents who charged a fee, not planners. "Financial planners don't need to get into the ins and outs of insurance policies. It's a problem because the market has changed, and these old laws haven't."

To My Article

Nigel B. Taylor, CFP¨ is a Registered Representative of and offers securities products & services through Royal Alliance Associates, Inc. Member FINRA/SIPC, a registered Broker-Dealer. In this regard, this communication is strictly intended for individuals residing in the states of California and Nevada. No offers may be made or accepted from any resident outside the specific state(s) referenced. Separately, Taylor & Associates is a CA Registered Investment Adviser

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