Financial planners may soon avoid being taken to the woodshed for filing for bankruptcy protection by the organization that issues their credentials.
The Certified Financial Planner Board of Standards Inc. proposed a rule today that would end disciplinary proceedings over bankruptcy and replace them with disclosure requirements if the CFP mark holder only files for bankruptcy once.
Currently, if a CFP mark holder seeks bankruptcy protection, he or she can face a range of sanctions, including revocation of the credential. A bankruptcy in the past five years can prohibit an applicant from being awarded a CFP mark. Even under the new rule, two bankruptcies would result in an adviser losing the CFP mark.
Under the proposed rule, the CFP Board would not investigate stand-alone, one-time bankruptcies nor would the CFP Disciplinary and Ethics Commission rule on whether the advisory business failure was due to an ethical lapse. Instead, the CFP Board would record the bankruptcy in the mark holder's public profile for 10 years.
This means that investors would have knowledge of all bankruptcies that are filed. Under the current system, if a the ethics body dismisses a bankruptcy case or calls for a private censure, there’s no public record.
“The facts and circumstances are different in every case,” said Michael Shaw, CFP Board managing director of professional standards and legal. “We believe this is fairer process to follow for the individual who filed the bankruptcy as well as for the public. We’re treating these bankruptcies the same.”
Financial planners who were previously punished for filing one bankruptcy would have the option of having the action retracted and replaced with a notice in their profile.
“CFP Board believes this proposed approach of noting all bankruptcies filed in the past five years in an individual's public profile is aligned with its mission to benefit the public,” the board said in the rule proposal. “CFP Board believes that this proposed approach will benefit CFP professionals and candidates for CFP certification because they will no longer be subject to potential discipline in bankruptcy-only cases.”
The organization also said that the change of procedure regarding bankruptcies would allow it to “allocate more of CFP Board's resources to investigate other matters, such as fraud, misrepresentation and misappropriations of funds.”
The board will take comments on the proposed rule through Feb. 17. A final proposal is expected to go before the board at its March meeting. The CFP Board grants CFP certification and enforces related ethical standards for the approximately 63,000 U.S. investment advisers who hold the mark.
The number of bankruptcy cases brought before the disciplinary panel has
– from 20 cases in 2010 to 49 in 2011Overall, the CFP Board has been placing greater emphasis on policing its mark holders. The total number of investigations it conducted rose from 831 in 2008 to 1,472 in 2010.
