I spoke at a national conference recently and a CFP professional approached me after my presentation. Call him "Q." He wanted to know if I thought it was worthwhile to contact CFP Board about a potential ethical violation by another CFP professional. We'll call him "LL" since he is also a lawyer and holds multiple designations.
The situation involved a high-net-worth business owner's succession plan that Q set up several years ago. The business owner needed life insurance to deal with some transfer issues but had some health issues at the time that made a full solution cost-prohibitive.
As a result, and in consideration of the business owner's available cash flow, Q put in place a term policy good for a certain period, but with an option that allowed the policy to be converted to a permanent policy at 1.5 times its death benefit — unconditionally. Q planned to convert the policy before the term policy increased in premium.
Enter LL, who is a lifelong friend of the business owner's daughter. The business is now more prosperous and the daughter wants to make sure that there is sufficient coverage in the event of her father's demise. She asks LL to review the succession plan, and in particular what they should do about the term policy.
LL doesn't understand the need to wait for the end of the term period since the business owner is in much better health now but not getting any younger. He recommends that the business owner take advantage of the unconditional opportunity to move to a larger, permanent policy. Q accepts that LL has a personal relationship with the family and agrees that the change makes good sense. Since Q put the original policy in place, he expected that when the policy was converted, he would be paid additional compensation. This didn't happen.
LL contends that the policy was not converted but that exercising the unconditional option resulted in a completely new policy with greater death benefit, permanent coverage and distinct premium requirements. Of course, Q disagrees. He contends that the option he put in place years before effectively allowed conversion from term to permanent and that he deserves to be paid at least a portion of the compensation on the new policy.
The insurance company declined to split the compensation based on assertions from LL that the term policy was not converted. Instead LL developed a new recommendation and negotiated with the insurer to approve a new application and issue an entirely new policy.
Without getting into arcane matters of split commissions and insurance conversion requirements, Q feels that LL's actions were unethical. Q wanted to know whether I thought this was a matter that he should pursue by submitting a complaint against LL to CFP Board's Discipline and Ethics Commission.
In my attempt to answer the question, I considered several factors. First, CFP Board cannot order LL to share commissions or do anything else that will benefit Q. Sure, they could impose some discipline on LL but that does nothing of real benefit to Q despite having to submit documents, prepare statements and testify in a hearing. It could go on for a long time and more likely than not would end in a slap on LL's wrist since LL has no other complaints on his record.
Second, in my experience it is unlikely that CFP Board would agree to conduct an investigation. Disputes between advisers are not uncommon and are difficult to resolve. CFP Board tends to focus on those where another regulator has already made a determination of fact and assessed a penalty. In this case, if the state insurance regulator had found that LL violated some insurance regulation and ordered a solution that resulted in a cash payment to Q, CFP Board would be more willing to evaluate LL's ethical behavior. Without that, they hesitate to get in the middle.
My advice to Q was simple. Let it go. Keep calm and carry on. While I understand how Q feels about LL's behavior, it was of great benefit to the client. Q should take satisfaction that a plan he developed years before will help the business transition to the next generation.
Dan Candura is founder of the education and consulting firm Candura Group. Write to him to submit a question. All submissions will be treated confidentially.