CFP Board to out planners who go bankrupt

CFP Board to out planners who go bankrupt
Highlighting such filings should help the public make more-informed decisions when choosing a financial planner, group says
MAY 02, 2012
As the number of certified financial planners declaring bankruptcy grows rapidly, the organization that grants the credential is trying to make it easier for the public to know whether a planner has gone belly up. The Certified Financial Planner Board of Standards Inc. today announced that it will no longer initiate disciplinary proceedings against a planner after his or her first bankruptcy. Instead, the board will highlight the bankruptcy on the planner's profile on the CFP website and include his or her name in a news release. The new bankruptcy rule, which will go into effect July 1, is one of several that the CFP Board has approved. Another reduces the full-time experience requirement from three years to two years if a CFP candidate has worked directly with clients under the supervision a certified planner. The organization also amended its disciplinary rules so that a CFP who does not respond to a request for information during an investigation will be considered to have admitted to the allegations in the complaint. The experience rule will take effect Sept. 1, while the disciplinary changes are effective as of June 1. Under current rules, a CFP who has declared bankruptcy within the last five years is be subject to an investigation and potential disciplinary action, including suspension or revocation of the CFP designation. A CFP candidate with a bankruptcy is barred from applying until five years after the bankruptcy. CFP officials said there is inequity in a situation where some CFP mark holders avoid any kind of public notice of their financial difficulties, while CFP applicants have to wait several more years before they can join the organization. “We needed to come up with a procedure that is more fair to these two groups of people and provides more information to the public,” Michael Shaw, the CFP Board's managing director for professional standards and legal, told reporters on a conference call. The rule change comes as more and more CFPs find themselves in financial straits. The CFP Board pursued only one bankruptcy case in 2008. The number rose to 49 in 2011 and hit 37 in the first quarter of this year. The increase is a function of both the growing number of CFPs, who now total about 65,000 in the United States, and the lingering effects of the recession, according to Mr. Shaw. He said treating all bankruptcies as disciplinary cases is unfair because planners go broke for a number of reasons — from difficulties resulting from the economy to a sudden change in their health or personal life. “The one thing we've found about these bankruptcies is, no two are alike,” Mr. Shaw said. “Expanding the disclosure gives the public an opportunity to make an informed decision.” If a CFP declares a second bankruptcy, he or she will be investigated. Two bankruptcies disqualify an applicant from receiving a CFP mark. The experience requirement for a CFP can be through personal delivery of financial planning or by providing supervision or through direct support, teaching, internships and residency programs. The CFP Board adjusted the relative value of hands-on planning after a 2011 review by its accrediting organization. “Providing direct financial services to clients should be weighed more heavily than the other the other five,” said Alan Goldfarb, chairman of the CFP Board's board of directors. The CFP Board said that it amended its disciplinary procedures to align itself with other regulators who utilize the “adverse inference” rule when an investigation subject fails to cooperate. Under the new CFP rule, a recalcitrant target is considered to have admitted guilt if he or she stiff-arms a CFP inquiry. “Our approach is consistent with what both Finra and the SEC are doing,” Mr. Shaw said.

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