Compliance officers are increasingly facing the challenge of overseeing artificial intelligence (AI) implementation while safeguarding their firms from regulatory and ethical pitfalls. The Certified Financial Planner (CFP) Board recently released an AI Ethics Guide that provides compliance professionals with a framework to help advisors navigate generative AI while adhering to the Board’s Code of Ethics and Standards of Conduct.

For compliance teams, this guide represents a timely resource for developing governance structures around this rapidly evolving technology. The guide highlights several ways CFP professionals can use generative AI to enhance their services, including:

  • Summarizing client meeting notes
  • Conducting preliminary research
  • Improving communication clarity
  • Generating educational or marketing content

While AI can streamline operations and increase efficiency, compliance teams must take the lead in establishing comprehensive policies that address the unique risks AI presents.

Data Privacy and Confidentiality

Data privacy concerns should be at the forefront of compliance considerations. AI platforms that process sensitive client information require rigorous vetting to ensure they comply with confidentiality requirements. Compliance departments should implement these specific protective measures:

  1. Develop a formal AI vendor assessment checklist that evaluates encryption standards, data storage protocols, and third-party access limitations
  2. Create clear guidelines for advisors on data anonymization before inputting client information into AI systems
  3. Establish regular data handling audits specifically for AI tools to verify ongoing compliance with privacy regulations
  4. Require written documentation whenever client data is processed through AI systems

Accuracy and Reliability of AI Outputs

The accuracy and reliability of AI-generated outputs present another critical compliance challenge. Generative AI’s tendency toward “hallucinations” (producing misleading or false information) necessitates robust verification procedures. Compliance teams should:

  1. Implement a multi-step review process for AI-generated content before client distribution
  2. Develop AI output validation checklists tailored to different use cases (financial plans, marketing materials, research)
  3. Institute periodic sampling of AI-generated materials for quality control assessments
  4. Create an AI error reporting system to identify and address recurring inaccuracies

Client Transparency and Disclosure

Transparency with clients about AI use remains essential for maintaining trust. Compliance officers should develop standardized disclosure language explaining how AI is used in the advisory process, when it’s employed, and the human oversight measures in place. These disclosures should be incorporated into Form ADV Part 2A when appropriate and included in client communication protocols.

Ultimately, AI should complement—not replace—the expertise and judgment of financial professionals. Compliance officers play a vital role in ensuring that AI enhances client service while remaining aligned with ethical and regulatory standards. By following the CFP Board’s AI Ethics Guide, firms can implement AI responsibly, safeguarding both their advisors and their clients while leveraging the benefits of this evolving technology.

To read the full report from the CFP Board, click here.