CFP Board’s enforcement program needs a shake-up: report

Self-reporting of regulatory issues by advisers has been a clear weakness.

The Certified Financial Planner Board of Standards Inc.’s enforcement program and its representation to the public and investors have been plagued with “systemic, longstanding, governance-level weaknesses” — failures that need to be addressed by internal reforms, according to a new report by a task force appointed by the CFP Board over the summer.

The task force was established in July in response to a Wall Street Journal article that took the board to task over omitting negative information about CFPs on the board’s website that was designed to help investors find a CFP to hire. The negative information included regulatory and criminal problems and customer complaints about individual CFPs.

Since 2011, the CFP Board has been touting the CFP credential as the gold standard among financial designations in a $10 million annual ad campaign. The organization then upped the ante last year when it approved a strengthened fiduciary duty attached to the mark.

In the past, the CFP board has relied primarily on certificants to report their own disciplinary problems with the Securities and Exchange Commission or the Financial Industry Regulatory Authority Inc.

This is a clear problem, according to the report.

“The weaknesses identified by the Journal resulted partly from the CFP Board’s over-reliance on self-reporting by CFP certificants,” according to the report. “The importance of self-reporting was heightened by the two-year gap between background checks of certificants by the board’s enforcement staff. It is our understanding that the CFP Board recognizes these problems.”

“The CFP Board staff has already taken steps to ensure that more frequent background checks are conducted and that other sources of public information are considered,” according to the report. “It further intends to use technology to improve the scope and efficiency of information collection efforts.”

The organization needs to get tough with advisers who abuse the self-reporting system, according to the report.

“The CFP Board should take the default position, in the absence of extenuating circumstances, that all self-reporting failures shall be subject to at least suspension if not revocation and take steps to communicate this position to the CFP certificant community,” according to the report.

It’s been a year of change at the CFP Board.

At the same time the CFP Board was dealing with the public fallout over its enforcement program, it was working to roll out its revised advice requirement for its 85,000 CFP holders in the United States. That was supposed to take effect this October but was delayed until June.

The chairwoman of the five-person enforcement task force was Denise Voigt Crawford, the former Texas securities commissioner.

The task force recommended several steps to bolster the CFP Board’s governance, including hiring individuals with expertise to evaluate CFP Board’s governing structure. It also recommended creating written policies that define specific enforcement outcomes.

In a statement, the CFP Board said it no longer relies primarily on the self-disclosure of CFP professionals and it has implemented annual background checks on all CFP professionals.

“This process was an essential step that will help the board strengthen CFP Board’s enforcement program,” Susan John, chair of CFP Board’s board of directors, said in a statement.