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.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Edward Blake Mendez posted the following comment to my September 24 blog The Curious Case of the CFP Board and a Double-Dipping CFP:
What advice would you provide for someone who desires earning his CFP but does not want to associate with unethical behavior? How would you compromise the lofty CFP goals with the unvarnished reality?
These are questions that I suspect are on the minds of many CFPs—and prospective CFPs—these days, and have been for some time. I remember a conversation I had with a past FPA chairman nearly 10 years ago, in which he told me he was thinking of dropping his CFP credentials as the CFP Board was “becoming irrelevant to the advisory profession conversation.” [The CFP Board itself responded to the ‘Double-Dipping CFP’ case in my same blog, btw.}
As for Mr. Mendez’s question, it’s one I wrestle with myself. Generally, I tend to be a “change from the inside rather than outside the tent” kind of guy. It’s usually more effective to push for change from inside an organization rather than as an outside force. That’s especially true if a substantial number of other insiders are pushing along with you. For instance, after years of pushing, some of the more client-oriented CFPs were able to convince the Board to add “fiduciary language” into its code of ethics, even if it’s not as robust a fiduciary standard as some would like.
With that said, the bigger question seems to be what the CFP Board really wants to be when it grows up: an organization for professional financial advisors or a certifying body for securities salespeople? To confuse the issue even more, it’s not even clear (to me, anyway) whether the Board even can be a professional organization, given the challenges it faces with the current ranks of CFPs. At the top of that list is a conflict that the Board has neatly sidestepped since its creation in 1985: How can registered representatives (who are legally required to represent the best interests of their broker-dealers) also be required to put their clients’ interest first (let alone have a fiduciary duty) as CFPs? (A friend of mine who is a securities attorney recently told me that it can’t be done.) Of course, the Board, in its zeal to attract more CFPs to “regulate,” has turned a blind eye to this serious conflict of interest, thereby placing at least one of its feet deeply into the sales camp.
To my mind, the Board’s schizophrenia (and therefore that of all CFPs), stems from its historical focus on a process rather than a profession. As long as the Board sees its “mission” to promote the six-step process of financial planning, it will be inclined to welcome a wide range of financial folks including insurance agents, stockbrokers, tax preparers, and bank employees, all of whom have conflicts that are antithetical to an advisory profession. As its history has shown time and again, the Board’s “big tent” marketing approach has made writing—and enforcing—true professional standards virtually impossible.
While it’s still too early to call, the Dodd-Frank debate over broker/advisor regulation may have started the ball rolling for a true advisory profession made up of Registered Investment Advisors, with an unambiguous fiduciary standard and requirements to avoid or mitigate conflicts with their clients’ interests. If that happens, then the Board could go back to credentialing anyone who can fog a mirror, and truly professional advisors with, or without, a CFP would have a place to hang their hats.
But until that becomes a reality, client-centered advisors such as Mr. Mendez will have to content themselves with getting a CFP designation and pushing the Board from the inside, and possibly helping to create a more professional umbrella under which to practice comprehensive financial planning.