Advisors holding the Certified Financial Planner Board of Standards’ designation will be expected to turn over customer dispute documents at the request of the organization during its investigations. Advisors who don’t comply could have their designation revoked, according to the CFP Board’s new proposed procedural rules released Tuesday.
“Times are changing. The CFP Board is insisting on cooperation from members, I think that’s noteworthy,” said Benjamin Edwards, a law professor at the University of Nevada-Las Vegas whose research includes topics within business and securities law, corporate governance, arbitration, and consumer protection.
Last summer, a Wall Street Journal investigation showed the CFP Board’s LetsMakeAPlan.org website, a directory that includes many of its more than 86,000 designation holders, also included financial planners facing criminal or regulatory problems, and advisors with customer complaints against them.
In response, the CFP Board made some immediate changes. It ceased to rely on advisors to self-disclose disciplinary matters and any conduct in violation of its standards and began reviewing Finra’s BrokerCheck or the Securities and Exchange Commission’s IAPD when CFP professionals renewed their certification. It also chose Denise Voigt Crawford, a public member of its board of directors and a former Texas securities regulator, to chair a task force to examine and modernize its enforcement practices.
Crawford recruited a formidable group to help her and presented the first version of the procedural rules in November last year.
Designation holders, and the public, got the first look at the revised procedural rules on Tuesday and a 30-day comment period began.
The process to determine if a CFP professional is meeting the requirements of the organization are straightforward and reasonable. It includes “written notice of the allegations and potential grounds for sanction, an opportunity to present documents, witnesses, and argument at a hearing, and a written order that sets forth the basis for the decision that may be appealed to a committee of the Board of Directors.” Those under investigation by the CFP Board can be represented by counsel of their choice.
But hearings before the CFP Board are not like those in the court of law or Finra’s arbitration.
The CFP Board’s Disciplinary and Ethics Commission, a group of primarily CFP designation holders, “has the authority to issue a final order that finds facts, determines whether a violation has occurred and, where appropriate, imposes discipline in the form of a sanction,” which might include revoking an advisor’s designation with “no opportunity for reinstatement,” the proposal states.
And a new provision in the revised rules shifts the burden of proof onto advisors, in favor of the CFP Board.
The latest rules state that a CFP designation holder with multiple customer disputes against them (tracked by Finra and the SEC) might be required by the CFP Board to turn over documents related to those disputes. If they don’t hand them over, advisors could be sanctioned for that alone.
“The existence of the settled customer disputes will constitute grounds for sanction unless [the] Respondent proves by a preponderance of the evidence that the allegations of misconduct raised in the settled customer disputes are without merit,” according to the proposed rules.
The change is a “shifting burden” of proof on advisors, but that’s not the same as an assumption of guilt until proven innocent. “Essentially, the CFP Board is a private club” and members who don’t follow the rules won’t be allowed in the treehouse, Edwards told RIA Intel.
The CFP Board is using the leverage it has against designation holders to sharpen the teeth of its enforcement and protect the organization's integrity, according to Edwards. Improving an advisor's knowledge of financial planning is valuable and important, but the value of the designation also depends on the public’s perceived value of the certification, he added. The letters are still among the most-prized for advisors to have following their names.
The CFP Board doesn’t have any leverage over those unaffiliated with the organization and many lawyers who represent investors might be nervous about cooperating with a CFP Board investigation, according to Edwards. The burden must be on advisors to share information the CFP Board feels is material.
Publicly available information from Finra and the SEC has limited use. Customer disputes, regardless of the validity, must be reported and financial services companies have different policies and procedures when it comes to disclosing them. Serious misconduct might be downplayed in a dispute description, and the opposite can happen, too.
For example, a customer who requested a low-risk portfolio that loses more money than they anticipated could file a dispute alleging an advisor engaged in “unauthorized trading.” In reality, that dispute might have been better described as an inappropriate allocation. “When you’re looking at a very narrow slice of it [on regulatory websites], you could get the wrong impression,” Edwards said.
Asking advisors to present documents related to customer disputes against them might have consequences. There is some risk of under or overenforcement and the CFP Board will have to find its “goldilocks zone,” Edwards said.
“You expect the CFP board to use discretion about how often and how aggressively it pursues these things. They want to police their ranks to some degree but I don’t think they have interest in, or need, to run some kind of inquisition.”
The CFP Board will begin enforcing its new Code of Ethics and Standards of Conduct on June 30.