CFP Board: Talking tough but acting soft

Slowly, but surely, the Certified Financial Planner Board of Standards Inc. is backing itself into a corner. In its bid to assert a higher moral authority over the financial advice industry by requiring that its more than 70,000 certificants use strict characterizations of their compensation models, the CFP Board finds itself locked in battle with certificants whose practices exist in the real world — a world that is not black and white, but gray. The organization's widely publicized battle with Rick Kahler, a media savvy financial planner who is at risk of losing his “fee-only” status because of his stake in a family real-estate business, is just the latest twist in the CFP Board's efforts to impose an unambiguous standard over an industry that has long courted ambiguity. The CFP Board two weeks ago backed off from its threat that Mr. Kahler comply with its rules for using the term fee-only by Aug. 1 or risk an investigation. The board's position was simple: Mr. Kahler's 50% stake in a family real estate business made him a “commission-and-fee” planner, not a fee-only planner. On the surface, the CFP Board's position seemed reasonable and fair, especially in light of the fact that Mr. Kahler sometimes referred planning clients to his real estate business. But the CFP Board did not make good on its threat. Instead, days before the deadline, Mr. Kahler and the board released a joint statement saying the two sides are in the midst of “ongoing conversations” in which the board hopes to provide “guidance” on how Mr. Kahler should characterize his compensation. It's worth noting that the move came after Mr. Kahler, who has a large following on social media, threatened to take the CFP Board to court if it proceeded with a sanction.

INCONSISTENT ACTIONS

Here's what is wrong with this picture: The board's latest action appears — at least, on the surface — to be inconsistent with how the organization has handled past disputes involving descriptions of pay models by its certificants. By reneging on its threat to investigate Mr. Kahler, the board appears to be showing favor to certificants who wield considerable clout with the media (social or otherwise) or who are not afraid to challenge the organization in court. Ultimately, backing down undermines the CFP Board's credibility with members. It is now revealed to be an organization that is talking tough but acting soft on matters related to how its certificants are paid. In light of the developments surrounding Mr. Kahler, it is entirely reasonable to ask where was the board's willingness to provide more “guidance” in the case involving Jeffrey and Kimberley Camarda, Florida planners who are suing the CFP Board over a 2012 disciplinary action regarding their compensation? That case, which is still in discovery, is likely to continue for months and is racking up huge legal fees for the board and, ultimately, its certificants. It is also reasonable to ask why Alan Goldfarb, a former CFP Board chairman, was not extended the same measure of leniency in 2012 when he was admonished for improperly calling himself fee only. Mr. Goldfarb eventually resigned from the board over the matter. The CFP Board's willingness to show leniency to some but not to all has not gone unnoticed. “In fairness, everyone should be treated the same way,” Mr. Goldfarb told InvestmentNews reporter Mark Schoeff Jr. two weeks ago. “I don't think they have been in these cases.”

TIME FOR TRANSPARENCY

For its part, the CFP Board continues — publicly at least — to stand by its fee-only definition, which requires that a planner only assess fees and not be affiliated with any firm that charges a commission. If there is such an affiliation, the planner must use the commission-and-fee moniker. To be sure, the CFP Board may have a perfectly good explanation for why it chose to work with Mr. Kahler and not with the Camardas or Mr. Goldfarb. But we will never know because the organization, so far, has failed to shed much light on its decision making in matters involving pay descriptions. “Consistent with maintaining the privacy rights of our CFP professionals, we don't release information concerning investigations,” the board said in a statement two weeks ago. “Should an investigation result in a public disciplinary action, we would, consistent with our rules, make that public.” It is time for the CFP Board to be more transparent in its dealings with certificants over matters involving pay descriptions. The CFP Board can maintain privacy rights in individual cases, but in order to abate the uncertainty and suspicion bred by piecemeal action shrouded in secrecy, the board should be public about its process for determining who gets additional “guidance” when it comes to using the fee-only label.