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.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
In the first part of this post, we discussed the allegations that rocked the CFP board and the facts as we know them thus far. We also noted many key details are still lacking.
So what are we to make of all of this as financial planners?
On the plus side, this incident is an affirmation that the CFP Board, unlike many other designations, has not just Standards of Professional Conduct, but an enforcement process to apply them and keep its house in order—and that, for the integrity of the organization, it's not afraid to enforce, even if it means ousting its own Board chair and members of its Disciplinary and Ethics Commission. And the CFP Board appears to have taken all the steps one would expect in handling a delicate internal matter appropriately, including the fact that the Board committee to look into the matter was comprised solely of independent board members and that the investigation was conducted by outside counsel, not CFP Board staff.
Nonetheless, the CFP Board has a long and mired history of debacles of varying sorts, along with a troubling lack of transparency. As I wrote in this blog just a few months ago, the CFP Board appears in recent years to be a changed organization from what it was in the past, under positive new leadership and with a newfound focus on rebuilding its trust deficit and moving forward. But when a potentially scandalous incident like this hits an organization, constituents have some fundamental questions that deserve to be answered: What happened? How did it become known? What are the details of how it was handled? Who was actually guilty of what? Were the penalties and consequences appropriate? And how will you make sure it doesn't happen again?
These questions are especially pertinent given the sensitive nature of the positions that were involved in this particular incident. This wasn't merely a resignation of a board member; it was the chair of the organization. And this wasn't merely the resignation of two miscellaneous volunteers; it was the resignation of two members of the Disciplinary and Ethics Commissions responsible for adjudicating the CFP Board's Standards of Professional Conduct in the first place. Thus, while it's positive that the CFP Board appears to be proactive in dealing with the issue, the fact that both Board leadership and DEC members were involved nonetheless raises troubling images of conspiracies, cover-ups, and something rotten in the enforcement and adjudication process at the CFP Board itself.
What's Next From Here?
Unfortunately, there isn't likely to be much information forthcoming for many months now, until the next meeting of the DEC in March.
The bottom line to me is that while I can appreciate that the CFP Board needs some time to complete its investigation and allow its process to operate, an incident like this demands transparency at its conclusion. The potential that the results will be made public if and only if the parties in question are found guilty and receive a public sanction is not sufficient; in point of fact, it's a finding of not guilty that will probably raise the most questions (queue the cover-up conspiracy theorists?), given the sensitive nature of the CFP Board positions being investigated.
Accordingly, I hope that the CFP Board will step forward with a commitment, now, to make public the allegations, the process of the investigation, the outcomes of that process, how the matter was adjudicated, and what steps are being taken to ensure it doesn't happen again, once the matter is brought to conclusion with the DEC. If there is a finding of guilt, then let it be known publicly (and/or simply take a Private Letter of Censure off the table as a potential sanction, given the nature of the roles of those involved in the allegation).
If there is a finding of not guilty, then let that too be known publicly (presumably those found innocent would not object to a public statement of their innocence?), and substantiate that finding as necessary to affirm that it was the conclusion of a fair process with integrity and not a conflicted coverup. Personally, I don't care if the names of the individuals involved are ever disclosed (although obviously Goldfarb's cannot be separated from the matter now, and any public sanction would bring the names of the DEC members to light as well); the point is not about who was accused or found guilty, but how the CFP Board as an institution maintains its integrity through allegations, investigations, and sanctions against its own leaders in crucial positions of responsibility.
As the saying goes, "Character is not made in a crisis, it is only exhibited." Let's hope the character of today's CFP Board really has turned a new leaf from its troubled past, and is capable of bringing a level of transparency to the process that allows it to maintain its integrity.
Please read Are CFP Board Leadership Resignations a Weakness or Strength? Pt. 1 at AdvisorOne.