When it comes to engaging a financial intermediary, it is essential that investors be provided with disclosures that are written in simple and comprehensible English. That is the position of the CFP Board, who recently sent a letter to the Securities and Exchange Commission urging, among other things, that more attention be paid to the communication between client and advisor PRIOR to the start of the engagement.
In the letter, the CFP Board recommends the following:
- The need for disclosure in four areas of significance
The four areas are conflict of interest, cost and fees, background of financial intermediary, and scope of representation. This is essential to educate investors about their rights and what their options are when disagreement with the intermediary arises.
- Disclosure to be made before engagement with intermediary
Before coming to an agreement with the intermediary, investors should be notified of the financial advisor, financial planner, and broker-dealer relationships that will be put into effect once the agreement is signed.
- All disclosures to be available in electronic format and written in simple English
To ensure accessibility and comprehension, disclosures need to be available both in electronic form and in print, and in plain English.
The CFP Board hopes changes in this area will better help protect both the investor and their advisor throughout the course of the relationship.