More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Certified Financial Planners and CFP applicants can no longer hide their disciplinary histories from the CFP Board under the guise of client confidentiality, the Board revealed in April. Following the March request of the Certified Financial Planner Board of Standards, the SEC issued a no-action letter in March that gives brokers and advisors the go-ahead to share customer complaint information with the Board without fear of reprisal from the SEC. The SEC decision removes advisors’ ability to assert client confidentiality as a justification for not disclosing customer complaint information to the CFP, giving the Board free-reign to scour members’ backgrounds.
As part of its certification process, the CFP Board conducts background checks on all applications seeking CFP certification. The SEC’s no-action letter allows the CFP Board to obtain information from firms concerning complaints filed against RIAs, broker-dealers and their representatives. Prior to this green light, the CFP application previously required only disclosure of investigations or legal proceedings that occurred within the past two years.
The old procedure allowed RIA and broker-dealer firms to cite Regulation S-P, allowing them to refrain from disclosing customer complaint information in an effort to protect customer privacy. According to the SEC, “while Regulation S-P is intended to protect the privacy rights of customers, the No Action letter acknowledges that protecting the public from criminal and improper conduct is paramount to ensuring investor confidence.”
The new procedure is not designed to be a retributive tool. It is meant to increase the efficiency of the certification process by preventing delays in application processing due to requests for customer complaint information. It should also decrease the number of dismissed misconduct investigations due to insufficient evidence.
The CFP Board said in believes that the “guidance from SEC staff will help candidates become
certified more quickly while also resulting in stronger enforcement actions, as now there is no longer a reason for firms to object to sharing customer complaint information with the CFP Board.”
A Chilling Effect on Becoming a CFP?
Although the no action letter will not subject RIAs and B-Ds to penalties, the SEC action increases the difficulty of becoming a CFP. The CFP certification process is exhaustive. But if you successfully complete the CFP certification process and your application is approved, the CFP designation carries a level of prestige throughout the United States. If you’re planning on taking your CFP designation abroad, however, you’ll have to undergo the Financial Planning Standards Board’s (“FPSB”) certification process to become a CFP in the specific non-U.S. region where you plan to practice.
Whether the CFP path is right for you depends on your goals and your clients’ and prospects’ perceptions of certification. Sometimes, the credibility and reliability that goes hand-in-hand with “brand name” credentials is what brings in new clients – and keeps the old ones. Advisors and brokers should weigh the benefits of each designation before deciding which certification will best serve their needs.
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See also The Law Professor's blog at AdvisorFYI.