Setting record straight on CFP Board rules

Answering the question about whether the CFP Board should adopt a less rigorous “fee only” definition

May 18, 2014 @ 12:01 am

By Ray Ferrara

cfp board, camarda, fee-only, commission
+ Zoom
(Jason Raish)

A court challenge to the Certified Financial Planner Board of Standards Inc.'s enforcement of its standards of professional conduct has caused some to question its enforcement process and whether the CFP Board should adopt a less rigorous “fee only” definition.

Some have even said that the integrity of the CFP certification has been called into doubt. As chairman of the board of directors, I can assure CFP professionals and the public that the board, our chief executive and our executive leadership team are singularly committed to professional standards and disciplinary processes that are fair and reasonable to CFP professionals and the public alike, and to upholding the integrity of the CFP certification for the benefit of the public.

The lawsuit, filed by Jeffrey and Kimberly Camarda in 2013, seeks to stop the CFP Board from issuing a public letter of admonition based on a finding that the Camardas misrepresented their investment management firm as “fee only” in violation of our standards.

While they have discussed the matter with media in an attempt to try the case in the court of public opinion, we have, as we do in all cases, maintained the confidential nature of our disciplinary proceedings and have exercised restraint in commenting on the lawsuit.

But given the continued public attention, we believe it is important for CFP professionals, the press and the public to understand — based on information in the public record — our interest in this litigation and what is fundamentally at stake.

The Camardas have an interest in the investment management firm, as well as in a licensed insurance agency and financial consulting firm, which sells insurance products on a commission basis. The CFP Board received a complaint that the Camardas were misrepresenting their investment management firm as “fee only.”

After contacting the Camardas about the allegations and reviewing documentation, the CFP Board brought a case against them before its Disciplinary and Ethics Commission, which is composed of CFP professionals and members of the public.

The CFP Board's rules afforded the Camardas a full and fair process, including notice of the charges, an opportunity to present documents and witnesses at an evidentiary hearing, the submission of legal briefs and representation by counsel of their choosing.

UNANIMOUS FINDINGS

The DEC issued a unanimous order finding that the Camardas had violated the rules of the CFP Board. Their investment management and insurance firms are “functionally one organization,” it said, and the Camardas cannot represent the investment management firm as “fee only” when their insurance business receives commissions.

The DEC's decision was affirmed unanimously by a five-member appeals committee of the board of directors.

The Camardas now want a federal court to overturn the DEC's decision. This lawsuit is significant to CFP professionals, the CFP certification and members of the public who rely on the certification to identify and select competent and ethical financial planners.

The CFP Board is responsible for setting, overseeing and enforcing the standards that nearly 70,000 CFP professionals agree to uphold. The lawsuit fundamentally threatens the CFP Board's mission to benefit the public by challenging our ability to enforce these standards.

The CFP Board does not initiate disciplinary actions against CFP professionals lightly, and the CFP professionals and members of the public who serve on the DEC and appeals committee do not find violations and impose sanctions lightly.

The very integrity of the CFP certification would be undermined if the CFP Board backed down from enforcing a disciplinary decision that was imposed in accordance with its rules and procedures. The board of directors fully supports contesting the Camardas' meritless claims. We ask that individuals withhold judgment about the case and the CFP Board until the litigation is concluded.

The Camarda litigation and other CFP Board enforcement actions have focused attention on whether our definition of “fee only” is too narrow, with the result that many CFP professionals fall within the “commission and fee” category. We welcome the debate but believe it should be informed by facts. So let me dispel some persistent misrepresentations about our rules and enforcement of those rules.

First, our rules and definitions are not new. We adopted the most recent version of our rules and definitions seven years ago as part of a comprehensive review of our standards with input from CFP professionals and others.

Second, our interpretation of the rules has not changed. Even though the rules were adopted in 2007, compensation disclosure issues have only recently surfaced, possibly because of the growth of the perception that advisers calling themselves “fee only” have a marketing advantage.

DISTINGUISHING DESIGNATION

It is important to remember that our rules, definitions and practice standards have been developed to benefit the public and distinguish the CFP certification from the hundreds of other designations in the marketplace.

While our compensation definitions may be inconvenient for those who are struggling to identify themselves as “fee only” because they believe it is good for business, our definitions, including “fee only,” provide a clear, common sense and plain-English explanation to clients about compensation methods.

Questions have also been raised as to why the CFP Board has taken enforcement actions against the Camardas and others, while allowing CFP professionals who worked for wirehouses or brokerage firms and identified themselves as “fee only” on CFP Board's “Find a CFP Professional” online search tool to correct their disclosures.

BETTER JOB

When the CFP Board added compensation categories to our online search tool with the launch of our public awareness campaign, we could have done a better job of developing and monitoring the tool.

Historically, we have not audited data provided on our search tool but have relied on CFP professionals to provide accurate information. After we recognized the potential misinformation flowing through the site, we removed all “fee only” entries and asked those who had selected “fee only” to update their compensation selection after reviewing the rules and compensation definitions.

The CFP Board decided not to open an investigation of all those who changed their compensation description on our site. Rather than open hundreds of enforcement cases, we exercised our discretion to use our resources by asking CFP professionals to verify the accuracy of their compensation selection.

We are taking steps to improve our processes to facilitate compliance with our rules and provide the public with accurate information.

Whether you agree or disagree with the way we handled the situation, our action did not benefit wirehouse employees over CFP professionals in independent and small firms.

In fact, close to two-thirds of the CFP professionals who updated their profiles from “fee only” to “commission and fee” in response to the CFP Board's communication in September 2013 are not associated with our 50 largest firms.

Later this month, as we embark on our next listening tour with CFP professionals, we want to hear from them and the public about what we are doing well and what we can do better.

At the same time, we are not allowing this legal challenge to distract the CFP Board from executing on the five-year, board-approved strategic plan focusing on awareness, growth, recognition and regulation, and authority.

The CFP Board is advancing the financial planning profession with the ultimate goal of benefiting the public — from our new advertising campaign in support of awareness, to our recently released Women's Initiative white paper supporting growth in the number of female CFP professionals.

When I became a CFP professional in 1990, the public had very little idea of what financial planning was, much less what the letters “CFP” meant after someone's name. Nearly 25 years later, CFP certification is recognized as the highest standard for financial planners by the public and financial professionals alike.

This didn't just happen. It was the result of tens of thousands of CFP professionals who embody and reflect the competency and ethical standards in their daily work with their clients, and of our dedicated volunteer leadership and staff.

Be assured that the board of directors of the CFP Board is fully engaged in leading and overseeing the CFP Board, and we are committed to preserving the integrity of the CFP certification by defending the CFP Board's right to enforce its standards for the benefit of the public now and for years to come.

Ray Ferrara is the 2014 chairman of the CFP Board's board of directors.

Advisers on the Move

Upcoming Event

August 05

Webcast

Maximizing Your Clients' Social Security Benefits

Helping clients navigate the maze of Social Security can be a full-time job. But by understanding a few key concepts, you can make sure your clients get the most out of this critical retirement benefit.With InvestmentNews contributing editor ... Learn more

Accepted by the CFP Board for 1 CE credit and by IMCA for 1 CIMA®/CIMC®/CPWA® CE credit

Get Daily News & Intel

Breaking news and in-depth coverage of essential topics delivered straight to your inbox.