CFP Board proposes refinements to ethical fitness assessments for expunged convictions

CFP Board is asking financial advisors, firms and the public to weigh in on a proposed change to how it evaluates candidates whose criminal convictions have been expunged.

The proposal, which has been opened to a comment period running through August 21, would treat expungement as a potential mitigating factor when the board's Disciplinary and Ethics Commission decides on an applicant's ethical fitness for CFP certification.

CFP Board clarified that the proposal would apply to criminal expungement, which involves a legal process that would scrub the official record of a criminal conviction from public access. That's as opposed to expungement of customer complaints or civil dispute information from FINRA's BrokerCheck system, which the credential-granting body said is not in question under the proposal. 

The proposed move builds on a broader rewrite of CFP Board's enforcement architecture that took effect just last month. The revised Fitness Standards, Procedural Rules and Sanction Guidelines – which CFP Board adopted after a 30-day public comment period that drew 107 comments from 54 individuals – reshaped how the board handles misdemeanor convictions, confidentiality with employer firms, and sanctions for the most serious violations.

Read more: CFP Board tightening CE, experience standards for planners

What the expungement proposal would change

In March, CFP Board formed a Criminal Expungement Commission tasked with recommending a standard for a circumstance the board had not previously defined: how to treat expunged criminal convictions when assessing the ethics requirement for certification. That commission carried over nearly all the membership of the panel that wrote the June revisions and met five times during April and May.

Under the draft language, an expunged conviction would not automatically clear an applicant, but the Disciplinary and Ethics Commission could weigh it more heavily as a mitigating factor, particularly when the underlying court expungement rested on findings about the applicant's rehabilitation, character or low risk of reoffending.

The applicant would still carry the burden of proving ethical fitness regardless of the expungement, and the commission would retain full discretion – it could grant the fitness petition outright, grant it with a public notice, or deny it with a temporary or permanent bar.

Importantly, the proposal would not wash such convicted CFP certificants' hands of their public-notice obligations. If the commission grants fitness with an expunged conviction that still warrants public notice, the board would publicize the outcome and require the newly certified professional to disclose it to clients – the same treatment given to any other case that triggers a public notice.

Why a felony expungement matters more than it sounds

The proposal's most consequential piece touches felony convictions, which currently carry an absolute bar from certification. Under the revised language, an applicant with an expunged felony could file a fitness petition asking the board for consideration.

The board also clarified that if an expungement rests on an explicit finding of actual innocence, the conviction would be treated as though it never happened at all. That distinction is likely to matter to firms building out their own compliance and background-check protocols for advisor hiring as state expungement laws continue to expand.

Read more: CFP Board overhauls its sanctions and certification rules

June rule changes

The latest reconsiderations for cases of expunged felony convictions arrive just weeks after a set of revisions to CFP Board's fitness standards, procedural rules and sanction guidelines took effect last month. Under those revisions, candidates with certain misdemeanor convictions must file a fitness petition in cases where CFP Board's enforcement counsel is actually seeking a public sanction, relaxing previous rules where such a petition would be automatically required. When deciding whether to seek a public sanction, enforcement counsel would be expected to lean on the sanction guidelines, prior commission decisions and professional judgment to make that call.

After requests from firms through the Securities Industry and Financial Markets Association, the board also revised its confidentiality rule to let enforcement staff update a CFP professional's firm on the status of an active investigation.

That shift provoked some of the sharpest public comment, including concern that firms might act against employees before any wrongdoing is proven. CFP Board responded that an investigation is not itself a finding of misconduct and that firms would typically already know the circumstances prompting it.