More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- 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.
Why are things involving the CFP Board rarely simple?
Case in point: the already much-covered forced resignation of former Board chairman Alan Goldfarb, who was sanctioned by the Board for improperly describing himself as “fee-only” on the FPA’s planner search site (see my ThinkAdvisor blogs of June 12, June 19, Aug. 28 and Sep. 11). As if that case wasn’t complex enough already—involving issues around the definition of ‘fee-only,’ ‘salary compensation,’ ownership in a ‘related party,’ and apparently, the first-ever public sanction of a CFP for a “fee-only” disclosure infraction.
Now, it turns out that the Board only was made aware of Goldfarb’s self-description by another planning firm that was facing a “fee-only” sanction as well, which availed itself of the age-old tactic that the best defense is a good attack on one’s accusers. This latest revelation raises new questions about rushing to judgment, the definition of a "related party," the Board’s right to regulate its own designation, and one of my personal favorites, doing the right thing for the wrong reasons.
It all started back in March 2011, when the CFP Board received a “complaint” about Camarda Wealth Advisory Group, in Fleming Island, Fla., owned by CFPs Jeff and Kimberly Camarda. It seems that the Camardas also own an insurance agency—Camarda Consultants—and yet describe their wealth management firm as “fee-only” in their client disclosures.
When they were informed of the Board’s investigation and its intention to sanction them for “misusing the term fee-only,” the Camardas reportedly went on the offensive. First, they filed a lawsuit in Florida state court to block the release of their sanction letter, and then filed a suit in Federal court in Washington, D.C. to challenge the Board’s sanction, described in a statement as: “an unfair and capricious process, one that was initiated on an anonymous, groundless, unsigned complaint that was not even investigated by CFP Board.”
But the Camardas didn’t stop there. They also did “some research on Google and provided specific examples of inconsistencies we found, and used these to demonstrate to staff what we thought was wrong with the system…We did not file official complaints against any [discipline and ethics committee members] or Board members…We never had any desire to see anyone disciplined.”
Perhaps not, but the Board, it seems, didn’t see it that way. Apparently, the Camardas’ “research” involved the way CFP Board members described their own compensation, including Alan Goldfarb and two members of the Discipline and Ethics Committee.
In a September 12 story on financialplanning.com, Ann Marsh quotes Sally Hurme, a member of the CFP Board’s disciplinary and ethics panel: “The Camardas case and the Goldfarb case were intermingled. Their case brought up the issue of the Goldfarb case.” All three of the Board members were forced to resign. The Board has yet to take any action against the Camardas, presumably due to the pending suit. Spokesman Dan Drummond will only say that the Board can’t comment on ongoing litigation, but that the Camardas’ suit is “without merit.”
In their suit, the Camardas’ defense seems to be that their wealth management firm and insurance agency are separate corporations, and therefore the wealth management firm can be described as “fee-only,” even if the insurance firm charges commissions. Consequently, they take issue with the CFP Board decision that the two firms are “functionally one entity.” Yet, as Ms. Marsh reports: “both Camardas have titles in each firm,” and, presumably, they both own both firms—and refer clients back and forth.
Frankly, I gotta go with the CFP Board on this one. If those two firms aren’t related parties, I don’t know what would be. To my mind, this is the epitome of “related parties.” In fact, all insurance agencies and affiliated BDs are separate companies. The Camardas’ position is exactly the “two-hat” defense that some brokers and financial planners have confused clients with for years. To its great credit, the CFP Board is finally trying to do something about it.
At the same time, it’s a tragedy that Alan Goldfarb and the other two Board members got caught in the crossfire of trying to do the right thing. For almost three decades, one of the CFP Board’s weaknesses has been an institutional fear of legal challenges. At first, it was based on insecurity about its ownership of the CFP mark. Now, it’s seems to be a fear of skeletons in its own closet that are causing ill-conceived reactions to situations such as Goldfarb.
Wouldn’t it have been better to simply warn the Goldfarbs and the Camardas of the CFP world to stop calling themselves fee-only? Then, if they failed to do so, would such a draconian remedy as a public sanction seem warranted. But the bigger issue is the if the CFP Board really wants to be the regulator of all things financial planning (as it tried to become during the Dodd-Frank Act negotiations), it’s going to have to get over its insecurity of appearances, and simply focus on doing the right thing: by CFPs as well as the public.