Why a federal judge tossed out the Camardas’ case
U.S. District Judge Richard Leon made public Tuesday his opinion in a lawsuit over CFP Board's disciplinary action related to adviser use of the 'fee-only' label.
A federal judge cannot tell the CFP Board how to enforce its rules on how designation holders describe their compensation.
That’s the upshot of U.S. District Judge Richard Leon’s ruling throwing out a controversial lawsuit brought by two Florida financial planners against the Certified Financial Planner Board of Standards Inc. on July 6. On Tuesday, Mr. Leon’s decision was made public.
“The contractual relationship between CFPB and its certificants, such as plaintiffs here, permits CFPB to enforce the standards that it sets through certain disciplinary procedures,” Mr. Leon wrote. “In reviewing a disciplinary action by a private organization, courts do not ‘second guess’ the organization’s interpretation of its own rules or its evaluation of the evidence.”
The suit was filed in 2013 by Jeffrey and Kimberly Camarda, married financial planners who are managing members of Camarda Financial Advisors.
They accused the CFP Board of breach of contract, unfair competition and false advertising under the Lanham Act in relation to the CFP Board’s bringing a disciplinary case against them for inappropriately calling themselves fee-only advisers.
The Camardas failed to make their case on each of their causes of action, according to Mr. Leon.
(More: “Camardas: None of the 70,000 CFPs are entitled to their day in court”)
The CFP Board did not breach its contract with the Camardas because it “followed its own rules throughout the disciplinary proceedings” and did not act in bad faith or with ill will, Mr. Leon wrote.
The CFP Board is a “standards-setting organization” rather than a competitor of the Camardas and “cannot be held liable for unfair competition,” Mr. Leon wrote.
Finally, Mr. Leon held that the CFP Board did not engage in false advertising, when it said it fairly enforces its rules.
“Put simply, section 43(a) of the Lanham Act was not meant to remedy plaintiffs, like those here, who are unhappy with the outcome of a disciplinary decision of a standards-setting organization,” Mr. Leon wrote.
The Camardas said the decision does not speak to the substance or validity of their case.
“The court may have ruled against us, but it was only due to a reading of the law that none of the more than 70,000 [CFP] certificants are entitled to their day in court if the CFP Board mistreats them during the CFP Board’s self-administered internal proceedings or otherwise,” the Camardas said in a statement. “The fact still remains that we were very unfairly treated throughout the entire process, and no one outside of us and the board knows the details.”
The CFP Board said the decision fortifies its adjudication process and protects investors. CFP Board cases are brought before the Disciplinary and Ethics Commission, which is made up of CFPs.
(More: “CFP Board: Judge’s ruling validates our rights to protect the public”)
“This is a significant victory for CFP certification, for CFP Board and for CFP professionals,” CFP Board chairman Richard P. Rojeck said in a statement. “It affirms the integrity of the CFP certification and CFP Board’s role as the standard-setting body for personal financial planners. CFP Board’s peer-review disciplinary process is both fair and equitable and allows CFP professionals to determine when one of their peers has violated CFP Board’s rules of conduct.”
The CFP Board brought a case against the Camardas in December 2011, holding that they represented themselves as fee-only advisers when an arm of their firm, Camarda Consultants, sells insurance for commissions.
Under CFP Board rules, advisers can claim fee-only status if they only charge fees for their services and are not affiliated with any entity that can charge commissions.
That definition has been the source of controversy for years. A former CFP Board chairman, Alan Goldfarb, stepped down November 2012, as the board began an investigation into allegations that he mischaracterized his compensation on the Financial Planning Association website.
Mr. Goldfarb and other CFPs who have had run-ins with the CFP Board over compensation descriptions say that the organization’s definition of fee-only is unclear. The label is valued by investment advisers because it is seen as indicating that the adviser will act in the client’s best interests rather than be motivated by sales commissions.
As part of its effort to underscore its current compensation terms, the CFP Board temporarily removed the fee-only description from its website in September 2013 and told the 8,000 CFPs using the label to reevaluate whether they complied with the CFP rules before resetting it on their profiles.
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