Planners urge enforcer role for CFP Board

FPA, NAPFA are making defensive play for a professional regulatory organization

Apr 26, 2009 @ 12:01 am

By Jed Horowitz

With regulation of the financial planning industry all but a certainty, a coalition of industry groups is cobbling together a proposal to make the Certified Financial Planner Board of Standards Inc. the rule setter and enforcer for the nation's hundreds of thousands of unregulated planners.

The effort is an attempt by the financial planning industry both to legitimize itself as a regulated profession and reverse the growing impetus of the Financial Industry Regulatory Authority Inc., which oversees securities brokers, to expand its domain to planners and advisers.

"We have been working very hard on a legislative agenda that would have financial planning seen as a regulated profession differentiated from others in the financial services realm," said Marv Tuttle, chief executive of the Denver-based Financial Planning Association. "We expect to inform all of stakeholder and constituents about the legislative agenda over the next couple of weeks."

The FPA this year joined with the Washington-based CFP Board and the National Association of Professional Financial Advisors of Arlington Heights, Ill., to form the Financial Planning Coalition to help shape legislation as Congress and regulators rush to reform oversight of financial services in the wake of global banking woes and the Bernard Madoff scandal. The coalition's staff expects to present the CFP plan and legislative agenda to its voluntary board of advisers and planners May 8, Mr. Tuttle said, but has not yet hired lawyers or lobbyists to draft specific legislation.

Though financial planners and investment advisers don't always speak with one voice, they are generally united in arguing that Finra's focus on the sale of commission-based brokerage products makes it ill-suited to regulate the services, often-fee-based, that they provide.

"Finra understands another part of the industry well, but we're not sure it has the right answers for [registered investment advisers] and those behaving in a fiduciary capacity with their clients," said Tom Orecchio, a member of the coalition's board and a principal of Modera Wealth Management. The RIA firm, based in Old Tappan, N.J., has about $375 million under management.

"We are a relatively clean part of the business and know the model and want to share our views with Congress and the [Securities and Exchange Commission]," he said.

Marilyn Mohrman-Gillis, the managing director of public policy at the CFP Board, said that Finra understands the customer suitability standards required for brokers, but "would not have the expertise and the competence to regulate a profession that is providing integrated and broad-based professional financial planning services at a fiduciary-standard-of-care level."

The CFP Board employs fewer than 55 people, compared with about 3,000 at Finra, and its most far-reaching sanction is to decertify a certificate holder. Finra has the power to impose monetary penalties and suspend, or even expel, brokers and firms from the securities industry.

Ms. Mohrman-Gillis said that the CFP Board's experience with licensing and enforcing ethical and other competency standards for 59,000 CFPs qualifies it to ride herd over the estimated 300,000 others who call themselves planners.

The CFP Board, meanwhile, is sharpening its skills at influencing Washington's political elite. Last week, it began a 13-week stint as an underwriter for the local broadcast of National Public Radio's "Morning Edition," identifying itself in a tag line as a group dedicated to ensuring a fiduciary standard of care for all advisers (see related story on Page 44).

Finra, to be sure, is well-positioned to get the regulatory nod to oversee all advisers and planners because of its size, infrastructure and lineage going back to the founding of The Nasdaq Stock Market Inc. in New York almost 40 years ago. It is also the former employer of SEC Chairman Mary Schapiro and SEC commissioner Elisse Walter.

The agency delegates its oversight of securities brokers to Finra and could even be charged by Congress with creating a new self-regulatory group for planners.

"People are still talking about this at the conceptual stage, and the devil is in the details," said Ms. Walter, who noted that she hasn't taken a stand on which organization should regulate planners. She will recuse herself from matters directly involving Finra until she reaches her one-year anniversary with the SEC in July.

Ms. Walter said it makes sense to delegate responsibility to a private body that can closely oversee an industry through day-to-day inspections, exams and enforcement, leaving the SEC to focus its limited resources on problems with large risk-based implications. She said she supports a fiduciary standard for all practitioners working with individual investors, but added: "I hope that the suitability standard doesn't get lost" because it serves investors well.

Mr. Tuttle conceded that getting Congress to support a CFP Board, rather than a Finra, regime will be tough. "We know that we are fighting a pretty uphill battle here in terms of creating a carve-out for financial planning, but we believe we have some salient strong points to make in terms of the economic recovery and making dramatic changes for the consumer," he said.

Mr. Tuttle said that much of the group's focus is centered on the Senate Banking and House Financial Services committees.

Diahann Lassus, chairwoman of NAPFA and head of RIA firm Lassus Wherley & Associates PC in New Providence, N.J., said that there is plenty of time for the coalition to make its argument, since Congress' initial focus of reform is on banking and fixing systemic risk."If Finra were to try to get into this area of planning, it would have to rebuild from the ground up because it doesn't have the expertise," she said.

A Finra spokeswoman declined to comment, noting only that Finra chief executive Richard Ketchum has endorsed a unified regulatory and common fiduciary standard for brokers, advisers and planners of all stripes.

"The lack of a comprehensive, investor-level examination program for investment advisers impacts the level of protection for every member of the public that entrusts funds to an adviser," Mr. Ketchum told the Senate's Committee on Banking, Housing and Urban Affairs in March. "The Madoff Ponzi scheme highlighted what can happen when a regulator like Finra has only free rein to see one side of a business," he said.

Some investment advisers, meanwhile, are concerned that the coalition could come up with such a broad definition of financial planning that SEC-registered investment advisers only tangentially involved in activities such as tax and estate planning could come under the CFP Board's sway.

"I want to be regulated by a group that represents, first and only, the investor, and that group should be the SEC," said Frank Armstrong, chief executive of Investor Solutions Inc., an RIA in Miami with about $350 million of assets.

As a self-regulatory organization supported by its securities industry members, Finra is conflicted, he said. The SEC should expand its staff, perhaps absorbing Finra, to regulate the industry better, Mr. Armstrong said.

"That's completely impractical," Ms. Walter said. "The numbers of RIAs are growing tremendously, and anyone who understands the Senate's [budget allocation] process would understand that."

E-mail Jed Horowitz at


What do you think?

View comments

Recommended next

Upcoming event

Dec 05


ESG & Impact Forum

Thought leaders, investment strategists and practitioners will gather at the United Nations to translate global ESG and impact investing perspectives into strategies that resonate with investors and produce desired outcomes.... Learn more


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print