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.
I don’t mean to pile on the CFP Board, I really don’t. As I’ve written in my blogs over the past couple of months or so, the Board has been doing some very good work of late: sending to the SEC (along with its FP Coalition partners, the FPA and NAPFA) an excellent defense of a true fiduciary standard for brokers, and enforcing its definition of “fee-only” (the strictest in the industry), in actions against three of its own officers, and Camarda Wealth Advisory (which responded by filling a lawsuit).
I know the Board is trying to the right thing—and making some tough calls to do it. But why do they have to do it in such an amateurish way? It only provides fuel to their critics, and makes things harder for their supporters.
In last week’s blog, I wrote about the new revelation that the reason the Board sanctioned and forced three of its Board members to resign (including chairman Alan Goldfarb) was that part of the Camardas' response to its investigation was to accuse them of also inaccurately describing themselves as “fee-only.” This also explained why Goldfarb received the Board’s public sanction: so that it could be used in defense of the Camarda’s charges of “unfair treatment.”
But that’s the old news. Now the fourth (or is it the fifth?) shoe to drop comes from Ann Marsh reporting on FinancialPlanning.com's ongoing investigation of the Board’s “Find a CFP Practitioner” website. That Sep. 20 article revealed that there were some 486 CFP brokers from the four wirehouses who “call themselves fee-only on its website—in open violation of the board’s own rules for use of the term.” Now, in fairness, we should point out that the Board doesn’t actively police CFPs, it only investigates complaints by third parties (or piles on, I mean, follows up on action by other regulators). But clearly obvious violations on its own website? Really?
But wait: there’s more. In response to this, shall we say, troubling revelation, what does the Board do? Quietly send a letter to the offending brokers, including its prohibition against employees of commission-charging entities from calling themselves “fee-only,” and asking them to reconsider their disclosures or face further action? Oh, no: that would make too much sense. Instead, the Board changed the “compensation” line of every CFP on its website who chose “fee-only” to “did not provide,” as if they didn’t want to reveal what their method of compensation is—and then sent a letter to all CFPs who claim to be fee-only on their site, along with the standards for doing so.
Here’s how the Board’s release explained its action: “Earlier today, CFP Board sent a communication from Michael Shaw, Managing Director of Professional Standards and Legal, to more than 8,000 CFP® professionals who have selected “fee only” as their method of compensation on its “Find a CFP® Professional” search tools… …CFP Board recently became aware that the information contained in the “Find” search tool relating to some CFP® professionals’ compensation arrangement may be inconsistent with CFP Board’s compensation disclosure rules...We noted that if it comes to our attention, subsequent to the opportunity to fully understand and comply with our rules, that a CFP® professional is misrepresenting his or her compensation, the matter will be referred to our enforcement process.”
I know, you just can’t make this up, right? 8,000 CFPs de facto assumed to be inaccurately describing their compensation status and given time to “come clean” and correct the situation? The number of questions this raises would fill a book. But I’ll ask only one: Was Alan Goldfarb given a chance to reconsider his compensation selection? How about the other two Board members? The Camardas? (Okay, it was three questions.)
Is it just me, or has this whole fee-only police thing gotten entirely out of hand? Note to the CFP Board: If you want to be the regulator of financial planners you have to be both fair and even-handed. What’s more, like both the SEC and FINRA, you have to recognize that not all infractions of your rules are hanging offenses: some warrant fines, other (like Bernie Madoff) warrant jail time and still others only require a warning to cease and desist.
CFPs who mislabel themselves as “fee-only” clearly fall into the latter category. A public sanction should be the last resort, not the first step. So lighten up, guys. Oh, and while you can’t undo the damage your over-reaction has caused, you owe Alan Goldfarb and the other two Board members an apology.