More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- 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.
First, let me offer my condolences to former CFP Board chairman Alan Goldfarb and the other two (undisclosed) members of Board’s Disciplinary and Ethics Commission who resigned last Friday after a “special committee” found “sufficient merit” in the also undisclosed allegations against them “to refer them for further proceedings” under the Board’s disciplinary rules (see Melanie Waddell’s Nov. 12 article for AdvisorOne: “Shake-Up at CFP Board”).
It’s a lamentable way to end a public career of service that culminated at what some would call the top of the financial planning profession. To their credit—and like former NAPFA chairman Ron Rhoades—the accused advisors voluntarily left their positions so as not to further tarnish the Board, the CFP mark and the planning profession.
Is there a lesson here? Who knows? Unlike Mr. Rhoades, who resigned over an inconsequential disclosure delay which he himself brought to light, Mr. Goldfarb et al.’s infractions remain a mystery due to the Board’s medieval closed door disciplinary proceedings. That disciplinary process doesn’t merely invite, but seemingly begs for speculation, which is damaging both to the reputations of the accused and to the credibility of the CFP Board itself.
Personally, I have little sympathy for Board under the theory that any failure to disclose can easily be construed to signal a coverup of the worst possible behavior on the part of those refusing to disclose: anything less would only enable the non-discloser.
Here’s how Board CEO Kevin Keller explained the situation in an email to Ms. Waddell: “Because of [the Disciplinary Rules and Procedures] confidentiality provision, CFP Board cannot disclose details related to allegations against CFP professionals,” adding that “if a public sanction is warranted, it will be made public once the process is complete.”
So let me get this straight: the charges in question can’t be disclosed by the Board because the Board says that such charges can’t be disclosed, and they’ll be made public when and if the Board makes them public. In Mr. Keller’s defense, this kind of double talk does seem to be all the rage in Washington, D.C. these days. Still, I can’t help but think that the financial planning profession—not to mention the inside-the-Beltway perception many of us have about the CFP Board—might benefit from appearing less as if the Board is simply hiding its dirty laundry under a rug (sorry for the mixed metaphor).
Here’s a crazy idea: maybe the Board could adopt a system similar to the one that emerged in Europe during the 18th century. Disciplinary proceedings could be held out in the open, with the charges clearly stated, some evidence of the same and finally a decision made. Oh, all of which is publicly recorded and published so that other members of the profession—and the public—can benefit from knowing exactly what kind of behavior is and isn’t tolerated in a CFP. Just a thought.
Still, just when I start to wonder whether a profession of financial advisors couldn’t be in worse hands, The American College of Financial Services wades into the fray. Apparently not content to watch the CFP Board stumbling over its own tail, Dr. Larry Barton, president & CEO of The College, felt compelled to issue a “special message”: “This is a very sad day for our friends at The CFP Board of Standards,” he wrote. “…These are serious allegations, of course, and we hope that our profession is not damaged by the charges behind them… …This should be a time for all of us to reflect on how the various organizations that support financial professionals can support one another in a meaningful manner.”
This, of course, is exactly the kind of “support” the CFP Board encourages through its lack of disclosure of any facts: “These are very serious allegations.” Are they? As far as I know, Mr. Goldfarb and the other two board members may have committed the heinous infraction of leaving the registered trademark “R” off the CFP on their business cards. And this from the organization whose competing, but failing, Chartered Financial Consultant (ChFC) mark was magnanimously grandfathered in by none other than the CFP Board. That won’t stop every financial salesperson (not that there’s anything wrong with that) from here to Kalamazoo from inferring that financial planners are a bunch of crooks, from the top on down. (I would like to personally congratulate Dr. Barton for finally endorsing a ’40 Act fiduciary standard for insurance agents and registered reps of insurance BDs, when he wrote: “…we should always put the interests of our clients above out own.”)
If the CFP Board truly wants to be the regulatory body of the financial planning profession (as it lobbied for during the writing of the Dodd-Frank Act), it needs to introduce some transparency into its bureaucracy, so CFPs and the public alike can see that they are, in fact, being protected. Such transparency could also allow Alan Goldfarb and the others accused to have their good names cleared—or not—from what he described as “a misunderstanding.”