Critics Question Impact of CFP Board's Proposed Sanction Revisions

#Lifestyle Wealth


The CFP Board’s proposed revisions to its sanction guidelines unveiled this week would penalize certificants for failing to “timely report” potential misconduct, but some criticized the step, with one advisor arguing that the potential changes were largely empty gestures. 

The Board’s proposed revisions to its sanction guidelines and procedural rules are the first set of changes recommended by the Board’s Commission on Sanctions and Fitness, which was formed in February 2021 to examine the guidelines for how to accept applicants for the CFP designation, as well as for how CFP professionals should be sanctioned for violating the Board’s code of conduct. 

At the time, CEO Kevin Keller called the 15-member commission “fundamental” in strengthening enforcement of its Code of Ethics and Standards of Conduct, and saw it as the “third and final phase” in a review of the Board’s enforcement process, starting with a revision to its code of ethics and followed by last year’s overhaul of its procedural rules.

The code of standards requires CFP professionals to report certain potential actions of misconduct to the Board within 30 calendar days. Currently, a professional who fails to do so or submits an “inaccurate ethics declaration” would be subject to a private censure, but the new revisions would increase this to being a public censure, with the sanction potentially being higher or lower depending on circumstances judged by the Board.

According to CFP Board Spokesman John C. Pappas, professionals who are subject to a public censure will receive a public letter of admonishment from the Board, which would be published in a press release and found in the professional's disciplinary history on their Let's Make a Plan profile. And if a consumer searches for someone who's received such a censure, it should then show up in their results on their profile, according to Pappas.

"As for these proposed updates to the Sanction Guidelines and Procedural Rules, due to our improved detection efforts, we expect CFP professionals will be less inclined to risk the chance of failing to report potential misconduct if they will receive public discipline for it," he said.

The Board has made numerous updates after receiving criticism in response to Wall Street Journal report that found that it had failed to vet thousands of CFP professionals’ regulatory, disciplinary and criminal history, and didn’t include that information on its online search site.

John Robinson, an advisor with Financial Planning Hawaii and a critic of the ways in which the board has addressed its enforcement lapses, found little to celebrate in the proposed revisions. Despite these potential changes, he argued that most of the 6,300 names the WSJ found in its reporting had failed to disclose their disciplinary history and still did not have those issues recorded on the CFP verification site. According to Robinson, no punishment or censure had ever been brought against them, even though failing to disclose was a violation of the Board’s code at the time. 

Robinson also questioned how effective a public vs. private censure would be in informing consumers, as private censures can still be public knowledge and are often reported in the media. He said the proposals gave the “appearance of enforcement,” as opposed to actual enforcement.

“I’m critical of the CFP Board always putting its self-interest above those of consumers, and it seems to be its longstanding inherent, cultural DNA to trumpet its own achievement and policies when really dodging around the issue and not addressing the problem,” he said. “In reading this current proposal, it’s more of the same.”

Robinson believed that there were steps the CFP Board could take to improve, starting with publicly censuring or at least acknowledging the failure of those CFP professionals to self-report. He also believed the Board’s public relations campaign suggesting it was getting tough on policing its membership fostered confusion about its power in comparison to regulators. He suggested that the CFP Board directly include links to BrokerCheck, arguing there were scores of CFP professionals with “egregiously bad disclosure histories” with instances stretching into the double digits on SEC and FINRA’s databases.

“If they were serious about enforcement, how about making that a priority?” Robinson said. “None of this solves the central problem, which is a central blindness to its own bad apples.”

The CFP Board's Pappas said the updates would align with the "substantial progress" the organization had made since its first responses to the recommendations of an independent task force set up in 2019 in the aftermath of the WSJ reporting. He said the Board would continue to be open with the public about the changes, and that all its efforts are to maintain "strong competency and ethical standards" with its planners.

"Our goal is to create a credible enforcement program for the benefit of the public. These proposed changes help us do that by bolstering a detection program strategy designed to promptly identify potential misconduct, while also abiding by procedural safeguards that provide a fair forum for those CFP professionals who come under investigation," Pappas said. "We welcome any and all feedback on the proposed changes and any other ways in which CFP Board can strengthen our enforcement mechanisms and uphold our Code and Standards for the benefit of the public."

The CFP Board had considered whether monetary sanctions would be more appropriate than a public censure, and it remains open to suggestion during the public comment period for the proposed rules, which ends September 21. In a Twitter thread, XY Planning Network founder Michael Kitces wrote the potential for monetary sanctions was the most significant development, as that would put the CFP Board in the position of imposing fines for violations, “akin to an actual regulator.” 

Kitces understood the appeal of levying fines, as it can cover costs of the Board’s enforcement efforts, but it was nevertheless new ground for the organization. He argued the Board had a “delicate needle to thread.” 

“But financial advisors already have too many overlapping regulators. There is little desire for another one,” Kitces wrote. “(CFP Board) risks making it ‘not worth the hassle’ to get the marks for new professionals. Which can slow its growth momentum and limit resources in the future.”

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Tim Welsh, CEO and founder of Nexus Strategy, said the revisions seemed like a strange use of resources for the Board, which lacks regulators’ enforcement capabilities. He believes the Board would be better equipped to promote the independent nature of financial advisors, rather than spending money on advertising campaigns and public displays of disciplining CFP professionals.

"It’s curious why they spend so much time and effort on controversial actions, using up resources that could be so better allocated toward educating teens on personal finance, for example, or helping the underserved with pro bono financial planning and all these great things they could be doing," he said. "Do more of that, and don’t worry about disciplining some CFP, because ultimately that’s really the purview of the regulators."

The Board also announced this week that Daniel Moisand, a financial advisor with Florida-based Moisand Fitzgerald Tamayo, was elected 2022 chair-elect for the Board of Directors. He will take over the role of chair after current Chair-Elect Kamila Elliott’s term ends at the close of 2022.

From 1999 to 2001, Moisand served on the organization’s Board of Practice Standards, and in 2008, he headed the Board’s Disciplinary and Ethics Commission. Moisand has been a member of the Board of Directors since 2020, and currently is the chair of the Code and Standards Enforcement Committee. 

Additionally, Moisand had previously been the national president and chair for the Financial Planning Association.

“CFP certification is the recognized standard of excellence for competent and ethical personal financial planning,” he said, in a statement. “I look forward to working with fellow Board members to continue raising the bar for the profession while building awareness of CFP certification and access to CFP professionals, for the public’s benefit."

https://www.wealthmanagement.com/regulation-compliance/critics-question-impact-cfp-boards-proposed-sanction-revisions

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