CFP Board reforms enforcement procedures to align with new ethics code

The changes are designed to give the organization better access to information for disciplinary actions

The Certified Financial Planner Board of Standards Inc. released Friday revised procedural rules for enforcing higher ethical standards associated with the credential that are set to go into force at the end of June.

The reforms give the organization more latitude in gathering information but also clarify how certificants involved in a disciplinary proceeding can defend themselves.

“They ensure our process is fair to the certificant but credible to the public,” said CFP Board chief executive Kevin Keller.

Among the changes, the CFP Board can conduct oral examinations in person or via video. There will now be a seven-year limitation on how long after an alleged violation the CFP Board can open an investigation. CFP mark holders will have an opportunity to avoid CFP discipline over a bankruptcy if they can show it is not related to an inability to manage their personal finances.

In addition, there is a provision that would allow the CFP Board to sanction mark holders if they have multiple settled customer complaints but do not produce related documents. The CFP could avoid discipline only if he or she proves the complaints were without merit.

The enforcement procedure modifications come as the CFP Board is set to put into force a new code of ethics and conduct on June 30. The centerpiece of the requirements is a stronger investment-advice standard for the CFP designation.

All CFPs — including brokers — will have to act in the best interests of their clients at all times when providing investment advice. Under the previous standard, fiduciary duty only applied to CFPs when they worked with clients on financial planning.

As the deadline for the stronger fiduciary duty for CFPs approached, questions were raised about the organization’s ability to enforce the mark’s ethical standards. Late last year, a task force issued recommendations for improving CFP enforcement.

The enforcement reforms are designed to help the CFP Board put teeth into ethics policing.

“The changes enhance the CFP Board’s tools to investigate misconduct,” said Leo Rydzewski, CFP Board general counsel.

The advent of the new CFP ethics standards coincides with the implementation date — also June 30 — for the Securities and Exchange Commission’s Regulation Best Interest, which the agency says will raise the investment advice standard for brokers above current suitability.

Some financial firms have criticized the CFP Board for implementing its own advice rule side-by-side with Reg BI instead of deferring to Reg BI. But investor advocates who call Reg BI too weak to curb broker conflicts of interest welcome the CFP Board’s expanded fiduciary standard.

Keller said the market volatility caused by the coronavirus outbreak increases the urgency for ethical, unbiased investment advice.

“In a pandemic, it’s paramount,” he said.

The CFP Board sets and enforces the educational, ethical and competence standards attached to the designation for about 87,000 CFPs in the United States.