More On Legal & Compliancefrom The Advisor's Professional Library
- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
- 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.
It was an unexpected—and shocking—announcement: After acknowledging what looked to be violations of the Certified Financial Planner Board’s “Standards of Professional Conduct,” Alan Goldfarb, chair of the CFP Board’s board of directors, resigned in early November along with two members of the Board’s Disciplinary and Ethics Commission (DEC).
While the news has shaken the CFP Board community, industry officials and some of Goldfarb’s colleagues are vouching for his integrity. Still, questions remain in the CFP community as to why the alleged ethics violations—if not violations of criminal or civil laws—were referred to the DEC.
Upon hearing the news of Goldfarb’s resignation, William Dorriety, a CFP at Optimum Asset Management in Daphne, Ala., told me his reaction was: “Wow!” Dorriety, who serves as a CFP ambassador to the Gulf Coast region, said the news “makes you feel a bit uneasy,” and that he’s hoping the CFP Board “releases information in a timely manner that takes the idea of a civil or criminal” violation off the table.
CFP Board stated in a release announcing the resignation that it became aware of “broad allegations that members of the Board and other volunteers may have violated provisions of CFP Board’s ‘Standards of Professional Conduct.’” After hearing of the allegations, CFP Board said that its board of directors created a “special committee” made up of public Board members who have no ties to the financial services industry and retained outside counsel to investigate and report its findings directly to the committee.
The special committee, the CFP Board said, “found sufficient merit in the allegations against Mr. Goldfarb and the two members of the DEC to refer them for further proceedings under CFP Board’s ‘Disciplinary Rules and Procedures.’”
While Kevin Keller, CEO of CFP Board, told me in an email message that the matter regarding Goldfarb and the two DEC members “does not involve alleged violations of criminal or civil laws,” it’s important to note that the CFP Board doesn’t refer complaints of ethical misconduct to the nine-member DEC until it performs its own internal investigation of the said misconduct and, according to the Board, “determines there is probable cause to believe one or more of CFP Board’s ‘Rules of Conduct’ may have been violated.”
Keller said in his email message that the allegations “relate to possible violations of CFP Board’s ‘Standards of Professional Conduct.’ The matter has been referred to the DEC for further proceedings under our ‘Disciplinary Rules and Procedures.’ To be sure, no final determination has been made; if a public sanction is warranted, it will be made public once the process is complete.”
Keller added that “proceedings under CFP Board’s ‘Disciplinary Rules and Procedures’ are confidential, and because of that confidentiality provision, CFP Board cannot disclose details related to allegations against CFP professionals.”
But Katie McGee, director of marketing for Weaver Wealth Management, where Goldfarb is director of wealth advisory, told me that the CFP Board’s investigation is “over what we believe was a misunderstanding of how [Goldfarb’s] compensation was disclosed on the Financial Planning Association’s website.” Goldfarb’s resignation, McGee said, was “voluntary,” adding that the potential violation “doesn’t involve a client complaint.”
After being presented with the committee’s findings, Goldfarb and the two DEC members resigned from their positions during a special Oct. 31 meeting.
On the same day, Goldfarb sent a letter to the board of directors, CFP professionals and the public, stating, in part, that: “I am certain that this was a misunderstanding, and I welcome the opportunity to engage in good faith the CFP Board’s enforcement process consistent with its ‘Disciplinary Rules and Procedures.’”
Goldfarb is director of wealth advisory services for Weaver Wealth Management in Fort Worth, Texas, and co-author of the CFP Board’s standards and disciplinary rules. He added in his letter that: “As chair of CFP Board’s board of directors, it is my responsibility to put the interests of the organization ahead of my own. I believe that under the circumstances, it is best for the organization that I resign pending the outcome of the process as both chair and a member of the board of directors, effective immediately.”
Goldfarb did not respond to a request for comment by press time.
The 2012 Chair-elect, Nancy Kistner, was elected to fill the remainder of Goldfarb’s term. She will continue to chair the board of directors through Dec. 31, 2013.
Prominent members of the CFP community were quick to voice their reactions to the news. Harold Evensky, president of Evensky & Katz Wealth Management in Coral Gables, Fla., told me in an email message that while “the action the Board has taken is a painful but excellent example of a regulatory organization placing the interest of the public above its own short-term institutional interest,” it’s also “important for everyone to remember an accusation is not proof.”
Having known Goldfarb for decades, Evensky said he considers “him a friend and a respected practitioner. My opinion has not changed and will not unless and until there is substantive proof of a significant ethics violation. As for those ready to pillory Alan at this stage, what happened to ‘innocent until proven guilty?’”
While echoing Evensky’s sentiment that Goldfarb and the two DEC members are “innocent until proven guilty,” Larry Barton, president and CEO of the American College, called the allegations “serious” and said he hoped the planning “profession is not damaged by the charges.”
Barton went on to encourage the CFP Board, the Financial Planning Association and other industry groups to “reflect upon” the resignations and other “recent incidents” in the industry and get “back to basics.”
While the profession “should always place the interests of clients above our own,” Barton said, he believes “an independent, national body” should be set up to “review and certify designations based on rigor,” as “no single designation has a monopoly on quality.”
Indeed, a CFP certificant commenting on AdvisorOne.com noted that as the educational requirements for CFPs “become more detailed and cumbersome,” he wonders if “very many people are actually following the letter of the code.”
Another AdvisorOne.com reader signaled their belief that the allegations against Goldfarb and the two DEC members were “sufficient enough” for CFP Board CEO Keller to refer them to the DEC, while Ron Rhoades—who disclosed in late August that he had committed a compliance violation by failing to timely file registration papers with the State of Florida Division of Securities, and therefore could not serve as the 2012-13 chair of the National Association of Personal Financial Advisors (NAPFA)—said Goldfarb “is a man of honor.”
Having known Goldfarb for “several years,” Rhoades, associate professor of Alfred State College’s Financial Planning Program, said that he has “been a leader for decades in advancing financial planning as a profession.” While not knowing the facts or circumstances relating to the charges, Rhoades said that Goldfarb “no doubt felt it necessary to resign while this investigation was pending—for the good of the CFP Board and the profession.”
Lauren Locker, who replaced Rhoades as NAPFA chair and is a CFP who founded Locker Financial Services in Little Falls, N.J., agreed that until specific details are released, “it’s difficult to comment on the nature of the alleged misconduct.” She added that violations occur “along a spectrum of severity, from unlawful to non-compliance.”
Since the alleged actions, as stated by Keller, “don’t rise to a civil or criminal level, the CFP Board is doing the right thing by disclosing the matter up front for their certificants and associated groups to see,” Locker said. “By policing itself, the CFP Board is showing that it wants to be open and above-board in this matter.”