CFP Board to mandate arbitration from certificants

The organization says the change, which goes into effect May 2, is appropriate because the forums are 'private, quicker and may be less costly than litigation in court'

Mar 24, 2016 @ 2:01 pm

By Mark Schoeff Jr.

+ Zoom

The Certified Financial Planner Board of Standards Inc. is adding a new mandatory arbitration provision to the certification.

Under a revision of the mark's terms and conditions announced Thursday, the organization will require certificants to resolve disputes about disciplinary action through an arbitration process rather than in court.

CFP Board has concluded that arbitration is the most appropriate forum for what amounts to a fourth level of review of a CFP professional's conduct because it is private, quicker and may be less costly than litigation in court,” the CFP Board states in a notice to CFP holders.

The notice goes on to state: “CFP Board, CFP professionals and the public all have an interest in having these matters handled efficiently and effectively. While litigation may take years to conclude, the revised terms require the arbitration process to be completed within nine months.”

The arbitration hearing would occur after the CFP Board completes its usual disciplinary process, which includes a review of allegations by its Disciplinary and Ethics Commission, comprised of CFP certificants, as well as an appeals process before the CFP Board.

A three-member arbitration panel would be chosen by the American Arbitration Association with input from the CFP holder and the CFP Board. The arbitration group would provide a list of 15 judges with at least five years of experience at the state or federal level. The parties involved in the CFP dispute would rank the roster and the three arbitrators would be selected by the AAA.

Requiring mandatory arbitration puts the CFP Board in the same league as the Financial Industry Regulatory Authority Inc., which mandates arbitration for claims by investors against brokers as well as by brokers against firms. The Finra arbitration process has been criticized as unfair to claimants.

In a call with reporters, CFP Board general counsel Leo Rydzewski said the CFP arbitration process would differ from Finra's in that it occurs as the fourth step in adjudication of a claim, rather than the first step. Also, CFP arbitration would involve former judges.

“There will be three decision makers working together who collectively have at least 15 years of experience handling matters at the court level,” Mr. Rydzewski said.

The move goes into effect on May 2.

It comes as the CFP Board is embroiled in a multi-year court case involving two Florida financial planners who are disputing a disciplinary action involving their use of the fee-only label to describe their compensation.

Mr. Rydzewski said the CFP Board is not denying an adjudication forum in the future to CFP holders like the Florida couple who want to challenge a CFP disciplinary action.

“We have not cut off an avenue,” Mr. Rydzewski said. “We've provided a different avenue to pursue.”

Don Hannaford, a spokesman for Jeffrey and Kimberly Camarda, the Florida planners, declined to comment. The case will remain in the court system.

Mr. Rydzewski said that the CFP Board was making changes to the certificates terms and conditions for the first time in 10 years. The Camarda situation was among the factors that went into the decision.

“After considering these issues, the board of directors evaluated what's the most appropriate way to move forward and determined that mandatory arbitration was that way,” Mr. Rydzewski said.

Michael Kitces, director of wealth management at Pinnacle Advisory Group, said that the modifications to the terms of the designation “look pretty reasonable” but added that mark holders have nowhere else to turn, if they don't like them.

“There's no good alternative to the CFP certificate,” Mr. Kitces said.

That problem is compounded by the advertising campaign that the CFP Board has launched that equates the mark with qualified investment advice.

“That means if I don't take their contract terms, they're smearing me in public,” said Mr. Kitces, who is publisher of the Nerd's Eye View blog.

He also said it is awkward that the CFP Board implemented the change without consulting with mark holders.

In the call with reporters, Mr. Rydzewski said that changes to the certificate terms have not been issued for public comment in the past. He added that members of the CFP Board who approved them are certificants themselves.

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