More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
My sense is that these days, some financial planners have become ambivalent about the doings of the CFP Board. So you may or may not have taken note that five of the nine members of the Board's Disciplinary and Ethics Commission--including the co-chairs Harv Ames and Diana Simpson--resigned en masse in March. I, too, have come to the conclusion that to maintain any optimism about the financial planning profession you just can't take the Board folks too seriously. But when the people who are charged with overseeing the ethical conduct of CFPs get their knickers in a knot, we probably should pay attention. What's more, advisors who are affiliated with the Board are usually under such a tight gag order that they wouldn't say horse hockey if a load fell on them, so an unprecedented rebellion such as this ought to be the mother of all red flags.
It seems that this Gang of Five is mostly upset about being blindsided by the Board's March 6 announcement of a unilateral decision (that it had actually reached on January 19) to change the way it oversees the DEC. In a release, Board Chair Dave Strege perhaps injudiciously described the action this way: "...we have strengthened our procedures to ensure certificants and their clients have access to a fair, objective and consistent professional review process." As you might imagine, this came as a pretty brisk slap in the face to the people who were under the impression that they were already delivering "a fair, objective, and consistent professional review process," and until then, had no indication that the Board felt otherwise.
To clarify their reasons for resigning, and state for the record their feelings about the Board's decision, the Gang of Five released a white paper on April 3, aptly titled Why We Resigned. While stating other concerns as well, the puzzled Commissioners expressed their disbelief over the Board violating propriety, common sense, and apparently its own rules by not consulting them or anyone else about their decision: "This procedural action...violates the CFP Board's own Disciplinary Rules and Procedures...[which] states: 'The Code of Ethics, Rules of Conduct and Practice Standards may be amended from time to time, with revisions submitted to the public for comment before final adoptions by CPF Board [sic].'"
Ames, Simpson, et al, go on to rightly point out that the Board adopted the above Rule just eight months ago, in reaction to the whipping they took over announcing new practice standards in July 2006 without obtaining feedback from CFPs (whom the Board oddly refers to as "stakeholders"), and it's subsequent reissuing of same for comment "prior to adoption." In Why We Resigned, the Five write that "In light of this recent experience, it is simply incomprehensible that the Board of Directors could have imagined--at a non-public meeting, without stakeholder input--that they could adopt dramatic changes to past practice." I couldn't have put it better myself.
Not So Bad?
The Gang goes on to enumerate three other concerns about the decision itself: The Discipline and Ethics Commissioners now will be appointed by Board CEO Kevin Keller, rather than by the existing commissioners themselves; there will be a public representative on the Commission; and "staff" legal counsel will participate in the final ratification of the Commission's findings on each case it hears. Taken together, all this unquestionably spells less autonomy for the DEC, and far greater participation by the Board itself and staff in the Commission. As is often the case with Board decisions, it seems to have little to do with its stated reasons for taking this action--namely, a more "fair, objective, and consistent" review process.
Yet, one has to ask how bad all this really is. As you might have gathered, I'm not the CFP Board's biggest fan. By default the CFP mark has become the designation of professional financial advisors. Consequently, the CFP Board has become the de facto guardian of the profession. But, its lack of accountability, abundance of secrecy, hidden agendas, and all too frequent off-the-wall decisions continually raise the question: Is this the best the profession can do? However, with all that said, I have to admit to being uncharacteristically ambivalent about this recent DEC decision.
I have no doubt that Ames, Simpson, and the other resigning commissioners have the highest integrity, and have acted solely out of their concern for the profession. The Commissioners' stated concerns also all have merit. The Board once again demonstrated how out of touch it is by acting unilaterally on such a high-level change, particularly in light of its recent experience with the Practice Standards, which become binding July 1, 2008, by the way. Then, too, putting "consumers" with little understanding of the ethical considerations involved or how professional advisors truly differ from the rest of the financial services industry on the Commission seems just plain dumb. Finally, turning the appointment of Commissioners over to Keller who, after 16 years at an association for corporate treasurers, now has all of one year's experience with the Board and the planning profession seems ill advised, especially considering the Board's experience with CEOs: dictatorial Bob Goss, REIT salesman Lou Garday, and loony Sarah Teslik. What could go wrong with that plan?
Still, the reality is that the "consumer" is just one vote, and the CEO and staff are responsible to the Board, which, for better or for worse, has overall responsibility for administering the CFP mark anyway. So, I have to ask myself: How much of a change are we really talking about there? The best I can tell, this is just another classic example of the Board handling an issue in probably the worst possible way. If it had gotten some input from the existing Commissioners, put the plan out for comment, and done a better job of communicating why the Board wanted to make these changes, it still could have done exactly what it did, and I'm guessing few CFPs would have said boo about it. Put into the context of the myriad challenges facing the planning profession today, how the DEC commissioners are picked seems pretty far down the priority list.
The Board's Real Agenda?
What does keep me awake at night, though, is what the CFP Board is really up to, which the Gang of Five alludes to in their paper: The Board is not-so-subtly repositioning itself as the representative of professional financial advisors in the Washington, D.C. reregulation-of-financial-services power struggle. Consider: that the Board hired a new CEO who is a long-time, financial industry/Washington insider; that it relocated its headquarters to Washington, and is now repositioning the organization with more consumer input and, according to Strege, "based... on best practices of corporate governance and of professional review process inside and outside the financial services industry." Translation: The Board is now looking much more like other regulatory bodies.
Want more convincing? Here's what Strege recently said about the Board's new staff attorneys: "[They] both joined CFP Board after [holding] positions with FINRA, where they gained experience interpreting rules and regulations. Additionally, one of the staff attorneys has a firm understanding of securities laws, having worked for the securities administrators in Maryland and the District of Columbia."
Now, I don't know about you, but the thought of these chuckleheads careering around Washington, cutting deals in smoke-filled backrooms to become the regulatory body for professional financial advisors scares the bejesus out of me. It's one thing for them to muddle along in Denver, barely administering a designation with a modicum of competency and propriety. But to have the CFP Board--which is accountable to no one but itself, and continually shows far more interest in building market share than establishing a profession--playing politics in the name of professional advisors everywhere smacks of a disaster in the making.
Looking Out for Certificants
How bad could it be, you ask? Gee, I don't know: What if these geniuses cut a deal with FINRA to regulate all "financial advisors" both outside and inside the wirehouses by putting them under the CFP mark? Impossible? What's to stop them? Would they hesitate to skyrocket the number of CFPs to 200,000 in a year, and become major Washington players in the bargain?
Like you, I'd like to believe that the Board wouldn't do something like that. But neither would I bet against it. I still can't believe that way back in 2000 the Board tried to get away with CFP Lite (a watered down CFP designation, officially called the "associate CFP" designation for those very same wirehouse brokers). Over the past few years, I've had prominent Board members tell me that "CFP Lite" was just a good idea at the wrong time." Is now the "right" time?
I'll leave the last word to Ames, Simpson, and the rest of the Gang of Five: "This really is the issue about what the role of CFP Board is and should be. Historically...CFP Board protected the public by assuring the education and ethical conduct of certificants...However, as the Board Directors now apparently jockeys to position CFP Board for a bid to become the regulatory body overseeing financial planning, the balance has tipped too far: Concern for the interests of "the public" now outweigh the historic commitment of CFP Board to certificants and the mark. We find it troubling that this change has occurred without input from the body of certificants who fund the operation of the organization. It is this body of certificants who not only constitute the only reason for the existence of the organization, but who are also virtually the sole source of funding its operations."
Bob Clark, former editor of this magazine, surveys the advisory landscape from his home in Santa Fe, New Mexico. He can be reached at firstname.lastname@example.org.