More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
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.
For additional coverage of this issue and similar ones, we invite you to sign up with AdvisorOne’s partner, AdvisorFX, for a free trial.
See also The Law Professor's blog at AdvisorFYI.