More On Legal & Compliancefrom The Advisor's Professional Library
- Recent Changes in the Regulatory Landscape 2011 marked a major shift in the regulatory environment, as the SEC adopted rules for implementing the Dodd-Frank Act. Many changes to Investment Advisers Act were authorized by Title IV of the Dodd-Frank Act.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
On Friday, September 27, CFPs Jeffrey and Kimberly Camarda amended their federal lawsuit (in the Washington, D.C. Circuit) against the CFP Board, asking the Court to vacate the Board’s pending disciplinary action against them; to enjoin the Board from issuing a press release about it; and to award them actual and punitive damages, to be determined.
Their amended complaint states, in part, that the Camardas: “…have been injured, and continue to be injured, in their business, including injuries to their good reputation, good will, established business relationships, income, business designations and certifications, and current and future business relationships.”
Readers of this blog will remember the Camardas as the CFPs who, in defending themselves against a CFP Board sanction for inaccurately describing themselves as “fee-only,” pointed out that three Board members, including then-chairman Alan Goldfarb, had similar business situations while also claiming fee-only status—resulting in the resignations of all three.
The actual basis of the Camardas’ defense (as I understand it) is that although they wholly own both an RIA and an insurance agency, the RIA can rightly be described as “fee-only” because each firm was established as a separate corporation under Florida law, and therefore the Board was wrong to construe them as “functionally one organization,” which isn’t fee-only.
This is one of those cases that I personally have a hard time with: when the claims being made seem so patently ridiculous that my mind doesn’t want to take them seriously. Yet upon a thorough rereading of the complaint, the Camarda case may be more serious than it first appeared. It challenges both the CFP Board’s right to set its own standards for holders of the CFP designation and, by extension, the rights of any organization (NAPFA?) or regulatory body to hold that the “only” in “fee-only” extends to “related parties.”
Should the Board lose the suit, I fear that the term “fee-only” will lose its connotation for consumer-oriented, unbiased advice.
In a Sep. 29 release date, the Camardas, through Donald Hannaford of Hadron Media Group, described their suit this way: “We requested leave of Court to amend our complaint in the lawsuit to allege claims against the Board for breach of contract, unfair competition, and violations of the antitrust statute based upon what we believe are the Board's inappropriate and unjustified threats to sanction stemming from unwarranted accusations of misconduct against us.”
Strong stuff. The complaint itself contains equally strong language and allegations. However, despite all the legal bluster, the Camardas’ arguments in defense of their use of the “fee-only” description remains conspicuously thin. In a revealing section of their complaint, they contend: “…every current or prospective client of Camarda [Wealth Advisors] and/or Camarda Consultants [the brokerage agency] receives a written disclosure statement regarding the services provided by each separate entity and the compensation each entity might receive for its services. All prospective clients of Camarda Advisors and/or Camarda Consultants have been required to sign this statement.”
Maybe I’m missing something here, but this section appears to make it unavoidably clear that the RIA and the insurance agency were sharing clients. In another section, they maintain that the two firms “didn’t share revenues.” As if that mattered. There is no denial that the couple owns both companies, and sit on the boards of both.
It’s also telling that the Board’s own restriction against “fee-only” advisors affiliating or owning interests on commission-charging “related parties,” isn’t mentioned in their complaint except in a confusing reference to a CFP Board “pronouncement that its ‘fee-only’ definition specifically excluded ‘related parties.’”
With all that said, the CFP Board is right to take this lawsuit seriously. Courts have made favorable rulings on even flimsier evidence. Should the court find against the Board in this case, the consequences for the Board and for the advisory profession could be dramatic. In a final, ironic note, the Camardas’ complaint also reveals that following notice of the Board’s investigation, the Camardas “revised Camarda Advisors’ website to remove all reference to ‘fee-only,’” and also revised their ADV accordingly. It was only after “The CFP Board indicated its intentions to publish the Public Letter [of sanction] on the Internet and in local newspapers…” anyway, that the Camardas filed their suit.
I know; I won’t say it. Let’s just hope the Board hasn’t overplayed its hand.