Investors might find it easier to sue insurance agents and carriers, thanks to new standards from the Certified Financial Planner Board of Standards Inc., attorneys said.

Two provisions in the updated Standards of Professional Conduct require that CFP holders place the client’s interests ahead of their own at all times, and that certificants who provide planning services act as fiduciaries to clients.

Although the new standards are effective July 1, the CFP Board last week granted a six-month reprieve for members and won’t enforce the rules until Jan. 1.

Attorneys say that these rules may hold carriers, as well as insurance agents, responsible for questionable sales.

“I believe in the litigation realm, lawyers will ferret out the up-chain relationship between the CFP and the insurer underwriting the product they’re selling,” said Joseph H. Aughtman, a consumer fraud attorney at Beasley Allen Crow Methvin Portis & Miles PC in Montgomery, Ala.

“If the CFP can be linked as the representative of the company, then I’d argue this creates a fiduciary duty by agency to the corporation and to the client, and that would be a major point in litigation.”

Although the effective date of the revised standards is two weeks away, insurance companies and broker-dealer firms – the parties that are most concerned about the possible legal impact of the new rules – have been in contact with the CFP Board of Washington. They want guidance on complying with the provisions, said Michael Shaw, managing director of legal and public policy at the CFP Board.

“Registered reps, agents and insurance companies haven’t had to measure up to the fiduciary standard previously,” he said. “In the last six months, we’ve been working closely with firms to provide interpretations of the standard, so they have an understanding of what certificants can do.”

Major carriers, including MetLife Inc. of New York and Massachusetts Mutual Life Insurance Co. of Springfield, Mass., would not comment on the new standards and their legal impact.

Agents’ use of insurance products and annuities in tandem with an estate or tax plan might make it more difficult for them to comply with the standards.

For instance, CFP holders must ensure that they are selecting the best product for the client, but those choices become limited if the agent only has access to proprietary products, Mr. Shaw said. The agents need to disclose this to clients and allow them to decide whether they want to work with that individual, or switch to someone with better access to an array of products. Full disclosure of compensation arrangements and possible conflicts of interest is also required.

Precisely where the liability falls in the event an agent with a CFP certificate disobeys the rules is a topic of hot debate among attorneys.

“If a person’s authority to act on behalf of the company is limited to selling insurance or annuities, and the person steps outside of the scope of their agency and performs other “unauthorized” services for a client, the company is not responsible for the agent’s unauthorized actions,” Brett J. Preston, a defense attorney at Hill Ward Henderson in Tampa, Fla., wrote in an e-mail. “The insurance company should not be held liable for the agent’s unauthorized actions because, with respect to those actions, the agent is no longer acting on behalf of the company.”

Not so, asserts Jon E. Drucker, an attorney at an eponymous Beverly Hills, Calif.-based firm. “The law deems both insurance companies and their agents ‘fiduciaries’ to their clients,” he wrote in an e-mail. Lack of proper disclosures or failure to place the client’s interests first could hold carriers and agents jointly and severally liable for any resulting damages, Mr. Drucker noted.

Although Mr. Shaw insists that the new rules don’t increase liability for agents and carriers, the Denver-based Financial Planning Association believes that this is “questionable,” especially in terms of civil liability.

“There isn’t a clear civil liability that would arise out of failure to comply because it hasn’t happened yet,” said Dan Barry, director of government relations at the FPA’s Washington office. “Those things will work out through case law.”

The group is weighing changes to its bylaws so that they conform to the new CFP standards, and it is creating a task force of members to develop best practices for compliance in the approaching weeks, he said.

Regardless of whether defense and plaintiff’s attorneys see more action after the new rules become effective, the restrictions may cut down on bad behavior from errant agents and force them to realize their duty to their clients.

“To the extent that such new rules may inform ignorant insurance agents of their fiduciary duties, whose ignorance the companies and industry have fostered for their own interests, it might actually help reduce the shenanigans of insurance agents and the insurance industry,” Mr. Drucker said.

Certified Financial Planner – Standards of Professional Conduct

Highlights of CFP Board’s Revised Standards of Professional Conduct

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