More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- How to Avoid Sabotaging Your Compliance Exam There is much more to compliance examination survival than knowing all of the rules. It helps to understand why the rules were put in placeand to recognize that examiners are not the enemy.
Back in the early 1990s, I was part of a group of journalists who were asked by the CFP Board (at my suggestion, if memory serves) to take the then newly revamped CFP exam. The idea was to generate publicity about the new, higher standards created by the then head of education for the Board, Dede Pahl, and her team of psychometricians (think over-educated testers), about which the Board was all atwitter.
None of us came close to passing, and yet, I had to admit in print (much to the dismay of the Board and its PR people), that I was less than impressed with the exam. Sure, it was hard; but anyone can create a test that’s not easy to pass (e.g.—with apologies to Monty Python—What’s the average air speed velocity of an African swallow?)
My concern was that the exam appeared to be almost entirely based on the rote memorization of arcane facts (which could easily have been looked up, even before Google), to the exclusion of things that would have made me feel better to know that my financial planner knew—such as how to create a well-allocated investment portfolio, or the size of the nest egg I’m going to need when I’m 70.
I was reminded of my exam experience when I read Jamie Green’s August 20 story— CFP Board Floats Big Increase in CE Hours—about the Board’s proposed increase in its continuing education requirement .
It seems that the Board wants to beef up the CE requirements for CFPs, by among other things, increasing the biennial total from 30 hours to 40 hours, allowing four of those hours to include practice management topics,and upping the ethics requirement from two to four hours. The question in my mind is whether this additional “education” will actually make anyone a better financial planner, or if the Board is once again playing politics, this time by jumping on the increased regulation bandwagon that our leaders in Washington, D.C. assure us will prevent the abuses that lead to the recent financial meltdown.
For instance, increased ethics education? Really? Does anybody (even on the CFP Board) really believe that with two more hours of learning about ethics Bernie Madoff or Judith Zabalaoui would have spared investors billions in losses? Do we really think that CFPs don’t understand their ethical obligations, even under the Board’s convoluted standard? Maybe it’s just me, but perhaps the investing public (whom the Board purports to protect) and CFPs themselves would be better served if the Board were to adopt an ethical standard more closely aligned to that of the ’40 Act (which many CFPs are already subject to), rather than the watered down fiduciary standard it currently uses, which raises more questions than it answers.
As for the increase from 30 to 40 hours, I imagine it reflects both the greater increase in the complexity of financial products and strategies, combined with the inclusion of practice management education. The addition of practice management education in the CE program is long overdue. Running an efficient and profitable practice is indeed client-centered: It not only increases the likelihood of good client service, it decreases the motivation for unscrupulous activities.
Of course, this could have been accomplished by simply adding “the planning, development and management of a CFP professional’s business operations, office management, business model design, budgeting processes and leadership” to the list of topics currently approved for CE credit. And the Board’s typically convoluted explanation sheds little light on its more complicated solution: the CE requirement for CFPs has remained “largely unchanged from its introduction in the 1990s.” Meaning what? That education simply should be increased over time? (Need I point out that, for instance, both undergraduate and medical school requirements have been fixed at four years for more than a century?)
CFPs will have to decide for themselves whether being thrown the bone of practice management is worth the 33% increase in CE hours: Comments may be sent to the Board by e-mail or by regular mail to Michelle Warholic of the Board at 1425 K St., NW #500, in Washington, DC 20005.
With FINRA poised to assume regulation of independent investment advisors, it seems like an inauspicious time to be increasing the burden on financial planners.