This story has been corrected to reflect that the CFP Board will spend $5 million on enforcement program enhancements over the next two years rather than the past two years.
The Certified Financial Planner Board of Standards Inc. is conducting background checks of all of the approximately 87,000 financial advisers who hold the mark as part of an effort to strengthen enforcement related to the CFP designation.
The organization does such reviews of new certificants but has expanded them to each CFP as one step in improving the enforcement program in advance of its new code of standards and ethics that goes into force next Tuesday.
During the updated background checks, the CFP Board detected conduct requiring further investigation related to approximately 1,240 CFP certificants. All of the situations will be reviewed on a case-by-case basis but not all will require adjudication, the organization said. About 40% of the probes are for items not related to customers, such as tax liens.
Any public sanctions that result from the investigations will be announced in a press release and appear in the CFP professional's disciplinary history on the portion of the CFP Board’s website designed to help consumers find an adviser.
The CFP Board will spend an additional $5 million over the next two years to fund the background checks.
In addition to the probes, the CFP Board is implementing other enforcement enhancements, including requiring CFPs to disclose more information about their conduct more frequently and increasing consumer access to BrokerCheck and the Investment Adviser Public Database from CFP profiles on the board’s website.
“We are decisively moving away from CFP Board’s historic reliance on self-disclosure by CFP professionals,” CFP Board Chief Executive Kevin Keller told reporters Wednesday. “We’re making a concerted effort to provide the public with increased transparency about disciplinary history and other disclosure information related to CFP professionals.”
The enforcement enhancements come in the wake of a report late last year by an independent task force. The panel was formed in response to a Wall Street Journal report that said the CFP Board’s website omitted criminal, regulatory and customer complaint information for many CFPs.
Other steps the board took to increase scrutiny of CFPs’ background include developing a process for reviewing BrokerCheck, the IAPD and a national legal database; establishing a database of state regulatory actions related to insurance and securities licensing; and requiring CFPs to make an ethics attestation annually instead of every two years.
The CFP Board increased the scope of potential misconduct that CFPs must report and reduced the time they have to report it from two years to 30 days. The reporting areas include regulatory infractions, fraud, loss of professionals certifications, termination with cause, customer complaints and civil actions.
The $5 million allocated to the background checks was a one-time expense. It’s unclear how much ongoing spending -- or an increase in the CFP annual fee -- will be required for the organization’s stepped-up enforcement. It’s currently undertaking a “strategic refresh” that includes determining spending priorities, said Jack Brod, chairman of the CFP Board.
“Until that process is complete, it would be premature to speculate about fees and whether ongoing costs related to building out the enforcement program will or will not have any impact on fees,” Brod told reporters.
He said the CFP Board does not anticipate scaling back its annual $10 million public awareness campaign while it beefs up its enforcement operations.
The centerpiece of the CFP Board’s new code of ethics and standards is a new requirement that certificants, including brokers, act as fiduciaries at all times while they’re providing investment advice.
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